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Europe > Norway

You are looking at 1 - 10 of 13 items for :

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Cover IMF Working Papers
Did Insurers Become Risk-Loving During “Low-for-Long”? The Role of Returns, Ratings, and Regulation
Jeroen Brinkhoff
and
Mr. Juan Sole
European life insurance companies are important bond investors and had traditionally played a stabilizing role in financial markets by pursuing “buy-and-hold” investment strategies. However, since the onset of the ultra-low interest rates era in 2008, observers noted a decline in the credit quality of insurers’ bond portfolios. The commonly-held explanation for this deterioration is that low returns pushed insurers to become more risk-taking. We argue that other factors—such as surging rating downgrades, bond revaluations, and regulatory changes—also played a key role. We estimate that rating changes, revaluations, and search for yield each account for about one-third each of the total deterioration in credit quality. This result has important policy implications as it reestablishes the view that insurers’ investment behavior tends to be passive through the cycle—rather than risk-seeking.
Keywords:
Life Insurance sector; financial stability; credit ratings; bond revaluation; life insurance insurance company; bond portfolio; investment behavior; bond investor; Bonds; Insurance companies; Corporate bonds; Sovereign bonds; Bond ratings; Global
Cover Regional Economic Outlook, October 2020, Europe
Regional Economic Outlook, October 2020, Europe
Whatever It Takes: Europe’s Response to COVID-19
International Monetary Fund. European Dept.

Abstract

The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.

