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Tag Archives: Financial Markets

Financial Stability Risks Grow as War Complicates Push to Contain Inflation

By Tobias Adrian عربي, 中文, Español, Français, 日本語, Português, Русский  While no systemic event has materialized, the balance of risks has tilted more firmly to the downside. Russia’s invasion of Ukraine raises financial stability risks for the world and poses questions about the longer-term impact on economies and markets. The war, amid an already slowing recovery from the pandemic, is set to test the resilience of financial markets and poses a threat to financial stability as...

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Emerging-Market Banks’ Government Debt Holdings Pose Financial Stability Risks

By Andrea Deghi, Fabio Natalucci and Mahvash S. Qureshi عربي, 中文, Español, Français, 日本語, Português, Русский Banks’ holdings of sovereign debt rise to a record as governments spend to cushion pandemic impact. The pandemic has left emerging-market banks holding record levels of government debt, increasing the odds that pressures on public-sector finances could threaten financial stability. Authorities should act quickly to minimize that risk. Governments around the world have spent...

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First Global Bank Stress Test Highlights Increased Financial Resilience

By Tobias Adrian, Vikram Haksar and Ivo Krznar The world’s banking systems saw significant capital increases ahead of the pandemic and are resilient to very large shocks. The Global Bank Stress Test is a major milestone in the IMF’s ability to gauge the impact of global shocks like the pandemic. Originally outlined in our October 2020 Global Financial Stability Report, it provides a first-of-its-kind assessment of potential shocks and spillovers to the world’s banks. And it’s also a useful...

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Why the IMF is Updating its View on Capital Flows

By Tobias Adrian, Gita Gopinath, Pierre-Olivier Gourinchas, Ceyla Pazarbasioglu, and Rhoda Weeks-Brown 中文, Español, Français, Português, Русский In some circumstances, countries should have the option of pre-emptively curbing debt inflows to safeguard macroeconomic and financial stability. Capital flows can help countries to grow and to share risks. But economies with large external debts can be vulnerable to financial crises and deep recessions when capital flows out. External liabilities...

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Chart of the WeekEconomic Indicators Signal Diminished Growth Momentum at Start of Year

By Tryggvi Gudmundsson The economic recovery continues, though the pace of the recovery has slowed. Notably, our global forecast was lowered in January to a still-healthy 4.4 percent expansion this year. This was down from an October projection of 4.9 percent, amid reduced growth prospects for the United States and China, the two largest economies. Meanwhile, inflation has been higher than expected in many economies, while financial markets remain volatile as geopolitical tensions have...

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The Making of Fallen Angels—and What QE and Credit Rating Agencies Have to Do with It

Viral V. Acharya, Ryan Banerjee, Matteo Crosignani, Tim Eisert, and Renée Spigt Riskier firms typically borrow at higher rates than safer firms because investors require compensation for taking on more risk. However, since 2009 this relationship has been turned on its head in the massive BBB corporate bond market, with risky BBB-rated firms borrowing at lower rates than their safer BBB-rated peers. The resulting risk materialized in an unprecedented wave of “fallen angels” (or firms...

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Low Real Interest Rates Support Asset Prices, But Risks Are Rising

By Nassira Abbas and Tobias Adrian  Русский A large and sudden jump in real interest rates could lead to a further selloff in stocks. Supply disruptions coupled with strong demand for goods, rising wages and higher commodities prices continue to challenge economies worldwide, pushing inflation above central bank targets. To contain price pressures, many economies have started tightening monetary policy, leading to a sharp increase in nominal interest rates, with long-term bond yields, often...

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Crypto Prices Move More in Sync With Stocks, Posing New Risks

By Tobias Adrian, Tara Iyer and Mahvash S. Qureshi There’s a growing interconnectedness between virtual assets and financial markets. Crypto assets such as Bitcoin have matured from an obscure asset class with few users to an integral part of the digital asset revolution, raising financial stability concerns. Crypto assets are no longer on the fringe of the financial system. The market value of these novel assets rose to nearly $3 trillion in November from $620 billion in 2017, on soaring...

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Emerging-Market Central Bank Asset Purchases Can Be Effective but Carry Risks

By Tobias Adrian, Christopher Erceg, Simon Gray, and Ratna Sahay عربي, 中文, Español, Français, 日本語, Português, Русский Asset purchases can be an effective tool, but it is critical to minimize risks to central bank independence and price stability. Over the past couple of decades, central banks in emerging markets have made substantial progress in developing the credibility to conduct countercyclical monetary policy. During the COVID crisis, many of these central banks not only cut interest...

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Do the Fed’s International Dollar Liquidity Facilities Affect Offshore Dollar Funding Markets and Credit?

Linda Goldberg and Fabiola Ravazzolo At the outbreak of the pandemic, in March 2020, the Federal Reserve implemented a suite of facilities, including two associated with international dollar liquidity—the central bank swap lines and the Foreign International Monetary Authorities (FIMA) repo facility—to provide dollar liquidity. This post discusses recent evidence showing the contributions of these facilities to financial and economic stability, highlighting evidence from recent...

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