Posted on December 20, 2016 by iMFdirect
By Maurice Obstfeld
Version inعربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)
After a year marked by financial turbulence, political surprises, and unsteady growth in many parts of the world, the Fed’s decision this month to raise interest rates for just the second time in a decade is a healthy symptom that the recovery of the world’s largest economy is on track.
The Fed’s action was hardly a surprise: markets had for weeks placed a high probability on last week’s move. But market developments preceding the Fed decision did surprise many market watchers. Continue reading
Filed under: Advanced Economies, Emerging Markets, Fiscal policy, Government, growth, interest rates, International Monetary Fund, jobs, labor force, U.S. | Tagged: developing economies, emerging market economies, exchange rates, government spending, growth, IMF, iMFdirect blog, inflationary pressures, interest rates, jobs, labor force, trade, U.S. elections, U.S. Fed, U.S. taxes, United States | 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 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 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 April 28, 2015 by iMFdirect
By Ravi Balakrishnan and Juan Solé
(Version in Español)
Last month’s report on U.S. jobs was disappointing, with far fewer jobs than expected added in March. A longer-term look at trends yields a different picture, however. Over the past year, U.S. job creation has been impressive. Payroll gains have averaged 260,000 per month—well above the 160,000 monthly average seen throughout the 2010–13 recovery.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Financial Crisis, Government, growth, IMF, International Monetary Fund, unemployment | Tagged: Great Recession, human capital, immigration, job creation, labor force, Macroeconomic policies, reform, U.S., U.S. Fed, unemployment, 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 »