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Index
Title page
Copyright page
1 A Road Map to “Progress and Confusion”
The “New Normal”
2 Debt Supercycle, Not Secular Stagnation
3 Rethinking Secular Stagnation after Seventeen Months
Systemic Risk and Financial Regulation
4 A Note from the Session on Systemic Risk and Financial Regulation
5 A Comparative Analysis of Financial Sector Health in the United States, Europe, and Asia
6 Rethinking Financial Regulation: How Confusion Has Prevented Progress
7 Systemic Risk and Financial Regulation: Where Do We Stand?
8 Shadow Banking as a Source of Systemic Risk
Macroprudential Policies: Gathering Evidence
9 Macroprudential Policy Regimes: Definition and Institutional Implications
10 Macroprudential Tools, Their Limits, and Their Connection with Monetary Policy
11 A Simple Cost-Benefit Analysis of Using Monetary Policy for Financial Stability Purposes
Monetary Policy in the Future
12 Introduction to the Monetary Policy Section
13 Monetary Policy in the Future
14 A Monetary Policy for the Future
15 The Credit Surface and Monetary Policy
16 Remarks on the Future of Monetary Policy
Fiscal Policy in the Future
17 Fiscal Policy for the Twenty-First Century: Testing the Limits of the Tax State?
18 The Future of Fiscal Policy
19 What Future for Rules-Based Fiscal Policy?
20 On the Proper Size of the Public Sector and the Level of Public Debt in the Twenty-First Century
Capital Flows, Exchange Rate Management, and Capital Controls
21 Floating Exchange Rates, Self-Oriented Policies, and Limits to Economic Integration
22 Some Lessons of the Global Financial Crisis from an EME and a Brazilian Perspective
23 Capital Inflows, Exchange Rate Management, and Capital Controls
The International Monetary and Financial System
24 The International Monetary and Financial System: Eliminating the Blind Spot
25 Prospects and Challenges for Financial and Macroeconomic Policy Coordination
26 Global Safe Asset Shortage: The Role of Central Banks
27 Going Bust for Growth
Conclusion
28 Rethinking Macro Policy: Progress or Confusion?
List of Contributors
Index
Table 3.1 Ten-Year Interest Rates, April 2015 and November 2013 (Initial IMF Speech on Secular Stagnation)
Table 3.2 Real Rates, 2020–2025 (%)
Table 3.3 Breakeven Ten-Year Inflation (%)
Table 5.1 Decomposition of Change in SRISK
Table 5A.1 Number of Total Firms per Region
Table 10.1 Correlation of Policy Changes in Asia-Pacific Economies
Table 11.1 Costs and Benefit in Unemployment of a One-Percentage-Point Higher Policy Rate during four quarters
Table 27.1 Growth in Real GDP per Capita, Advanced Economies, 1996–2014
Figure 3.1 Changes to Medium-Term GDP Forecast since October 2013, Five-Year Effects. Source: IMF, World Economic Outlook, October 2013 and April 2015.
Figure 3.2 TIP Real Wages Have Fallen Steadily. US TIPS Ten-Year Real Yield. Source: Bloomberg.
Figure 3.3 Along with Rates in the Rest of World. Rest of World Real Rate. Note: 10 Year Yield – 5 Year Prior Inflation, weighted by PPP GDP. Source: Bloomberg, IMF.
Figure 5.1 SRISK Normalized by GDP Comparison. Notes: This figure plots the sum of SRISK for publicly traded financial firms (see inclusion criteria in the appendix to this chapter) in a given week, scaled by the country’s (or sum of the countries’) latest GDP figure available that week, for the United States, China, Asia (including China), and Europe. The SRISK data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk) from January 1, 2007, until end of September 2014. The country GDP data are from Bloomberg.
Figure 5.2 Aggregate Leverage Comparison. Notes: This figure plots the aggregate (quasi-) leverage for publicly traded financial firms (see the inclusion criteria in the appendix to this chapter) for the United States, China, Asia (including China), and Europe. Quasi-leverage of a financial firm is its quasi-market assets (market value of equity + book value of nonequity liabilities) divided by the market value of equity. Quasi-leverage of financial firms in a region is weighted by the market value of equity of financial firms to obtain the aggregate quasi-leverage. The leverage data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk) from January 1, 2007, until end of September 2014.
