Entwicklungsökonomik

The ILO @ 100: addressing the past and future of work and social protection

How far should unconventional central banking go?

Pour un Etat svelte

Limits to the independence of the ECB

Description: 

The ECB might seem to be the most independent central bank in the world. Its statutes were carefully designed to ensure independence and they are enshrined in an international treaty. Yet, while serving many governments may be a protection, it can also act as a constraint on policy decisions. This essay explains how the ECB has faced limits during the Eurozone crisis. First, it had to find ways to circumvent limitations to its essential function of lender in last resort to both banks and governments. Second, the procedure to appoint members of the Executive Board is open to political interferences. Finally, it is not well protected from fiscal dominance.

Divergence? What divergence?

Taming the global financial cycle: what role for the global financial safety net?

Description: 

An ongoing active debate considers the role of the Global Financial Cycle (GFC) in driving international capital flows - especially in emerging economies - as well as the policy options available to absorb their impact. We make two contributions to the debate. First, we rely on a structural measure of the GFC developed in a companion paper to identify episodes of large capital flows and currency crises driven by global conditions. Second, using both OLS and instrumental variables we evaluate whether the availability and actual use of elements of the Global Financial Safety Net (GFSN) can help emerging markets cushion the impact of these episodes. We find some evidence that potential access to IMF support can help countries. We also find that the use of IMF support and reserves cushions the impact of global shocks on GDP growth. This effect is quite heterogeneous across types of crises and across time, as it is mostly present during currency crises, and the benefits only occur with a delay.

Corporate debt, firm size and financial fragility in emerging markets

Description: 

The post-Global Financial Crisis period shows a surge in corporate leverage in emergingmarkets and a number of countries with deteriorated corporate financial fragility indicators (Altman's Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms.

Institutions, deficits, and wars: the determinants of British government borrowing costs from the end of the seventeenth century to 1850

How FinTech enters China's credit market

Description: 

How does FinTech credit mitigate local credit supply frictions in China's segmented credit market? In our simple theoretical models, we show that FinTech credit (i) expands the extensive margin of credit to borrowers of lower credit scores and (ii) provides relatively more credit to borrowers with lower credit scores. We confirm both predictions based on comprehensive data from one of China's largest FinTech credit providers.

Oil prices, inflation expectations and monetary policy

Description: 

The sharp declines in oil prices starting in late 2014 sparked a debate about their effect on inflation and the world economy (e.g. GEP January 2015). The decline in oil prices lowered inflation in the short run and in some cases pushed some economies that already experience very low inflation into deflation. More surprisingly, data from the US, Euro area, UK and Israel shows that oil prices have a strong correlation with inflation expectations for the medium term, as measured by five-year breakeven inflation rates. Before the global financial crisis this correlation was weaker and expectations were firmly anchored at the 2% level. However, from the onset of the global crisis, the correlation is quite high (Table 1 and Figure 1). In this note we decompose the change in oil prices to global demand and supply shocks. Using this decomposition we show that following the onset of the crisis inflation expectations reacted quite strongly to global demand conditions and oil supply shocks. These findings suggest that the public’s belief in the ability of monetary authorities to stabilize inflation at the medium term horizon has deteriorated. This could be due to A. greater emphasis put by monetary authorities on stabilizing economic activity as opposed to stabilizing inflation. B. Asymmetric behavior of central banks with respect to negative deviations from the inflation target. C. The public’s perception about the effectiveness of monetary policy around the zero lower bound.

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