International finance

The increasing competitiveness of the southern Eurozone

Raphael Auer, 11 April 2014

Some view the improvements in current accounts for Greece, Italy, Portugal, and Spain as short-lived – the result of a temporary compression of import demand that is likely to be reversed as the recession eases. This column argues the contrary, based on the fact that their improving trade balances reflect better export performance. This development points toward a fundamental stabilisation of the competitiveness of these economies.

Banks’ disclosure and financial stability

Rhiannon Sowerbutts, Ilknur Zer, Peter Zimmerman, 5 April 2014

Inadequate disclosure by banks increased funding costs and contributed to the recent crisis. This column presents quantitative indices to measure progress of disclosure between banks and over time. Internationally, disclosure has improved since 2000. However, more information alone is not sufficient to solve the problem. More needs to be done to ensure that the information provided is useful to investors, and that investors are incentivised to use this information. The ongoing reform agenda aims to address this.

Transmission of Fed tapering news to emerging markets

Joshua Aizenman, Mahir Binici, Michael M Hutchison, 4 April 2014

In 2013, policymakers began discussing when and how to ‘taper’ the Federal Reserve’s quantitative easing policy. This column presents evidence on the effect of Fed officials’ public statements on emerging-market financial conditions. Statements by Chairman Bernanke had a large effect on asset prices, whereas the market largely ignored statements by Fed Presidents. Emerging markets with stronger fundamentals experienced larger stock-market declines, larger increases in credit default swap spreads, and larger currency depreciations than countries with weaker fundamentals.

The credit cycle and LatAm vulnerabilities

Julián Caballero, Ugo Panizza, Andrew Powell, 2 April 2014

In recent years credit growth in Latin America has been very strong, and countries have become more reliant on foreign bond issuances. This column argues that these phenomena are linked, and may have led to vulnerabilities which domestic and international supervisors are not well-equipped to assess. There is no systematic information on firms’ currency mismatches and hedging activities, and none that includes those of subsidiaries that may be located in other jurisdictions, preventing an accurate analysis of the true risks.

Orderly debt reduction rather than permanent mutualisation is the way to go

Vesa Vihriälä, Beatrice Weder di Mauro, 2 April 2014

The EZ debt overhang needs to be fixed. This column argues that making market discipline credible requires an orderly debt restructuring mechanism combined with a strictly regulated temporary mutualisation scheme or a well-designed debt conversion scheme. This combination could reduce the current debt overhang in an orderly fashion and cement strong incentives against over-borrowing in the future.

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