GLOBAL BANK RISK AND MONETARY POLICY IN AN EMERGING ECONOMY

2021 ◽  
pp. 1-32
Author(s):  
Paul Luk
Keyword(s):  
Monetary Policy ◽  
Financial Risk ◽  
Global Financial Crisis ◽  
Emerging Economy ◽  
Exchange Rate Flexibility ◽  
Trade Offs ◽  
Global Banking ◽  
The Usa ◽  
The Global Financial Crisis ◽  
Global Banks

The global financial crisis was characterized by heightened financial risk in the USA, which spread to the rest of the world, including emerging economies. This paper constructs a core–periphery model with a global banking network and financial frictions. Due to a common-lender effect, when global banks lend to an emerging economy, heightened financial risk in the center depresses cross-border lending to the emerging economy, reducing real activities and exacerbating monetary policy trade-offs. As financial markets become more integrated, exchange rate flexibility becomes less welfare enhancing and active capital account policy becomes more welfare enhancing.

GLOBAL BANK RISK AND MONETARY POLICY IN AN EMERGING ECONOMY

2021 ◽  
pp. 1-32
Author(s):  
Paul Luk
Keyword(s):  
Monetary Policy ◽  
Financial Risk ◽  
Global Financial Crisis ◽  
Emerging Economy ◽  
Exchange Rate Flexibility ◽  
Trade Offs ◽  
Global Banking ◽  
The Usa ◽  
The Global Financial Crisis ◽  
Global Banks

The global financial crisis was characterized by heightened financial risk in the USA, which spread to the rest of the world, including emerging economies. This paper constructs a core–periphery model with a global banking network and financial frictions. Due to a common-lender effect, when global banks lend to an emerging economy, heightened financial risk in the center depresses cross-border lending to the emerging economy, reducing real activities, and exacerbating monetary policy trade-offs. As financial markets become more integrated, exchange rate flexibility becomes less welfare enhancing and active capital account policy becomes more welfare enhancing.

Inflation persistence and structural breaks

2016 ◽  
Vol 43 (6) ◽  
pp. 980-1005 ◽  
Author(s):  
Giorgio Canarella ◽  
Stephen M. Miller
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Structural Breaks ◽  
Global Financial Crisis ◽  
Structural Break ◽  
Mean Reversion ◽  
Inflation Persistence ◽  
Content Type ◽  
The Usa ◽  
The Global Financial Crisis

Purpose The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the USA, a non-IT country with a history of credible monetary policy. Design/methodology/approach First, the authors estimate inflation persistence in a rolling-window fractional-integration setting using the semiparametric estimator suggested by Phillips (2007). Second, the authors use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. The authors use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. Finally, the authors reapply the Phillips (2007) estimator to the subsamples defined by the breaks. Findings Four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the USA experience a structural break in inflation persistence that coincides with the global financial crisis. Research limitations/implications The authors find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity. Practical implications Monetary policy implications differ between pre- and post-global financial crisis. Social implications Global financial crisis affected the persistence of inflation rates. Originality/value First paper to consider the effect of the global financial crisis on inflation persistence.

scholarly journals What happened to global banking after the crisis?

2017 ◽  
Vol 25 (3) ◽  
pp. 241-252 ◽  
Author(s):  
Dirk Schoenmaker
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Social Implications ◽  
Composition Effect ◽  
Content Type ◽  
Leverage Ratio ◽  
Global Banking ◽  
The Global Financial Crisis ◽  
Global Banks ◽  
Global Reach

Purpose Large global banks were at the heart of the global financial crisis. In response to the crisis, the Financial Stability Board published an integrated set of policy measures, such as capital surcharges, to address the systemic and moral hazard risks associated with global systemically important banks (G-SIBs). Almost 10 years later, it is time to take stock of the impact of these measures. This paper answers three questions on what happened to the G-SIBs. First, have they shrunk in size? Second, are they better capitalised? Third, have they reduced their global reach? Design/methodology/approach This paper looks at the individual G-SIBs and compares the situation before the crisis with the current situation. In this methodology, the differences because of changes at individual banks and changes in the ranking within the group (composition effect) are disentangled. Data have been collected on these banks from SNL Financial (banking database) and annual reports. Findings First, a substantial increase in capital levels is seen, though the distribution is uneven. China and USA are leading the pact with leverage ratios (Tier 1 capital divided by total assets) of around 7 per cent for their large banks, whereas Europe and Japan are trailing behind with ratios between 4 and 5 per cent. Second, a strong composition effect is identified: a shift of business from the global European banks to the more domestic Asian banks, which are gradually increasing their global reach. The US banks keep their strong position. So, the decline in cross-border banking is largely because of a composition effect (i.e. a reshuffle of the global banking champions league) and far less due to a reduced global reach of individual banks. Research limitations/implications From the results on capital, recommendations are made on capital requirements (see below at social implications). Social implications It is noted that the euro area, Japan, Sweden and Switzerland trail behind with a leverage ratio between 4 and 5 per cent. It is recommended these countries bring the leverage ratio of their largest banks more in line with international practice. Originality/value The effects of the reform after the global financial crisis on the large global banks have not been researched in detail. This paper split the results by country of incorporation (home country). This gives interesting differences, which the paper relates to specific policies (or lack of policies) in these countries.

