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Journal Cover IMF Working Papers
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   ISSN (Print) 1018-5941
   Published by International Monetary Fund Homepage  [11 journals]
  • Instruments, Investor Base, and Recent Developments in the Malaysian
           Government Bond Market
    • Abstract: Foreign holdings of Malaysian local currency (LCY) government bonds have increased since the global financial crisis. By exploring the micro-level bank by bank and fund by fund data, we are able to shed light on the key features of the LCY government bonds including their investor base. The data suggest that to gain exposure to the Malaysian credit, holding cash bonds is generally only one part of the strategy of foreign investors and in many cases FX derivatives are involved. The availability of an efficient FX derivatives market could help to attract a wider range of foreign investors and enrich the bond market. Meanwhile, the analysis of the risk related to the foreign ownership ideally could also cover the role of derivatives. The analysis also allows us to conclude that despite the importance of foreign investors, domestic participants, as the core investor base, could help to ensure the stability and proper functioning of the bond market.
      PubDate: 26 Apr 2018 09:00:00 EST
  • A New Action-based Dataset of Fiscal Consolidation in Latin America and
           the Caribbean
    • Abstract: This paper presents a new database of fiscal consolidations for 14 Latin American andCaribbean economies during 1989-2016. We focus on discretionary changes in taxes andgovernment spending primarily motivated by a desire to reduce the budget deficit andlong-term fiscal health and not by a response to prospective economic conditions. Toidentify the motivation and budgetary impact of the fiscal policy changes, we examinecontemporaneous policy documents, including Budgets, central bank reports, and IMFand OECD reports. The resulting series can be used to estimate the macroeconomiceffects of fiscal consolidation for these economies
      PubDate: 26 Apr 2018 09:00:00 EST
  • Financial Crises, Macroeconomic Shocks, and the Government Balance Sheet:
           A Panel Analysis
    • Abstract: Government financial assets are increasingly recognized as playing an important role inassessing fiscal sustainability. However, very little research has been done on the dynamics ofgovernment financial assets compared to liabilities. In this paper, we investigate the impact ofrecent financial crises and macroeconomic shocks on government balance sheets, decomposingthe separate effects on financial assets and liabilities. Using quarterly Government FinanceStatistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate thenet financial worth of governments, but no significant impact is found on assets suggesting thatthey are not being used as fiscal buffers in bad times. On the contrary, countries that sufferedboth financial and banking crises experienced an “artificial” increase of their asset positionthrough bank bailouts. Macroeconomic shock analyses reveal that government balance sheetitems are countercyclical, but important asymmetries are found in their dynamics.
      PubDate: 24 Apr 2018 09:00:00 EST
  • Thou Shalt Not Breach: The Impact on Sovereign Spreads of Noncomplying
           with the EU Fiscal Rules
    • Abstract: There is evidence that fiscal rules, in particular well-designed rules, are associated with lower sovereign spreads. However, the impact of noncompliance with fiscal rules on spreads has not been examined in the literature. This paper estimates the effect of the Excessive Deficit Procedure (EDP) on sovereign spreads of European Union member states. Based on a sample including the 28 European Union countries over the period 1999 to 2016, sovereign spreads of countries placed under an EDP are found to be on average higher compared to countries that are not under an EDP. The interpretation of this result is not straight-forward as different channels may be at play, in particular those related with the credibility and the design of the EU fiscal framework. The specification accounts for typical macroeconomic, fiscal, and financial determinants of sovereign spreads, the System Generalized Method of Moments estimator is used to control for endogeneity, and results are robust to a range of checks on variables and estimators.
      PubDate: 13 Apr 2018 09:00:00 EST
  • Economic Benefits of Export Diversification in Small States
    • Abstract: The paper considers concepts of economic diversification with respect to exports (including service sectors) for small states. We assessed the economic performance of different groups of 34 small states over the period of 1990-2015 and found those more diversified experienced lower output volatility and higher average growth than most other small states. Our findings are consistent with conventional economic theories but we found that export diversification has a more significant impact on reducing output volatility than improving long run growth in small states. Diversification requires fundamental changes and should be contemplated in the context of a cohesive development strategy.
