Policy uncertainty spillovers to emerging markets: Evidence from capital flows

Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin 05 November 2014

a

A

In the wake of the global financial crisis of 2007–2008, advanced economies experienced heightened levels of uncertainty in macroeconomic policymaking. Against this backdrop, policymakers debated the domestic and global spillover implications of advanced-country policy uncertainty (e.g. IMF 2013). At the same time, the potential for monetary policy settings in advanced countries to spill over to emerging market economies (EMEs) via capital flows was hotly contested in both academic and policymaker circles (e.g. Fratzscher et al. 2013).

a

A

Topics:  International finance Macroeconomic policy Monetary policy

Tags:  capital flows, Capital inflows, emerging markets, policy uncertainty, spillovers, global crisis, monetary policy, macroeconomic policy, risk aversion, home bias

Regulating capital flows at both ends

Atish R Ghosh, Mahvash Saeed Qureshi, Naotaka Sugawara 30 October 2014

a

A

The boom-bust cycles in cross-border capital flows during and after the Global Financial Crisis have kindled debates on the management of capital flows to emerging markets. While most of the literature has focused on the policy options of recipient countries (e.g., Ostry et al. 2010, 2011, IMF 2011), some recent studies and policy papers call for a more coordinated approach to regulating these flows by acting at both the source and recipient country ends (e.g., Ostry et al. 2012, IMF 2012, Brunnermeier et al. 2012). The idea is not new.

a

A

Topics:  International finance Monetary policy

Tags:  capital account restrictions, cross-border banking, capital flows, source and recipient countries

Where danger lurks

Olivier Blanchard 03 October 2014

a

A

Until the 2008 global financial crisis, mainstream US macroeconomics had taken an increasingly benign view of economic fluctuations in output and employment. The crisis has made it clear that this view was wrong and that there is a need for a deep reassessment.

The benign view reflected both factors internal to economics and an external economic environment that for years seemed indeed increasingly benign.

a

A

Topics:  Macroeconomic policy Monetary policy

Tags:  macroeconomics, global crisis, great moderation, rational expectations, nonlinearities, fluctuations, business cycle, monetary policy, inflation, bank runs, deposit insurance, sudden stops, capital flows, liquidity, maturity mismatch, zero lower bound, liquidity trap, capital requirements, credit constraints, precautionary savings, housing boom, Credit crunch, unconventional monetary policy, fiscal policy, sovereign default, diabolical loop, deflation, debt deflation, financial regulation, regulatory arbitrage, DSGE models

Political booms, financial crises: Why popular governments are not always a good sign

Christoph Trebesch, Helios Herrera, Guillermo L. Ordoñez 06 September 2014

a

A

Financial crises: the search for early warning indicators

Financial crises are a recurrent phenomenon in the history of emerging markets and advanced economies alike. To understand the common causes of these crises and to prevent future ones from developing, economists have a long tradition of studying early warning indicators. Two well-documented predictors of financial crises are credit booms and capital flow bonanzas.

a

A

Topics:  Financial markets Politics and economics

Tags:  credit booms, financial crisis, politics, emerging markets, capital flows, public opinion, popularity

The role of corporate saving in global rebalancing

Philippe Bacchetta, Kenza Benhima 24 August 2014

a

A

The increase in global imbalances in the last decade posed a theoretical challenge for international macroeconomics. Why did some less-developed countries with a higher need for capital, like China, lend to richer countries? The inconsistency of standard open-economy dynamic models with actual global capital flows had already been stressed before (e.g. by Lucas 1990), but the sensitivity to this issue became more acute with increasing global imbalances. This stimulated the development of several alternative theoretical frameworks.

a

A

Topics:  International finance International trade

Tags:  interest rates, global imbalances, capital flows, saving, global crisis, credit constraints, savings glut, zero lower bound, corporate saving, global rebalancing

New-breed global investors and emerging-market financial stability

Gaston Gelos, Hiroko Oura 23 August 2014

a

A

The investor base matters since different investors behave differently. During the emerging-market sell-off episodes in 2013 and early 2014:

  • Retail-oriented mutual funds withdrew aggressively, but investors from different regions also tended to behave differently;
  • Institutional investors such as pension funds and insurance companies with long-term strategies broadly maintained their emerging-market investments.

Figure 1 shows the facts.

Figure 1. Bond flows to emerging-market economies 

a

A

Topics:  Financial markets International finance

Tags:  Pension Funds, financial stability, capital flows, investment, emerging markets, financial deepening, herding, original sin, mutual funds, institutional investors

Why is financial stability essential for key currencies in the international monetary system?

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

a

A

Could the dollar lose its status as the key international currency for international trade and international financial transactions, and if so, what would be the principal contributing factors? Speculation about this issue has long been abundant, and views diverse. After the introduction of the euro, there was much public debate about the euro displacing the dollar (Frankel 2008). The monitoring and analysis included in the ECB’s reports on “The International Role of the Euro” (e.g.

a

A

Topics:  Financial markets International finance

Tags:  reserve currency, financial stability, dollar, capital flows, spillovers, Currency, SIFIs

Do capital controls deflect capital flows?

Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014

a

A

The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).

a

A

Topics:  International finance

Tags:  China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows

Capital controls in the 21st century

Barry Eichengreen, Andrew K Rose 05 June 2014

a

A

Capital controls are back. The IMF (2012) has softened its earlier opposition to their use. Some emerging markets – Brazil, for example – have made renewed use of controls since the global financial crisis of 2008–2009. A number of distinguished economists have now suggested tightening and loosening controls in response to a range of economic and financial issues and problems. While the rationales vary, they tend to have in common the assumption that first-best policies are unavailable and that capital controls can be thought of as a second-best intervention.

a

A

Topics:  International finance

Tags:  IMF, capital flows, global financial crisis, capital controls, capital, Macroprudential policy

Turmoil in emerging markets: What’s missing from the story?

Kristin Forbes 05 February 2014

a

A

Emerging markets are going through another period of volatility – and the most popular boogeyman is the US Federal Reserve.

The basic storyline is that less accommodative US monetary policy has caused foreign investors to withdraw capital from emerging markets, causing currency depreciations, equity declines, and increased borrowing costs. In many cases, these adjustments will slow growth and increase the risk of some type of crisis.

a

A

Topics:  International finance

Tags:  Federal Reserve, capital flows, emerging markets, global financial crisis, tapering

Pages

Events