Prof. Dr. Paul JJ Welfens University of Wuppertal December 2016

Transcription

1 Prof. Dr. Paul JJ Welfens University of Wuppertal December 2016 Additional Aspects on Regulations; Role of International (Gross) Inflows and Current Account Deficit See (slides): AL-SAFFAR, Y.; RIDINGER, W.; WHITAKER, S. (2013), The Role of External Balances Sheets in the Financial Crisis, Financial Stability Paper No. 24, October 2013, Bank of England; also see: IMF (2016), Capital Flows Review o Experience with the Institutional View, IMF Policy Paper, Washington DC

2 Some Further References Bruno, V.; Shim, I., Shin, H. (2015), Comparative Assessment of Macroprudential Policies, BIS Working Paper 502 Eichengreen, B.; Gupta, P. (2016), Managing Sudden Stops, World Bank, Policy Research Working Paper No. 7639, Washington DC Fratzscher, M. et al. (2016), Bubble Thy Neighbor: Portofolio Efects and Externalities from Capital Controls, Journal of International Econmoics, P.J.J. Welfens (2016) 2

3 Macroprudential Aspects CA deficit-gdp position; if rather high and for many years there is a risk of sudden stop CA deficit zero does not mean that there is no risk: Thinking about role of gross capital flows/exposure e.g. of firms with loans from abroad and risk of currency mismatch Nominal exchange rate volatility plays a role here (if there is depreciation there will be nervousness in markets = capital outflows?) Monetary policy in source country of capital flows can play a role, higher interest rate = change in international capital flows ;P.J.J. Welfens (2016) 3

4 How to Deal with International Shocks? Flexible Exchange Rates; shock absorber? Capital controls; capital flow management fear of volatility of capital inflows Problem of capital controls is addressed in some international investment treaties capital controls may be imposed under specific circumstances (rulesbased system is desired, transparency; see also G20/IMF reports) Question: if country A adopts controls, what is the impact on economy B (C as source of capital flows: CA in surplus...); B gets more inflows than otherwise, r falls, bubble risk/negative spillover? P.J.J. Welfens (2016) 4

5 Banks in an International Perspective Banks have loans from abroad and give loans to other banks abroad or firms, governments; linkages, interdependency Issue of regulation; underregulation = higher profits= higher stock market price =opportunity to take over foreign banks; regulation in country B thus under pressure from regulation in A Minimum equity capital (absorbing losses); how is restructuring of banks organized Risk provision/risk management adequate Is BIS framework (Basel II/III) consistent? P.J.J. Welfens (2016) 5

6 Global Current Account Imbalances and Gross Capital Flows Sources: Bank for International Settlements, IMF, World Economic Outlook and Bank calculations P.J.J. Welfens (2016) 6

7 Evolution of Gross External Dept in Advanced and Emerging Market Economies Sources: Reinhart and Rogoff 2009 P.J.J. Welfens (2016) 7

8 Net Foreign Assets and Output Losses Sources: IMF, Lane and Milesi-Ferretti (2010) and QEDS P.J.J. Welfens (2016) 8

9 Gross External Liabilities and Output Losses Sources: IMF, Lane and Milesi-Ferretti (2010) and QEDS P.J.J. Welfens (2016) 9

10 Composition of Gross External Liabilities in 2007 Sources: IMF, Lane and Milesi-Ferretti (2010) and QEDS P.J.J. Welfens (2016) 10

11 Gross External Debt by Sectors in 2007 Sources: IMF, Lane and Milesi-Ferretti (2010) and QEDS P.J.J. Welfens (2016) 11

12 Gross External Liabilities and Dept P.J.J. Welfens (2016) 12

13 Estimated Contributions of Private External Debt to Output Losses Sources: IMF and Bank of England P.J.J. Welfens (2016) 13

14 External Leverage and Output Losses Sources: IMF and Gourichas and Obstfeld (2012) P.J.J. Welfens (2016) 14

15 Gross External Dept and Domestic Credit Growth P.J.J. Welfens (2016) 15

16 Foreign Rollover Risk and Output Losses Sources: Cerutti, Claessens and McGuire (2012) and IMF P.J.J. Welfens (2016) 16

17 Growth in Domestic Credit in Economies with Current Account Deficits and Surpluses Sources: World Bank World Developtment Indicators P.J.J. Welfens (2016) 17

18 The Interaction between Gross External Dept and Growth in Domestic Product Sources: IMF, World Bank World Development Indicators and QEDS P.J.J. Welfens (2016) 18

19 Schematic Summary of the Transmission Channels The thick arrow in the middle represents how domestic credit growth together with funding stops arising from large gross external liabilities leads to a particularly large fall in GDP P.J.J. Welfens (2016) 19

20 Gross External Dept of Banks and Non-Banks P.J.J. Welfens (2016) 20

21 Estimated Contribution of Bank and Non- Bank External Dept to Output Losses Sources: IMF and Bank of England P.J.J. Welfens (2016) 21

22 Gross External Bank Liabilities to Banks and Non-Banks Sources: P.J.J. Welfens (2016) 22

23 Bank Maturity and Currency Mismatches P.J.J. Welfens (2016) 23

24 International Activity of UK-owned Banks, $ billion, 2007, Q1 Sources: BIS International Banking Statistics P.J.J. Welfens (2016) 24

25 Changes in Bank CDS Spreads and Consolidated Liabilities of Banking Systems Sources: Kamin and DeMarco (2010), Markit Group Ltd., SNL Financial and McGuire and Von Peter (2009) P.J.J. Welfens (2016) 25

26 Changes in Bank CDS Spreads and Currency Mismatches of Consolidated Banking System Sources: Kamin and DeMarco (2010), Markit Group Ltd., SNL Financial and McGuire and Von Peter (2009) P.J.J. Welfens (2016) 26

27 Summary Equation P.J.J. Welfens (2016) 27

28 Estimated Contributions to Output Losses Sources: IMF and Bank of England P.J.J. Welfens (2016) 28