China and Emerging Markets: Riding Wild Horses
The 2014 baseline for the global economy still appears to be trending upwards, but the Year of the Horse may be jumpy.
Dealing with the challenges of macro financial linkages in emerging markets
Book launch (2014-01-29) - "Dealing with the challenges of macro financial linkages in emerging markets" Click here to download To watch the book launch, click here or copy and paste…
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.
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.
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.
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.
Elephants and Macro-Financial Linkages
Emerging Markets (EMs) are more likely to suffer shocks, such as commodity-price and terms-of-trade shocks, as well as surges and sudden stops in capital flows.. Furthermore, structural and institutional features typical of most EMs tend to amplify and propagate shocks. Even when asset price-led cycles are not generated within EMs, they tend to be affected the most due to capital flows.
Dealing with the Challenges of Macro Financial Linkages in Emerging Markets
The 2008 financial crisis has emphasized the importance of macro financial linkages. In the financial sector, attention is now focusing on macro prudential regulations that are geared toward the stability of the financial system as a whole. In the macro arena, the recognition that price stability was not sufficient to guarantee macroeconomic stability and that financial imbalances developed despite low inflation and small output gaps has highlighted the need for additional tools (macro prudential policies) to complement monetary policy in countercyclical management. Emerging markets (EMs) face different conditions and have key structural features that can have a bearing on the relevance and efficacy of policy measures. Drawing on Canuto, Otaviano, and Swati R. Ghosh, eds. 2013. Dealing with the Challenges of Macro Financial Linkages in Emerging Markets. Washington, DC: World Bank), this note discusses the challenges of dealing with macro financial linkages and explores the policy toolkit available for dealing with systemic risks, particularly in the context of EMs.
Monetary Policy and Macro Prudential Regulation: Whither Emerging Markets
Confidence in conventional financial stability regimes was shattered by the scale of the financial crisis. This book chapter explores the need for coordination between monetary policies and macro prudential…
Dealing with the Challenges of Macro Financial Linkages in Emerging Markets
The 2008 financial crisis highlighted the challenges associated with global financial integration, emphasized the importance of macro financial linkages and challenged pre-crisis financial stability regimes.
Emerging Markets and the Unwinding of Quantitative Easing
The mid-year season was marked by a strong pressure of capital outflows and exchange rate devaluations in several systemically relevant emerging market economies. Announcements in May that the Federal Reserve had started to focus on phasing out its asset-purchase program – otherwise known as quantitative easing or (QE) sparked a surge in bond yields that in turn triggered an asset sell-off in those emerging markets. Although subsiding in September, particularly after the Fed announced that “tapering” would not begin yet, concerns remain about what will happen when the actual unwinding of QE eventually unfolds. We argue here that events since May could ideally provide a “fire drill” that might induce emerging markets to address various policy shortcomings that have been exacerbated by the flood of global liquidity in the last few years.
Instanbul, Turkey
QE Tapering as a Wake-up Call for Emerging Markets
While unconventional monetary policies have been appropriately anti-cyclical in ACs implementing them, they have had inappropriately pro-cyclical consequences on EMs -- boosting credit and demand when most economies among the latter were already heated up, and threatening to accentuate a slowdown where it started to happen.
Emerging Markets Selloff: What’s Next?
The adjustment to the “normalization” of the US monetary policy may end up being not as disruptive as many analysts are expecting. It will depend on the pace of recovery in the US economy and/or the smoothness of China’s adjustment-cum-slowdown . However, to fully overcome the current turmoil, EMs must not lose sight of their country-specific reform agendas.
China, Brazil: Two Tales of a Growth Slowdown
China and Brazil are both facing a growth slowdown, as compared to the period prior to the global financial crisis. They were both able to respond with aggressive anti-cyclical policies to the post-Lehman quasi-collapse of the global economy. In both cases, such policies led to a growth rebound by reinvigorating previous patterns of growth. This brought forth the exhaustion of such patterns and the need to transit to other growth regimes.
China: The Morphing Dragon
The metamorphosis of the dragon may involve painful growing pains, including the risks of a hard landing that many analysts attribute to the current transition. The forthcoming two decades are setting the next stage of a half-century that could be marked by dramatic economic transformation, creating both challenges and opportunities for China and the rest of the world.