financial markets | iMFdirect

How To Make A Graceful Exit: The Potential Perils of Ending Extraordinary Central Bank Policies

Posted on April 11, 2013 by iMFdirect

This spring monetary policy is the talk of the town. It is everywhere you look, it’s unique, and you’ve never seen anything quite like it before: short-term interest rates at zero for several years running, and central bank balance sheets swelling with government bonds and other assets in the euro area Japan, the United Kingdom, and the United States.

But the meteoric rise of this once dusty topic can’t last. The end of these unconventional monetary policies will come and may pose threats to financial stability because of the length and breadth of their unprecedented reign. Policymakers should be alert to the risks and take gradual and predictable measures to address them.

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Filed under: Advanced Economies, Economic outlook, Economic research, Fiscal policy, International Monetary Fund, Investment | Tagged: banks, bonds, central banks, credit, financial markets, financial stability, Global Financial Stability Report, IMF, iMFdirect, interest rates, International Monetary Fund, Japan, monetary policy, policy, United Kingdom, United States | 1 Comment »

Make the Most of What You’ve Got: Small States in the Spotlight

Posted on April 1, 2013 by iMFdirect

By Min Zhu

The economies of small states have unique features. They have relatively higher costs, higher public spending needs, and more volatile economies. And their growth has not matched the improved economic performance of the rest of the world since the late 1990s, despite their many efforts over the years. We wanted a better grasp of why this is so we can better tailor our advice and support. Here is what we found.

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Filed under: Asia, Emerging Markets, growth, IMF, International Monetary Fund | Tagged: Caribbean, Climate change, development, financial markets, markets, Min Zhu, small states | Leave a Comment »

We May Have Avoided the Cliffs, But We Still Face High Mountains

Posted on January 23, 2013 by iMFdirect

by Olivier Blanchard

Version in Español and عربي

Optimism is in the air, particularly in financial markets. And some cautious optimism may indeed be justified.

Compared to where we were at the same time last year, acute risks have decreased. The United States has avoided the fiscal cliff, and the euro explosion in Europe did not occur. And uncertainty is lower.

But we should be under no illusion. There remain considerable challenges ahead. And the recovery continues to be slow, indeed much too slow.

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Europe, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: banking union, Brazil, capital flows, China, debt, developing economies, emerging economies, euro area, Europe, European Central Bank, financial markets, fiscal cliff, fiscal consolidation, fiscal crisis, fiscal policy, France, Germany, government bonds, government debt and deficits, growth, IMF, iMFdirect, India, inflation, International Monetary Fund, Italy, Japan, Outright Monetary Transactions, Spain, United States, WEO, World Economic Outlook | 5 Comments »

The Ties That Bond Us: What Demand For Government Debt Can Tell Us About the Risks Ahead

Posted on January 17, 2013 by iMFdirect

by Serkan Arslanalp and Takahiro Tsuda

It’s not news that emerging markets can be vulnerable to bouts of market volatility. Investors often pull sudden stops—they stop buying or start selling off their holdings of government bonds.

But what has become apparent in recent years is that advanced economy government bond markets can also experience investor outflows, and associated runs. At the same time, some traditional and new safe haven countries have seen their borrowing costs drop to historic lows as they experience rising inflows from foreign investors.

Our new research shows that advanced economies’ exposure to refinancing risk and changes in government borrowing costs depend mainly on who is holding the bonds— the demand side for government debt.

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Filed under: Advanced Economies, Asia, Emerging Markets, Europe, Finance, Financial Crisis, Financial regulation, Financial sector supervision, G-20, growth, IMF, International Monetary Fund | Tagged: advanced economies emerging economies, Australia, Austria, banks, Belgium, borrowing costs, Canada, debt, debt-to-GDP ratio, demand, Denmark, financial institutions, financial markets, Finland, France, Germany, government bonds, Greece, IMF, iMFdirect, International Monetary Fund, investors, Ireland, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Portugal, refinancing risk, risk, Slovenia, sovereign risk, Spain, supply, Sweden, Switzerland, United States, World Economic Outlook | 4 Comments »

Time Not On Our Side: Tough Decisions Needed to Strengthen Financial Stability

Posted on October 10, 2012 by iMFdirect

By José Viñals

(Versions in عربي, 中文, Español, Français, Русский, 日本語)

Recent policy actions in Europe, the United States, in emerging markets, and here in Japan, where I’m attending the IMF-World Bank annual meetings, have improved investor sentiment and helped markets rebound in recent months.

