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IMF — World Economic Outlook Update — January 2015

January 22, 2015 Comments off

World Economic Outlook Update — January 2015
Source: International Monetary Fund

+ Global growth will receive a boost from lower oil prices, which reflect to an important extent higher supply. But this boost is projected to be more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies.

+ Global growth in 2015–16 is projected at 3.5 and 3.7 percent, downward revisions of 0.3 percent relative to the October 2014 World Economic Outlook (WEO). The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices. The United States is the only major economy for which growth projections have been raised.

+ The distribution of risks to global growth is more balanced than in October. The main upside risk is a greater boost from lower oil prices, although there is uncertainty about the persistence of the oil supply shock. Downside risks relate to shifts in sentiment and volatility in global financial markets, especially in emerging market economies, where lower oil prices have introduced external and balance sheet vulnerabilities in oil exporters. Stagnation and low inflation are still concerns in the euro area and in Japan.

Shedding Light on Shadow Banking

January 20, 2015 Comments off

Shedding Light on Shadow Banking
Source: International Monetary Fund

In this paper, we develop an alternative approach to estimate the size of the shadow banking system, using official data reported to the IMF complemented by other data sources. We base our alternative approach on the expansion of the noncore liabilities concept developed in recent literature to encompass all noncore liabilities of both bank and nonbank financial institutions. As opposed to existing measures of shadow banking, our newly developed measures capture nontraditional funding raised by traditional banks. We apply the new approach to 26 jurisdictions and analyze the results over a twelve-year span. We find that noncore liabilities are procyclical and display more volatility than core liabilities for most jurisdictions in the sample. We also compare our measures to existing measures, such as the measure developed by the Financial Stability Board. Our approach can be replicated over time using internationally-comparable data and thus may serve as an operational tool for IMF surveillance and policy analysis.

Identifying Speculative Bubbles: A Two-Pillar Surveillance Framework

December 10, 2014 Comments off

Identifying Speculative Bubbles: A Two-Pillar Surveillance Framework
Source: International Monetary Fund

In the aftermath of the global financial crisis, the issue of how best to identify speculative asset bubbles (in real-time) remains in flux. This owes to the difficulty of disentangling irrational investor exuberance from the rational response to lower risk based on price behavior alone. In response, I introduce a two-pillar (price and quantity) approach for financial market surveillance. The intuition is straightforward: while asset pricing models comprise a valuable component of the surveillance toolkit, risk taking behavior, and financial vulnerabilities more generally, can also be reflected in subtler, non-price terms. The framework appears to capture stylized facts of asset booms and busts—some of the largest in history have been associated with below average risk premia (captured by the ‘pricing pillar’) and unusually elevated patterns of issuance, trading volumes, fund flows, and survey-based return projections (reflected in the ‘quantities pillar’). Based on a comparison to past boom-bust episodes, the approach is signaling mounting vulnerabilities in risky U.S. credit markets. Policy makers and regulators should be attune to any further deterioration in issuance quality, and where possible, take steps to ensure the post-crisis financial infrastructure is braced to accommodate a re-pricing in credit risk.

Global Financial Stability Report: A Report by the Monetary and Capital Markets Department on Market Developments and Issues (Last Updated Wednesday October 08, 2014)

October 9, 2014 Comments off

Global Financial Stability Report: A Report by the Monetary and Capital Markets Department on Market Developments and Issues
Source: International Monetary Fund

The October 2014 Global Financial Stability Report (GFSR) finds that six years after the start of the crisis, the global economic recovery continues to rely heavily on accommodative monetary policies in advanced economies. Monetary accommodation remains critical in supporting the economy by encouraging economic risk taking in the form of increased real spending by households and greater willingness to invest and hire by businesses. However, prolonged monetary ease may also encourage excessive financial risk taking.

Middle East Transitions: A Long, Hard Road

August 11, 2014 Comments off

Middle East Transitions: A Long, Hard Road
Source: International Monetary Fund

Since the onset of the Arab Spring, economic uncertainty in Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen (Arab Countries in Transition, ACTs) has slowed already sluggish growth; worsened unemployment, particularly of youth; undermined business confidence, affected tourist arrivals, and depressed domestic and foreign direct investment. Furthermore, political and social tensions have constrained reform efforts. Assessing policy options as presented in the voluminous literature on the Arab Spring and based on cross-country experience, this paper concludes that sustainable and inclusive growth calls for a two pronged approach: short term measures that revive growth momentum and partially allay popular concerns; complemented with efforts to adjust the public’s expectations and prepare the ground for structural reforms that will deliver the desired longer tem performance.

The IMF crisis and how to solve it

August 7, 2014 Comments off

The IMF crisis and how to solve it
Source: Oxford Economics

As the IMF approaches its 70th birthday, this extract from our July UK Economic Outlook investigates the Fund’s Greek programme, one of the most credibility-sapping in its history. We trace the IMF’s role in the programme from its stormy launch to misfiring implementation; the Fund’s half-hearted apology; and its early (and ongoing) attempts to draw lessons and revise its sovereign debt restructuring framework, which appear destined to deliver insufficient meaningful change. A transparency revolution is both necessary and feasible. It worked for central banks in the 1990s. Why not the Fund?

Debt, Growth and Natural Disasters: A Caribbean Trilogy

August 4, 2014 Comments off

Debt, Growth and Natural Disasters: A Caribbean Trilogy
Source: International Monetary Fund

This paper seeks to determine the effects that natural disasters have on per capita GDP and on the debt to GDP ratio in the Caribbean. Two types of natural disasters are studied –storms and floods– given their prevalence in the region, while considering the effects of both moderate and severe disasters. I use a vector autoregressive model with exogenous natural disasters shocks, in a panel of 12 Caribbean countries over a period of 40 years. The results show that both storms and floods have a negative effect on growth, and that debt increases with floods but not with storms. However, in a subsample I find that storms significantly increase debt in the short and long run. I also find weak evidence that debt relief contributes to ease the negative effects of storms on debt.

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