Figure 5.3 Global Systemic Risk by Country: Europe. Notes: This figure plots the top twenty country-level values in Europe of the sum of SRISK in USD billion for publicly traded financial firms (see inclusion criteria in the appendix to this chapter) in a country as of October 10, 2014. The SRISK data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk).
Figure 5.4 European SRISK Normalized by GDP. Notes: This figure plots the top twenty country-level values in Europe of the sum of SRISK for publicly traded financial firms (see inclusion criteria in the appendix to this chapter) in a country, scaled by the country’s latest GDP figure available as of October 10, 2014. The SRISK data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk). The country GDP data are from Bloomberg.
Figure 5.5 Global Systemic Risk by Country: Asia. Notes: This figure plots the top thirteen country-level values in Asia (including Australia and New Zealand) of the sum of SRISK in USD billion for publicly traded financial firms (see inclusion criteria in the appendix to this chapter) in a country as of October 10, 2014. The SRISK data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk).
Figure 5.6 Asia SRISK Normalized by GDP. Notes: This figure plots the top eleven country-level values in Asia (including Australia and New Zealand) of the sum of SRISK for publicly traded financial firms (see inclusion criteria in the appendix to this chapter) in a country, scaled by the country’s latest GDP figure available as of October 10, 2014. The SRISK data are from the NYU Stern Volatility Lab (http://vlab.stern.nyu.edu/welcome/risk). The country GDP data are from Bloomberg.
Figure 10.1 Comparison of Macroprudential Policy with Monetary Policy.
Figure 10.2 Policy Rates Compared to Taylor Rules. Notes: See Boris Hofmann and Bilyana Bogdanova, “Taylor Rules and Monetary Policy: A Global ‘Great Deviation’?,” BIS Quarterly Review, September 2012, 37–49, http://www.bis.org/publ/qtrpdf/r_qt1209f.pdf. Sources: IMF, International Financial Statistics and World Economic Outlook; Bloomberg; CEIC; Consensus Economics; Datastream; national data; authors’ calculations.
Figure 10.3 Duration of Assets and Liabilities of European Insurance Companies. Source: European Insurance and Occupational Pensions Authority (EIOPA).
Figure 15.1 Two-Dimensional Credit Surface.
Figure 15.2 One-Dimensional Credit Surface.
Figure 15.3 Mortgage Bond Leverage Cycle. Note: The chart represents the average total repo loan as a percentage of asset value available from dealers on a hypothetical portfolio of CMOs originally rated AAA, subject to certain adjustments noted below. The price time series of imputed Alt-A floater prices is based on the Alt-A price drop versus agency collateral time series available from Barclays. The portfolio evolved over time, and changes in average margin reflect changes in composition as well as changes in margins of particular securities. In the period following August 2008, a substantial part of the increase in margins is due to bonds that could no longer be used as collateral after being downgraded, or for other reasons, and hence count as 100 percent margin.
Figure 15.4 Change in Origination Volumes, 2006 versus 2013.
Figure 17.1 Unexpected Increase in General Government Debt in Selected Countries (2007–2010, percent of 2010 GDP). Note: PPP-GDP weighted average across ten countries with largest increase in general government gross debt–to-GDP ratio during 2007–2010. Includes France, Germany, Greece, Iceland, Ireland, Netherlands, Spain, Portugal, UK, and the United States. Source: International Monetary Fund, “Fiscal Transparency, Accountability, and Risk,” IMF Policy Paper, Washington, DC, 2012.
Figure 17.2 Forecast Error for General Government Debt (actual minus forecast for year t + 2, 2001–2013 average as percent of GDP). Note: The chart presents annual forecast errors averaged between 2001 and 2013. Forecast errors are calculated as the actual outcome for debt-to-GDP ratio minus the forecast for the debt-to-GDP ratio prepared two years earlier. Includes all EU member-states except Croatia because of data availability. Sources: EU Stability and Convergence Programmes; IMF staff estimates.
Figure 17.3 Distribution of Fiscal Stabilization Coefficients. Note: “Significant” is defined as a coefficient with a P value less than 0.10. Source: IMF, Fiscal Monitor, “Now is the Time: Fiscal Policies for Sustainable Growth,” April 2015.
