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International Monetary Fund. European Dept.
This 2019 Article IV Consultation highlights that Finland’s economy has performed well over the past three years, however, has slowed in 2019. There are some vulnerabilities in household finances, and productivity growth remains weak, with trend growth also constrained by adverse demographics. A new coalition government targets greater social support and inclusion, higher employment, carbon neutrality by 2035, and a balanced budget by 2023. A key challenge is to balance plans to increase spending with the need to maintain fiscal buffers. The fiscal expansion is expected to provide useful cyclical support in the short run, but offsetting measures will be required to ensure the structural balance reaches the government’s medium-term target. The government aims for a substantial increase in employment, but the effectiveness of the proposed wage subsidies is unclear. Alternatively, incentives from tax and benefit schedules could be improved, especially for younger women, older workers, and those out of the workforce. Risks in the banking system remain low overall, but some types of lending are increasing household vulnerabilities. The recent recommendation to limit the ratio of household debt to income is both sensible and in line with steps taken in many other countries.
IMF Research Perspective (formerly published as IMF Research Bulletin) is a new, redesigned online newsletter covering updates on IMF research. In the inaugural issue of the newsletter, Hites Ahir interviews Valeria Cerra; and they discuss the economic environment 10 years after the global financial crisis. Research Summaries cover the rise of populism; economic reform; labor and technology; big data; and the relationship between happiness and productivity. Sweta C. Saxena was the guest editor for this inaugural issue.
Cornelia Hammer, Ms. Diane C Kostroch, and Mr. Gabriel Quiros-Romero
Big data are part of a paradigm shift that is significantly transforming statistical agencies, processes, and data analysis. While administrative and satellite data are already well established, the statistical community is now experimenting with structured and unstructured human-sourced, process-mediated, and machine-generated big data. The proposed SDN sets out a typology of big data for statistics and highlights that opportunities to exploit big data for official statistics will vary across countries and statistical domains. To illustrate the former, examples from a diverse set of countries are presented. To provide a balanced assessment on big data, the proposed SDN also discusses the key challenges that come with proprietary data from the private sector with regard to accessibility, representativeness, and sustainability. It concludes by discussing the implications for the statistical community going forward.
International Monetary Fund. European Dept.
This 2013 Article IV Consultation highlights Sweden’s economic growth and policies. Sweden’s economy appears to be slowing together with its main Nordic and European trading partners. The IMF report discusses that there is a scope to improve the fiscal framework, by ensuring it remains sufficiently countercyclical. Given the importance of Swedish banks for the region, improving financial stability in Sweden would also contribute to financial stability across the Nordics, as would additional progress toward cross-border burden-sharing agreements. Structural reforms are also expected to add to resilience and growth.
Mr. Paul Louis Ceriel Hilbers, Mr. Alfredo Mario Leone, Mr. Mahinder Singh Gill, and Mr. Owen Evens

Abstract

Following the severe financial crises of the 1990s, identifying and assessing financial sector vulnerabilities has become a key priority of the international community. The costly disruptions in global markets underscored the need to establish a set of monitorable variables for evaluating strengths and weaknesses in financial institutions and to alert authorities of impending problems. These variables, indicators, of financial system health and stability known collectively as macroprudential indicators, are the subject of this Occasional Paper by the Monetary and Exchange Affairs Department and the Statistics Department. Macroprudential indicators take measures at both the level of aggregated financial institutions and at the macroeconomic level; financial crises often occur when weaknesses are identified in both. The authors provide a breakdown and explanations of these indicators and a review of the theoretical and empirical work done thus far. Work at other international and multilateral institutions is included as well as the experiences of several national central banks and supervisory agencies. This paper provides a valuable reference source of current knowledge about macroprudential indicators and issues related to their analysis, identification, measurement, and possible dissemination.

Mr. Paul Louis Ceriel Hilbers, Mr. Alfredo Mario Leone, Mr. Mahinder Singh Gill, and Mr. Owen Evens

Abstract

Substantial progress has been made during recent years in forging a consensus on the importance of strengthening the architecture of the international financial system. The international community, acting through various forums, has identified a number of priorities in this work, including the need to enhance its own—and the markets’—ability to assess the strengths and vulnerabilities of financial systems, and to develop the analytical and procedural tools needed to perform this task. In particular, the importance of assessing the soundness of financial systems as part of the IMF’s surveillance work was given prominence by the Group of Twenty-Two finance ministers and central bank governors in the Report of the Working Group on Strengthening Financial Systems in October 1998. The working group recommended that financial sector surveillance be anchored to the IMF surveillance process, with expert support from the World Bank and elsewhere. This process is now well under way as part of the joint World Bank-IMF Financial Sector Assessment Program (FSAP), and the related Financial System Stability Assessments (FSSAs).1 The development and possible dissemination of so-called macroprudential indicators (MPIs)—defined broadly as indicators of the health and stability of financial systems—have been encouraged recently by both the Group of Seven (G–7) and the IMF Interim Committee.2 Such indicators will be critical in producing reliable assessments of the strengths and vulnerabilities of financial systems as part of IMF surveillance, and to enhancing disclosure of key financial information to markets.

Mr. Paul Louis Ceriel Hilbers, Mr. Alfredo Mario Leone, Mr. Mahinder Singh Gill, and Mr. Owen Evens

Abstract

The ability to monitor financial soundness presupposes the existence of indicators that can be used as a basis for analyzing the current health and stability of the financial system. These macroprudential indicators comprise both aggregated microprudential indicators of the health of individual financial institutions, and macroeconomic variables associated with financial system soundness. Aggregated microprudential indicators are primarily contemporaneous or lagging indicators of soundness;4 macroeconomic variables can signal imbalances that affect financial systems and arc, therefore, leading indicators. Financial crises usually occur when both types of indicators point to vulnerabilities, that is, when financial institutions are weak and face macroeconomic shocks.

Mr. Paul Louis Ceriel Hilbers, Mr. Alfredo Mario Leone, Mr. Mahinder Singh Gill, and Mr. Owen Evens

Abstract

This chapter reviews the theoretical and empirical literature, other than work done by the IMF,39 which would support the selection of a core set of MPIs. In general, these studies look at the features of crisis-prone systems, with a view to anticipating future crisis events. By attempting to identify leading indicators of crises, rather than contemporaneous indicators of financial soundness, much of the earlier literature did not specifically review the full range of potential MPIs. More recently, the focus of many studies has shifted toward contemporaneous indicators of financial health. No consensus has yet emerged, however, from this body of work on a set of indicators that is most relevant to assessing financial soundness, or to building effective early warning systems. The statistical significance of individual indicators is often found not to be strong, and some of the studies have produced conflicting results. This may be due to differences among crises, so that specific indicators may be more or less relevant to each case.

Mr. Paul Louis Ceriel Hilbers, Mr. Alfredo Mario Leone, Mr. Mahinder Singh Gill, and Mr. Owen Evens

Abstract

In response to the recent crises, many institutions have initiated or intensified work on developing macroprudential indicators and macroprudential analysis capabilities. A selection of these efforts is summarized in this section. The statistical frameworks that are in place in some of the institutions are discussed in Appendix I.