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Business and Economics > Investments: Stocks

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Cover IMF Working Papers
Derivative Margin Calls: A New Driver of MMF Flows
Maddalena Ghio
,
Linda Rousova
,
Dilyara Salakhova
, and
German Villegas Bauer
During the March 2020 market turmoil, euro area money-market funds (MMFs) experienced significant outflows, reaching almost 8% of assets under management. This paper investigates whether the volatility in MMF flows was driven by investors’ liquidity needs related to derivative margin payments. We combine three highly granular unique data sources (EMIR data for derivatives, SHSS data for investor holdings of MMFs and Refinitiv Lipper data for daily MMF flows) to construct a daily fund-level panel dataset spanning from February to April 2020. We estimate the effects of variation margin paid and received by the largest holders of EURdenominated MMFs on flows of these MMFs. The main findings suggest that variation margin payments faced by some investors holding MMFs were an important driver of the flows of EUR-denominated MMFs domiciled in euro area.
Keywords:
liquidity risk; money market funds; big data; interconnectedness; non-bank financial intermediaries.; EUR-denominated MMFs; derivative margin calls; MMF flow; variation margin payment; VM flow; Stocks; Liquidity; Mutual funds; Nonbank financial institutions; Pension spending; Global; IMF working paper research Department; derivatives reform; margin payment; Derivative markets
Cover IMF Working Papers
Pictures of a Revolution: Analyzing the Transition from Global Bimetallism to the Gold Standard in the 1860s and 1870s
Mr. Johannes Wiegand
In the early 1870s, the global monetary system transitioned from bimetallism—a regime in which gold and silver currencies were tied at quasi-fixed exhange ratios—to the gold standard that was characterized by the use of (only) gold as the main currency metal by the largest and most advanced economies. The transition ocurred against the backdrop of both large supply shifts in global bullion markets in the 1850s and 60s and momentous political events, such as the Franco-Prussian war of 1870/71 and the subsequent foundation of the German empire. The causes for the transition have long been a matter of intense debate. This article discusses three separate but interrelated issues: (i) assessing the robustness of the pre-1870 bimetallic system to shocks—which includes a discussion of the appropriate use of Flandreau’s (1996) reference model; (ii) analyzing the transition from bimetallism to gold as a multi-stage currency game played by France and Germany; and (iii) evaluating the monetary debates at the German Handelstag conferences in the 1860s, to present a more complete narrative of the German discussion in the run-up to the transition.
Keywords:
Bimetallism; Gold Standard; France; Germany; Gold share; Bimetallism's robustness; estimating specie demand; structural limit; share of silver coin; Gold; Silver; Currencies; Currency reform; Stocks; Global
Cover IMF Working Papers
International Capital Flows at the Security Level – Evidence from the ECB’s Asset Purchase Programme
Katharina Bergant
,
Michael Fidora
, and
Martin Schmitz
We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase Programme at the security level. Our empirical analysis shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme and other euro-denominated debt securities, towards foreign debt instruments, including `closest substitutes', i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. Our analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts.
Keywords:
WP; euro; PSPP substitute; PSPP eligibility; debt securities; euro area; capital flow; investment funds; Securities; Mutual funds; Capital flows; Stocks; Unconventional monetary policies; Global; International investment patterns; sovereign debt; investor heterogeneity; quantitative easing; PSPP eligible; investors show; Euro area investor; security holding; euro-denominated securities; long-term debt; net purchase; portfolio shift; PSPP securities
Cover Staff Discussion Notes
A Capital Market Union for Europe
Mr. Ashok Vir Bhatia
,
Ms. Srobona Mitra
,
Mr. Shekhar Aiyar
,
Luiza Antoun de Almeida
,
Cristina Cuervo
,
Mr. Andre O Santos
, and
Tryggvi Gudmundsson
This note weighs the merits of a capital market union (CMU) for Europe, identifies major obstacles in its path, and recommends a set of carefully targeted policy actions. European capital markets are relatively small, resulting in strong bank-dependence, and are split sharply along national lines. Results include an uneven playing field in terms of corporate funding costs, the rationing out of collateral-constrained firms, and limited shock absorption. The benefits of integration center on expanding financial choice, ultimately to support capital formation and resilience. Capital market development and integration would support a healthy diversity in European finance. Proceeding methodically, the note identifies three key barriers to greater capital market integration in Europe: transparency, regulatory quality, and insolvency practices. Based on these findings, the note urges three policy priorities, focused on the three barriers. There is no roadblock—such steps should prove feasible without a new grand bargain.
Keywords:
SDN; EU counterparty; EU capital market practitioner; euro area; EU capital market rule; EU treaty; EU venture capital funds; Capital market union; financial integration; bilateral portfolio flows; monetary union; investment firm; funding cost; growth performance; private equity; equity valuation; capital market market fragmentation; nonfinancial firm; company information; Capital markets; Securities; Stocks; Mutual funds; Solvency; Europe; Global
Cover IMF Staff Country Reports
France: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper focuses on various aspects of corporate debt in France. The increase in debt has financed real investments, as well as acquisition of financial assets and extension of intercompany loans. The increase in debt (and its level) appears less worrisome when debt is consolidated among nonfinancial corporations. Despite the increase in the stock of debt, debt service has increased moderately. A cross-country regression analysis reveals that French publicly listed firms are on average not more indebted and have not increased their debt more than peers in other countries, after controlling for firm and sector characteristics as well as common time effects. However, the increase in debt is concentrated among large firms with sizeable leverage in a few industries, raising questions about these firms’ ability to service this debt when interest rates rise. Stress test scenarios of a large and sudden increase in interest rates suggest that corporate debt at risk could be significant at a macroeconomic level, but that cash buffers would mitigate the impact of the shock on debt service.
