The steep rise in US interest rates that started in 2022 led many observers to anticipate severe difficulties for emerging market economies (EMEs). Unlike after the Volcker disinflation of the early 1980s or the bond market turmoil of 1994, however, most EMEs weathered the Fed's monetary...

Modern analysis of the welfare effects of monetary policy is based on moneyless models and therefore ignores the effect of inflation on the efficiency of transactions. A justification for this strategy is that these welfare effects are quantitatively very small, as argued by Ireland (2009). We...