International Monetary Fund Resources and Contagion Mechanisms: A Hypothesis

This paper examines analytically the possibility that, due to the limitedness of its resources, the International Monetary Fund (IMF) could spread financial crises rather than preventing them, thus developing into a contagion channel. The model we build, based on the most recent global-games literature, allows us to show that this risk is sensible from a theoretical point of view. We conclude that the IMF, when planning its interventions, should take into account this kind of contagion it contributes in creating. Some policy implications are derived.

The latest protectionist trade trends and their impact on the European Union

Artículo de revistaIn an attempt to rebalance trade with China, the United States administration decided in early 2018 to introduce a series of protectionist measures affecting certain imports in particular. This gave rise to an escalation of US-China trade tensions. The new tariffs have affected a significant percentage of Chinese exports to the United States, but their impact on EU trade has only been marginal to date. The indirect effects on European economies through the global value chains have also been limited. However, possible tariff barriers on the automotive sector could raise the affected trade flows substantially. Simulations made with econometric models confirm that the tariff measures adopted to date would have relatively moderate direct effects on global economic activity and on EU countries. That said, the simulations also warn that a decrease in business confidence and an unfavourable reaction by international financial markets could amplify such adverse effects. Additionally, possible future auto sector tariffs could have a significant impact on European economies in an industry already facing important challenges associated with the structural and technological transformation process currently under wa

International financial flows, real exchange rates and cross-border insurance

La pregunta de si la integración internacional de los mercados financieros ha aumentado la cobertura del riesgo a nivel global o no, sigue siendo un tema controvertido en la literatura. Si fuera así, ¿qué deberíamos observar en los datos? La literatura enfatiza que una diversificación eficiente de riesgos requiere que los mercados financieros canalicen recursos hacia los países que se han empobrecido temporalmente por alguna coyuntura negativa, neto de la acumulación de capital físico. Esta condición estándar, que proporciona la base para casi todos los test estadísticos de cobertura del riesgo en al ámbito internacional, ha sido derivada centrándose sólo en uno de los dos canales de diversificación internacional del riesgo, el canal de los flujos financieros, asumiendo implícitamente que no hay interacción entre este y el otro canal, fluctuaciones de precios relativos internacionales. Este trabajo muestra que sólo pueden deducirse teóricamente condiciones empíricamente contrastables colocando la interacción entre precios y flujos financieros en el centro del análisis. Utilizando un modelo de equilibrio general con dos países y diversificación endógena de cartera, se muestra que flujos financieros y precios relativos pueden ser complementos o sustitutos para proporcionar un segur

Measuring International Risk-Sharing: Theoretical Issues and Empirical Evidence from OECD Countries

Whether financial market integration raised global insurance is a crucial, still open issue. All empirical methods to measure cross-border risk-sharing are based on the implicit assumption that international prices do not fluctuate in response to business cycle shocks. This paper shows that these methods can be completely misleading in the presence of large fluctuations in international prices as those observed in the data. I then propose a new empirical method that is immune from this issue. The risk-sharing inefficiency between two countries is measured by the wedge between their Stochastic Discount Factors (SDFs). This measure is a proxy for the welfare losses created by imperfect insurance. Welfare losses can be attributed either to the strength of uninsurable shocks (the extent of risk to be pooled) or to the degree of insurance against different sources of risk. The method is applied to study the evolution of risk-sharing between the US and OECD countries, assuming either constant or time-varying risk-aversion. The degree of insurance is found to have improved over time only for some countries and only if SDFs are estimated assuming time-varying risk-aversion. The results are also informative on the implications of different macro models for international risk. When confronted with the data, standard open-macro models (featuring constant risk-aversion) imply that nominal exchange rate fluctuations do not contain wealth divergences across countries, but rather represent an important source of risk. Time-varying risk-aversion instead implies that limiting welfare losses from imperfect risk-sharing requires reducing the volatility of macro fundamentals.

The energy dependency of the EU and Spain

Rationale In recent decades, the European Union and Spain have become increasingly dependent on energy imports from third countries. Given how important these products are in production chains, this dependency could represent a source of vulnerability for the European economies. Takeaways •The energy products imported from third countries that are most vulnerable to international trade disruptions notably include natural gas, uranium, anthracite, oil and coal, all of which are in short supply within the European Union (EU), hard to substitute and, in general, concentrated in a few suppliers. •The main EU countries differ in terms of the extent of their external dependency, the energy suppliers they use and the vulnerability of their exposures. Spain is more reliant on third countries, although its imports are more diversified across different suppliers. •The patterns of the EU’s external energy dependency have been altered by Russia’s invasion of Ukraine, owing to the substantial reduction in European imports of energy products from Russia, which is no longer the region’s main energy supplier

Capital flows to emerging economies : recent developments and drivers

Artículo de revistaEmergingmarkets have gained prominence as recipients of capital flows since the onset of the financial crisis in 2008. This raises their exposure and goes hand in hand with greater dependence on external financing and heightened sensitivity to global shocks. However, some differences can be observed across regions. For example, while the more stable types of capital flows (direct investment) continue to outweigh other types in Latin America, in Asia and the Middle East the recent increase in capital inflows has taken the form of debt, private in the case of Asia and mostly government debt in the Middle East. Against this background, this article examines the impact on the capital flows to these economies of five potential global shocks: an appreciation of the dollar, a fall in commodity prices, an increase in global aversion to risk, expectations of monetary policy tightening in the United States and lower regional growth compared with advanced economies. The findings of this article suggest that the factor with the greatest impact on portfolio flows to emerging markets is the appreciation of the dollar although, in the case of Latin America, commodity prices also play a very significant rol

