Learning by doing in market reform: Lessons from a regional bond fund

Local currency bond markets in East Asia and the Pacific have grown impressively since the 1997 Asian crisis, but policy authorities in the region realize they still have some work to do to allow the markets to realise their true potential. Hence, there have been a variety of regional initiatives to develop these markets. One of these initiatives is the Asian Bond Fund II, which was established by 11 central banks in East Asia and the Pacific in 2005. In creating a regional index bond fund and eight single-market funds, the central banks worked together to identify and come up with ways to reduce market impediments in eight local currency bond markets. Moreover, they built into the regional fund's structure an incentive mechanism for reducing impediments further. --

Financing the Budget Deficit in the Philippines

For the last 25 years, the government has been incurring heavy budgetary deficits. Yet, data on recent Philippine experience reveal that no well-established guidelines on how to finance a budget deficit have been formulated. This paper investigates the means and measures to finance a deficit, considers a theory that chooses an optimal mix of policy instruments and studies the experience of less developed country like the Philippines as a case in point.fiscal deficit, fiscal policy, fiscal sector

Market returns and mutual fund flows

With the increased popularity of mutual funds come increased concerns. Namely, could a sharp drop in stock and bond prices set off a cascade of redemptions by mutual fund investors and could the redemptions exert further downward pressure on asset markets? The authors analyze this relationship by using instrumental variables--a measuring technique previously unapplied to market returns and mutual fund flows--to determine the effect of returns on flows. Despite market observers' fears of a downward spiral in asset prices, the authors conclude that the short-term effect of market returns on mutual fund flows typically has been too weak to sustain such a spiral.Mutual funds ; Stock - Prices

The unfolding turmoil of 2007 - 2008: Lessons and responses

While the unfolding financial turmoil has involved new elements, more fundamental elements have remained the same. New elements include structured credit, the originate-to-distribute business model and the tri-party repurchase agreement. The recurrence of crises reflects a basic procyclicality in the system, which is characterized by a build-up of risk-taking and leverage in good times and an abrupt withdrawal from risk and an unwinding of leverage in bad times. To deal with the adverse liquidity spiral that has characterized the current crisis, central banks have tried to strike a balance between the importance of the continued availability of market liquidity as a public good and the moral hazard that any market intervention may induce. In proposing long-term responses to the crisis, the Financial Stability Forum has focused on areas where incentives for risk-taking may be aligned more properly and areas where risk management may be made more robust. Nonetheless a recognition that the procyclicality of the system lies at the root of the crisis would suggest more aggressive countercyclical measures are needed

Risk management by structured derivative product companies

In the early 1990s, some U.S. securities firms and foreign banks began creating subsidiary vehicles--known as structured derivative product companies (DPCs)--whose special risk management approaches enabled them to obtain triple-A credit ratings with the least amount of capital. At first, market observers expected credit-sensitive customers to turn increasingly to these DPCs. However, the authors find that structured DPCs--despite their superior ratings--have failed to live up to their initial promise and have yet to gain a competitive edge as intermediaries in the derivatives markets.Derivative securities ; Risk

Learning by doing in market reform: Lessons from a regional bond fund

Local currency bond markets in East Asia and the Pacific have grown impressively since the 1997 Asian crisis, but policy authorities in the region realize they still have some work to do to allow the markets to realise their true potential. Hence, there have been a variety of regional initiatives to develop these markets. One of these initiatives is the Asian Bond Fund II, which was established by 11 central banks in East Asia and the Pacific in 2005. In creating a regional index bond fund and eight single-market funds, the central banks worked together to identify and come up with ways to reduce market impediments in eight local currency bond markets. Moreover, they built into the regional fund's structure an incentive mechanism for reducing impediments further