Conclusions

2017 ◽  
Author(s):  
Yilmaz Akyüz
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Developing Economies ◽  
Quantitative Easing ◽  
Unconventional Monetary Policy ◽  
Advanced Economies ◽  
The Global Financial Crisis ◽  
Zero Bound

The preceding chapters have examined the deepened integration of emerging and developing economies (EDEs) into the international financial system in the new millennium and their changing vulnerabilities to external financial shocks. They have discussed the role that policies in advanced economies played in this process, including those that culminated in the global financial crisis and the unconventional monetary policy of zero-bound interest rates and quantitative easing adopted in response to the crisis, as well as policies in EDEs themselves....

Global Banking: Toward an Assessment of Benefits and Costs

2020 ◽  
Vol 12 (1) ◽  
pp. 141-175
Author(s):  
Claudia M. Buch ◽  
Linda S. Goldberg
Keyword(s):  
Evaluation Studies ◽  
Cost And Benefit ◽  
Theoretical Literature ◽  
Trade Offs ◽  
Global Banking ◽  
Policy Frameworks ◽  
Key Dimensions ◽  
Benefits And Costs ◽  
Global Banks ◽  
Empirical Analyses

Global activities of banks are a core manifestation of broader patterns of globalization of production, trade, and finance. This article reviews the extensive recent empirical and theoretical literature on global banking, emphasizing the careful empirical analyses that incorporate key dimensions of heterogeneity among borrowers and lenders, and across activities. The actions of globally active banks are consequential, with cost and benefit trade-offs that differ during their lifetimes and at times of stress. Both research and policymaking around global banking benefit from improved infrastructures around collection of and access to granular data and repositories of evaluation studies. Although overall positive contributions from welfare perspectives arise from the activities of global banks, these organizations require appropriately targeted policy frameworks and oversight.

INFLATION TARGETING: IT'S NOT BROKE, IT DOESN'T NEED FIXING, BUT CAN IT SURVIVE?

2010 ◽  
Vol 01 (01) ◽  
pp. 59-80
Author(s):  
PIERRE L. SIKLOS
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Asset Price ◽  
Central Banks ◽  
Economic Downturn ◽  
Price Increases ◽  
The Global Financial Crisis ◽  
Nominal Anchor

Until the end of 2005 there were few outward signs that the inflation targeting (IT) monetary policy strategy was deemed fragile or that the likelihood of abandoning it was high. In light of the severe economic downturn and the global financial crisis that has afflicted most economies around the world since at least 2008, it is worth reconsidering the question of the fragility of the inflation targeting regime. This paper reprises the approach followed in Siklos (2008) but adds important new twists. For example, the present study asks whether the continued survival of IT is due to the fact that some of the central banks in question did take account of changes in financial stress. The answer is no. Indeed, many central banks are seen as enablers of rapid asset price increases. The lesson, however, is not that inflation targeting needs to be repaired. Instead, refinements should be considered to the existing inflation targeting strategy which has evolved considerably since it was first introduced in New Zealand 20 years ago. Most notably, there should be continued emphasis on inflation as the primary nominal anchor of monetary policy, especially in emerging market economies (EME), even if additional duties are assigned to central banks in response to recent events.

Implications for Regional Science of the “Rebuilding Macroeconomic Theory Project”

2021 ◽  
pp. 016001762098659
Author(s):  
Kieran P. Donaghy
Keyword(s):  
Monetary Policy ◽  
Graduate Students ◽  
Global Financial Crisis ◽  
Financial Frictions ◽  
Regional Science ◽  
Macroeconomic Theory ◽  
Income Groups ◽  
Big Picture ◽  
Theory Project ◽  
The Global Financial Crisis

The inability of macroeconomists to anticipate the Global Financial Crisis or reproduce it in their models has led to an important stock-taking of deficiencies in, and necessary modifications to, theories and models used pervasively by researchers and taught to graduate students. This stock-taking—the so-called “Rebuilding Macroeconomic Theory Project,” organized by David Vines and Samuel Wills—has provided an opportunity for economy-wide modelers (who include regional scientists) to consider whether the theories and models they employ are adequate and appropriate to the tasks to which they put them. In this paper I provide a brief report on the project, retrace the development of macroeconomics, and summarize responses by prominent macroeconomists to a set of questions posed by organizers of the project, while drawing implications of these questions and responses for regional science. I then offer original suggestions from a regional scientist’s perspective on what is missing from the “benchmark” macro-model, how financial frictions can be introduced, how behavioral foundations might be modified, how heterogeneity of agents might be captured, and what new stylized facts need to be explained. I proceed to illustrate how several of the suggested changes can be integrated in economy-wide models by drawing on a study of the impacts of monetary policy on consumption by different income groups in Indonesia. I close the paper by posing a number of “big-picture questions” on the implications of the RMTP for economy-wide modelers and regional scientists to ponder and by offering a brief reflection and aspiration.

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