Posted on October 15, 2014 by iMFdirect
By Fabio Cortes, David Jones and Evan Papageorgiou
Low interest rates and other central bank policies in the United States have sent investors looking for higher returns on their investments. Money is pouring into mutual funds and exchange-traded funds, which is fueling a mispricing of credit and a build-up of risks to liquidity in the markets—the ability to trade in assets of any size, at any time, and to find a ready buyer.
Mutual funds and exchange-trade funds are the largest owners of U.S. corporate and foreign bonds (Chart 1). This means they provide a lot of credit to grease the wheels of the financial system because they have taken investors’ money and lent it to corporates.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, growth, IMF, International Monetary Fund, Reform | Tagged: central bank, exchange-traded funds, Global Financial Stability Report, liquidity, liquidity mismatch, monetary policy, money market mutual funds, United States | Leave a comment »
Posted on October 8, 2014 by iMFdirect
By José Viñals
(Versions in Español, 中文)
I have three key messages for you today:
1. Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.
2. Banks are safer but may not be strong enough to vigorously support the recovery. And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability.
3. In order to address this new global imbalance, we must promote economic risk-taking by improving the transmission of monetary policy to the real economy. And we must address financial excesses through better micro- and macroprudential policies.
Filed under: Advanced Economies, Asia, Emerging Markets, Europe, Finance, Financial Crisis, IMF, International Monetary Fund, Investment, Politics, Reform | Tagged: bank credit, banking sector, economic recovery, Europe, GFSR, Global Financial Stability Report, Japan, José Viñals, liquidity, macroprudential policies, monetary policy, shadow banking, United States | Leave a comment »
Posted on September 10, 2014 by iMFdirect
By Francesco Columba and Jarkko Turunen
(Versión en español)
photo: Patrick H. Corkery/DoD/Sipa USA/Newscom
After more than five years of exceptionally low interest rates, the U.S. Fed is getting closer to the point of managing a liftoff of policy interest rates from close to zero. As of today, liftoff is expected to take place by around mid-2015.
But this is not set in stone. The Fed has repeatedly emphasized that the timing will depend on the state of the U.S. economy. If things look better, policy rates may increase earlier. Conversely, weaker than expected data may well mean that interest rates will move up later.
In our view, based on our most recent economic projections, there is some scope for policy rates to stay at zero for a little while longer than mid-2015, given the remaining slack in the labor market and still low inflation.
Filed under: Advanced Economies, Economic outlook, Employment, Fiscal policy, International Monetary Fund | Tagged: fiscal policy, IMF, interest rates, International Monetary Fund, monetary policy, unemployment, United States, US Federal Reserve | Leave a comment »
Posted on May 22, 2014 by iMFdirect
By Alexander Klemm, Andre Meier, and Sebastián Sosa
(Version in Español)
Governments in most emerging economies, including in Latin America, have reduced their exposure to U.S. interest rates over the past decade, by issuing a greater share of public debt in domestic currencies.
Even so, sudden changes in U.S. interest rates still have the power to roil financial markets in emerging economies. Witness last year’s “taper tantrum”—when the Fed hinted at the possibility of tapering its bond purchases sooner than previously expected, causing bond yields to rise sharply. Continue reading
Filed under: Economic outlook, Emerging Markets, Fiscal policy, Government, growth, International Monetary Fund | Tagged: Brazil, capital flows, emerging economies, emerging markets, financial stability, IMF, interest rates, International Monetary Fund, Latin America, monetary policy, South Africa, taper tantrum, Treasury, Turkey, U.S. interest rates, United States | Leave a comment »
Posted on May 19, 2014 by iMFdirect
By Min Zhu
(Version in 中文,Français, Português, and Español)
There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks.
Get to know them
The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.
Filed under: Africa, Asia, Emerging Markets, growth, IMF, International Monetary Fund, Investment, LICs, Low-income countries | Tagged: Bangladesh, Bolivia, fiscal policy, Ghana, iMFdirect, Kenya, monetary policy, Mozambique, Nigeria, services sector, Tanzania, Vietnam | Leave a comment »
Posted on May 14, 2014 by iMFdirect
By Luc Laeven, Lev Ratnovski, and Hui Tong
Large banks were at the center of the recent financial crisis. The public dismay at costly but necessary bailouts of “too-big-to-fail” banks has triggered an active debate on the optimal size and range of activities of banks.
But this debate remains inconclusive, in part because the economics of an “optimal” bank size is far from clear. Our recent study tries to fill this gap by summarizing what we know about large banks using data for a large cross-section of banking firms in 52 countries.
We find that while large banks are riskier, and create most of the systemic risk in the financial system, it is difficult to determine an “optimal” bank size. In this setting, we find that the best policy option may not be outright restrictions on bank size, but capital—requiring large banks to hold more capital—and better bank resolution and governance.
Filed under: Economic research, Finance, Financial Crisis, Financial regulation, Fiscal, Fiscal policy, Government, International Monetary Fund, Reform | Tagged: banking regulation, banks, big banks, financial markets, Financial regulation, financial stability, Global Financial Stability Report, IMF, iMFdirect, iMFdirect blog, International Monetary Fund, monetary policy | Leave a comment »
Posted on April 30, 2014 by iMFdirect
By Edda Zoli
(Version in 中文, and 日本語)
Booming real estate markets, rapid credit growth and—at least before the Fed’s tapering announcement last year—sustained capital inflows have raised financial stability challenges across many parts of Asia. To address them, policymakers have increasingly made use of macroprudential policies that address the stability of the financial system as a whole rather than that of individual institutions. In some cases they have also resorted to capital flow management measures to counter large capital inflows.
As new analysis in the IMF Asia and Pacific Department’s latest Regional Economic Outlook finds, macroprudential policies, especially measures related to the housing market, have helped mitigate the buildup of financial risks in Asia. In the event of sharp decreases in credit and asset prices going forward, however, it may become useful to ease certain of these measures to avoid excessive deleveraging.
Filed under: Asia, Economic outlook, Economic research, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: IMF, International Monetary Fund, Macro-prudential policies: Asian perspectives, monetary policy, regional economic outlook | Leave a comment »