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Over the past two decades, most emerging market economies witnessed two key developments. A marked process of financial integration with the rest of the world, arguably turning these economies more vulnerable to global financial shocks; and an improvement of macroeconomic fundamentals, helping to increase their resiliency to these shocks. Against a backdrop of these opposing forces, are these economies more vulnerable to global financial shocks today than in the past? Have better fundamentals offset increasing financial integration? If so, what fundamentals matter most? We address these questions by examining the role of these two forces over the past two decades in amplifying or buffering the economic impact of these shocks. Our findings show that EMEs, with the exception of Emerging Europe, have become less vulnerable. Exchange rate flexibility and external sustainability are key determinants of the impact of these shocks, while the extent to which deeper financial integration is a source of vulnerability depends on the exchange rate regime.
Management --- Business & Economics --- Management Styles & Communication --- Financial risk. --- Financial crises. --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Business risk (Finance) --- Money risk (Finance) --- Crises --- Risk --- Financial crises --- Capital movements --- Foreign exchange administration --- Econometric models --- E-books --- Foreign exchange --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- International finance --- Exports and Imports --- Finance: General --- Foreign Exchange --- Financial Markets and the Macroeconomy --- Financial Aspects of Economic Integration --- International Business Cycles --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- General Financial Markets: General (includes Measurement and Data) --- International Investment --- Long-term Capital Movements --- International Lending and Debt Problems --- Finance --- Currency --- International economics --- Financial integration --- Exchange rate flexibility --- Emerging and frontier financial markets --- Foreign assets --- External debt --- Financial markets --- External position --- Financial services industry --- Investments, Foreign --- Debts, External --- Greece
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Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0–2.4 basis points at maturities of 2–3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5–1.8 basis points.
Banks and Banking --- Exports and Imports --- Investments: General --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Central Banks and Their Policies --- International Policy Coordination and Transmission --- Globalization: Macroeconomic Impacts --- International Financial Markets --- Monetary Policy --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Banking --- International economics --- Investment & securities --- Finance --- Capital flows --- Securities --- Reserves accumulation --- Yield curve --- International reserves --- Balance of payments --- Financial institutions --- Central banks --- Financial services --- Foreign exchange reserves --- Capital movements --- Financial instruments --- Interest rates --- United States
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This paper documents developments in mortgage credit and the housing sector in Latin America over the past decade, and compares them with those of other emerging economies. In particular, it examines the real estate and mortgage markets to assess whether (i) growth in mortgage credit is excessive compared to long-term trends; (ii) trends in house prices reflect changes in economic fundamentals; and (iii) the extent to which household and banking sector vulnerabilities could lead to potential fragilities. Although data limitations hamper a rigorous analysis of trends, our analysis suggests that while there are no imminent misalignments in the real estate and mortgage sectors, they could emerge if current trends persist. Strengthening supervision and addressing data gaps is thus critical to ensure adequate monitoring of risks and vulnerabilities in these sectors.
Finance --- Business & Economics --- Banking --- Mortgage loans --- Housing --- Prices --- Home loans --- Mortgage lending --- Real estate loans --- Affordable housing --- Homes --- Houses --- Housing needs --- Residences --- Slum clearance --- Urban housing --- Social aspects --- Loans --- Secondary mortgage market --- City planning --- Dwellings --- Human settlements --- Mortgages --- E-books --- Hypothecation --- Real obligations --- Securities --- Security (Law) --- Conveyancing --- Liens --- Priorities of claims and liens --- Law and legislation --- Infrastructure --- Money and Monetary Policy --- Real Estate --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- General Financial Markets: General (includes Measurement and Data) --- Financial Institutions and Services: General --- Real Estate Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Housing Supply and Markets --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Economic Development: Urban, Rural, Regional, and Transportation Analysis --- Property & real estate --- Monetary economics --- Macroeconomics --- Housing prices --- Credit --- Credit booms --- Financial institutions --- Money --- National accounts --- Saving and investment --- Colombia
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This paper examines the extent to which digitalization—measured by a new proxy based on IP addresses allocations per country—has influenced inflation dynamics in a sample of 36 advanced and emerging economies over 2000-2017. Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run. Its economic impact is not large but has increased since 2012 and mainly operates through a cost/competition channel. Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.
Inflation --- Macroeconomics --- Industries: Information Technololgy --- Production and Operations Management --- Globalization --- Price Level --- Deflation --- Central Banks and Their Policies --- Globalization: Macroeconomic Impacts --- Information and Internet Services --- Computer Software --- Technological Change: Choices and Consequences --- Diffusion Processes --- Globalization: General --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Macroeconomics: Production --- Information technology industries --- Digital or internet economics --- Digitalization --- Global value chains --- Digital economy --- Output gap --- Prices --- Technology --- Economic sectors --- Production --- Information technology --- Electronic commerce --- Economic theory --- China, People's Republic of
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What is the extent of currency diversification in the international monetary system? How has it evolved over time? In this paper, we quantify the degree of currency diversification using regression methods of currency co-movements to determine the extent to which national currencies across the world belong to a reserve currency bloc. We then use these estimates to calculate the economic size of each currency bloc. A key contribution of our paper is that we quantify the size of the Chinese renminbi bloc. Our analysis suggests that the international monetary system has transitioned from a bi-polar system - consisting of the U.S. dollar and the euro - to a tri-polar one that includes the renminbi. The dollar bloc is estimated to continue to dominate, having the largest share in global GDP (40 percent), followed by the renminbi (30 percent) and the euro blocs (20 percent). The geographical area of influence for the RMB bloc appears to be most evident among the BRICS’ currencies. The British pound and the Japanese yen blocs appear to play minor roles.
