From the introduction of the euro in 1999 to the Greek crisis in 2010, the Eurozone witnessed external imbalances between countries at its core and those at its periphery. These imbalances have been attributed either to differences in competitiveness or to the effect of financial integration. This column argues that in order to understand the imbalances within the Eurozone, it is necessary to consider credit costs and capital flows. The lower real cost of credit for high-inflation countries must be taken into account, as well as the inflow of capital to the non-tradable sector that this implies. Monetary policy cannot be conducted in a ‘one size fits all’ manner.
Mouhamadou Sy, Monday, November 9, 2015 - 00:00
Gita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis, Carolina Villegas-Sanchez, Monday, September 28, 2015 - 00:00
Joining the Eurozone was once a near unquestionably good idea. Now, the costs of joining the monetary union are under close scrutiny. This column takes a slightly different tack, presenting an alternative perspective on how joining the euro has impacted productivity in southern Europe. It turns out that capital wasn’t allocated efficiently across firms after cheap borrowing at low interest rates, impacting total factor productivity.
Eugenio Cerutti, Stijn Claessens, Damien Puy, Wednesday, September 9, 2015 - 00:00
Recent economic and financial events, such as the ‘taper tantrum’, have highlighted again the relevance of global factors in driving capital flows to emerging markets. This column suggests that capital flows to emerging markets move in part due to global push factors. However, sensitivity to these push factors differs greatly across types of flows and emerging markets. How much push factors affect individual emerging markets depends on their local liquidity and the composition of their foreign investor bases. Countries relying more on international funds and global banks are significantly more affected by changes in push factors.
Erik Feyen, Swati Ghosh, Katie Kibuuka, Subika Farazi, Tuesday, August 11, 2015 - 00:00
Monetary policies pursued by developed countries in the wake of the Global Crisis have had profound spillover effects on emerging economies. This column documents the unprecedented post-Crisis bond issuance surge in emerging markets. The findings indicate that benign international funding conditions favoured bond issuance in these economies. But the large issuance volumes, currency risks, and high exposure to global factors could pose a challenge for policymakers, particularly when global cycles reverse.
Ross Levine, Chen Lin, Thursday, July 2, 2015 - 00:00
Labour market regulations have important implications for both the incidence of cross-border acquisitions, and the outcomes for acquiring firms. This column explores how variations in labour regulations between countries affect cross-border acquisitions and subsequent firm performance. For a sample of 50 countries, firms are found to enjoy larger returns when they acquire a target in a country with weaker labour regulations than the acquirer’s home country.
Pınar Yeşin, Saturday, February 21, 2015 - 00:00
Erlend W Nier, Tahsin Saadi Sedik, Sunday, January 4, 2015 - 00:00
Vincent Bouvatier, Anne-Laure Delatte, Sunday, December 14, 2014 - 00:00
Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin, Wednesday, November 5, 2014 - 00:00
Atish R Ghosh, Mahvash Saeed Qureshi, Naotaka Sugawara, Thursday, October 30, 2014 - 00:00
Capital flows to emerging markets have been very volatile since the global financial crisis. This has kindled debates on whether – and how – to better manage cross-border capital flows. In this column, the authors examine the role of capital account restrictions in both source and recipient countries in taming destabilising capital flows. The results indicate that capital account restrictions at either end can significantly lower the volume of cross-border flows.
Olivier Blanchard, Friday, October 3, 2014 - 00:00
Christoph Trebesch, Helios Herrera, Guillermo L. Ordoñez, Saturday, September 6, 2014 - 00:00
Philippe Bacchetta, Kenza Benhima, Sunday, August 24, 2014 - 00:00
Among the various explanations behind global imbalances, the role of corporate saving has received relatively little attention. This column argues that corporate saving is quantitatively relevant, and proposes a theory that is consistent with the stylised facts and useful for understanding the current phase of global rebalancing. The theory implies that, while the economic contraction originating in developed countries has pushed interest rates towards the zero lower bound, the recent growth slowdown in emerging countries could push them out of it.
Gaston Gelos, Hiroko Oura, Saturday, August 23, 2014 - 00:00
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.
Linda Goldberg, Signe Krogstrup, John Lipsky, Hélène Rey, Saturday, July 26, 2014 - 00:00
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.
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu, Monday, June 23, 2014 - 00:00
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
Barry Eichengreen, Andrew K Rose, Thursday, June 5, 2014 - 00:00
Since the global financial crisis of 2008–2009, opposition to the use of capital controls has weakened, and some economists have advocated their use as a macroprudential policy instrument. This column shows that capital controls have rarely been used in this way in the past. Rather than moving with short-term macroeconomic variables, capital controls have tended to vary with financial, political, and institutional development. This may be because governments have other macroeconomic policy instruments at their disposal, or because suddenly imposing capital controls would send a bad signal.
Kristin Forbes, Wednesday, February 5, 2014 - 00:00
The Federal Reserve’s ‘taper talk’ in spring 2013 has been blamed for outflows of capital from emerging markets. This column argues that global growth prospects and uncertainty are more important drivers of emerging-market capital flows than US monetary policy. Although crises can affect very different countries simultaneously, over time investors begin to discriminate between countries according to their fundamentals. Domestic investors play an increasingly important – and potentially stabilising – role. During a financial crisis, ‘retrenchment’ by domestic investors can offset foreign investors’ withdrawals of capital.
Willem Buiter, Friday, January 10, 2014 - 00:00
Fiscal sustainability has become a hot topic as a result of the European sovereign debt crisis, but it matters in normal times, too. This column argues that financial sector reforms are essential to ensure fiscal sustainability in the future. Although emerging market reforms undertaken in the aftermath of the financial crises of the 1990s were beneficial, complacency is not warranted. In the US, political gridlock must be overcome to reform entitlements and the tax system. In the Eurozone, creating a sovereign debt restructuring mechanism should be a priority.
Sebnem Kalemli-Ozcan, Tuesday, January 7, 2014 - 00:00
Financial crises are generally preceded by credit booms and a build-up of external debts. Although it is unclear whether Turkey is experiencing a financial bubble, as of 2013, 58% of the corporate sector’s debt was denominated in foreign currencies. This column argues that this explains the Central Bank of Turkey’s interventions to prop up the value of the Turkish lira. Given the relatively low level of reserves and the unfolding corruption scandal, it is a critical question how long the Bank can continue to do so.