Posted on October 21, 2015 by iMFdirect
By Carlos Caceres, Yan Carrière-Swallow, and Bertrand Gruss
(Versions in Español and Português)
As the U.S. Federal Reserve prepares to raise policy rates for the first time in almost a decade, Latin America is in the midst of a sharp downturn with unemployment on the rise. In this context, many central banks across the region have kept interest rates low to support economic activity. But can monetary policy stay that way as global rates rise? What will the Fed liftoff imply for the region?
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Finance, Financial Crisis, Fiscal policy, growth, IMF, Inequality, International Monetary Fund, Latin America | Tagged: interest rates, Latin America, Mexico, monetary policy, Peru, Regional Economic Outlook: Western Hemisphere, spillovers, U.S. Federal Reserve, United States | Leave a comment »
Posted on October 7, 2015 by iMFdirect
by Vitor Gaspar
(Versions: عربي, 中文, Français, Русский, and Español)
The world economy is experiencing important transitions and associated uncertainties.
- Commodity prices have fallen sharply, with adverse consequences for exporting countries.
- China’s rebalancing and the prospect of U.S. interest rate increases are having important and costly spillover effects on other economies.
- And these and other factors are posing important fiscal challenges, especially for emerging markets.
Filed under: Advanced Economies, Annual Meetings, Asia, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Latin America, Public debt | Tagged: buffers, Chile, China, commodiity prices, emerging market, Fiscal Monitor, interest rates, Norway, Saudi Arabia, spillovers, U.S. interest rates, Venezuela | Leave a comment »
Posted on October 1, 2015 by iMFdirect
By Selim Elekdag and Gaston Gelos
Debt held by firms in emerging market economies in a currency other than their own poses extra complications these days. When the U.S. Fed does eventually raise interest rates, the accompanying further strengthening of the U.S. dollar will mean an emerging market’s own currency will depreciate against the higher value of the U.S. dollar, and would make it increasingly difficult for firms to service their foreign currency-denominated debts if they have not been properly hedged.
In the latest Global Financial Stability Report, we find that firms in emerging markets that have increased their debt-to-assets ratios have generally also increased their overall sensitivity to changes in the exchange rate—commonly called exchange-rate exposure.
Filed under: Annual Meetings, Economic outlook, Economic research, Emerging Markets, Finance, Fiscal policy, IMF, International Monetary Fund, Investment, Reform | Tagged: Africa, Asia, construction, emerging markets, Europe, exchange rate, foreign exchange, GFSR, Global Financial Stability Report, interest rates, Latin America, Middle East, monetary policy, U.S. Fed | Leave a comment »
Posted on July 13, 2015 by iMFdirect
By Yingyuan Chen, David Jones and Sanjay Hazarika
(Versions in 中文 and deutsch)
Global financial markets traditionally take their cue from the United States. Unexpected Fed rate hikes have unsettled global markets in the past. The entire global financial system threw a tantrum when then Fed Chairman Ben Bernanke merely suggested in May 2013 that the end to bond-buying and other policies could soon begin. However for the past year, the gears of global markets seem to have been thrown into reverse — it is German government bonds, known as Bunds, rather than U.S. bonds, known as Treasuries, that appear to be driving prices in global bond markets. This role reversal could add a new layer of complexity to investor calculations as they prepare for the beginning of Fed interest rate hikes, which are expected later in 2015. Also, as developments in Greece lead to rises and falls in Bund and Treasury yields, this is a trend worth keeping an eye on.
Filed under: Advanced Economies, Asia, Economic outlook, Economic research, Emerging Markets, Europe, Finance, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Reform | Tagged: bund, emerging market, European Central Bank, Germany, GFSR, Global Financial Stability Report, interest rates, Japan, U.S. Treasury, United States, US Federal Reserve | Leave a comment »
Posted on July 1, 2015 by iMFdirect
By Stefan Laseen, Andrea Pescatori, and Jarkko Turunen
Academics and policy-makers alike have long struggled with the question of whether to use monetary policy to dampen asset price booms – whether to “lean against the wind” or not. Can officials identify emerging asset price bubbles, what are the implications of bursting them, and is monetary policy the appropriate response to potential bubbles? These questions have become even more important to the policy debate in the wake of the global financial crisis, which was preceded by an unsustainable boom in sub-prime mortgage lending and housing prices.
Given over six years of near zero policy interest rates, should the U.S. Fed now use interest rates to lean against potential financial stability risks that may have built up?
Filed under: Advanced Economies, Economic outlook, Economic research, Employment, Finance, Financial Crisis, Fiscal policy, Government, growth, IMF, International Monetary Fund, Investment, Multilateral Cooperation, Politics | Tagged: Federal Reserve, financial risks, financial stability, inflation, interest rates, investment, macroprudential policy, U.S., U.S. Fed, United States | Leave a comment »
Posted on June 25, 2015 by iMFdirect
By Ali Alichi, Douglas Laxton, Jarkko Turunen, and Hou Wang
A few weeks ago, the Fund suggested that the Federal Reserve could defer its first increase in the policy rate until it sees greater signs of wage or price inflation, with a gradual increase in the federal funds rate thereafter. Such a monetary policy strategy could help avoid the “dark corners” in which, as Olivier Blanchard has argued, small shocks can have potentially large effects. In this blog and accompanying working paper, we expand upon this idea. We also outline the potential benefits of an expanded communications toolkit.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Financial Crisis, Fiscal policy, Government, growth, IMF, International Monetary Fund, Investment, Public debt | Tagged: Federal Reserve, global economic outlook, inflation, interest rates, jobs, U.S., U.S. Fed, U.S. interest rates, U.S. monetary policy, United States | 1 Comment »
Posted on June 2, 2015 by iMFdirect
By Jonathan D. Ostry and Atish R. Ghosh
Financial bailouts, stimulus spending, and lower revenues during the Great Recession have resulted in some of the highest public debt ratios seen in advanced economies in the past forty years. Recent debates have centered on the pace at which to pay down this debt, with few questions being asked about whether the debt needs to be paid down in the first place.
A radical solution for high debt is to do nothing at all—just live with it. Indeed, from a welfare economics perspective—abstracting from real world problems such as rollover risk—this would be optimal. We explore this issue in our recent work. While there are some countries where clearly debt needs to be brought down, there are others that are in a more comfortable position to fund themselves at exceptionally low interest rates, and that could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues).
Filed under: Advanced Economies, Debt Relief, Economic Crisis, Economic outlook, Economic research, Finance, Fiscal policy, IMF, International Monetary Fund, Public debt, recession | Tagged: bailout, budgets, debt, fiscal policies, Great Recession, interest rates | Leave a comment »