Exports and Imports --- Macroeconomics --- Money and Monetary Policy --- Economic Integration --- Foreign Exchange --- International Monetary Arrangements and Institutions --- Financial Aspects of Economic Integration --- Open Economy Macroeconomics --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financial Crises --- Monetary economics --- International economics --- Economic & financial crises & disasters --- Monetary unions --- Reserve currencies --- Currencies --- International monetary system --- Global financial crisis of 2008-2009 --- Economic integration --- Money --- Numéraire --- International finance --- Global Financial Crisis, 2008-2009 --- United States
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We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.
Macroeconomics --- Economics: General --- Environmental Economics --- Natural Disasters --- Finance: General --- Environmental Policy --- International Lending and Debt Problems --- International Finance Forecasting and Simulation --- Open Economy Macroeconomics --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Globalization: General --- Globalization: Finance --- International Financial Markets --- Financial Forecasting and Simulation --- Climate --- Natural Disasters and Their Management --- Global Warming --- Financial Institutions and Services: Government Policy and Regulation --- Environmental Economics: Government Policy --- Economic & financial crises & disasters --- Economics of specific sectors --- Climate change --- Natural disasters --- Finance --- Environmental policy & protocols --- Environment --- Stress testing --- Financial sector policy and analysis --- Climate policy --- Currency crises --- Informal sector --- Economics --- Climatic changes --- Financial risk management --- Environmental policy --- United States
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We stress test the global economy to extreme climate change-related shocks on large and interconnected economies. Our analysis (i) identifies large and interconnected economies vulnerable to climate change-related shocks; (ii) estimates these economies’ external financing needs-at-risk due to these shocks, and (iii) quantifies the spillovers to the global economy using a global network model. We show that large and interconnected economies vulnerable to climate change could trigger a drain of $1.8 trillion in international reserves (2 percent of 2019’s global GDP). Domestic and multilateral macroeconomic policies can help reduce these global lossess to about $0.8 trillion. The scenario highlights the importance of considering global spillovers when assessing the impact of climate change-related shocks.
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Heavy foreign exchange intervention by central banks of emerging markets have lead to sizeable expansions of their balance sheets in recent years?accumulating foreign assets and non-money domestic liabilities (the latter due to sterilization operations). With domestic liabilities being mostly of short-term maturity and denominated in local currency, movements in domestic monetary policy interest rates can have sizable effects on central bank's net worth. In this paper we examine empirically whether balance sheet considerations influence the conduct of monetary policy. Our methodology involves the estimation of interest rate rules for a sample of 41 countries and testing whether deviations from the rule can be explained by a measure of central bank financial strength. Our findings, using linear and nonlinear techniques, suggests that central bank financial strength can be a statistically significant factor explaining large negative interest rate deviations from "optimal" levels.
Banks and banking, Central --- Monetary policy --- Bank capital --- Capital --- Banker's banks --- Banks, Central --- Central banking --- Central banks --- Banks and banking --- Econometric models. --- Accounting --- Banks and Banking --- Foreign Exchange --- Finance: General --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Public Administration --- Public Sector Accounting and Audits --- General Financial Markets: General (includes Measurement and Data) --- Banking --- Financial reporting, financial statements --- Currency --- Foreign exchange --- Finance --- Central bank balance sheet --- Central bank policy rate --- Financial statements --- Exchange rates --- Financial services --- Public financial management (PFM) --- Emerging and frontier financial markets --- Financial markets --- Interest rates --- Finance, Public --- Financial services industry --- United States
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This paper examines foreign exchange intervention practices and their effectiveness using a new qualitative and quantitative database for a panel of 15 economies covering 2004 - 10, with special focus on Latin America. Qualitatively, it examines institutional aspects such as declared motives, instruments employed, the use of rules versus discretion, and the degree of transparency. Quantitatively, it assesses the effectiveness of sterilized interventions in influencing the exchange rate using a two-stage IV-panel data approach to overcome endogeneity bias. Results suggest that interventions slow the pace of appreciation, but the effects decrease rapidly with the degree of capital account openness. At the same time, interventions are more effective in the context of already ?overvalued' exchange rates.
Foreign exchange rates --- Foreign exchange administration. --- Foreign exchange --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Rates of exchange --- Rates --- Banks and Banking --- Finance: General --- Foreign Exchange --- Money and Monetary Policy --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International Financial Markets --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Banking --- Finance --- Monetary economics --- Currency markets --- Exchange rate assessments --- Financial markets --- Currencies --- Money --- Banks and banking --- Foreign exchange market --- Colombia
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Is Digitalization Driving Domestic Inflation?.
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