This Selected Issues paper for the Russian Federation reviews trends in private capital flows to Russia by decomposing the flows into its subcomponents. Russia became a net lender to the international banking system, as a complement to the prolonged period of large current account surpluses. The nonbank corporate sector in Russia began to have better access to both bank and nonbank sources of external finance, with improving investor perceptions and a favorable external environment. The relatively lackluster performance of equity issuances and foreign direct investment has been an outcome of both global and local factors.
This paper analyzes the implications of credit policies for output and growth and how they relate to the development of the current account and overall balance of payments. The framework chosen for the analysis is one in which the availability of financing is a direct and major determinant of current and future production. The paper identifies three channels through which credit policies can affect production in the economy. The principal conclusions are that limiting the overall level of credit is not a panacea for balance of payments problems; considerations regarding the distribution and the use of credit are important; in the absence of distortions, the current account objectives are best served by permitting credit expansion and investment to take place in the sector with the highest productivity, independent of whether this sector produces traded goods or nontraded goods; and tight credit policies can endanger the current account objectives when prevailing distortions lead to a “crowding out” of productive uses of credit.
In response to the worst economic crisis since the 1930s, government budgets and central banks have provided substantial support for aggregate demand and for the financial sector. In the process, fiscal balances have deteriorated, government liabilities and central bank balance sheets have been expanded, and risks of future losses for the public sector have increased.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.
Mr. Peter Stella, Mr. Manmohan Singh, and Apoorv Bhargava
In this paper, we discuss the modern history of monetarism and its alternatives, as well as the changing empirical relationship of various measures of money and inflation. After demonstrating that previous naïve correlations between money and inflation as established in the 20th century literature have largely disappeared, we explain why this cannot be taken as support for an increased reliance on permanent monetary finance. Rather, we argue that rapid technological innovation in payments systems—both public and private—including in global pledged collateral markets, portends a declining demand for central bank liabilities.
This paper explores the behavior of money demand by explicitly accounting for the money supply endogeneity arising from endogenous monetary policy and financial innovations. Our theoretical analysis indicates that money supply factors matter in the money demand function when the money supply partially responds to money demand. Our empirical results with U.S. data provide strong evidence for the relevance of the policy stance to the demand for MI under a regime in which monetary policy is substantially endogenous. Specifically, we find that tighter monetary policy has substantial positive impacts on money demand under the recent Federal funds rate targeting.