The Role of the U.S. In the Global Financial System

The Role of the U.S. In the Global Financial System

photo: ctj71081 The mandate of the Federal Reserve is clear: “…promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” How to achieve those goals, of course, has been the subject of great debate: should the central bank use interest rates or monetary aggregates? should it rely on rules or discretion? The ongoing controversy […]

Nigeria, IMF and the Least Bad Policies

Nigeria, IMF and the Least Bad Policies

photo: Nicolas Raymond As Nigeria’s economic challenges are rising, the IMF has been increasingly vocal. What is really needed are policies that are in the interest of most Nigerians. According to the International Monetary Fund (IMF), Nigeria’s external challenges are substantial and deteriorating. Due to the reliance on oil revenues, the general government deficit doubled […]

The IMF and the Next Crisis

The IMF and the Next Crisis

photo: World Bank Photo Collection The IMF has issued a warning that “increasing financial market turbulence and falling asset prices” are weakening the global economy, which already faces headwinds due to the “…modest recovery in advanced economies, China’s rebalancing, the weaker-than-expected growth impact from lower oil prices, and generally diminished growth prospects in emerging and low-income […]

Can Systemic Financial Risk Be Contained?

Can Systemic Financial Risk Be Contained?

Risk aversion is a basic human characteristic, and in response to it we seek to safeguard the world live in. We mandate airbags and safety belts for automobile driving, set standards for the handling and shipment of food, build levees and dams to control floods, and regulate financial transactions and institutions to avoid financial collapses. […]

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 […]

Renminbi as the 5th International Reserve Currency

Renminbi as the 5th International Reserve Currency

photo: Jason Howie If the IMF will endorse the renminbi as a new international reserve currency, the repercussions will be global and historical. Recently, the International Monetary Fund’s staff and its chief Christine Lagarde suggested that the yuan should join the basket of international reserve currencies (the Special Drawing Rights, or SDR). The inclusion is expected […]

Krugman, Summers and Secular Stagnation

Krugman, Summers and Secular Stagnation

photo: Chris Potter Secular stagnation and escape routes Paul Krugman and Larry Summers are having an interesting conversation on secular stagnation and the continuing decline in global real interest rates.[1] The ‘new secular stagnation hypothesis’ was first evoked by Larry Summers in his now famous speech at the IMF in 2013, and subsequent elaborations, to explain […]

RMB’s Inclusion Could Spark Big Reshuffle

The inclusion of the renminbi in the currency reserve basket is only a matter of time. It could trigger a US $1 trillion re­allocation of global reserve portfolios. Before the summer, investment banks estimated that, in the medium-term, at least US$1 trillion of global reserves could switch into Chinese assets when, and if, the International […]

Capital Flows, Credit Booms and Bank Crises

Studies of the impact of capital inflows have established that debt inflows can lead to bank crises (see here and here). Unlike equity, payments on debt are contractual and can not be cancelled if there is an economic downturn, which intensifies any shocks to the financial system. In the case of short-term debt, a foreign lender may decide […]

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