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Tara Iyer
Crypto assets have emerged as an increasingly popular asset class among retail and institutional investors. Although initially considered a fringe asset class, their increased adoption across countries—in emerging markets, in particular—amid bouts of extreme price volatility has raised concerns about their potential financial stability implications. This note examines the extent to which crypto assets have moved to the mainstream by estimating the potential for spillovers between crypto and equity markets in the United States and in emerging markets using daily data on price volatility and returns. The analysis suggests that crypto and equity markets have become increasingly interconnected across economies over time. Spillovers from price volatility of the oldest and most popular crypto asset, Bitcoin, to the S&P 500 and MSCI emerging markets indices have increased by about 12-16 percentage points since the onset of the COVID-19 pandemic, while those from its returns have increased by about 8-10 percentage points. Spillovers from the most traded stablecoin, Tether, to these indices have also increased by about 4-6 percentage points. In absolute terms, spillovers from Bitcoin to global equity markets are significant, explaining about 14-18 percent of the variation in equity price volatility and 8-10 percent of the variation in equity returns. These findings suggest that close monitoring of crypto asset markets and the adoption of appropriate regulatory policies are warranted to mitigate potential financial stability risks.
Miss Estelle X Liu, Mr. Todd D. Mattina, and Mr. Tigran Poghosyan
This paper outlines an operational approach for incorporating the impact of asset price cycles in the calculation of structural fiscal balances (SFBs). The global financial crisis demonstrated that movements in asset prices can have an important fiscal impact. Failing to account for the fiscal impact of asset price cycles can encourage a pro-cyclical policy stance if temporarily high revenues are passed through into expenditures. In addition, over-estimating the SFB may lead to inadequate fiscal buffers when cyclical revenues eventually dissipate. The paper proposes an empirical approach to correct for asset prices and provides illustrative country results for selected OECD countries. We find that asset price cycles are imperfectly synchronized with the business cycle and are quantitatively significant with an average pre-crisis fiscal impact ranging from about ½ to 2 percent of GDP in the sample. For a number of countries, the pre-crisis fiscal impact of high asset prices was larger at about 4 percent of GDP.
Tara Iyer

prices. Figure 4. Correlation of Crypto Assets with Key Asset Classes Sources: CryptoCompare; Yahoo Finance; October 2021 Global Financial Stability Report , Chapter 1; author’s calculations. Notes: In panels a, b, and c, correlations are calculated using daily prices, excluding non-trading days, and are computed over the periods January 2017– Dec 2019 and January 2020–November 2021. In panel d, correlations of equity price misalignment and crypto asset prices are calculated using weekly data. Equity price misalignment is estimated based on the divergence

International Monetary Fund. Monetary and Capital Markets Department

. Medium-term Projections in a Low Interest Rate Environment, 2006–18 10. Top-Down Insurance Stress Tests 11. Mutual Fund Liquidity Analysis: The Waterfall Approach 12. Results of the Liquidity Risk Analysis 13. SRISK Market Implied Capital Shortfalls 14. Early Warning Indicators 15. Equity Price Misalignment Measures 16. Fundamentals in Housing and Credit 17. Credit Risk Networks 18. Financial Account Net Exposures 19. Systemic Risk Indicators Framework, 2010Q4 and 2014Q4 20. Financial System Connectivity 21. U.S. Financial System Default

International Monetary Fund. Middle East and Central Asia Dept.

index is constructed from capital value indicators (prime rents, vacancy rate), construction activity (permits, starts, and completions), construction value added and construction labor intensity. Equity price misalignment . The equity price index is compared with model-implied values (dividend discount model, arbitrage pricing model), price-to-earnings ratio, cash flows, dividends, price-to-book value ratio, and deviation from historical average or from trend of fundamental variables that explain equity returns, and represent earnings risk (via forward earnings

International Monetary Fund. Monetary and Capital Markets Department

levels across multiple countries and sectors, before adjusting sharply in late February and March. In equity markets , price-earnings ratios had reached the highest levels since the global financial crisis prior to the COVID-19–induced sell-off (as indicated by the percentiles in Figure 1.6 , panel 1). The IMF staff’s fundamentals-based assessment of equity price misalignments suggests that equity valuations had become increasingly stretched since the October 2019 GFSR, with the extent of overvaluation approaching historically high levels in several countries in

International Monetary Fund. Monetary and Capital Markets Department

2019. 7 The extent of equity price misalignments—the difference between the actual price and the model-based value—can be interpreted as the portion of the equity risk premium that cannot be explained by the explanatory variables included in the model: expected corporate earnings (the mean earnings per share forecasts), uncertainty about future earnings (the dispersion of earnings per share forecasts), term spreads, and interest rates (see the October 2019 GFSR Online Annex 1.1 for details). The model relies on 12-month- and 18-month-ahead earnings forecasts

International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper assesses efficiency of Qatar public investment. It discusses the trends in public capital spending and the rationale for improving public investment efficiency. The paper outlines three alternative methods for analyzing efficiency, and presents the main results. The results suggest that the efficiency of Qatar public investment spending is broadly comparable to GCC peers, but could be improved further. It is also concluded that strengthening fiscal institutions, particularly with an integrated public investment management process and a medium-term fiscal policy framework, is the key for improving public investment efficiency in Qatar.
Miss Estelle X Liu, Mr. Todd D. Mattina, and Mr. Tigran Poghosyan

framework, the average fiscal impact in the OECD of housing and equity price cycles is about 1 and 1¼ percent of GDP, respectively. The fiscal impact of house price cycles in Ireland, the United Kingdom, and the United States before the crisis was higher at about 3, 1, and 1¼ percent of GDP, respectively. The overall pre-crisis fiscal impact of asset prices was particularly high in Spain at above 4 percent of GDP, but the impact is mainly from equity price misalignment. 25 In contrast, the estimated pre-crisis fiscal impacts based on the elasticity method are smaller

International Monetary Fund. Monetary and Capital Markets Department

has resulted in a collapse in volatility across asset classes, encouraging investors to take on more risk ( Figure 1.7 , panel 1). In global equity markets, notwithstanding recent market turbulence, equity prices have risen further on net since the April 2021 GFSR, boosted by extremely low and declining real rates and strong earnings. However, equity price misalignments (relative to fundamentals-based values) have remained elevated in most markets ( Figure 1.7 , panel 2). Meanwhile, reflecting the varying impact of the recovery on different sectors of the economy