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Europe > Ukraine

You are looking at 1 - 8 of 8 items for :

  • Type: Journal Issue x
  • Financial Markets and the Macroeconomy x
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Cover IMF Working Papers
Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications
Giovanni Borraccia
,
Raphael A Espinoza
,
Vincenzo Guzzo
,
Romain Lafarguette
,
Fuda Jiang
,
Vina Nguyen
,
Miguel A. Segoviano
, and
Philippe Wingender
We develop a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology. We then estimate financial condition indexes (FCIs) across European economies, both at the aggregate and sectoral levels. We decompose the changes in FCs into several factors including credit availability and costs, price of risk, policy stance, and funding constraints. Our results show that FCs loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021. Using the inverse probability weighting method over the sample period from 2000 to 2023, we find that a shift from a neutral to a tight FCI regime such as the ongoing episode for most European countries will on average lower output and inflation by 2.2 percent and 0.7 percentage points respectively and increase unemployment by 0.3 percentage points over a three-year horizon.
Keywords:
Financial condition index; partial least square; funding constraints; credit availability and costs; price of risk; policy stance; inverse probability weighting; financial conditions in Europe; FCI regime; IMF working paper 2023/209; FCI indicator; measure of financial conditions; Inflation; Asset prices; Monetary tightening; Credit; Financial cycles; Europe; Global
Cover IMF Working Papers
The Market Price of Risk and Macro-Financial Dynamics
Mr. Tobias Adrian
,
Fernando Duarte
, and
Tara Iyer
We propose the conditional volatility of GDP spanned by financial factors as a “Volatility Financial Conditions Index” (VFCI) and show it is closely tied to the market price of risk. The VFCI exhibits superior explanatory power for stock and bond risk premia compared to other FCIs. We use a variety of identification strategies and instruments to demonstrate robust causal relationships between the VFCI and macroeconomic aggregates: a tightening of financial conditions as measured by the VFCI leads to a persistent contraction of output and triggers an immediate easing of monetary policy. Conversely, contractionary monetary policy shocks cause tighter financial conditions.
Keywords:
Macro-Finance; Financial Conditions Index; Monetary Policy; Asset Pricing; Market Price of Risk; Consumption Volatility; Causal Identification; bond risk premia; contractionary monetary policy shock; tightening of financial conditions; VFCI shock; Structural vector autoregression; Consumption; Asset prices; Estimation techniques; Global
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
International Monetary Fund. Monetary and Capital Markets Department
This technical note highlights Macroprudential Policy Framework and Tools for the Finland Financial Sector Assessment Program. The institutional framework for macroprudential policy in Finland, formalized in 2014, is mostly in line with the IMF guidance for effective macroprudential policymaking. Systemic risk monitoring is well organized and conducted on a timely basis, especially in the household sector. The sustained increase in residential housing loans is of important systemic concern, and the authorities have taken measures to contain relevant risks. The ongoing development of Finland’s positive credit register will provide microdata on household indebtedness and income, which are useful to analyse vulnerabilities and to calibrate policy, and may be useful to authorities when considering the distributional consequences of macroprudential policies. Moreover, the analysis of corporate sector vulnerabilities should be as developed as that of household sector vulnerabilities, and it would be beneficial to address related data gaps.
Keywords:
FSAP's finding; FIN-FSA staff; liquidity condition; Finland FSAP; MACROPRUDENTIAL POLICY FRAMEWORK; Macroprudential policy; Systemic risk assessment; Financial sector stability; Macroprudential policy instruments; Loans; Baltics; Global
Cover IMF Staff Country Reports
Finland: Financial System Stability Assessment
International Monetary Fund. European Dept.
This paper presents Finland’s Financial System Stability Assessment report. Finland has further improved the regulation and supervision of its financial sector since the 2016 Financial Sector Assessment Program, in part driven by European legislation and institutions. The size of the banking sector increased significantly in 2018 with the redomicilation of Nordea. Finland weathered the coronavirus disease 2019 pandemic well relative to other economies, with fiscal support and interventions from the authorities. However, Finland is now navigating a weaker economic outlook given the war in Ukraine and ensuing energy crisis, despite limited direct financial exposures to Russia. Risks to financial stability come from a large banking sector, which is highly concentrated and dominated by a few institutions, and is interconnected with other financial systems in the Nordic region. Stress tests indicate that the banking system appears resilient to severe macro-financial shocks but remains vulnerable to liquidity shocks. Resolution and crisis management should be supported by greater coordination of authorities’ preparation and management of future crises.
