NAVIGATING an INTERCONNECTED WORLD. Sean Hagan, Tamim Bayoumi, and Steven Phillips

Transcription

1 NAVIGATING an INTERCONNECTED WORLD Sean Hagan, Tamim Bayoumi, and Steven Phillips

2 I NTEGRATED S URVEILLANCE D ECISION

3 Why an Integrated Surveillance Decision? Highly interconnected world: need to monitor impact of country policies on global stability. Important gaps in the Fund s legal framework: need for better coverage of spillovers. Lack of ownership: need to improve Fund s legitimacy and traction.

4 Example 1: Main Financial Hub United Kingdom Germany Singapore Switzerland Japan Hong Kong United States

5 Example 1: Diffusion Shocks Share of Total Shock Diffusion (Percent) origin origin Iteration Time

6 Example 2: China Rebalancing Short-term Impact on Trading Partnerssgdfsdf (percentage point reaction to 1 percentage point of rebalancing) GER JAP PHL THA KOR MYS TAI

7 Example 2: China Rebalancing Short-term Impact on Commodity Exporters (percentage point reaction to 1 percentage point of rebalancing) BRA AUS IRA KAZ SAU ZAM CHL

8 Example 3: US Fiscal Cliff Normal Fiscal Effects <.6.6 to 1.2 > 1.2 Cumulative output losses , % deviation from baseline

9 Example 3: US Fiscal Cliff Adding Zero Bound and Financial Contagion <.6.6 to 1.2 > 1.2 Cumulative output losses , % deviation from baseline

10 E XTERNAL S ECTOR R EPORT

11 Why an External Sector Report? Responds to call for more analysis on external sector Combines desk analysis, new tools, global consistency Examines consequences of desirable global policies We are seeking your feedback on the pilot.

12 Global Current Account Divergence 3 Other Surplus Countries Percent of World GDP Oil Exporters Japan China Euro Area Surplus Euro Area Deficit United States Other Deficit Countries ROW & Discrepancy

13 Euro area Current Account Divergence 3 Percent of Euro Area GDP Other Surplus Euro Area Germany Spain Italy Other Deficit Euro Area

14 Current and Capital Account 12 Percent of each region s GDP EM EUR Other EMs USA EM LATAM Euro Area Japan Other AE EM Asia China & India China Oil Export. Current Account Private Capital Flows Change in Reserves

15 International Investment Position 6 Percent of each region s GDP EM EUR Other EMs USA EM LATAM Euro Area Japan Other AE EM Asia China & India China Oil Export. Private Sector Reserves

16 Reserve Adequacy Percent of IMF metric Suggested Adequacy Range TKY ZAF POL MYS IDN MEX BRA IND RUS CHN THA

17 Volatility of Capital Flows to EMs Equity Fund Flows to EMs 8 Billions of US dollars

18 Composition of EM Capital Flows 5 3 Percent of GDP Q1 24Q1 27Q1 21Q1 Equity Flows Debt Flows Net Flows

19 Estimated Differences Percent of GDP Percent Current Account vs those with Fundamentals & Policies Estimated Range REER vs those with Fundamentals and Policies -2

20 E XTERNAL B ALANCE A SSESSMENT Presented by Steven Phillips

21 What is EBA? Better tool to analyze current accounts and real exchange rates Analyzes 5 economies so gaps are consistent ( add up ) Applied uniformly while allowing for country characteristics Key input to IMF surveillance but not the final word We are seeking your feedback.

22 Key Advances of EBA Accounts for effects of policies reserve accumulation and capital controls fiscal policy and social protection And for impacts of global capital market swings business and commodity price cycles Considers policy distortions/gaps and measures impact Separates impacts of domestic and foreign policies

23 Multilateral Impact of Policy Changes COUNTRY A B Fiscal Policy CA Imbalance

24 Multilateral Impact of Policy Changes COUNTRY A B Fiscal Policy CA Imbalance

25 Calculation of Desirable CA Balance Panel regression CA = β POLICIES + γ CYCLE + δ FUNDAMENTALS + ε (POLICIES, CYCLE, and FUNDAMENTALS are measured vs. global averages to ensure consistency.) Cyclical adjustment CAADJ = CA - γ CYCLE Desirable balance CA* = CAADJ - β (POLICIES - POLICIES*) - (ε2) (POLICIES* is desirable policies, ε2 is part of residual assigned to other policy distortions.)

26 Current Account Analysis Percent of GDP MYS GER SWE THA CHN KOR IDN NLD IND MEX POL BEL SWI EA BRA FRA RUS CAN JPN UK US ZAF AUS ITA TUR ESP Actual

27 Current Account Analysis Percent of GDP MYS GER SWE THA CHN KOR IDN NLD IND MEX POL BEL SWI EA BRA FRA RUS CAN JPN UK US ZAF AUS ITA TUR ESP Cyclically Adjusted

28 Current Account Analysis Percent of GDP MYS GER SWE THA CHN KOR IDN NLD IND MEX POL BEL SWI EA BRA FRA RUS CAN JPN UK US ZAF AUS ITA TUR ESP Cyclically Adjusted Desirable Levels

29 Current Account Analysis Percent of GDP MYS GER SWE THA CHN KOR IDN NLD IND MEX POL BEL SWI EA BRA FRA RUS CAN JPN UK US ZAF AUS ITA TUR ESP Cyclically Adjusted Gap Desirable Levels

30 Current Account Gap Components Percent of GDP MYS GER SWE THA CHN KOR IDN NLD IND MEX POL BEL SWI EA BRA FRA RUS CAN JPN UK US ZAF AUS ITA TUR ESP Fiscal Social Protection Capital Controls & Intervention Other Distortions

31 THANK YOU