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International Monetary Fund

Abstract

Global activity strengthened in the second half of 2013 and is expected to pick up further in 2014–15, on account of a faster recovery in the advanced economies. In contrast, the growth momentum in emerging markets remains subdued, reflecting tighter external financing conditions and homemade weaknesses in some cases. Risks around the outlook for global growth have diminished somewhat, but remain tilted to the downside.

International Monetary Fund

Abstract

Economic activity in Latin America and the Caribbean (LAC) is expected to remain relatively subdued in 2014. While the faster recovery of the advanced economies should strengthen external demand, this effect is likely to be offset by the negative impact of lower commodity prices and tighter financial conditions on domestic demand. Policy priorities include strengthening public finances, addressing potential financial fragilities, and implementing structural reforms to ease supply-side constraints and raise potential growth.

International Monetary Fund

Abstract

A stronger U.S. recovery will impart a positive impulse primarily to Mexico, Central America, and the Caribbean, whereas the anticipated normalization of U.S. monetary policy will affect all countries in Latin America and the Caribbean (LAC). Traditional exposures to U.S. interest rates have diminished, as governments in LAC have reduced their reliance on U.S. dollar–denominated debt. However, U.S. monetary shocks also spill over into local funding and foreign exchange markets. Spillovers to domestic bond yields have typically been contained over the past decade, but the market turmoil of mid-2013 illustrates the risk of outsized responses under certain conditions. In a smooth normalization scenario, net capital inflows to LAC are unlikely to reverse, although new risk premium shocks could trigger outflow pressures. Countries cannot fully protect themselves against such external shocks, but strong balance sheets and credible policy frameworks provide resilience in the face of financial volatility.

International Monetary Fund

Abstract

This chapter takes another look at the commodity boom experienced by Latin America and the Caribbean (LAC) since the early 2000s and analyzes how the region will be affected by a more subdued outlook for commodity prices. The analysis suggests that growth in the years ahead could be significantly lower than during the commodity boom even if commodity prices were to remain stable at their current relatively high levels. The results caution against trying to offset the current economic slowdown with demand-side stimulus and underscore the need for ambitious structural reforms to secure strong growth over the medium term.

International Monetary Fund

Abstract

For many decades, fiscal policy in Latin America has been, on average, procyclical. However, country-specific estimates for the cyclicality of fiscal policy are mostly insignificant, with only a few exceptions of clearly procyclical policy. Some countries (Brazil, Chile, Colombia, El Salvador, Mexico), meanwhile, appear to have moved toward less procyclical or more countercyclical policy in recent years. Nonetheless, other important attributes of sound fiscal policy, including fiscal sustainability, transparency, and efficiency, need to be strengthened further in many countries.

International Monetary Fund. Western Hemisphere Dept.

Abstract

Section III in this Regional Economic Outlook—as well as the confidence intervals around the central forecast shown in section II—is based on a multivariate autoregressive model that relates growth outcomes in Latin America to a variety of economic variables. Specifically, the analysis employs a “Bayesian Vector-Autoregression” model for Latin American growth. This can be written as

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The year 2001 has yet again demonstrated how resilient the international financial system was in the face of a number of serious challenges. In chronological order, the past year saw the continuing deflation of the telecom, media, and technology (TMT) bubble across global markets, the onset of a recession in the United States amid a synchronized global slowdown, a financial crisis in Turkey, the terrorist attacks on September 1 1, the record number of bankruptcies, and the default by Argentina after a long and drawn-out crisis. Throughout these events, several of which represented serious problems requiring prompt attention by the appropriate authorities, the international financial system has shown remarkable resilience. This capacity to absorb shocks has been bolstered by the robustness of the infrastructure of the financial system and the key players in it; the vigilance and ready action of the financial and monetary authorities to ensure the smooth functioning of the system, including through the timely provision of liquidity support; and the increasingly discriminating investment behavior of market participants. Going forward, this resilience would again be tested if a global economic recovery is subdued. However, the starting conditions this year would be weaker than those at the beginning of 2001.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

changing perceptions of the economic slowdown and the prospects for recovery dominated global market developments during the fourth quarter of last year, and continue to do so in 2002. Markets had reacted strongly to the events of September 11, before staging a sharp rally from the beginning of the quarter as global risk aversion subsided (see Figure 2.1).1 The heightened market uncertainty associated with the events surrounding September 11 initially translated into high levels of risk aversion at the beginning of the fourth quarter. Measures of risk aversion steadily dissipated during October and November, with a consensus emerging that, in hindsight, financial markets overreacted to the potential impacts of the September 11 events. The subsequent rally, in conjunction with a strong revision of views on economic recovery and its strength and scope, was also influenced by several technical factors and ample liquidity on the part of investors.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

As mentioned in Chapter I, during 2001 the international financial system has shown remarkable resilience in the face of sizable disruptions. Moreover, recent economic data seem to support market expectations that the global economy will recover soon. Nevertheless, for the purpose of identifying vulnerabilities in international financial markets, this chapter considers the risks to international financial stability that could be associated with the potential financial fallout of several financial imbalances, which could be exacerbated by a subdued recovery. In light of accumulated financial imbalances that have not yet been worked off, the main uncertainties would seem to be associated with the resilience of household, corporate, and bank (and nonbank financial institution) balance sheets in the presence of the renewed declines in equity prices and deterioration in credit quality that might occur during a weaker-than-expected global recovery. If balance sheets are impaired and financial imbalances are aggravated as a result of such asset price adjustments during the recession, this could itself lead to a subdued recovery and could possibly delay it, which in turn could feed back to a further deterioration in financial conditions (and so on). This would lead to a less friendly operating environment for financial institutions, especially for those already weakened by the events of 2001, and to possible stress within the international financial system.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The Mexican (1994-95) and Asian (1997-98) crises stimulated a variety of empirical studies designed to identify both the causes of these crises and the determinants of the associated spillover effects (Kaminsky and Reinhart, 2000). To the extent that past crises can yield useful lessons about factors that contribute to a country's vulnerability to future crises, scholars and policymakers quickly realized that these empirical studies could be one element in a forwar-looking early warning system (EWS). As a result, a growing number of international financial institutions (IFIs) and central banks are using EWS models in their surveillance activities. Similarly, several investment banks have developed in-house EWS models aimed at providing foreign exchange trading advice to their clients and complementing their economic analysis of emerging markets.