Keywords:
MoSAH FIN-FSA; PIC solvency regulation; independence of the FIN-FSA; SREP assessment; FIN-FSA's independence; B. banking sector resilience; Financial Sector Assessment Program; Macroprudential policy; Credit; Financial sector stability; Baltics; Global
Cover IMF Working Papers
The Premia on State-Contingent Sovereign Debt Instruments
Ms. Deniz O Igan
,
Mr. Taehoon Kim
, and
Antoine Levy
State-contingent debt instruments such as GDP-linked warrants have garnered attention as a potential tool to help debt-stressed economies smooth repayments over business cycles, yet very few studies of the empirical properties of these instruments exist. This paper develops a general f ramework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument. Our estimation framework applied to GDP-linked warrants issued by Argentina, Greece, and Ukraine reveals three stylized facts: (i) the risk premium in state-contingent instruments is high and persistent; (ii) the risk premium exhibits a pro-cyclical pattern; and (iii) the liquidity premium is higher and more volatile than that for plain-vanilla government bonds issued by the same sovereign. We then present a model in which investors fear ambiguity and that can account for the cyclical properties of the risk premium.
Keywords:
State-contingent debt instruments; GDP-linked warrants; Risk premia; Procyclicality; liquidity premium; GDP-linked warrant; estimation framework; SCDI premium; Sovereign bonds; Securities; Bonds; Liquidity; Debt restructuring; Global
Cover IMF Working Papers
The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads
Nazim Belhocine
and
Mr. Salvatore Dell'Erba
How do financial markets respond to concerns over debt sustainability and the level of public debt in emerging markets? We introduce a measure of debt sustainability – the difference between the debt stabilizing primary balance and the primary balance–in an otherwise standard spread regression model applied to a panel of 26 emerging market economies. We find that debt sustainability is an important determinant of spreads. In addition, using a panel smooth transition regression model, we find that the sensitivity of spreads to debt sustainability doubles as public debt increases above 45 percent of GDP. These results suggest that market interest rates react more to debt sustainability concerns in a country with a high level of debt compared to a country with a low level of debt.
Keywords:
WP; debt ratio; math; Sovereign debt; sovereign spreads; emerging markets debt; debt sustainability; debt level; financial market reaction; market expectation; spillover effect; market-perceived debt; present discounted value; debt benchmark; debt sustainability measure; expectations of fundamentals; world interest rate; sovereign bond spread; Debt sustainability; Fiscal stance; Emerging and frontier financial markets; Global
Cover IMF Working Papers
Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance
Nir Klein
The paper investigates the non-performing loans (NPLs) in Central, Eastern and South-Eastern Europe (CESEE) in the period of 1998–2011. The paper finds that the level of NPLs can be attributed to both macroeconomic conditions and banks’ specific factors, though the latter set of factors was found to have a relatively low explanatory power. The examination of the feedback effects broadly confirms the strong macro-financial linkages in the region. While NPLs were found to respond to macroeconomic conditions, such as GDP growth, unemployment, and inflation, the analysis also indicates that there are strong feedback effects from the banking system to the real economy, thus suggesting that the high NPLs that many CESEE countries currently face adversely affect the pace economic recovery.
Keywords:
WP; bank; return on equity; GDP; Macrofinancial linkages; non-performing loans; credit growth; feedback effects; data quality; NPLS ratio; NPL shock; NPLS problem; GDP growth; NPLS result; Nonperforming loans; Inflation; Loans; Credit; Commercial banks; Global
Cover IMF Working Papers
Financial Development in Emerging Europe: The Unfinished Agenda
Ms. Edda Zoli
This paper assesses the status of financial development in Emerging Europe, analyzes the factors that have shaped it, and discusses policy priorities. Financial development has progressed to varying degrees across the region. Macroeconomic stability and institutional quality have been important factors. Going forward, the EU integration process is likely to propel further reforms and shape financial development in EU members. In non-EU emerging economies the focus should be on maintaining macroeconomic stability and strengthening law enforceability. Creating a well-functioning government securities market, reinforcing corporate governance and creditor rights protection, and promoting the emergence of institutional investors would be beneficial.
Keywords:
WP; yield curve; market; liberalization; institutional investor