Keywords:
ISCR; CR; firm; government; debt stock; training; firm level; railway company; macron government; utility company; state innovation; government plan; Bonds; Stocks; Currencies; Global
Cover IMF Staff Country Reports
Belgium: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper analyzes productivity growth in Belgium. It highlights that Belgium’s subdued productivity growth can be explained by a combination of sectoral employment shifts, barriers to competition, the declining quality of infrastructure, and an aging workforce. The shift of employment toward lower productivity service sectors, common to many advanced economies, has been more pronounced in Belgium and explains half of the productivity gap with neighboring countries. Population aging is another secular factor that has contributed to the productivity slowdown. In addition, barriers to competition in some service sectors have lowered productivity growth and raised rents in these sectors.
Keywords:
ISCR; CR; GDP; public Investment; productivity growth; frontloaded investment boost; productivity slowdown; productivity-enhancing reform option; firms total factor productivity; Productivity; Public investment spending; Labor productivity; Total factor productivity; Infrastructure; Global
Cover IMF Working Papers
Interconnectedness of Global Systemically-Important Banks and Insurers
Sheheryar Malik
and
Ms. TengTeng Xu
Interconnectedness among global systemically important banks (GSIBs) and global systemically important insurers (GSIIs) has important financial stability implications. This paper examines connectedness among United States, European and Asian GSIBs and GSIIs, using publicly-available daily equity returns and intra-day volatility data from October 2007 to August 2016. Results reveal strong regional clusters of return and volatility connectedness amongst GSIBs and GSIIs. Compared to Asia, selected GSIBs and GSIIs headquartered in the United States and Europe appear to be main sources of market-based connectedness. Total system connectedness—i.e., among all GSIBs and GSIIs—tends to rise during financial stress, which is corroborated by a balance sheet oriented systemic risk measure. Lastly, the paper demonstrates significant influence of economic policy uncertainty and U.S. long-term interest rates on total connectedness among systemically important institutions, and the important role of bank profitability and asset quality in driving bank-specific return connectedness.
Keywords:
WP; economic policy; balance sheet; Global systemically important banks and insurers; connectedness; volatility; equity prices; vector autoregression; return connectedness; GSIBs from the United States; system of GSIBs; bank characteristic; equity return; bank subsidiary; BNP Paribas; book value; profitable GSIBs; dynamic return connectedness; connectedness in the system; return connectedness of United States; Global systemically important banks; Global systemically important insurers; Stocks; Insurance companies; Global; Europe; Asia and Pacific
Cover IMF Working Papers
Das House-Kapital: A Long Term Housing & Macro Model
Volker Grossman
and
Thomas Steger
There are, by now, several long term, time series data sets on important housing & macro variables, such as land prices, house prices, and the housing wealth-to-income ratio. However, an appropriate theory that can be employed to think about such data and associated research questions has been lacking. We present a new housing & macro model that is designed specifically to analyze the long term. As an illustrative application, we demonstrate that the calibrated model replicates, with remarkable accuracy, the historical evolution of housing wealth (relative to income) after World War II and suggests a further considerable increase in the future. The model also accounts for the close connection of house prices to land prices in the data. We also compare our framework to the canonical housing & macro model, typically employed to analyze business cycles, and highlight the main differences.
Keywords:
WP; real estate; Housing Wealth; Non-Residential Wealth; Wealth-to-Income Ratios; macro model; land price; housing stock; macro Model; services producer; Housing; Housing prices; Land prices; Stocks; Numéraire
Cover IMF Working Papers
Optimal Bank Recovery
Mr. C. A. E. Goodhart
and
Miguel A. Segoviano
Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.
Keywords:
WP; loss distribution; bank loss; distress probability; loss absorption buffer; log asset return; Bank Recovery; Bank Resolution; Metrics for Triggers; Loss Absorption; Probability of Distress; Loan Default; banks RBS; market cap; banks' equity; Systemic risk; Bank solvency; Loans; Financial sector stability; Stocks; Global
Cover Policy Papers
Improving Public Investment Efficiency in the G-20
International Monetary Fund
Through the provision of both social and economic infrastructure, public investment can serve as an important catalyst for economic growth. A significant body of theoretical and empirical research underscores the positive relationship between investment in high-quality public infrastructure and economy-wide productivity.1 Against the background of a steady decline in public investment as a share of GDP in advanced economies, evidence of infrastructure bottlenecks in emerging economies, and the sluggish global economic recovery, the G-20 has called for ramping up public investment to raise long-run economic growth (G-20, 2014).2 However, the economic and social impact of public investment crucially depends on its efficiency. Despite anecdotal evidence of projects plagued by time delays, cost overruns, and inadequate maintenance, there are few robust empirical studies of the determinants of public investment efficiency. This paper explores the link between public investment management (PIM) institutions and the efficiency of public investment for the G-20 countries. Based on the analysis from a recent IMF study, the paper finds that better PIM enhances public infrastructure quality, and pinpoints key institutional reforms needs to boost public investment efficiency (IMF 2015). These findings and recommendations are based on a comprehensive data set on investment, infrastructure and capital stocks, and two analytical innovations: (i) a new cross-country Public Investment Efficiency Index (PIE-X); and (ii) a new Public Investment Management Assessment (PIMA) which is applied to G-20 countries.
Keywords:
PP; G20 industrial nations; country; evaluation; government; efficiency gap; efficiency frontier; stop-go investment policy; management cycle; GG investment growth; performance measure; selected G-20 economy; measures in the G-20; quite a few emerging G-20 country; management practice; PPP capital stock in G-20 economy; Public investment spending; Public investment and public-private partnerships (PPP); Infrastructure; Public Investment Management Assessment (PIMA); Stocks; Global