Record ID

38     [ Page 66 of 68, No. 1 ]

Date

2010-04

Author

Ansgar Belke

Affiliation

University of Duisburg-Essen, DIW Berlin and IZA Bonn

Title

How Much Fiscal Backing Must the ECB Have? The Euro Area Is Not the Philippines

Summary /
Abstract

The ECB has accepted increasing amounts of rubbish collateral since the crisis started leading to exposure to serious private sector credit risk (i.e. default risk) on its collateralised lending and reverse operations ("repo"). This has led some commentators to argue that the ECB needs "fiscal back-up" to cover any potential losses to be able to continue pursuing price stability. This Brief argues that fiscal backing is not necessary for the ECB for three reasons. Firstly, the ECB balance sheet risk is small compared to the FED and BoE as it neither increased its quasi-fiscal operations as much as the Fed or the BoE nor did it engage to a very large extent in outright bond purchases during the financial crisis. Secondly, the ECB's specific accounting principles of repo operations provide for more clarity and earlier recognition of losses. Thirdly, the ECB can draw on substantial reserves of the euro area national banks.

Keywords

Central bank independence, central bank capital, counterparty risk, repurchase agreements, collateral, fiscal backing, liquidity, haircuts

Remarks

This is a briefing paper prepared for presentation at the Committee on Economic and Monetary Affairs of the European Parliament for the quarterly dialogue with the President of the European Central Bank, Brussels, March 2010. I find the title arrogant and insulting. The author's main thesis--that the ECB is immune from fiscal dominance--is not even true, in light of the recent crisis in Greece and the further potential threats to the euro posed by fiscal problems in Spain and Portugal.

Record ID

41     [ Page 66 of 68, No. 2 ]

Date

2010-04

Author

Jorge A. Chan-Lau

Affiliation

IMF

Title

The Global Financial Crisis and its Impact on the Chilean Banking System

Summary /
Abstract

This paper explores how the global turmoil affected the risk of banks operating in Chile, and provides evidence that could help strengthen work on vulnerability indicators and off-site supervision. The analysis is based on the study of default risk codependence, or CoRisk, between Chilean banks and global financial institutions. The results suggest that the impact of the global financial crisis was limited, inducing at most a one-rating downgrade to banks operating in Chile. The paper concludes by assessing government measures aimed at reducing systemic risk in the domestic banking sector and the recommendations to allocate SWF assets to domestic banks.

Source: IMF Working Paper No. 10/108

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10108.pdf

Remarks

Continuing on new methods of assessing banking risk, This is another paper by Jorge Chan Lau of the IMF as addition to your inventory of useful tools.

Record ID

42     [ Page 66 of 68, No. 3 ]

Date

2010-04

Author

Jorge A. Chan-Lau

Affiliation

IMF

Title

Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems

Summary /
Abstract

The 2008/2009 financial crisis highlighted the importance of evaluating vulnerabilities owing to interconnectedness, or Too-Connected-to-Fail risk, among financial institutions for country monitoring, financial surveillance, investment analysis and risk management purposes. This paper illustrates the use of balance sheet-based network analysis to evaluate interconnectedness risk, under extreme adverse scenarios, in banking systems in mature and emerging market countries, and between individual banks in Chile, an advanced emerging market economy."

Source: IMF Working Paper No. 10/107

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10107.pdf

Remarks

Another application of balance sheet-based network analysis.

Record ID

43     [ Page 66 of 68, No. 4 ]

Date

2010-04

Author

Kimberly Beaton, Carlos de Resende, René Lalonde, and Stephen Snudden

Affiliation

Bank of Canada

Title

Prospects for Global Current Account Rebalancing

Summary /
Abstract

The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered.

Source: Bank of Canada Discussion Paper 2010-4

Record ID

44     [ Page 66 of 68, No. 5 ]

Date

2010-04

Author

Marco A. Espinosa-Vega and Juan Solé

Affiliation

IMF

Title

Cross-Border Financial Surveillance: A Network Perspective

Summary /
Abstract

Effective cross-border financial surveillance requires the monitoring of direct and indirect systemic linkages. This paper illustrates how network analysis could make a significant contribution in this regard by simulating different credit and funding shocks to the banking systems of a number of selected countries. After that, we show that the inclusion of risk transfers could modify the risk profile of entire financial systems, and thus an enriched simulation algorithm able to account for risk transfers is proposed. Finally, we discuss how some of the limitations of our simulations are a reflection of existing information and data gaps, and thus view these shortcomings as a call to improve the collection and analysis of data on cross-border financial exposures.

Source: IMF Working Paper No. 10/105

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp10105.pdf

Remarks

This is an IMF WP coming from the Money and Capital Markets Dept, using a pretty simple balance sheet identities' framework they call "network analysis."