Keywords:
lockdowns; pandemic; corporate liquidity; recovery; reopening; economic outlook; forecasting; REO; policy support; infection curve; job retention program; Europe transform; financial market disruption; pandemic economy; solvency risks in Europe; time trend; reopening indices; infection incidence; reinfection risk; infection rate; credit access; containment policy; COVID-19; Liquidity; Solvency; Infrastructure; Europe; Global
Cover IMF Staff Country Reports
Norway: Financial Sector Assessment Program-Technical Note-Systemic Liquidity
International Monetary Fund. Monetary and Capital Markets Department
Norwegian banks and other financial institutions rely heavily on capital markets for liquidity and risk management. Liquidity conditions in the Norwegian financial sector are affected by central bank operations and the lending and funding activities of financial institutions, both domestically and abroad. Nearly 40 percent of the funding of Norwegian banks is obtained from market sources, using commercial paper, covered bonds, and senior unsecured bonds issued both domestically and abroad. Correspondingly, money markets, foreign exchange (FX) swap markets and bond markets are crucial to the credit intermediation process and a dislocation in these markets—the inability of financial institutions to roll over, or obtain new, funding—could have significant consequences for financial stability. Against this background, this note analyzes core funding markets for Norwegian banks and assesses Norges Bank’s capacity to manage systemic liquidity conditions and counteract liquidity shocks in normal times and in times of stress.
Keywords:
ISCR; CR; spot market; commercial paper; cross holdings; FX swap market; liquidity support; government bond; central bank; U.S. dollar; secondary market; mortgage loan; government bond market; market development; Liquidity; Covered bonds; Currency swaps; Sovereign bonds; Collateral; Global
Cover IMF Working Papers
Heterogeneity and Persistence in Returns to Wealth
Andreas Fagereng
,
Luigi Guiso
,
Mr. Davide Malacrino
, and
Luigi Pistaferri
We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
Keywords:
WP; private equity; expected return; long-term debt; wealth distribution; Wealth inequality; returns to wealth; net worth; heterogeneity; intergenerational mobility; financial wealth; wealth return regression; return heterogeneity; book value; portfolio return; assets return; heterogeneity channel; market value; risk tolerance; wealth share; return on assets; Income distribution; Stocks; Housing; Capital income; Income
Cover IMF Working Papers
Commodity-based Sovereign Wealth Funds: Managing Financial Flows in the Context of the Sovereign Balance Sheet
Abdullah Al-Hassan
,
Sue Brake
,
Mr. Michael G. Papaioannou
, and
Martin Skancke
Commodity-based sovereign wealth funds (SWFs) have been at a crossroads following the recent fall in commodity prices. This paper provides a framework for commodity-based SWF management, focusing on stabilization and savings funds, by (i) examining macrofiscal linkages for SWFs; (ii) presenting an integrated sovereign asset and liability management (SALM) approach to SWF management; and (iii) applying this framework to a scenario where assets are being accumulated and to a scenario where the SWF is drawn on to cover a financing gap due to lower commodity prices.
Keywords:
WP; asset; price; financial asset; liquidity; commodity; sovereign wealth funds; sovereign asset and liability management; financing gap; investment management; risk management; macroeconomic coordination; SWF assets; SWF management; investment strategy; asset accumulation; net asset position; SWF balance sheet; asset allocation perspective; negative carry; SWF inflow; SWF performance; SWF owner country; opportunity cost; Financial statements; Government debt management; Government asset and liability management; Global
Cover IMF Working Papers
Procyclical Behavior of Institutional Investors During the Recent Financial Crisis: Causes, Impacts, and Challenges
Mr. Michael G. Papaioannou
,
Mr. Joonkyu Park
,
Jukka Pihlman
, and
Han van der Hoorn
This paper (i) provides evidence on the procyclical investment behavior of major institutional investors during the global financial crisis; (ii) identifies the main factors that could account for such behavior; (iii) discusses the implications of procyclical behavior; and (iv) proposes a framework for sound investment practices for long-term investors. Such procyclical investment behavior is understandable and may be considered rational from an individual institution’s perspective. However, our main conclusion is that behaving in a manner consistent with longterm investing would lead to better long-term, risk-adjusted returns and, importantly, could lessen the potential adverse effects of the procyclical investment behavior of institutional investors on global financial stability.
Keywords:
WP; flight to quality; investment behavior; long-term investor; risk tolerance; asset owner; hedge fund; individual investor; investment horizon; sovereign investor; Financial crisis; long-term investments; institutional investors; procyclicality; asset allocation; asset class; endowment fund; Pension spending; Asset allocation; Liquidity; Mutual funds; Global
Cover IMF Working Papers
Sovereign Risk and Asset and Liability Management: Conceptual Issues
Mr. Udaibir S Das
,
Miss Yinqiu Lu
,
Mr. Michael G. Papaioannou
, and
Iva Petrova
Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in in the current generation of sovereign asset and liability management (SALM) approaches, including objectives, definitions of relevant assets and liabilities, and methodologies used in obtaining optimal SALM outcomes. These elements are used in developing an analytical SALM framework which could become an operational instrument in formulating asset management and debtor liability management strategies at the sovereign level. From a portfolio perspective, the SALM approach could help detect direct and derived sovereign risk exposures. It allows analyzing the financial characteristics of the balance sheet, identifying sources of costs and risks, and quantifying the correlations among these sources of risk. The paper also outlines institutional requirements in implementing an SALM framework and seeks to lay the ground for further policy and analytical work on this topic.
Keywords:
WP; debt; balance sheet; interest rate; sovereign asset and liability management; economic risk; sovereign balance sheet; reserve management; debt management; foreign currency; SALM framework; capital market; balance sheet risk; SALM objective; government balance sheet; SALM approach; cash reserves; Financial statements; Government asset and liability management; Currencies; Government debt management; Africa; Global
Cover IMF Working Papers
Money and Collateral
Mr. Manmohan Singh
and
Mr. Peter Stella
Between 1980 and before the recent crisis, the ratio of financial market debt to liquid assets rose exponentially in the U.S. (and in other financial markets), reflecting in part the greater use of securitized assets to collateralize borrowing. The subsequent crisis has reduced the pool of assets considered acceptable as collateral, resulting in a liquidity shortage. When trying to address this, policy makers will need to consider concepts of liquidity besides the traditional metric of excess bank reserves and do more than merely substitute central bank money for collateral that currently remains highly liquid.
Keywords:
WP; central bank money; financial market; transmission mechanism; interest rate; market practice; Money; collateral; liquidity; financial crisis; securitization; central bank; party repo market; depository liability; Fed holding; Fed-Treasury accord; market clearing; FR note; Monetary base; Currencies; Bank deposits; Global
Cover IMF Working Papers
Investment Objectives of Sovereign Wealth Funds: A Shifting Paradigm
Iva Petrova
,
Jukka Pihlman
,
Mr. Peter J Kunzel
, and
Miss Yinqiu Lu
While SWF investment objectives to some extent reflect inherent characteristics, notable differences in strategic asset allocation (SAA) exist even amongst SWFs of similar types. Even so, this paper shows that the global crisis may have changed SWF’s asset allocations in ways that may not be ideal or justified in all cases and that a review of investment objectives may be warranted. It also argues for regular macro-risk assessments for the sovereign, the continued importance of SWFs as a stabilizer in international capital markets, as well as the active role they could play in international regulatory reform.
Keywords:
WP; sovereign wealth fund; SWF; investment; asset; investment horizon; Sovereign Wealth Funds; Portfolio Choice; Investment and Risk Management; Government Policy and Regulation; savings SWF; SWF resource; SWF's ability; SWF objective; SWF website; cross-border operation; reserve investment corporation; savings-type SWF; stabilization SWF; SWF performance; asset-liability management consideration; Asset allocation; Reserve assets; Pension spending; Stocks; Business enterprises; Global
Cover IMF Working Papers
Macrofinancial Linkages of the Strategic Asset Allocation of Commodity-Based Sovereign Wealth Funds
Aaron Howard Clifford Brown
,
Mr. Michael G. Papaioannou
, and
Iva Petrova
This paper analyses the links between the investment strategies of a commodity-based SWF and the macroeconomic framework of the owner country. We examine some basic macrofinancial linkages of an SWF's strategic asset allocation (SAA) strategies with regard to the government budget, monetary policy, and exchange rate movements. Based on a simple Markowitz-model framework, which integrates the specific objectives and constraints facing an SWF and the country's specific characteristics and macroeconomic vulnerabilities (especially in relation to commodity prices and prospective defined liabilities), we derive an SAA. The asset-liability methodology that is applied in the selection of an SWF SAA also allows assessing whether (i) the SAA adequately takes into account the country-specific risks and vulnerabilities, and (ii) its objectives and macrofinancial constraints are consistent. Some analytical and practical issues in determining an SAA model are also discussed, along with key effects of a financial crisis.
Keywords:
WP; expected return; exchange rate; financial asset; Sovereign Wealth Funds; Strategic Asset Allocation; Macrofinancial Linkages; asset class; stabilization SWF; revenue gap; SWF asset portfolio; SWF asset performance; SWF asset investment; asset-liability management framework; SWF resource; commodity price; portfolio return; SWF assets; asset class correlation; Sovereign bonds; Currencies; Oil prices; Stocks; Exchange rates; Global