Bank Balance Sheets and External Shocks in Asia: The Role of FXI, MPMs and CFMs
Title | Bank Balance Sheets and External Shocks in Asia: The Role of FXI, MPMs and CFMs PDF eBook |
Author | Zefeng Chen |
Publisher | International Monetary Fund |
Total Pages | 43 |
Release | 2021-01-15 |
Genre | Business & Economics |
ISBN | 1513566830 |
In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector autoregression on ten Asian economies to understand the role of the banking sector in transmitting spillovers from the global financial cycle to small open economies. It also evaluates the effectiveness of foreign exchange intervention (FXI) and other macroeconomic policies in responding to external financing shocks. External financial shocks affect net external liabilities of banks and the exchange rate, leading to changes in credit supply by banks and investment. For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, the exchange rate acts as shock amplifier and sterilized FXI, often deployed by Asian economies, can help cushion the economy. By contrast, with real shocks, the exchange rate serves as a shock absorber, and any FXI that weakens that function can be costly. We also explore the effectiveness of the monetary policy interest rate, macroprudential policies (MPMs) and capital flow management measures (CFMs).
The Transmission of External Shocks in Asia: Country Characteristics and Policy Responses
Title | The Transmission of External Shocks in Asia: Country Characteristics and Policy Responses PDF eBook |
Author | Mr.Pragyan Deb |
Publisher | International Monetary Fund |
Total Pages | 24 |
Release | 2021-01-08 |
Genre | Business & Economics |
ISBN | 1513566113 |
Asian economies are increasingly integrated to the global economy through trade and financial linkages, exposing them to the international financial cycle. This paper explores how external shocks are transmitted to Asian economies and whether the use of policies, such as the monetary policy interest rate, foreign exchange intervention (FXI) and macroprudential measures (MPMs), can mitigate the impact of these external shocks. It uses panel quantile regressions on a sample of 14 Asian advanced and emerging economies (AEs and EMs) to assess the impact of financial and real shocks on investment and GDP growth at the median and 5th percentile tail. It finds that external financial shocks tend to have a larger effect on Asian economies than real shocks, and that the main transmission channels through which shocks are propagated are capital flows (particularly via corporate and bank balance sheets) for EMs, and credit for AEs. It also finds evidence that for Asian EMs, FXI may help dampen the capital flows and real exchange rate channels and mitigate financial shocks in the short run, and monetary policy transmission tends to be relatively weak; meanwhile MPMs can help mitigate the credit channel for both AEs and EMs.
Preemptive Policies and Risk-Off Shocks in Emerging Markets
Title | Preemptive Policies and Risk-Off Shocks in Emerging Markets PDF eBook |
Author | Ms. Mitali Das |
Publisher | International Monetary Fund |
Total Pages | 54 |
Release | 2022-01-07 |
Genre | Business & Economics |
ISBN | 1616358343 |
We show that “preemptive” capital flow management measures (CFM) can reduce emerging markets and developing countries’ (EMDE) external finance premia during risk-off shocks, especially for vulnerable countries. Using a panel dataset of 56 EMDEs during 1996–2020 at monthly frequency, we document that countries with preemptive policies in place during the five year window before risk-off shocks experienced relatively lower external finance premia and exchange rate volatility during the shock compared to countries which did not have such preemptive policies in place. We use the episodes of Taper Tantrum and COVID-19 as risk-off shocks. Our identification relies on a difference-in-differences methodology with country fixed effects where preemptive policies are ex-ante by construction and cannot be put in place as a response to the shock ex-post. We control the effects of other policies, such as monetary policy, foreign exchange interventions (FXI), easing of inflow CFMs and tightening of outflow CFMs that are used in response to the risk-off shocks. By reducing the impact of risk-off shocks on countries’ funding costs and exchange rate volatility, preemptive policies enable countries’ continued access to international capital markets during troubled times.
SHOCKS AND CAPITAL FLOWS
Title | SHOCKS AND CAPITAL FLOWS PDF eBook |
Author | GASTON. SAHAY GELOS (RATNA.) |
Publisher | International Monetary Fund |
Total Pages | 2040 |
Release | 2023 |
Genre | |
ISBN |
Toward an Integrated Policy Framework
Title | Toward an Integrated Policy Framework PDF eBook |
Author | International Monetary Fund |
Publisher | INTERNATIONAL MONETARY FUND |
Total Pages | 54 |
Release | 2020-10-08 |
Genre | Business & Economics |
ISBN | 9781513558769 |
Policymakers often face difficult tradeoffs in pursuing domestic and external stabilization objectives. The paper reflects staff’s work to advance the understanding of the policy options and tradeoffs available to policymakers in a systematic and analytical way. The paper recognizes that the optimal path of the IPF tools depends on structural characteristics and fiscal policies. The operational implications of IPF findings require careful consideration. Developing safeguards to minimize the risk of inappropriate use of IPF policies will be essential. Staff remains guided by the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows.
Malaysia
Title | Malaysia PDF eBook |
Author | International Monetary Fund. Asia and Pacific Dept |
Publisher | International Monetary Fund |
Total Pages | 97 |
Release | 2020-02-28 |
Genre | Business & Economics |
ISBN | 1513531948 |
This 2020 Article IV Consultation highlights that the Malaysian economy is stable despite domestic and external challenges. The authorities are making progress on their reform agenda including governance reforms and measures to improve the transparency and management of public finances. Policies should focus on medium-term fiscal consolidation, while safeguarding growth and financial stability. Structural reforms are needed to enshrine in law main governance measures, and to boost productivity to achieve high income status and inclusive growth. Growth has held up and inflation has remained subdued. Domestic demand is expected to be the main driver of growth over the medium term. Risks to the outlook are, on balance, to the downside. It is recommended to that medium-term fiscal consolidation plans should be underpinned by well-identified revenue and spending measures. Pushing ahead with structural fiscal reforms, including the adoption of a Fiscal Responsibility Act, as well as improvement in debt management, public procurement, and the public investment framework is important.
Staff Guidance Note on Macroprudential Policy
Title | Staff Guidance Note on Macroprudential Policy PDF eBook |
Author | International Monetary Fund |
Publisher | International Monetary Fund |
Total Pages | 45 |
Release | 2014-06-11 |
Genre | Business & Economics |
ISBN | 1498342620 |
This note provides guidance to facilitate the staff’s advice on macroprudential policy in Fund surveillance. It elaborates on the principles set out in the “Key Aspects of Macroprudential Policy,” taking into account the work of international standard setters as well as the evolving country experience with macroprudential policy. The main note is accompanied by supplements offering Detailed Guidance on Instruments and Considerations for Low Income Countries