Record ID

46     [ Page 66 of 68, No. 6 ]

Date

2010-04

Author

Ruben Atoyan

Affiliation

IMF

Title

Beyond the Crisis: Revisiting Emerging Europe’s Growth Model

Summary /
Abstract

Focusing on the nexus between economic growth and buildup of external vulnerabilities, this
paper provides a systematic account of different growth strategies followed in Central and
Eastern Europe in 2000-08 and then uses this growth diagnostics to derive implications for
the post-crisis recovery. The main findings point to three policy lessons for improving
growth sustainability. First, greater reliance on tradable sectors should be the cornerstone of
the future growth model. Second, enhancing domestic sources of bank credit funding would
contribute to mitigation of external vulnerabilities and make domestic financial system more
resilient to global financial shocks. Third, prudential and macroeconomic policies will have
to be more proactive in managing capital inflows, including funneling these inflows into
investment in the export-oriented industries.

Source: IMF Working Paper No. 10/92

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp1092.pdf

Remarks

This is an empirical paper linking economic growth to external vulnerabilities, going beyond the recent crisis, and using the experiences and data on Central and Eastern Europe from 2000-08.
Using cluster analysis and multinomial logit model, the author draws three major policy conclusions: "First, greater reliance on tradable sectors should be the cornerstone of the future growth model. Second, enhancing domestic sources of bank credit funding would contribute to mitigation of external vulnerabilities and make domestic financial system more resilient to global financial shocks. Third, prudential and macroeconomic policies will have to be more proactive in managing capital inflows, including funneling these inflows into investment in the export-oriented industries."


All the above policy conclusions are identical to the macroeconomic policies for stable growth that I analyzed and derived in my World Scientific book.

Record ID

2     [ Page 66 of 68, No. 7 ]

Date

2010-03

Author

Alan S. Blinder

Affiliation

Princeton University

Title

Quantitative Easing: Entrance and Exit Strategies

Summary /
Abstract

Apparently, it can happen here. On December 16, 2008, the Federal Open Market Committee (FOMC), in an effort to fight what was shaping up to be the worst recession since 1937, reduced the federal funds rate to nearly zero.1 From then on, with all of its conventional ammunition spent, the Federal Reserve was squarely in the brave new world of quantitative easing. Chairman Ben Bernanke tried to call the Fed�s new policies credit easing, probably to differentiate them from what the Bank of Japan had done earlier in the decade, but the label did not stick.

URL:http://d.repec.org/n?u=RePEc:pri:cepsud:1219&r=mac

Keywords

Recession, Federal Reserve, open market committee, banking policy, deflation, monetary policy

URL

http://d.repec.org/n?u=RePEc:pri:cepsud:1219&r=mac

Remarks

http://www.princeton.edu/~ceps/workingpapers/204blinder.pdf

Record ID

39     [ Page 66 of 68, No. 8 ]

Date

2010-03

Author

Ida Wolden Bache, Leif Brubakk and Junior Maih

Title

Simple rules versus optimal policy: what fits?

Summary /
Abstract

We estimate a small open-economy DSGE model for Norway with two specifications of monetary policy: a simple instrument rule and optimal policy based on an intertemporal loss function. The empirical fit of the model with optimal policy is as good as the model with a simple rule. This result is robust to allowing for misspecification following the DSGE-VAR approach proposed by Del Negro and Schorfheide (2004). The interest rate forecasts from the DSGE-VARs are close to Norges Bank's official forecasts since 2005. One interpretation is that the DSGE-VAR approximates the judgment imposed by the policymakers in the forecasting process.

Source: Norges Bank Working Paper No. 2010-03

Keywords

DSGE models, forecasting, optimal monetary policy

Remarks

This is an empirical study by economists from the Monetary Policy Dept of the Central Bank of Norway.

Record ID

45     [ Page 66 of 68, No. 9 ]

Date

2010-02

Author

Structural macro-econometric modelling in a policy environment

Affiliation

Federal Reserve Bank of Kansas City

Title

Structural macro-econometric modelling in a policy environment

Summary /
Abstract

In this paper we review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. We identify and characterise four generations of macro models. Particular attention is paid to the fourth generation -- dynamic stochastic general equilibrium models. We discuss some of the problems in how these models are implemented and quantified.

Source: Research Working Paper of the Federal Reserve Bank of Kansas City

Keywords

Structural macro-econometric modelling in a policy environment

Remarks

This is a very useful survey paper (jointly with Martin Fukac) by the world-renowned Australian econometrician, Adrian Pagan, whom I met in Singapore when we were both Visiting Profs at Bobby Mariano's SMU during 2005-06. By policy environment, they mean "central banking."

Record ID

47     [ Page 66 of 68, No. 10 ]

Date

2010-02

Author

Jordi Galí

Affiliation

CREI, Universitat Pompeu Fabra, and Barcelona GSE

Title

Monetary Policy and Unemployment

Summary /
Abstract

Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. The present paper describes some of the essential ingredients and properties of those models, and their implications for monetary policy.

Keywords

nominal rigidities, labor market frictions, wage rigidities

Remarks

This is a paper by Jordi Gali, to be included as a chapter in the Handbook of Monetary Economics (ed. by B. Friedman and M Woodford). It explicitly incorporates labor market frictions and unemployment in a DSGE framework.