Creditor countries and debtor countries : some asymmetries in the dynamics of external wealth accumulation

Artículo de revistaFollowing the global financial crisis, the external imbalances in terms of countries’ current account balances have been reduced to a large extent. However, the imbalances measured in terms of net external wealth (or net international investment position, NIIP) have continued to increase. The empirical analysis presented in this article suggests that there is asymmetry between net debtor countries (negative NIIP) and net creditor countries (positive NIIP), with potential implications for global trade and growth. In the case of debtors, their negative NIIP contributes to reducing current account deficits and is therefore a stabilising factor. Conversely, in the case of the creditors, the NIIP contributes to increasing current account surpluses which, in turn, strengthens the dynamics of wealth accumulation in these countries, compared with the rest of the worl

Traded and nontraded good prices, and international risk sharing : an empirical investigation

Accounting for the pervasive evidence of limited international risk sharing is an important hurdle for open-economy models, especially when these are adopted in the analysis of policy trade-offs likely to be affected by imperfections in fi nancial markets. Key to the literature is the evidence, at odds with effi ciency, that consumption is relatively high in countries where its international relative price (the real exchange rate) is also high. We reconsider the relation between cross-country consumption differentials and real exchange rates, by decomposing it into two components, refl ecting the prices of tradable and nontradable goods, respectively. We document that, as a common pattern among OECD countries, both components tend to contribute to the overall lack of risk sharing, with the tradable price component playing the dominant role in accounting for effi ciency deviations. We relate these fi ndings to two mechanisms proposed by the literature to reconcile open economy models with the data. One features strong Balassa-Samuelson effects on nontradable prices due to productivity gains in the tradable sector, with a muted offsetting response of tradable prices. The other, endogenous income effects causing nontradable but especially tradable prices to appreciate with a rise in domestic consumption demandDar cuenta de la clara evidencia de una limitada diversificación del riesgo internacional es un reto importante para los modelos de economía abierta, sobre todo cuando estos se adoptan en el análisis de políticas que puedan resultar afectadas por imperfecciones en los mercados financieros. Fundamental en la literatura es la evidencia, contraria a la eficiencia, que el consumo es relativamente alto en los países en los que su precio relativo internacional (el tipo de cambio real) también es alto. En este papel reconsideramos la relación entre los diferenciales de consumo entre países y los tipos de cambio reales, descomponiéndola en dos factores que reflejan, respectivamente, los precios de los bienes comerciables y no comerciables. Documentamos que, en un patrón común entre los países de la OCDE, los dos componentes contribuyen a la falta general de diversifi cación del riesgo. El factor de precios de bienes comerciables juega un papel dominante en la explicación de las desviaciones de la eficiencia. Relacionamos estos resultados con dos mecanismos propuestos por la literatura para reconciliar los modelos de economía abierta con los datos. Un mecanismo actúa a través de fuertes efectos Balassa-Samuelson sobre los precios de los bienes no comerciables debidos a aumentos de productividad en el sector de comerciables, con un débil efecto compensatorio de los precios de bienes comerciables. El otro mecanismo actúa a través de efectos riqueza endógenos que aprecian los precios de bienes no comerciables y especialmente los precios de comerciables debido a un aumento de la demanda del consumo intern

Countries' safety and competitiveness, and the estimation of current account misalignments

Los desequilibrios del saldo por cuenta corriente y su sostenibilidad están entre los temas de política internacional más debatidos. Mediante una metodología recientemente diseñada —external balance assessment (EBA)—, el FMI estima el impacto sobre el saldo por cuenta corriente de sus principales determinantes y de las políticas adoptadas en cada país, calcula el desequilibrio en su saldo exterior e indica recomendaciones de política que, de aplicarse, deberían contribuir a reducir estos desequilibrios. En este artículo se analizan algunas extensiones a la EBA, siguiendo dos líneas. En primer lugar, en las regresiones se contempla la posibilidad de que el efecto de las variables sobre el saldo por cuenta corriente sea diferente en los países que se consideran destinos seguros de inversión en relación con el efecto en economías no seguras. Dado que esta distinción es probable que adquiera especial relevancia en períodos de crisis global, también se distingue entre períodos de estrés global y tiempos tranquilos. En segundo lugar, se incorporan a las regresiones de la EBA variables que impulsan la competitividad externa de los países..Current account imbalances and their sustainability are among the most debated international policy issues. Through the recently designed External Balance Assessment methodology (EBA), the IMF estimates the impact of several countries’ fundamentals and policies on their current account balance, calculates misalignments in their current account position and indicates policy recommendations which, if implemented, should contribute to reducing these imbalances. In this paper, we explore some extensions to the EBA, following two courses. First, we distinguish in current account regressions between countries that are considered safe investment destinations and non-safe economies. Since this distinction is likely to acquire special relevance in periods of global turmoil, we also distinguish between periods of global stress and tranquil times. Second, we embed in EBA regressions variables that drive countries’ external competitiveness.

Assessment of external imbalances and country risk perception

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