What I learnt about growth policy at the World Bank

Brian Pinto 17 December 2014

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Growth concerns have gone global. Advanced economies are beset by fears of secular stagnation, the IMF recently cut estimates of potential growth in emerging markets by 1.5 percentage points relative to 2011, and G20 leaders approved 800 new measures at Brisbane 2014 for raising G20 GDP by an incremental 2.1% by 2018.1

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Topics:  Development Institutions and economics

Tags:  growth, secular stagnation, emerging markets, World Bank, structural reform, Transition economies, financial crisis, global crisis, debt overhang, exchange rates

Linking banking crises and sovereign defaults in emerging markets

Irina Balteanu, Aitor Erce 12 November 2014

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The feedback loop between fiscal and financial instability has been at the core of the recent turmoil in Europe (Acharya et al. 2014). In some countries, systemic banking crises triggered fiscal distress due to the magnitude of bank rescue operations (for example, in Ireland). In others, substantial sovereign debt tensions, leading to successive sovereign downgrades, severely weakened domestic financial systems (for example, in Greece).

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Topics:  Financial markets International finance Macroeconomic policy

Tags:  twin crises, debt, sovereign debt, sovereign default, banking crises, financial crisis, doom loop, Eurozone crisis, emerging markets

From tapering to tightening: The impact of the Fed’s exit on India

Kaushik Basu, Barry Eichengreen, Poonam Gupta 05 November 2014

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On 22 May 2013, Chairman Ben Bernanke first spoke of the possibility of the Fed tapering its security purchases. This and subsequent statements, collectively known as ‘tapering talk’, had a sharp negative impact on the emerging markets (Aizenman et al. 2014). India was among those hardest hit. Between 22 May 2013 and the end of August 2013, the rupee exchange rate depreciated, bond spreads increased, and stock markets declined sharply.

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Topics:  International finance Macroeconomic policy

Tags:  Fed tapering talks, India, emerging markets, Federal Reserve, current-account deficits

Policy uncertainty spillovers to emerging markets: Evidence from capital flows

Dennis Reinhardt, Cameron McLoughlin, Ludovic Gauvin 05 November 2014

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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).

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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

Exchange rate pass-through in developing and emerging markets

Janine Aron, John Muellbauer 14 September 2014

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The interest in exchange rate pass-through (ERPT) in developing and emerging market (DEM) countries has burgeoned in the last two decades. By contrast, in the earlier comprehensive empirical survey of ERPT by Menon (1995), the majority of studies covered industrialised countries – largely the US, Japan and European countries – with only a handful of less developed countries, mainly reported in a single cross-country study.

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Topics:  Exchange rates

Tags:  exchange rates, exchange rate pass-through, developing countries, emerging markets, model misspecification

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

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

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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.

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Topics:  Financial markets Politics and economics

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

‘Leaning against the wind’: exchange rate intervention in emerging markets works

Christian Daude, Eduardo Levy Yeyati 01 September 2014

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The economic debate has typically downplayed the exchange rate-smoothing nature of central bank foreign exchange intervention, attributing it to precautionary or prudential motives, or to the goal of keeping the exchange rate undervalued for mercantilist reasons.

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Topics:  Exchange rates Monetary policy

Tags:  Central Banks, exchange rates, exchange rate smoothing, emerging markets, Leaning against the wind

New-breed global investors and emerging-market financial stability

Gaston Gelos, Hiroko Oura 23 August 2014

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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 

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Topics:  Financial markets International finance

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

Central banks in developing countries should consider targeting nominal GDP

Pranjul Bhandari, Jeffrey Frankel 21 August 2014

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Central banks still seek transparent and credible communication. But signalling intentions, through forward guidance or some degree of commitment to an intermediate target, poses a difficult tradeoff. The advantages of transparency and credibility versus the disadvantages of waking up one day to find that unexpected developments have turned past statements into unwanted constraints on current monetary policy.

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Topics:  Monetary policy

Tags:  inflation targeting, emerging markets, NGDP targeting

The transmission of Federal Reserve tapering news to emerging financial markets

Joshua Aizenman, Mahir Binici, Michael M Hutchison 04 April 2014

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The quantitative easing (QE) policies of the US Federal Reserve in the years following the crisis of 2008–2009 included monthly securities purchases of long-term Treasury bonds and mortgage-backed securities totalling $85 billion in 2013. The cumulative outcome of these policies has been an unprecedented increase of the monetary base, mitigating the deflationary pressure of the crisis.

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Topics:  Exchange rates International finance Monetary policy

Tags:  exchange rates, Federal Reserve, asset prices, emerging markets, stock markets, Credit Default Swaps, tapering

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