Yet our latest assessment is that confidence is still very fragile and risks have increased, when compared to the IMF’s last report in April. Policymakers need to do more to gain lasting stability.

The principal risk remains the euro area. The forces of financial and economic fragmentation have widened the divide between countries at the core and the “periphery” of the euro zone. Faltering confidence and policy uncertainty have led to a pullback of cross-border private capital flows from the periphery—quite an extraordinary phenomenon within a currency union.

This has driven up funding costs to governments and banks, as well as for companies and households, and, in turn, threatening a vicious downward economic spiral.

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Filed under: Advanced Economies, Annual Meetings, Asia, Economic Crisis, Economic research, Emerging Markets, Europe, Finance, Financial Crisis, Financial regulation, Globalization, IMF, International Monetary Fund, Politics, Public debt | Tagged: Asia, bank assets, banking union, banks, corporate bonds, cross-border capital flows, currency union, debt ceiling, eastern Europe, emerging economies, emerging markets, Europe, European Banking Authority, European Central Bank, European Stabilization Mechanism, financial markets, fiscal cliff, fiscal policy, Global Financial Stability Report, government bonds, governments, IIMF, interest rates, International Monetary Fund, investors, Japan, Latin America, macroprudential, monetary policy, risk premia, United States | 3 Comments »

Not Making the Grade: Report Card on Global Financial Reform

Posted on September 28, 2012 by iMFdirect

by Laura Kodres

Despite a host of reforms in the right direction, the financial structures that were in place before the global crisis have not actually changed that much, and they need to if the global financial system is to become a safer place.

Although the intentions of policymakers are clear and positive, the system remains precarious.

Our new study presents an interim report card on progress toward a safer financial system. Overall, there is still a long way to go.

How we measure progress

In our study, we first tried to pay attention to those features of financial systems related to the crisis—the large dominant, highly interconnected institutions, the heavy role of nonbanks, and the development of complex financial products for instance—features that need to be addressed in some way.

To do this we needed to construct measures of these features in a way that would allow us to gauge how well the reforms are working toward changing them. We looked at a lot of data, but we focus on three types of features.

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Filed under: Advanced Economies, Economic Crisis, Finance, Financial Crisis, Financial regulation, Financial sector supervision, growth, IMF, International Monetary Fund | Tagged: Bank of Japan, banks, Basel III, European Central Bank, Federal Reserve, financial crisis, financial institutions, financial markets, financial reform, Financial regulation, Globalization, government bonds, grwoth, IMF, International Monetary Fund, Japan, Laura Kodres, nonbanks, policymakers, too important to fail, United Kingdom, United States, Vickers Commission, Volker Rule | 11 Comments »

U.S. Fiscal Policy: Avoiding Self-Inflicted Wounds

Posted on August 8, 2012 by iMFdirect

by Gian Maria Milesi-Ferretti

(Version in Español)

The United States and much of the world economy are still recovering from the devastating global recession that began in 2008. Sometimes crises happen that we cannot foresee or avoid.

But for the U.S. economy, serious risks could come at the end of this year from two potential self-inflicted wounds: the so-called “fiscal cliff” and the debt ceiling.

Let’s start with the fiscal cliff. In simple terms: if U.S. policymakers do nothing, a number of temporary tax cuts will expire and significant across-the-board spending reductions will kick in on January 1, 2013. The combined effect of these measures could result in a huge fiscal contraction, which would derail the economic recovery.

Why is this happening?

The payroll tax break, the Bush tax cuts (enacted in 2001 and 2003, and extended for two years at the end of 2010), as well as exemptions on the Alternative Minimum Tax are set to expire on January 1, 2013.

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Filed under: Advanced Economies, Economic Crisis, Employment, Financial Crisis, Fiscal policy, growth, International Monetary Fund, Investment, Politics, Public debt, recession | Tagged: Bush tax cuts, Congress, debt ceiling, deficit, economic growth, economic recovery, federal government, financial markets, fiscal cliff, fiscal policy, Gian Maria Milesi-Ferretti, IMF, iMFdirect, iMFdirect blog, taxes, unemployment, United States | 5 Comments »

Signs of Fiscal Progress: Will It Be Enough?

