Posted on May 20, 2015 by iMFdirect
By José Viñals
Financial market liquidity can be fleeting. The ability to trade in assets of any size, at any time and to find a ready buyer is not a given. As discussed in some detail last fall in this blog, a number of factors, including the evolving structure of financial markets and some regulations appear to have pushed liquidity into a new realm: markets look susceptible to episodes of high price volatility where liquidity suddenly vanishes.
In our April 2015 Global Financial Stability Report we identify a new aspect to the problem: asset price correlations have risen sharply in the last five years across all major asset classes (see figure). Continue reading
Filed under: Advanced Economies, Emerging Markets, Europe, Finance, IMF, International Monetary Fund | Tagged: bond markets, central banks, euro area, exchange rate, Financial regulation, GFSR, Global Financial Stability Report, Japan, market liquidity, market volatility, monetary policy, oil prices, swap lines, Switzerland, U.S. Fed, United States | Leave a comment »
Posted on February 12, 2015 by iMFdirect
By Nigel Chalk and Jarkko Turunen
The remarkable collapse in the price of oil—a key global price that has virtually halved in the space of just a few months—has received a lot of attention lately.
Meanwhile, another significant shift has taken place in recent months that is just as surprising and has wide-reaching global implications—the dramatic drop in long-term U.S. Treasury bond yields. The last time we saw 10-year Treasury bond yields this low was in early May 2013. As many will remember, this didn’t last long and when it corrected, it set off a burst of volatility across emerging markets.
Filed under: Advanced Economies, Economic Crisis, Economic research, Emerging Markets, Finance, Fiscal policy, growth, IMF, International Monetary Fund, Investment | Tagged: bond yields, emerging market, inflation, interest rates, market volatility, oil prices, U.S., U.S. Federal Reserve, United States | Leave a comment »
Posted on December 9, 2014 by iMFdirect
By Ratna Sahay and Preya Sharma
You may hear a sigh of relief from emerging market watchers as we approach the end of the year. Yet, against the backdrop of a prolonged period of low interest rates in advanced economies, huge capital flows, and a slowdown in emerging market growth, 2015 promises to keep us all on our toes. Differences in the timing of exit from unconventional monetary policy in advanced economies will have a global impact. The IMF has been keeping a close eye on developments in emerging markets, providing analysis on issues such as how investors’ differentiate between emerging market countries, the impact of volatile markets, and the factors explaining the slowdown in growth.
In a recent paper, we take a look back at what happened before and during the tapering episode to draw out the key lessons for policymakers. Past experience is clear: decisions by major central banks can have sizable global spillovers. Announcements by the U.S. Federal Reserve, in particular, have been strongly correlated with asset price volatility and capital flows in emerging markets. With expectations of Fed tightening to begin in 2015, we think a better understanding of these events can better inform policymakers’ decisions.
Filed under: Advanced Economies, Economic research, Emerging Markets, Financial Crisis, Government, growth, IMF, International Monetary Fund, Politics | Tagged: capital flows, central banks, emerging market, financial market, liquidity, market volatility, monetary policy, U.S. Fed, unconventional monetary policy | Leave a comment »
Posted on September 13, 2011 by iMFdirect
By Erik Oppers
What drives the investment decisions of investors with a longer time horizon? Our research found these investors generally do not look at differences in interest rates among countries when deciding where to invest.
It turns out the factors they do consider in making these decisions are good and stable growth prospects, low country risks—including political and economic stability—and a stable exchange rate. This all makes good sense for long-term investors such as pension funds and insurance companies.
So why all this talk about how low interest rates in advanced economies are “pushing” investment flows to emerging countries, where interest rates are generally higher—is this story wrong? Continue reading
Filed under: Advanced Economies, Emerging Markets, IMF, International Monetary Fund | Tagged: advanced economies, capital flows, carry traders, economic growth, emerging economies, exchange rates, Global Financial Stability Report, hedge funds, institutional investors, insurance companies, interest rates, investors, leveraged investors, market volatility, pension funds, portfolio returns, risks | 2 Comments »