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Mr. Balazs Csonto and Mr. Camilo E Tovar Mora
Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0–2.4 basis points at maturities of 2–3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5–1.8 basis points.
Mr. Balazs Csonto and Mr. Camilo E Tovar Mora

advanced economies, inadequate global financial safety net) 1 have had side effects: the accumulated international reserves have found their way back into developed economies through the purchase of safe assets, such as U.S. securities. This phenomenon, hereafter referred to as uphill capital flows , 2 challenges the prediction of standard economic theory, which suggests that capital should flow from slow-growing developed countries to fast-growing developing countries. 3 In this paper, we argue that uphill capital flows constitute a key transmission channel

International Monetary Fund. Research Dept.

to Emerging Markets Manmohan Singh, Haobin Wang Working Paper No. 17/173 Government Financial Assets and Debt Sustainability Camila Henao Arbelaez, Nelson Sobrinho Working Paper No. 17/174 Uphill Capital Flows and the International Monetary System Balazs Csonto, Camilo E. Tovar Mora Working Paper No. 17/175 Bank Consolidation, Efficiency, and Profitability in Italy Anke Weber Working Paper No. 17/176 The Financing of Ideas and the Great Deviation Daniel Garcia-Macia Working Paper No. 17

Mr. Eswar S Prasad, Raghuram Rajan, and Mr. Arvind Subramanian

economies are running surpluses. Chart 1 also indicates that uphill flows are not entirely a new phenomenon; a similar pattern can be seen in the mid-1980s. Is foreign capital associated with economic growth and, if not, why does it flow “uphill”? Capital flows to and from developing economies include official flows, such as inflows of foreign aid and outflows in the form of accumulated international reserves. These flows may be driven by factors other than the basic rate-of-return considerations discussed earlier. Do private capital flows behave more in

Mr. Il Houng Lee and Woon Gyu Choi

. To contain the spill-over effect from the external sector on domestic liquidity, central banks have intervened in foreign exchange markets, thereby accumulating international reserves, and/or introduced other policy measures ( Ostry and others, 2010 ). Furthermore, high-growth EMD countries have pushed back capital largely by purchasing U.S. treasuries in the last decade ( Astley and others, 2009 ). Such “uphillcapital flows, especially backed by the accumulated reserves in Asia, may have contributed to the widening saving-investment imbalances ( Cova, Pisani

Mr. Camilo E Tovar Mora and Tania Mohd Nor

I. Introduction The international monetary system after World War II has been dominated by few currencies, with the U.S. dollar playing a leading role ( IMF, 2016a and 2011 ; Zhou, 2009 ). Some see in the lack of diversification of global reserve currencies a source of weakness and vulnerabilities for the international monetary system, as it can lead to liquidity shortages, “exorbitant privileges,” excessive uphill capital flows, or incentivize weak fiscal discipline in reserve issuing countries, among others. 2 Others argue that the dominance of a few

Mr. Camilo E Tovar Mora and Tania Mohd Nor
What is the extent of currency diversification in the international monetary system? How has it evolved over time? In this paper, we quantify the degree of currency diversification using regression methods of currency co-movements to determine the extent to which national currencies across the world belong to a reserve currency bloc. We then use these estimates to calculate the economic size of each currency bloc. A key contribution of our paper is that we quantify the size of the Chinese renminbi bloc. Our analysis suggests that the international monetary system has transitioned from a bi-polar system - consisting of the U.S. dollar and the euro - to a tri-polar one that includes the renminbi. The dollar bloc is estimated to continue to dominate, having the largest share in global GDP (40 percent), followed by the renminbi (30 percent) and the euro blocs (20 percent). The geographical area of influence for the RMB bloc appears to be most evident among the BRICS’ currencies. The British pound and the Japanese yen blocs appear to play minor roles.
Mr. Barry J. Eichengreen, Mr. Balazs Csonto, Ms. Asmaa A ElGanainy, and Zsoka Koczan

Development Assistance Committee (DAC) between the early 1970s and the late 2010s. 12 Reserve accumulation has been a major “uphillcapital flow from EMDCs to AEs. Foreign official holdings of U.S. Treasuries increased from some US$200 billion in the early 1990s to US$4 trillion (around 30 percent of total marketable U.S. Treasury debt securities) in the mid-2010s. 13 The increase was driven by EMDCs, which accumulated reserves in two waves: during the pre-GFC period with either precautionary motives or on the back of high commodity prices, and during the post

Mr. Il Houng Lee and Woon Gyu Choi
The paper explores the linkages between the global and domestic monetary gaps, and estimates the effects of monetary gaps on output growth, inflation, and net saving rates using panel data for 20 Asian countries for 1980-2008. We find a significant pass-through of the global monetary gap to domestic monetary gaps, which in turn affect output growth and inflation, in individual emerging market and developing countries in Asia. Notably, we provide evidence that the global monetary condition is partly responsible for the current account surplus in Asia. We also draw implications for monetary policy coordination for global rebalancing.
International Monetary Fund. Research Dept.
The Fall 2017 IMF Research Bulletin includes a Q&A article covering "Seven Questions on the Globalization of Farmland" by Christian Bogmans. The first research summary, by Manmohan Singh and Haobing Wang is "Central Bank Balance Sheet Policies: Some Policy Implications." The second research summary is "Leaning Against the Windy Bank Lending" by Giovanni Melina and Stefania Villa. A listing of new IMF Working Papers and Staff Discussion Notes is featured, as well as new titles from IMF Publications. Information on IMF Economic Review is also included.