Posted on July 18, 2012 by iMFdirect

By Carlo Cottarelli

(Versions in عربي, 中文, Español, Français, Русский, 日本語)

We’ve just updated our latest assessment of the state of government finances, debts, and deficits in advanced and emerging economies.

Fiscal adjustment is continuing in the advanced economies at a speed that is broadly appropriate, and roughly what we projected three months ago. In emerging economies there’s a pause in fiscal adjustment this year and next, but this too is generally appropriate, given that many of these countries have low debt and deficits.

The improvement in fiscal conditions in many advanced economies is welcome, but it’s going to take more than lower deficits to get countries under market pressure out of the crosshairs.
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Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Employment, Europe, Fiscal policy, Fiscal Stimulus, growth, IMF, International Monetary Fund, Public debt | Tagged: advanced economies, debt ratio, debts, deficits, emerging economies, Europe, financial markets, fiscal adjustment, fiscal cliff, France, government finances, growth, IMF, International Monetary Fund, Italy, Spain, tax policy, United States | 3 Comments »

Risks to Financial Stability Increase, Bold Action Needed

Posted on July 17, 2012 by iMFdirect

By José Viñals

(Versions in عربي, 中文, Español, Français, Русский, 日本語)

Our latest update of the Global Financial Stability Report has three key messages.

First, financial stability risks have increased, because of escalating funding and market pressures and a weak growth outlook.

Second, the measures agreed at the recent European leaders’ summit provide significant steps to address the immediate crisis, but more is needed. Timely implementation and further progress on banking and fiscal unions must be a priority.

And third, time is running out. Now is the moment for strong political leadership, because tough decisions will need to be made to restore confidence and ensure lasting financial stability in both advanced and emerging economies. It is time for action.

Now, why have financial stability risks increased?

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Filed under: Advanced Economies, Europe, Financial Crisis, IMF, International Monetary Fund | Tagged: advanced economies, balance sheets, banks, capital flows, debt, emerging economies, euro zone, European Central Bank, European Stability Mechanism, financial markets, financial stability, fiscal consolidation, fiscal policy, GFSR, Global Financial Stability Report, growth, IMF, International Monetary Fund, Italy, lending, monetary policy, safe assets, Spain, United States | 3 Comments »

World Faces Weak Economic Recovery

Posted on July 16, 2012 by iMFdirect

By Olivier Blanchard

(Versions in عربي, 中文, Español, Français, Русский, 日本語)

The global recovery continues, but the recovery is weak; indeed a bit weaker than we forecast in April.

In the Euro zone, growth is close to zero, reflecting positive but low growth in the core countries, and negative growth in most periphery countries. In the United States, growth is positive, but too low to make a serious dent to unemployment.

Growth has also slowed in major emerging economies, from China to India and Brazil.

Downside risks, coming primarily from Europe, have increased.

Let me develop these themes in turn.

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, Europe, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: bank recapitalization, banks, Brazil, capital flows, China, economic policy, economic recovery, euro zone, Europe, exproters, financial markets, fiscal cliff, fiscal consolidation, France, Germany, government debts and deficits, growth, housing, IMF, iMFdirect blog, India, International Monetary Fund, Italy, loans, non-performing loans, Olivier Blanchard, Spain, structural reforms, unemployment, United States, WEO, World Economic Outlook | 10 Comments »

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How To Make A Graceful Exit: The Potential Perils of Ending Extraordinary Central Bank Policies

Make the Most of What You’ve Got: Small States in the Spotlight

We May Have Avoided the Cliffs, But We Still Face High Mountains

The Ties That Bond Us: What Demand For Government Debt Can Tell Us About the Risks Ahead

Time Not On Our Side: Tough Decisions Needed to Strengthen Financial Stability

Not Making the Grade: Report Card on Global Financial Reform

U.S. Fiscal Policy: Avoiding Self-Inflicted Wounds

Signs of Fiscal Progress: Will It Be Enough?

Risks to Financial Stability Increase, Bold Action Needed

World Faces Weak Economic Recovery

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