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Frederic S Mishkin - One of the best experts on this subject based on the ideXlab platform.
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can inflation targeting work in Emerging Market countries
National Bureau of Economic Research, 2004Co-Authors: Frederic S MishkinAbstract:This paper explores issues in Emerging Market countries to make inflation targeting work for them. It starts by outlining why Emerging Market economies are so different from advanced economies and then discuss why developing strong fiscal, financial and monetary institutions is so critical to the success of inflation targeting in Emerging Market countries. Then it discusses two Emerging Market countries which illustrate what it takes to make inflation targeting work well, Chile and Brazil. It then addresses a particularly complicated issue for central banks in Emerging Market countries who engage in inflation targeting: how they deal with exchange rate fluctuations. The next topic focuses on the IMF's role in promoting the success of inflation targeting in Emerging Market countries. The conclusion from this analysis is that inflation targeting is more complicated in Emerging Market countries and is thus not a panacea. However, inflation targeting done right can be a powerful tool to help promote macroeconomic stability in these countries.
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the mirage of exchange rate regimes for Emerging Market countries
Journal of Economic Perspectives, 2003Co-Authors: Guillermo A Calvo, Frederic S MishkinAbstract:This paper argues that much of the debate on choosing an exchange rate regime misses the boat. It begins by discussing the standard theory of choice between exchange rate regimes, and then explores the weaknesses in this theory, especially when it is applied to Emerging Market economies. It then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates, and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits. The conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal, financial, and monetary institutions in producing macroeconomic success in Emerging Market countries. This suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable, and more on these deeper institutional arrangements. A focus on institutional reforms rather than on the exchange rate regime may encourage Emerging Market countries to be healthier and less prone to the crises that we have seen in recent years.
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financial policies and the prevention of financial crises in Emerging Market economies
2000Co-Authors: Frederic S MishkinAbstract:In recent years we have seen a growing number of banking and financial crises in Emerging Market countries, with great costs to their economies. But we now have a much better understanding of why these crises occur and a better idea how they can be prevented. Mishkin defines a financial crisis as a disruption in financial Markets in which adverse selection and moral hazard problems become much worse, so that financial Markets are unable to efficiently channel funds to those who have the most productive investment opportunities. As financial Markets become unable to function efficiently, economic activity sharply contracts. Factors that promote financial crises include, mainly, a deterioration in financial sector balance sheets, increases in interest rates and in uncertainty, and deterioration in nonfinancial balance sheets because of changes in asset prices. Financial policies in 12 areas could help make financial crises less likely in Emerging Market economies, says Mishkin. He discusses: - Prudential supervision. - Accounting and disclosure requirements. - Legal and judicial systems. - Market-based discipline. - Entry of foreign banks. - Capital controls. - Reduction of the role of state-owned financial institutions. - Restrictions on foreign-denominated debt. - The elimination of too-big-to-fail practices in the corporate sector. - The proper sequencing of financial liberalization. - Monetary policy and price stability. - Exchange rate regimes and foreign exchange reserves. If the political will to adopt sound policies in these areas grows in Emerging Market economies, their financial systems should become healthier, with substantial gains both from greater economic growth and smaller economic fluctuations. This paper - a product of the Financial Sector Strategy and Policy Department - was prepared for the NBER conference, "Economic and Financial Crises in Emerging Market Economies," Woodstock, Vermont, October 19-21, 2001. The author may be contacted at fsm3@columbia.edu.
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inflation targeting in Emerging Market countries
National Bureau of Economic Research, 2000Co-Authors: Frederic S MishkinAbstract:This paper outlines what inflation targeting involves for Emerging Market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many Emerging Market countries, it can be a highly useful monetary policy strategy in a number of them.
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inflation targeting in Emerging Market countries
The American Economic Review, 2000Co-Authors: Frederic S MishkinAbstract:This paper outlines what inflation targeting involves for Emerging Market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many Emerging Market countries, it can be a highly useful monetary policy strategy in a number of them.(This abstract was borrowed from another version of this item.)
Xiaoxiang Zhang - One of the best experts on this subject based on the ideXlab platform.
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Ownership structure and innovation: An Emerging Market perspective
Asia Pacific Journal of Management, 2014Co-Authors: Victor Zitan Chen, Jing Li, Daniel M. Shapiro, Xiaoxiang ZhangAbstract:Considerable attention has been focused on the ways in which Emerging Market firms can obtain and mobilize the knowledge and resources required for innovation. Innovation is a particular challenge in Emerging Markets because of inadequate external institutions. In this study, we focus on the importance of ownership structure, and in particular on ownership type diversity and ownership concentration. Using transaction cost and agency theories embedded in an Emerging Market context, we argue that ownership structure provides an important mechanism by which firms can assemble and direct the resources necessary for innovation in the context of inadequate external institutions. Specifically, we hypothesize that ownership type diversity improves innovation performance and that increasing ownership concentration has the same effect, but only up to a point. Using a panel dataset of 487 and 475 Chinese listed companies during 2004–2005 and 2005–2006 respectively, we find supportive empirical evidence for our hypotheses. Our findings also suggest that ownership type diversity is a more important factor in explaining innovation performance than ownership concentration, although most of the extant literature focuses on the latter.
