Central Banking Amid Shocks and Uncertainty in Developing Economies

Abstract

The article looks at modern policy challenges faced by typical central banks small, open, developing economies that don’t rely on resource exports, integrating Republic of Moldova as a representative case. These countries often operate under a complex set of typical structural weaknesses, such as ongoing current account deficits, a high degree of currency substitution, and fiscal constraints. The study relies on a qualitative approach to analyse the role and how a central bank, operating under an inflation-targeting regime, could develop its approach to capturing and responding to external shocks and conjunctural uncertainty. The analysis integrates synthesis of insights from economic evolution and historic evidence, highlighting the structural amplification of uncertainty through forces such as trade hyperglobalisation, climate-related shocks, demographic shifts, and more recent - de-globalisation. The study tries to bridge theoretical observations from economic uncertainty knowledge with real-world structural issues including questioning the heavy dependence on purely quantifiable risk models and argues for a broader, more flexible, conceptualisation of uncertainty. It also assesses the limitations of traditional monetary policy in highly externally -dependent settings, underlining the growing importance of adaptive strategies. The findings suggest that inflation-targeting regimes in developing economies in today’s environments need to evolve to account for broader horizons and multidimensional vulnerabilities. A strategic, longer-term orientation, effective coherent communication under uncertainty, institutional consolidation, and coordinated deployment of monetary, macroprudential, and foreign exchange instruments, as well as interplay with other state policies, emerge as essential pillars of resilient monetary governance. The paper concludes that a pragmatic, credibility-focused, and flexible approach – grounded in context-specific realities – is necessary for monetary authorities aiming to maintain macro- economic and macro-financial stability amid XXI century uncertainty. UDC: 336.711: 338.124.4(478); JEL: E52; E58; O23