      PubDate: 11 Apr 2018 09:00:00 EST
  • The Global Macrofinancial Model
    • Abstract: This paper documents the theoretical structure and empirical properties of the latestversion of the Global Macrofinancial Model (GFM). This dynamic stochastic generalequilibrium model of the world economy, disaggregated into forty national economies,was developed to support multilaterally consistent macrofinancial policy, risk andspillover analysis. It features a range of nominal and real rigidities, extensivemacrofinancial linkages, and diverse spillover transmission channels. Thesemacrofinancial linkages encompass bank and capital market based financialintermediation, with financial accelerator mechanisms linked to the values of the housingand physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis,macroprudential policy analysis, spillover analysis, and forecasting applications of theGFM are demonstrated. These include quantifying the monetary, fiscal andmacroprudential policy transmission mechanisms, accounting for business cyclefluctuations, and generating relatively accurate forecasts of inflation and output growth.
      PubDate: 09 Apr 2018 09:00:00 EST
  • Relationship Between Short-Term Interest Rates and Excess Reserves : A
           Logistic Approach
    • Abstract: This paper models the relationship between short-term rates and excess reserves in aninterest rate corridor as a logistic function estimated for the Eurosystem. The estimatehelps to identify conditions in which short-term rates become unanchored, that is, theymove away from the policy rates and become more volatile within the interest ratecorridor defined by the interest rates of the central bank’s standing facilities. Theseconditions are attributed to coordination failures among counterparties at open marketoperations under fixed-rate and full-allotment procedures in the context of segmentedmarkets. A model of the functioning of segmented markets describes how “un-anchoring”takes place when counterparties pursue bidding strategies optimal from an individualperspective but sub-optimal from an aggregate perspective.
      PubDate: 06 Apr 2018 09:00:00 EST
  • On the Impact of Structural Reforms on Output and Employment : Evidence
           from a Cross-country Firm-level Analysis
    • Abstract: This paper analyzes the effects of selected structural reforms on output and employment in the short and medium term. It uses a comprehensive cross-country firm-level dataset covering both advanced and emerging market economies over the period 2003-2014. In line with previous studies, it finds that structural reforms have in general a positive impact on output and employment in the medium term. Furthermore, the paper also assesses whether the impact of structural reforms varies with firm-specific characteristics, such as size, leverage, profitability, and sector. We find evidence that firm characteristics do influence the effectiveness of structural reforms. These findings have relevant policy implications as they help policymakers tailor the design of structural reforms to maximize their payoffs, taking into account their heterogeneous impact on firms.
      PubDate: 06 Apr 2018 09:00:00 EST
  • Globalization and the New Normal
    • Abstract: This study expands the empirical specification of Cerra and Saxena (2008), and allows short-termoutput growth regimes to be determined by globalization. Relying on a non-linear dynamic panelrepresentation, it reconciles the earlier results in the literature regarding the two oppositenarratives of the effects of globalization on output growth. Countries experience higher growth, onaverage, the more open and integrated they are into the world. However, once they reach a certainglobalization threshold (endogenously estimated), countries may also experience a new normal,persistently lower short-term output growth following a financial crisis. The benefits, as well asvulnerabilities, accrue earlier in the globalization process for low- and middle-income countries.To solely reap the globalization benefits on growth, sound policies should be in place to mitigatethe negative effects stemming from increased vulnerabilities brought by globalization.
      PubDate: 06 Apr 2018 09:00:00 EST
  • Interest-Growth Differentials and Debt Limits in Advanced Economies
    • Abstract: Do persistently low nominal interest rates mean that governments can safely borrow more'To addresses this question, I extend the model of Ghosh et al. [2013] to allow for persistentstochastic changes in nominal interest and growth rates. The key model parameter is thelong-run difference between nominal interest and growth rates; if negative, maximumsustainable debts (debt limits) are unbounded. I show how both VAR- and spectral-basedmethods produce negative point estimates of this long-run differential, but cannot rejectpositive values at standard significance levels. I calibrate the model to the UK using positivebut statistically plausible average interest-growth differentials. This produces debt limitswhich increase by only around 5% GDP as interest rates fall after 2008. In contrast, only atiny change in the long-run average interest-growth differential – from the 95th to the 97.5thpercentile of the distribution – is required to move average debt limits by the same amount.
      PubDate: 06 Apr 2018 09:00:00 EST
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Heriot-Watt University
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