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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 252 items for :

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Cover IMF Working Papers
Evaluating Historical Episodes using Shock Decompositions in the DSGE Model
Zamid Aligishiev
,
Michael Ben-Gad
, and
Joseph Pearlman
We present alternative methods for calculating and interpreting the influence of exogenous shocks on historical episodes within the context of DSGE models. We show analytically why different methods for calculating shock decompositions can generate conflicting interpretations of the same historical episodes. We illustrate this point using an extended version of Drautzburg and Uhlig’s (2015) model of the U.S. economy, focusing on the periods 1964–1966, 1979–1987, 2006–2009, 2016–2020 and 2020–2023. We argue that the best method for analyzing particular episodes is one which isolates the influence of the shocks during the period under consideration and where the initial conditions represent the system’s distance from balanced growth path at the beginning of the episode.
Keywords:
DSGE model; Shock Decomposition; Financial Frictions; Fiscal Policy; copyright page; influence of the shock; monetary policy shock; differencing method; decomposition method; Sovereign bonds; Central bank policy rate; Private investment; Public investment spending; Global
Cover Technical Assistance Reports
Botswana: Technical Assistance Report-Enhancing the Forecasting Policy and Analysis System at the Bank of Botswana
International Monetary Fund. Monetary and Capital Markets Department
At the request of Bank of Botswana, a Technical Assistance mission from the Monetary and Capital Markets (MCM) Department visited Gaborone, Botswana during May 27–31, 2024, to assist the authorities in enhancing their forecasting and policy analysis system (FPAS). The mission assessed and advised on both near-term and medium-term forecasting tools and models currently used by the Bank of Botswana. The mission team helped create a new centralized database and introduced a new flexible platform with a suite of models that expands and complements existing near-term forecasting models. The mission team also improved the medium-term forecasting framework by reviewing model calibration, introducing a fiscal block, and recommending further adjustments.
Keywords:
Monetary Policy; Forecasting and Policy Analysis System; Data Management; Near-term and Medium-term Forecasting Tools; Botswana.; IMF's Monetary; medium term forecasting tool; IMF Monetary; policy analysis system; IMF executive directors; Output gap; Infrastructure; Exchange rate arrangements; Central bank policy rate; Exchange rates; Global
Cover IMF Working Papers
Portfolio Inertia and Expected Excess Returns in Currency Markets: Evidence from Advanced Economies
Bas B. Bakker
The economic literature has long attributed non-zero expected excess returns in currency markets to time-varying risk premiums demanded by risk-averse investors. This paper, building on Bacchetta and van Wincoop's (2021) portfolio balance framework, shows that such returns can also arise when investors are risk-neutral but face portfolio adjustment costs. Models with adjustment costs but no risk aversion predict a negative correlation between exchange rate levels and expected excess returns, while models with risk aversion but no adjustment costs predict a positive one. Using data from nine inflation targeting economies with floating exchange rates (2000–2024), we find strong empirical support for the adjustment costs framework. The negative correlation persists even during periods of low market stress, further evidence that portfolio adjustment costs, not risk premium shocks, drive the link between exchange rates and excess returns. Our model predicts that one-year expected excess returns should have predictive power for multi-year returns, with longer-term expected returns as increasing multiples of short-term expectations, and the predictive power strengthening with the horizon. We confirm these findings empirically. We also examine scenarios combining risk aversion and adjustment costs, showing that sufficiently high adjustment costs are essential to generate the observed negative relationship.These findings provide a simpler, testable alternative to literature relying on assumptions about unobservable factors like time-varying risk premiums, intermediary constraints, or noise trader activity.
Keywords:
Exchange Rates; Portfolio Balance; Uncovered Interest Parity; Portfolio Adjustment Costs; Risk Premium; Currency Markets; Expected Returns; excess return; portfolio adjustment; adjustment cost; portfolio balance framework; portfolio Inertia; Exchange rate adjustments; Return on investment; Currencies; Interest rate parity; Global
Cover Policy Papers
Review Of Charges And The Surcharge Policy— A Possible Reform Package
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Policy Development and Review Dept.
On October 11, 2024, the IMF’s Executive Board concluded the Review of Charges and the Surcharge Policy. The review is part of a broader ongoing effort to ensure that the IMF’s lending policies remain fit for purpose to meet the evolving needs of the membership. Charges and surcharges are important elements of the IMF’s cooperative lending and risk-management framework, where all members contribute and all can benefit from support when needed. Together, they cover lending intermediation expenses, help accumulate reserves to protect against financial risks, and provide incentives for prudent and temporary borrowing. This provides a strong financial foundation that allows the IMF to extend vital balance of payments support on affordable terms to member countries when they need it most.



