Modigliani and Miller at the IMF

Modigliani and Miller at the IMF

In a paper on tax policy, leverage and macroeconomic stability published on 10 November, the IMF staff address the issue of excessive leverage or the so-called “debt bias” that poses risks for financial and macroeconomic stability. The “debt bias” has been largely created by more favorable tax treatment of debt relatively to equity. In most […]

We Have Lift-Off

We Have Lift-Off

The Federal Reserve delivered a hawkish hike. The dot plot reflects expectations for four rate hikes in 2016. There were no dissents. This is important. It underscores the decisiveness of the decision. There have been three voting Fed members that were thought to be likely dissents. The Fed will also continue to reinvest maturing securities […]

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 […]

De-Risking Is De-Linking Small States from Global Finance

De-Risking Is De-Linking Small States from Global Finance

photo: Images Money Small states, like the Caribbean countries, have been negatively affected by recent “de-risking” policies implemented by international banks, with particularly damaging consequences on correspondent banking relationships. While recommendations from the Financial Action Task Force (FATF) to deal with risks of money laundering and terrorism financing have often been mentioned to justify those de-risking […]

Central Banks Policy Asynchronous-ity – A Source of New Risk

Since 2009, the key driver of financial markets has been low rates and abundant liquidity which has boosted all asset prices. The total amount of money pumped into global money markets is around US$10-12 trillion, enough to buy each person on earth a widescreen flat TV.  In the great reflation, according to one estimate, over […]

Is Banks’ Home Bias Good or Bad for Public Debt Sustainability?

Introduction and literature Issues related to the entrenched sovereign-bank nexus, particularly home bias—banks’ holdings of sovereign domestic debt—have gained prominence during the Global Crisis in recent years as public debt was rising especially in the European periphery.1Prompted by foreign investors’ flight as well as cheap Long-Term Refinancing Operations (LTRO) funding from the ECB, many peripheral […]

Is the U.S. Stock Market Rally Built on Solid Ground?

The S&P 500 briefly traded above 2000 yesterday for the first time. The all-time high inspired some analysts to announce (not necessarily for the first time) that the stock market was in bubble territory. But there’s a reason for the bull market: economic growth. We can debate if the growth is sustainable or even genuine–some say it’s […]

Risk-Off Momentum Rolls On

Treasury yields fell again yesterday, with the benchmark 10-year rate slipping to 2.43% at Thursday’s close—marking a 13-month low. More of the same is on tap at the moment: Early trading on Friday shows the yield dipping below 2.40%. Lower yields at this stage are a warning sign, of course, albeit inspired by a hodgepodge […]

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