Read more about the article Whither Emerging Markets Foreign Exchange Reserves

Whither Emerging Markets Foreign Exchange Reserves

After a exponential rise in foreign exchange reserves accumulation by emerging markets from 2000 onwards, the tide seems to have turned south since mid-2014. Changes in capital flows and commodity prices have been major factors behind the inflection, with the new direction expected to remain, given the context of the global economy going forward. Although it is too early to gauge whether the on-going relative unwinding of such reserves defenses will lead to vulnerability in specific emerging markets, the payoff from strengthening domestic policies has broadly increased.

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Read more about the article Middle Income Growth Traps

Middle Income Growth Traps

This paper studies the existence of middle-income growth traps in a two-period overlapping generations model of economic growth with two types of labor and endogenous occupational choices. It also distinguishes between “basic” and “advanced” infrastructure, with the latter promoting design activities, and accounts for a knowledge network externality associated with product diversification. Multiple steady-state equilibria may emerge, one of them taking the form of a low-growth trap characterized by low productivity growth and a misallocation of talent—defined as a relatively low share of high-ability workers in design activities. Improved access to advanced infrastructure may help to escape from that trap. The implications of other public policies, including the protection of property rights and labor market reforms, are also discussed.

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Read more about the article When it comes to fiscal policy, it’s better to save for a rainy day than to let it pour

When it comes to fiscal policy, it’s better to save for a rainy day than to let it pour

  While pro-cyclical fiscal policies – ie. expansionary fiscal policies in booms and contractionary fiscal stances in downturns – remain a common feature among developing countries, some countries have recently…

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Read more about the article Access to Finance, Product Innovation, and Middle-Income Growth Traps

Access to Finance, Product Innovation, and Middle-Income Growth Traps

After experiencing an initial period of rapid growth, many developing countries have fallen into the middle-income “trap”—stuck between low-wage, low-technology markets and high-income, innovation-based developed economies. This note argues that inadequate access to finance has an adverse effect on innovation, directly, through the financing of fewer research and development (R&D) projects, and also indirectly, as fewer individuals may choose to invest in the skills necessary to work in R&D fields.

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Read more about the article Calibrating 2014
Cocoa beans are processed into cocoa liquor at the Golden Tree cocoa processing and chocolate plant in Tema, Ghana, June 27, 2006. (Photo by Jonathan Ernst)

Calibrating 2014

The global economy looks poised to display better growth performance in 2014. Leading indicators are pointing upward – or at least to stability – in major growth poles. However, for this to translate into reality policymakers will need to be nimble enough to calibrate responses to idiosyncratic challenges.

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Read more about the article Walking on the Wild Side – Monetary Policy and Prudential Regulation

Walking on the Wild Side – Monetary Policy and Prudential Regulation

Global financial integration and the linkages between the financial and the real sides of economies are sources of huge policy challenges. This is now beyond doubt, after what we saw in the run-up to and the unfolding of the 2008 global financial crisis. As a consequence, the established wisdom regarding monetary policies and prudential regulation has been subject to a deep critical review, including a demise of the belief that they should be maintained as fully independent functions.

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Read more about the article Lost in Transition

Lost in Transition

Not long ago, many economists were anticipating a switchover in the global economy's main engines, with autonomous sources of growth in developing economies compensating for the drag of struggling advanced economies. But, in the last few months, enthusiasm about these economies’ prospects has given way to bleak forecasts.

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Read more about the article Brazil, Korea: Two Tales of a Macroprudential Regulation
Kajiado, Kenya 2010

Brazil, Korea: Two Tales of a Macroprudential Regulation

There are still serious questions on how to proceed with the complementary use of prudential regulation and monetary policy. While there are already lessons from emerging markets’ use of the macroprudential policy toolkit, more experience and analysis, particularly on its interaction with monetary policy is needed.

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