Figure 17.4 Selected Fiscal Stabilization Coefficients (FISCO). Note: “Significant” is defined as a coefficient with a P value less than 0.10. Source: IMF, Fiscal Monitor , “Now is the Time: Fiscal Policies for Sustainable Growth,” April 2015.
Figure 17.5 Advanced Economies: FISCO, Output Volatility and Real GDP Growth, 1980–2013. Note: Output volatility is defined as the standard deviation of the real GDP growth rate over the sample period. Source: IMF, Fiscal Monitor, “Now Is the Time: Fiscal Policies for Sustainable Growth,” April 2015.
Figure 17.6 Asymmetric Stabilization: Unpleasant Public Debt Arithmetic (percent of GDP). Note: The simulations are based on the stock flow identity between debt and the overall balance. Other assumptions are nominal potential growth of 4 percent, an automatic stabilization coefficient of 0.5, an implicit interest rate on public debt of 5 percent, and symmetric cycles, with the output gap smoothly oscillating between −2 and 2 percent. No fiscal adjustment is built into the scenario. The t denotes the initial year of the simulation. Source : IMF staff estimates.
Figure 20.1 Ten-year Constant Maturity U.S. Treasury Nominal Rate. Source : Federal Reserve Economic Data, Federal Reserve Bank of St. Louis.
Figure 20.2 Economic Growth and Interest Rates Have Become More Closely Aligned. Source : Center on Budget and Policy Priorities, CBPP.org.
Figure 22.1 The Impossible Trinity, and Instruments and Policies to Manage It.
Figure 22.2 Macroeconomic Stability (Activity/Inflation and Financial).
Figure 24.1 Global credit in US dollars and euros to the nonfinancial sector. Notes: a. At constant end-Q3 2014 exchange rates. b. Credit to the nonfinancial sector in the United States/euro area from financial accounts, excluding identified credit to borrowers in nondomestic currencies (i.e., cross-border and locally extended loans and outstanding international bonds in nondomestic currencies). c. Cross-border and locally extended loans to nonbanks outside the United States/euro area. For China, locally extended loans are derived from national data on total local lending in foreign currencies on the assumption that 80 percent are denominated in US dollars. For other non-BIS reporting countries, local US dollar/euro loans to nonbanks are proxied by all BIS reporting banks’ gross cross-border US dollar/euro loans to banks in the country, on the assumption that these funds are then extended to nonbanks. Sources : IMF, International Financial Statistics ; Datastream; BIS international debt statistics and locational banking statistics by residence.
Figure 24.2 Official Holdings of US Treasury Securities (in trillions of US dollars).* Notes: *Different valuation methods based on source availability. a. Covers the euro area, Japan, the United Kingdom and the United States; for the euro area, Japan and the United Kingdom, converted into US dollars using Q2 2015 constant exchange rates. b. For the United States, total marketable Treasury securities, excluding agency debt. c. For euro- and yen-denominated reserves, 80% is assumed to be government debt securities; for dollar-denominated reserves, as reported by the US Treasury International Capital System; for sterling-denominated reserves, holdings by foreign central banks. d. For the euro area, national central bank holdings of general government debt and ECB holdings under the Public Sector Purchase Programme and the Securities Market Programme. e. Agency debt includes mortgage pools backed by agencies and government-sponsored enterprises (GSEs) as well as issues by GSEs; total outstanding Treasury securities are total marketable Treasury securities. Sources : Board of Governors of the Federal Reserve System; US Department of the Treasury; Datastream; BIS calculations.
Figure 27.1 Japan: CPI Inflation Rate (period average, in percent). Source : World Economic Outlook Database, IMF, April 2015.
Figure 27.2 Household Savings and Deflation Rate: Japan. Note : This chart plots the deflation rates and savings ratios for Japan for all years with negative inflation rates since 1980–1995, 1999, 2000–2005, and 2009–2014. Source: World Economic Outlook Database, IMF, April 2015.
Figure 27.3 Current Account Balance (as percent of GDP). Note : Emerging economies include “emerging and developing” countries. Source: World Economic Outlook Database, IMF, April 2015.
Figure 27.4 Real Effective Exchange Rate Movements, 2006–2014. Notes: a. Selected emerging economies (REER index, 2010 = 100). b. Advanced economies (REER index, 2010 = 100). Source : World Economic Outlook Database, IMF, April 2015.
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