Against the backdrop of a challenging economic environment and high global interest rates, the Executive Board reached consensus on a comprehensive package of reforms that substantially reduces the cost of borrowing for members while safeguarding the IMF's financial capacity to support countries in need. The approved measures will lower IMF borrowing costs by about US$1.2 billion annually or reduce payments on the margin of the rate of charge as well as surcharges on average by 36 percent. The number of countries subject to surcharges in fiscal year 2026 is expected to fall from 20 to 13.



Key reforms include a reduction in the margin for the rate of charge, an increase in the threshold for level-based surcharges, a reduction in rate for time-based surcharges, an alignment of thresholds for commitment fees with annual and cumulative access limits for GRA lending facilities, and institution of regular reviews of surcharges.



The series of three papers informed the Executive Board’s first and second informal engagements (July and September 2024) and the formal meeting (October 2024) on this review.
Keywords:
General Resources Account; Charges; Margin for the basic rate of charge; Surcharges; Commitment Fees; Precautionary Balances; Income; reform package; transparency policy; EMBIG market spread; IMF's transparency policy; Fund credit; desk survey; Credit; SDR interest rate; Credit risk; Return on investment; Global
Cover IMF Staff Country Reports
Libya: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper identifies the sources and quantifies the exchange market pressures on the Libyan dinar. The paper highlights that: (1) the cumulative pressure on the exchange rate has been negative; and (2) despite the alternating appreciation and depreciation pressures, foreign exchange reserves have remained relatively stable. The authorities’ toolkit is limited: they strive to maintain the stock of reserves at a high level and to keep the exchange rate peg intact, all without the use of fiscal policy or of conventional monetary policy instruments. Therefore, developing conventional monetary policy tools and making sure that fiscal policy is consistent with the overall macroeconomic objectives would help the authorities achieve their goals without resorting to capital flow measures. While Libya had periods of both depreciation and appreciation pressures, overall, it faced substantial depreciation pressure. In other words, Libya’s policies over the medium term were not in line with the three-pronged macroeconomic objective of maintaining high foreign reserves, a pegged official exchange rate, and a narrow gap between the parallel and the official exchange rates. The findings suggest that additional monetary tools and the use of fiscal policy can help contain the parallel market premium and avoid the use of capital flow measures.
Keywords:
exchange market pressure; EMP index; copyright page; weakening exchange rate; market rate; Currency markets; Exchange rates; International reserves; Depreciation; Eastern Europe; Global
Cover Regional Economic Outlook, Middle East and Central Asia, October 2023
Regional Economic Outlook, Middle East and Central Asia, October 2023
Building Resilience and Fostering Sustainable Growth
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Across the Middle East and Central Asia, the combined effects of global headwinds, domestic challenges, and geopolitical risks weigh on economic momentum, and the outlook is highly uncertain. Growth is set to slow this year in the Middle East and North Africa region, driven by lower oil production, tight policy settings in emerging market and middle-income economies, the conflict in Sudan, and other country-specific factors. In the Caucasus and Central Asia, although migration, trade, and financial inflows following Russia’s war in Ukraine continue to support economic activity, growth is set to moderate slightly this year. Looking ahead, economic activity in the Middle East and North Africa region is expected to improve in 2024 and 2025 as some factors weighing on growth this year gradually dissipate, including the temporary oil production cuts. But growth is expected to remain subdued over the forecast horizon amid persistent structural hurdles. In the Caucasus and Central Asia, economic growth is projected to slow next year and over the medium term as the boost to activity from real and financial inflows from Russia gradually fades and deep-seated structural challenges remain unsolved. Inflation is broadly easing, in line with globally declining price pressures, although country-specific factors—including buoyant wage growth in some Caucasus and Central Asia countries—and climate-related events continue to make their mark. Despite some improvement since April, the balance of risks to the outlook remains on the downside. In this context, expediting structural reforms is crucial to boost growth and strengthen resilience, while tight monetary and fiscal policies remain essential in several economies to durably bring down inflation and ensure public debt sustainability.