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ownership structure and innovation an Emerging Market perspective
2012Co-Authors: Daniel Shapiro, Victor Zitian Chen, Xiaoxiang ZhangAbstract:Considerable attention has been focused on the ways in which Emerging Market firms can obtain and mobilize the knowledge and resources required for innovation. Innovation is a particular challenge in Emerging Markets because of inadequate external institutions. In this study, we focus on the importance of ownership structure, and in particular on ownership type diversity and ownership concentration. Using transaction cost and agency theories embedded in an Emerging Market context, we argue that ownership structure provides an important mechanism by which firms can assemble and direct the resources necessary for innovation in the context of inadequate external institutions. Specifically, we hypothesize that ownership type diversity improves innovation performance and that increasing ownership concentration has the same effect, but only up to a point. Using a self-tailed panel data of 487 and 475 Chinese listed companies during 2004-2005 and 2005-2006 respectively, we find supportive empirical evidence for our hypotheses. Our findings also suggest ownership type diversity has a more significant statistical effect on innovation performance than does ownership concentration, although most of the extant literature focuses on the latter.
Chang Shu - One of the best experts on this subject based on the ideXlab platform.
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geographic spread of currency trading the renminbi and other Emerging Market currencies
China & World Economy, 2019Co-Authors: Yinwong Cheung, Robert N Mccauley, Chang ShuAbstract:This paper studies the ongoing diffusion of renminbi (RMB) trading across the globe, the first of such research of an international currency. It analyses the distribution in offshore RMB trading in 2013 and 2016 using comprehensive data from the Triennial Central Bank Survey of foreign exchange Markets. In 2013, Asian centers favored by the policy of RMB internationalization had disproportionate shares in global RMB trading. Over the following three years, RMB trading seemed to converge to the spatial pattern of all currencies, with a half‐life of seven to eight years. The previously most traded Emerging Market currency, the Mexican peso, shows a similar pattern, although it is converging to the global norm more slowly. Three other Emerging Market currencies show a qualitatively similar evolution in the geography of their offshore trading. Overall, the RMB's internationalization is tracing an arc from the influence of administrative measures to the working of Market forces.
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Emerging Market local currency sovereign bond yields the role of exchange rate risk
International Review of Economics & Finance, 2018Co-Authors: Blaise Gadanecz, Ken Miyajima, Chang ShuAbstract:Abstract This paper explores the role of exchange rate risk in determining local currency sovereign bond yields in Emerging Market economies (EMEs). We find that EME local currency sovereign bond yields are indeed influenced by exchange rate risk (volatility and expected depreciation of the exchange rate). This finding holds when controlling for endogeneity and a number of key domestic and international factors. We also show that the effect of exchange rate volatility has strengthened over time, particularly since the US Federal reserve announced in May 2013 that it would reduce the pace and size of its large-scale asset purchases. The influence of exchange rate volatility is less pronounced in EMEs with higher shares of foreign ownership of local currency sovereign bonds, larger capital account openness and greater exchange rate flexibility. Our findings have a number of implications for policymakers, in particular as to how Emerging Market economies can be vulnerable to perception of greater exchange rate risk as global monetary conditions tighten.
Olivier Jeanne - One of the best experts on this subject based on the ideXlab platform.
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the optimal level of international reserves for Emerging Market countries a new formula and some applications
PSE-Ecole d'économie de Paris (Postprint), 2011Co-Authors: Olivier Jeanne, Romain RanciereAbstract:We present a model of the optimal level of international reserves for a small open economy seeking insurance against sudden stops in capital flows. We derive a formula for the optimal level of reserves and show that plausible calibrations can explain reserves of the order of magnitude observed in many Emerging Market countries. The buildup of reserves in Emerging Market Asia can be explained only if one assumes a large anticipated output cost of sudden stops and a high level of risk aversion.
