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.
Eugenio Cerutti, Stijn Claessens, Damien Puy, Wednesday, September 9, 2015 - 00:00
Pablo Druck, Nicolas Magud, Rodrigo Mariscal, Sunday, August 16, 2015 - 00:00
The strength of the US dollar can impact the economic activity in emerging economies in various ways. This column argues that appreciation of the dollar mitigates the impact of real GDP growth in emerging markets. The main transmission channel is through an income effect. As the dollar appreciates, commodity prices fall, depressing domestic demand via lower real income, and as a result real GDP in emerging markets decelerates. Emerging markets’ growth is expected to remain subdued, reflecting the expected persistence of the strong dollar.
Orazio Attanasio, Britta Augsburg, Ralph De Haas, Emla Fitzsimons, Heike Harmgart, Costas Meghir, Wednesday, June 17, 2015 - 00:00
There have been intense debates on whether microfinance can lift people out of poverty. Summarising research across seven countries, this column argues that microcredit is a useful financial tool but not a powerful anti-poverty strategy. There are also no significant benefits in terms of education or female empowerment. Yet, microcredit does allow low-income households to better cope with risk and to enjoy greater flexibility in how they earn and spend money.
Nicolas Magud, Sebastián Sosa, Wednesday, May 13, 2015 - 00:00
Emerging markets are not the hot investment prospect they used to be. This column estimates that weaker private investment in these nations is a slowdown after a period of boom rather than an outright slump. Prospects for a recovery of business investment, however, are not promising. Commodity prices are expected to remain weak and external financial conditions are set to become tighter.
Tamon Asonuma, Said Bakhache, Heiko Hesse, Sunday, April 5, 2015 - 00:00
Erlend W Nier, Tahsin Saadi Sedik, Sunday, January 4, 2015 - 00:00
Brian Pinto, Wednesday, December 17, 2014 - 00:00
Ron Alquist, Rahul Mukherjee, Linda Tesar, Monday, December 22, 2014 - 00:00
Irina Balteanu, Aitor Erce, Wednesday, November 12, 2014 - 00:00
Kaushik Basu, Barry Eichengreen, Poonam Gupta, Wednesday, November 5, 2014 - 00:00
Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin, Wednesday, November 5, 2014 - 00:00
Janine Aron, John Muellbauer, Sunday, September 14, 2014 - 00:00
Christoph Trebesch, Helios Herrera, Guillermo L. Ordoñez, Saturday, September 6, 2014 - 00:00
Christian Daude, Eduardo Levy Yeyati, Monday, September 1, 2014 - 00:00
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.
Pranjul Bhandari, Jeffrey Frankel, Thursday, August 21, 2014 - 00:00
Central banks, especially in developing countries, still seek transparent and credible communication. Yet signalling intentions through forward guidance or commitment sometimes creates undesirable constraints. This column argues that central bank pronouncements phrased in terms of nominal GDP are less likely to run afoul of the supply and trade shocks so common in developing countries, compared to pronouncements phrased in terms of inflation.
Joshua Aizenman, Mahir Binici, Michael M Hutchison, Friday, April 4, 2014 - 00:00
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.
Atish R Ghosh, Jonathan D Ostry, Mahvash Saeed Qureshi, Wednesday, April 2, 2014 - 00:00
In a world of volatile capital flows, emerging markets are increasingly resorting to managing their exchange rates. But does this strategy increase their susceptibility to crisis? This column argues that while intermediate regimes as a class are the most susceptible to crises, ‘managed floats’ – a subclass within such regimes – behave much more like pure floats, with significantly lower risks and fewer crises. ‘Managed floating’, however, is a nebulous concept; a characterisation of more crisis prone regimes suggests that it is not the degree of exchange rate management alone, but the way the exchange rate is managed, that matters. Greater against-the-wind intervention by the central bank to prevent currency overvaluation reduces, while greater intervention to defend an overvalued currency raises, the crisis likelihood.
Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak, Todd Mitton, Tuesday, February 25, 2014 - 00:00
Political connections affect economic outcomes in emerging markets. This column discusses new evidence showing that something similar goes on in the US. Over the ten trading days following the announcement of Timothy Geithner as Treasury Secretary, financial firms with a connection to Geithner experienced a cumulative abnormal return of about 12% relative to other financial sector firms. This reversed when his nomination ran into trouble due to unexpected tax issues.
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.