International finance

New-breed global investors and financial stability

Gaston Gelos, Hiroko Oura, 23 August 2014

The landscape of portfolio investment in emerging markets has evolved considerably over the past 15 years. Financial markets have deepened and become more internationally integrated. The mix of global investors has also changed, with more money intermediated by mutual funds. This column explains that these changes have made capital flows and asset prices in these economies more sensitive to global financial shocks. However, broad-based financial deepening and improved institutions can enhance the resilience of emerging-market economies.

Great Depression recovery: The role of capital controls

Kris James Mitchener , Kirsten Wandschneider, 18 August 2014

The IMF has recently revised its position on capital controls, acknowledging that they may help prevent financial crises. This column examines the effects of capital controls imposed during the Great Depression. Capital controls appear not to have been successfully used as tools for rescuing banking systems, stimulating domestic output, or for raising prices. Rather they appear to have been maintained as a means for restricting trade and repayment of foreign debts.

New thinking on reserve-currency status

Linda Goldberg, Signe Krogstrup, John Lipsky, Hélène Rey, 26 July 2014

The dollar’s dominant role in international trade and finance has proved remarkably resilient. This column argues that financial stability – and the policy and institutional frameworks that underpin it – are important new determinants of currencies’ international roles. While old drivers still matter, progress achieved on financial-stability reforms in major currency areas will greatly influence the future roles of their currencies.

The TARGET2 controversy

Livia Chiţu, Barry Eichengreen, Arnaud Mehl, Gary Richardson, 15 July 2014

The European debt crisis has triggered debates over the TARGET2 imbalances. This column discusses gold flows across Federal Reserve districts and points to the similarity of such operations to liquidity flows from Eurozone’s ‘core’ to its ‘periphery’. Though the institutional setting in Europe differs, important lessons can be drawn from the US example. Cooperation between regional Reserve Banks was essential for the cohesion of the US monetary union. Such cooperative spirit will be important for the smooth operation of the Eurozone.

Germany and the future of the euro

Joshua Aizenman, 3 July 2014

After a promising first decade, the Eurozone faced a severe crisis. This column looks at the Eurozone’s short history through the lens of an evolutionary approach to forming new institutions. German dominance has allowed the euro to achieve a number of design objectives, and this may continue if Germany does not shirk its responsibilities. Germany’s resilience and dominant size within the EU may explain its ‘muddling through’ approach to the Eurozone crisis. Greater mobility of labour and lower mobility of under-regulated capital may be the costly ‘second best’ adjustment until the arrival of more mature Eurozone institutions.

Other Recent Articles:

Vox eBooks

Events