Financial markets

[field_auth], 24 August 2016

Much of the damage from the Great Recession is attributed to the Federal Reserve’s failure to rescue Lehman Brothers when it hit troubled waters in September 2008. It has been argued that the Fed’s decision was based on legal constraints. This column questions that view, arguing that the Fed did have the legal authority to save Lehman, but it did not do so due to political considerations.

[field_auth], 23 August 2016

In theory, firms in developing countries benefit from viable, well-used, stable, and efficient local financial markets as a source of investment for local firms. Financial markets in the home countries of multinationals can also act as a source of FDI to the developing world when local financial markets are weak. This column discusses recent empirical data that support both arguments, and argues that advocates of tighter regulation for financial markets should consider the wider impact on developing country economies.

[field_auth], 12 August 2016

The categorisation of countries into relevant international benchmark indices affects the allocation of capital across borders. The reallocation of countries from one index to another affects not only capital flows into and out of that country, but also the countries it shares indices with. This column explains the channels through which international equity and bond market indices affect asset allocations, capital flows, and asset prices across countries. An understanding of these channels is important in preventing a widening share of capital flows being impacted by benchmark effects.

[field_auth], 27 July 2016

In recent years, the life insurance sector has become more systemically important across advanced economies. This increase is largely due to growing common exposures and to insurers’ rising interest rate sensitivity. This column analyses the evolution of the insurance sector’s contribution to systemic risk. Overall, life insurers do not seem to have markedly changed their asset portfolios toward riskier assets, although smaller and weaker insurers in some countries have taken on more risk. The findings suggest that supervisors and regulators should take a more macroprudential approach to the sector.

[field_auth], 22 July 2016

The secular stagnation hypothesis suggests that low interest rates may be the new normal in years to come. This column argues that this prospect should not only lead to a major rethinking of policy from the perspective of individual economies, but also a major rethinking about monetary and fiscal policy in the international context, the role of international capital flows, and the role of policy coordination across borders. In times of secular stagnation, events such as Brexit or the recent turbulence in Turkey have much larger spillover effects than under normal circumstances.

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