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The Financial Action Task Force’s gray list publicly identifies countries with strategic deficiencies in their AML/CFT regimes (i.e., in their policies to prevent money laundering and the financing of terrorism). How much gray-listing affects a country’s capital flows is of interest to policy makers, investors, and the Fund. This paper estimates the magnitude of the effect using an inferential machine learning technique. It finds that gray-listing results in a large and statistically significant reduction in capital inflows.

Macroeconomics --- Economics: General --- International Economics --- Exports and Imports --- Criminology --- Intelligence (AI) & Semantics --- Foreign Exchange --- Informal Economy --- Underground Econom --- International Investment --- Long-term Capital Movements --- Illegal Behavior and the Enforcement of Law --- Technological Change: Choices and Consequences --- Diffusion Processes --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Corporate crime --- white-collar crime --- Machine learning --- Finance --- Capital flows --- Balance of payments --- Capital inflows --- Anti-money laundering and combating the financing of terrorism (AML/CFT) --- Crime --- Technology --- Foreign direct investment --- Currency crises --- Informal sector --- Economics --- Capital movements --- Money laundering --- Investments, Foreign --- Korea, Republic of

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We identify the timing of currency, banking crises and sudden stops in New Zealand from 1880 to 2008, and consider the extent to which empirical models can explain New Zealand's crisis history. We find that the cross country evidence on the determinants of crises fits New Zealand experience reasonably well. A number of the risk factors that correlate with crises internationally–such as domestic imbalances, external debt, and currency mismatches–were elevated for New Zealand when the country had more frequent crises and have improved in the recent (more stable) period. However, a time-series analysis of New Zealand growth over 120 years shows that global factors–such as the US growth rate and terms of trade–explain New Zealand growth fairly well, and that crisis dummy variables do not have significant additional explanatory power. This suggests that having sound institutions and policies may help avoid severe domestic crises, but will not be sufficient to avoid the domestic economic impact of the global business cycle.

Zonder onderwerpscode: economie

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As the recovery in high-income countries firms amid a gradual withdrawal of extraordinary monetary stimulus, developing countries can expect stronger demand for their exports as global trade regains momentum, but also rising interest rates and potentially weaker capital inflows. This paper assesses the implications of a normalization of policy and activity in high-income countries for financial flows and crisis risks in developing countries. In the most likely scenario, a relatively orderly process of normalization would imply a slowdown in capital inflows amounting to 0.6 percent of developing-country GDP between 2013 and 2016, driven in particular by weaker portfolio investments. However, the risk of more abrupt adjustments remains significant, especially if increased market volatility accompanies the unwinding of unprecedented central bank interventions. According to simulations, abrupt changes in market expectations, resulting in global bond yields increasing by 100 to 200 basis points within a couple of quarters, could lead to a sharp reduction in capital inflows to developing countries by between 50 and 80 percent for several months. Evidence from past banking crises suggests that countries having seen a substantial expansion of domestic credit over the past five years, deteriorating current account balances, high levels of foreign and short-term debt, and over-valued exchange rates could be more at risk in current circumstances. Countries with adequate policy buffers and investor confidence may be able to rely on market mechanisms and countercyclical macroeconomic and prudential policies to deal with a retrenchment of foreign capital. In other cases, where the scope for maneuver is more limited, countries may be forced to tighten fiscal and monetary policy to reduce financing needs and attract additional inflows.

Banking Crisis --- Banks and Banking Reform --- Currencies and Exchange Rates --- Debt Markets --- Economic Theory & Research --- Emerging Markets --- Finance and Financial Sector Development --- Financial Globalization --- International Capital Flows --- Macroeconomics and Economic Growth --- Private Sector Development --- Tapering of Quantitative Easing --- Unconventional Monetary Policies