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  • Global Financial Crisis, 2008-2009 x
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Oya Celasun, Jungjin Lee, Mr. Mico Mrkaic, and Mr. Allan Timmermann
This paper examines the performance of World Economic Outlook (WEO) growth forecasts for 2004-17. Short-term real GDP growth forecasts over that period exhibit little bias, and their accuracy is broadly similar to those of Consensus Economics forecasts. By contrast, two- to five-year ahead WEO growth forecasts in 2004-17 tend to be upward biased, and in up to half of countries less accurate than a naïve forecast given by the average growth rate in the recent past. The analysis suggests that a more efficient use of available information on internal and external factors—such as the estimated output gap, projected terms of trade, and the growth forecasts of major trading partners—can improve the accuracy of some economies’ growth forecasts.
International Monetary Fund. Finance Dept., International Monetary Fund. Strategy, Policy, &, and Review Department
The paper revisits the two-pillar framework for assessing the adequacy of Fund resources. Responding to Directors suggestions, the quantitative pillar is updated to include alternative assumptions and to provide a longer-term perspective on likely resource needs. While quantitative estimates are generally somewhat lower after factoring in the alternative assumptions, these reductions are more than outweighed when the analysis is extended through the middle of the next decade, recognizing that the outcome of the 15th Review will likely determine permanent Fund resources through at least the middle of the next decade. The updated qualitative pillar analysis highlights reforms since the global financial crisis and discusses uncertainties in the global environment. It also provides an assessment of the general impact of the various qualitative considerations. Taken together, the two pillars continue to make a case for at least maintaining existing Fund resources. Against this background, the simulations in the paper cover three illustrative sizes for quota increases (50, 75, and 100 percent), centered on broadly maintaining Fund resources, assuming the New Arrangements to Borrow (NAB) is maintained at its current level and Bilateral Borrowing Agreements (BBAs) expire.
International Monetary Fund. Finance Dept., International Monetary Fund. Strategy, Policy, &, and Review Department
This paper provides background for initial considerations on the appropriate size of the Fund’s overall lending capacity over the medium term. The paper reviews developments in the demand for Fund resources during the global crisis. The paper also argues that the global economy is changing in fundamental ways, with implications for the size of the Fund. Against this background, the analysis suggests that the current overall lending capacity of the Fund should be seen as a minimum. Additional resources would be needed if the Fund were to introduce changes to its lending framework. While the financing structure of the Fund should be largely quota-based, staff sees a strong case for continuing to backstop quota resources with a standing borrowing facility. Maintaining the Fund’s current overall lending capacity would require swift action by the membership.
Silvia Iorgova and Chase P. Ross
Outside of financial crises, investors have little incentive to produce private information on banks’ short-term liabilities held as information-insensitive safe assets. The same does not hold true during crises. We measure daily information production using data from credit default swap spreads during the global financial crisis and the subsequent European debt crisis. We study abnormal information production around major events and interventions during these crises and find that, on average, capital injections reduced abnormal information production while early European stress tests increased it. We also link information production to outcomes: high levels of information production predict bank balance sheet contraction and higher government expenditures to support financial institutions. In an addendum, we show information production on nonfinancials dramatically increased relative to financials at the height of the COVID-19 crisis, reflecting the nonfinancial nature of the initial shock.
Luiza Antoun de Almeida and Mr. Thierry Tressel
This paper studies the evolution of non-financial corporate debt among publicly listed companies in major advanced economies between 2010 and 2017. Since 2010, firms have started to rely more on corporate bond markets and have used part of their debt to increase their holdings of cash. In our sample of some 5,000 firms, we find substantial differences across countries, industries, firms, and years in leverage and debt maturity, and we also identify time factors that are common drivers of capital structures. Within countries, loosening an index of financial conditions seems to be associated with lengthening debt maturity after controlling for firms’ characteristics. Across firms and countries, leveraging and lengthening debt maturity have been greater where economic growth was stronger. Tighter financial conditions are positively associated with an increase in short-term debt financing. Quantile regressions suggest that there is substantial heterogeneity among firms on how they react to macro-financial conditions: large increases in long-term debt financing and large declines in short-term debt financing tend to be driven more by better macroeconomic performance, while large increases in short-term debt financing are more strongly impacted by tighter financial conditions. Since the paper uses data up to 2017, it does not reflect developments that occurred during the coronavirus pandemic. Nonetheless, sensitivity analysis shows that a significant amount of corporate debt, representing more than 5 percent of GDP, could be at risk in some countries, with an adverse spillover to the financial system if financial conditions tighten or economic growth slows down. This suggests that vulnerabilities should be closely monitored and policy action taken if warranted.