Keywords:
growth; inflation; public debt; external financing; commodity prices; structural reforms; investment; labor productivity; financial stability; stress testing; governance reform; GCC country; credit market reform; government effectiveness; reform package; Policy space; Emerging and frontier financial markets; Credit; Labor force participation; Middle East and Central Asia; Central Asia and the Caucasus; Middle East; North Africa; oil exporter; IMF staff calculation; CCA bank; sovereign-bank nexus; Fiscal stance; Current account balance; Commercial banks; Oil exports; Global
Cover IMF Working Papers
The Zombie Lending Channel of Monetary Policy
Bruno Albuquerque
and
Chenyu Mao
We uncover a new channel—the zombie lending channel—in the transmission of monetary policy to nonfinancial corporates. This channel originates from the presence of unviable and unproductive (zombie) firms. We identify exogenous variation in monetary conditions around the world by exploiting the international transmission of US monetary policy shocks. We find that tighter monetary policy leads to more favorable credit conditions for zombie firms relative to other firms. Zombies are then able to cut investment and employment by relatively less. This is indicative of evergreening motives by lenders when interest rates rise: lenders face incentives to restructure existing loans of zombie firms to avoid the realization of losses on their balance sheets. Policies that strengthen banks’ balance sheets, that limit banks’ incentives to engage in risky behavior, and laws that allow an efficient resolution of weak firms, may help mitigate zombie lending practices when financial conditions tighten.
Keywords:
Monetary policy; Corporate investment; Zombie firms; Zombie lending; zombie lending channel; monetary policy shock; zombie firm; monetary policy to nonfinancial corporate; zombie definition; Bond yields; Yield curve; Loans; Credit; Sovereign bonds; Global
Cover IMF Working Papers
The Dominant Currency Financing Channel of External Adjustment
Camila Casas
,
Sergii Meleshchuk
, and
Mr. Yannick Timmer
We provide evidence of a new channel through which exchange rates affect trade. Using a novel identification strategy that exploits firms’ maturity structure of foreign currency debt around a large depreciation in Colombia, we show that firms experiencing a stronger debt revaluation of dominant currency debt due to a home currency depreciation compress imports relatively more while exports are unaffected. Dominant currency financing does not lead to an import compression for firms that export, hold foreign currency assets, or are active in the foreign exchange derivatives markets, as they are all hedged against a revaluation of their debt. These findings can be rationalized through the prism of a model with costly state verification and foreign currency borrowing. Quantitatively, the dominant currency financing channel explains a significant part of the external adjustment process in addition to the expenditure switching channel. Pricing exports in the dominant currency, instead of the producer’s currency, mutes the effect of dominant currency financing on trade flows.
Keywords:
Imports; Exports; Foreign Currency Exposure; Capital Structure; Exchange Rates; Debt Revaluation; Hedging; home currency depreciation compress import; financing channel; currency financing; liquidity shock; Currencies; Depreciation; Global
Cover IMF Staff Country Reports
Zambia: Selected Issues
International Monetary Fund. African Dept.
This Selected Issues paper focuses on boosting sustainable growth in Zambia. Zambia’s economy is highly dependent on mining and agriculture, but despite its abundant resources, growth has been insufficient to lift its young and growing population from poverty. The new government, which came into power in 2021, adopted a new approach to growth, focusing first on restoring macroeconomic stability as the precondition to sustainable growth. Rule of law and fighting corruption have also been highlighted as key to improving the business environment. Restoring macroeconomic stability and credibility, improving the business climate and governance is the best way to attract new investment. Prompt and clear resolution of the debt restructuring removes the largest obstacle to economic recovery. It would lower uncertainty for foreign and domestic investors and boost the impact of the government’s program to restore macroeconomic stability and fiscal sustainability. Reducing corruption, streamlining bureaucratic procedures, and easing the business environment would attract investment. The focus on education and health is warranted. A simulation of the impact of improved education and health indicators because of government’s investment in health and education show a significant increase in long-term growth rates.
Keywords:
G. agriculture policy; agriculture sector; agriculture sector contribution; Growth dividend; growth potential; Agricultural sector; Systemic risk; Financial sector stability; Commercial banks; Sub-Saharan Africa; Global; Africa
Cover IMF Working Papers
Sub-Saharan Africa’s Risk Perception Premium: In the Search of Missing Factors
William Gbohoui
,
Rasmané Ouedraogo
, and
Yirbehogre Modeste Some
Policymakers from the sub-Saharan Africa (SSA) region often flag a mispricing of their sovereign debt presumably originating from a perception risk by international investors that lead to "unjustifiably" high borrowing costs. Against this background, this paper explores the extent to which a potential SSA premium exists in the financial markets following a broader two-fold approach. Firstly, using a sample of 1592 international primary sovereign fixed coupon bonds issued between 2003-2021 from Bond Radar by 89 countries, we find that SSA countries pay significantly higher coupon at issuance compared to their peers from other regions. Secondly, we assess whether there is any bias against SSA countries in the secondary market that would result in higher refinancing cost. Based on an unbalanced panel of quarterly data covering 107 countries over 1990 – 2022, we find that SSA countries pay higher refinancing costs in the secondary market. The paper further explores whether there are other factors overlooked by the literature that matter for the risk pricing by international investors. In that respect, we explore the sensitivity of spreads to some structural dimensions where SSA countries face acute challenges―the transparency of budget process, the importance of the informal sector, the level of financial development, and the quality of public institutions. The results show that the excess premium estimated for SSA countries vanishes when these structural factors are accounted for in the regressions.
Keywords:
perception premium; SSA country; policymakers from the sub-Saharan Africa; SSA premium; IMF WP 23/130; c. robustness; Return on investment; Sovereign bonds; Yield curve; Bonds; Sub-Saharan Africa; Global; Africa