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international reserves in Emerging Market countries too much of a good thing
Brookings Papers on Economic Activity, 2007Co-Authors: Olivier JeanneAbstract:WITH INTERNATIONAL reserves four times as large, in terms of their GDP, as in the early 1990s, Emerging Market countries seem more protected than ever against shocks to their current and capital accounts. Some have argued that this buildup in reserves might be warranted as insurance against the increased volatility of capital flows associated with financial globalization. (1) Others view this development as the unintended consequence of large current account surpluses and suggest that the level of international reserves has become excessive in many of these countries. (2) Do Emerging Market countries hold too much international reserves, and are there better ways to use those funds? Answering these questions requires a normative benchmark for the optimal level of reserves. I present in this paper a simple welfare-based model of the optimal level of reserves to deal with the risk of capital account crises or of "sudden stops" in capital flows. On the basis of this model, I derive some formulas for the optimal level of reserves and compare them with conventional rules of thumb, such as the Greenspan-Guidotti rule of full coverage of short-term debt. I then calibrate the model for Emerging Market countries and compare its predictions with the actual data. One lesson from this exercise is that the optimal level of reserves is subject to considerable uncertainty, because it is sensitive to certain parameters that are difficult to measure. The model nevertheless produces ranges of plausible estimates against which the data can be compared. I find that it is not difficult for the model to explain a reserves-GDP ratio on the order of 10 percent for the typical Emerging Market country (close to the long-run historical average), and that even higher ratios can be justified if one assumes that reserves have a significant role in crisis prevention. The levels of reserves observed in many countries in the recent period, in particular in Latin America, are within the range of the model' s predictions. Ultimately, however, the insurance model fails to account for the recent pattern of reserves accumulation in Emerging Market countries. The reason is that most of the reserves accumulation has taken place in Asian Emerging Market countries, where the risk of a capital account crisis seems much too small to justify such levels of self-insurance. The insurance model can account for the reserves accumulation observed in the Asian Emerging Market countries only if one assumes that the expected cost of a capital account crisis is unrealistically large (more than 60 percent of GDP for one of the two major types of crisis examined). The conclusion that most of the current buildup of reserves is not justified by precautionary reasons has some implications for reserves management. There is little reason for countries to invest these funds in the liquid but low-yielding foreign assets in which central banks tend to invest. Rather, reserves should be viewed as a component of domestic external wealth that is managed by the public sector on behalf of the domestic citizenry, taking full advantage of the portfolio diversification opportunities available abroad. Indeed, an increasing number of Emerging Market countries are transferring a fraction of their reserves to "sovereign wealth funds," mandated to invest in a more diversified way and at a longer horizon than central banks normally do. This is a trend that might take on considerable importance looking forward. The last part of the paper discusses some policy challenges and opportunities implied by the buildup in Emerging Market countries' "sovereign wealth." I discuss, first, the impact of sovereign wealth diversification on global financial Markets, and second, some ways in which this wealth could be used in collective international arrangements--to insure against future crises or to promote financial development. The Buildup in International Reserves The growth in the international reserves of Emerging Market countries is striking when compared with the contemporaneous trends in reserves in industrial countries (figure 1). …
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government debt in Emerging Market countries a new data set
IMF Working Papers, 2006Co-Authors: Olivier Jeanne, Anastasia GuscinaAbstract:This paper presents a new database on government debt in 19 Emerging Market countries since 1980. The data set focuses on the structure of debt in terms of jurisdiction of insurance, maturity, currency composition and indexation. The paper presents stylized facts on debt structures and preliminary evidence on their determinants. We observe substantial cross-country variation in the structure of domestic debt and find it to be associated with countries` record of monetary stability.
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why do Emerging Market economies borrow in foreign currency
2003Co-Authors: Olivier JeanneAbstract:This paper explores the hypothesis that the dollarization of liabilities in Emerging Market economies is the result of a lack of monetary credibility. I present a model in which firms choose the currency composition of their debts so as to minimize their probability of default. Decreasing monetary credibility can induce firms to dollarize their liabilities, even though this makes them vulnerable to a depreciation of the domestic currency. The channel is different from the channel studied in the earlier literature on sovereign debt, and it applies to both private and public debt. The paper presents some empirical evidence and discusses policy implications.
Perry Sadorsky - One of the best experts on this subject based on the ideXlab platform.
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hedging Emerging Market stock prices with oil gold vix and bonds a comparison between dcc adcc and go garch
Energy Economics, 2016Co-Authors: Syed Abul Basher, Perry SadorskyAbstract:While much research uses multivariate GARCH to model volatility dynamics and risk measures, one particular type of multivariate GARCH model, GO-GARCH, has been underutilized. This paper uses DCC, ADCC and GO-GARCH to model volatilities and conditional correlations between Emerging Market stock prices, oil prices, VIX, gold prices and bond prices. A rolling window analysis is used to construct out-of-sample one-step-ahead forecasts of dynamic conditional correlations and optimal hedge ratios. In most of the situations we study, oil is the best asset to hedge Emerging Market stock prices. Hedge ratios from the ADCC model are preferred (most effective) for hedging Emerging Market stock prices with oil, VIX, or bonds. Hedge ratios estimated from the GO-GARCH are most effective for hedging Emerging Market stock prices with gold in some instances. These results are reasonably robust to choice of model refits, forecast length and distributional assumptions.
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modeling volatility and correlations between Emerging Market stock prices and the prices of copper oil and wheat
Energy Economics, 2014Co-Authors: Perry SadorskyAbstract:Abstract Increased financial integration between countries and the financialization of commodity Markets are providing investors with new ways to diversify their investment portfolios. This paper uses VARMA-AGARCH and DCC-AGARCH models to model volatilities and conditional correlations between Emerging Market stock prices, copper prices, oil prices and wheat prices. The dynamic conditional correlation model is found to fit the data the best and used to generate dynamic conditional correlations, hedge ratios and optimal portfolio weights. Emerging Market stock prices and oil prices display leverage effects where negative residuals tend to increase the variance (conditional volatility) more than positive ones. Correlations between these assets increased considerably after 2008, and have yet to return to their pre 2008 values. On average, oil provides the cheapest hedge for Emerging Market stock prices while copper is the most expensive but given the variability in the hedge ratios, one should probably not put too much emphasis on average hedge ratios.