A universal testing and isolation policy is the most viable way to vanquish a pandemic. Its implementation requires: (i) an epidemiological rather than clinical approach to testing, sacrificing accuracy for scalability, convenience and speed; and (ii) state intervention to ramp up production, similar to True Industrial Policy (TIP), on a global level to achieve a scale and speed the market alone would fail to provide. We sketch a strategy to tackle market failures and implement smart testing, especially in densely populated areas. The estimated cost of testing is dwarfed by its return, mitigating the economic fallout of the pandemic.
International Monetary Fund. Monetary and Capital Markets Department
At the request of the Central Bank of Myanmar (CBM), the IMF’s Monetary and Capital Markets Department, visited Yangon for a series of missions in 2018 and early 2019 on banking supervision. The objectives of the work were to support the CBM in the development of bank regulation and supervision, its introduction of a more risk-based approach to supervision. The Guide to Risk-Based Supervision sets out approaches to risk assessment and risk mitigation based on international practices. The key risks identified in the Myanmar context include legal, regulatory and reputational risk, strategic risk and group and related parties’ risk as well as credit, market, operational, and liquidity risks. The CBM is implementing the new approach over the period until 2020. While perfecting a complete risk-based approach will take years, the CBM is committed to implementation and is already undertaking risk assessments using the new risk matrix tool as examinations come due.
Davide Furceri, Mr. Prakash Loungani, and Mr. Jonathan David Ostry
We take a fresh look at the aggregate and distributional effects of policies to liberalize
international capital flows—financial globalization. Both country- and industry-level results
suggest that such policies have led on average to limited output gains while contributing to
significant increases in inequality—that is, they pose an equity–efficiency trade-off. Behind
this average lies considerable heterogeneity in effects depending on country characteristics.
Liberalization increases output in countries with high financial depth and those that avoid
financial crises, while distributional effects are more pronounced in countries with low
financial depth and inclusion and where liberalization is followed by a crisis. Difference-indifference
estimates using sectoral data suggest that liberalization episodes reduce the share
of labor income, particularly for industries with higher external financial dependence, those
with a higher natural propensity to use layoffs to adjust to idiosyncratic shocks, and those
with a higher elasticity of substitution between capital and labor. The sectoral results
underpin a causal interpretation of the findings using macro data.
Why did the Great Recession lead to such a slow recovery? I build a model where
heterogeneous firms invest in physical and intangible capital, and can default on their debt. In
case of default, intangible assets are harder to seize by creditors. Hence, intangible capital
faces higher financing costs. This differential is exacerbated in a financial crisis, when
default is more likely and aggregate risk bears a higher premium. The resulting fall in
intangible investment amplifies the crisis, and gradual intangible spillovers to other firms
contribute to its persistence. Using panel data on Spanish manufacturing firms, I estimate the
model matching firm-level moments regarding intangibles and financing. The model captures
the extent and components of the Great Recession in Spanish manufacturing, whereas a
standard model without endogenous intangible investment would miss more than half of the
GDP fall. A policy of transfers conditional on firm age could speed up the recovery, as young
firms tend to be more financially constrained, particularly regarding intangible investment.
Conditioning transfers on firm size or subsidizing credit (as in current E.U. policy) appears to
be less effective.