Warning Signs as Global Financial Risks Increase


GFSRBy José Viñals

Versions in عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

 

Over the last six months, global financial stability risks increased as a result of the following developments:

  • First, macroeconomic risks have risen, reflecting a weaker and more uncertain outlook for growth and inflation, and more subdued sentiment. These risks were highlighted yesterday at the World Economic Outlook press conference.
  • Second, falling commodity prices and concerns about China’s economy have put pressure on emerging markets and advanced economy credit markets.
  • Finally, confidence in policy traction has slipped, amid concerns about the ability of overburdened monetary policies to offset the impact of higher economic and political risks.

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The Broader View: The Positive Effects of Negative Nominal Interest Rates


By Jose ViñalsSimon Gray, and Kelly Eckhold

Versions in: عربي (Arabic), Deutsch (German), 日本語 (Japanese), and Español (Spanish)

We support the introduction of negative policy rates by some central banks given the significant risks we see to the outlook for growth and inflation. Such bold policy action is unprecedented, and its effects over time will vary among countries. There have been negative real rates in a number of countries over time; it is negative nominal rates that are new. Our analysis takes a broad view of recent events to examine what is new, country experiences so far, the effectiveness of negative nominal rates as well as their limits and their unintended consequences. Although the experience with negative nominal interest rates is limited, we tentatively conclude that overall, they help deliver additional monetary stimulus and easier financial conditions, which support demand and price stability. Still, there are limits on how far and for how long negative policy rates can go. Continue reading

A New Look at the Benefits and Costs of Bank Capital


By Jihad Dagher, Giovanni Dell’Ariccia, Luc Laeven, Lev Ratnovski, and Hui Tong

The appropriate level of bank capital and, more generally, a bank’s capacity to absorb losses, has been a contentious subject of discussion since the financial crisis. Larger buffers give bankers “skin in the game” helping to prevent excessive risk taking and absorb losses during crises. But, some argue, they might increase the cost of financial intermediation and slow economic growth.

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Greece: Toward a Workable Program


poul-thomsen1By Poul M. Thomsen

Versions in عربي (Arabic), EspañolFrançais, and ελληνικά (Greek)

Having successfully pulled Greece from the brink last summer and subsequently stabilized the economy, the government of Alexis Tsipras is now discussing with its European partners and the IMF a comprehensive multi-year program that can secure a lasting recovery and make debt sustainable. While discussions continue, there have been some misperceptions about the International Monetary Fund’s views and role in the process. I thought it would be useful to clarify issues.

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Oil Low-Commotion


Brent crude oil fell below $30 a barrel yesterday for the first time since 2004, which reminds us that commodity prices are a hot topic that impact everyone, everywhere, one way or another.

So we thought you might like to read a few of our recent blogs about what the !@#$% is going on, and why it matters for the global economy. Continue reading

Climate Change: How To Price Paris


by Vitor Gaspar, Michael Keen, and Ian Parry

(Versions in عربي中文Español, and Français)

The Paris Agreement on Climate Change is a historic diplomatic achievement. Climate change is a global problem. Many believed that global problem solving would prove elusive: the benefits of cutting emissions arise globally while the costs of doing so are borne nationally, so national self-interest would prevent a meaningful agreement. Paris proves otherwise—creating a commonality of purpose at the global level.  Continue reading

The Specter of Risk in the Derivatives of Bond Mutual Funds


By Fabio Cortes

Current regulations only require U.S. and European bond mutual funds to disclose a limited amount of information about the risks they have taken using financial instruments called derivatives. This leaves investors and policymakers in the dark on a key issue for financial stability.  Our new research in the October 2015 Global Financial Stability Report looks at just how much is at stake.  Continue reading

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