Financial markets

Stephen Cecchetti, Kim Schoenholtz, 27 March 2018

Despite recent technological advances, the costs for migrants to send money across borders to their families remain extremely expensive, with fees often surpassing 5%. This column explores the various factors shaping remittance prices and identifies two key avenues for cost reduction: consumer education and competition. In particular, expanding mobile technology is helping to displace banks and squeeze remittance costs.

Jon Danielsson, Marcela Valenzuela, Ilknur Zer, 26 March 2018

Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.

Nathan Converse, Eduardo Levy Yeyati, Tomás Williams, 20 March 2018

The share of fund assets held in exchange-traded funds has risen from 3.5% in 2005 to 14% in 2017, and to 20% for funds in emerging market assets. This column uses reported investor flows to argue that this is related to increased exposure of aggregate portfolio equity capital inflows to global risk. On this evidence, exchange-traded fund flows amplify the global financial cycle.

Paul De Grauwe, Yuemei Ji, 19 March 2018

A number of economists and officials have recently proposed different schemes aimed at using financial markets to impose the right amount of discipline in the euro area. This column argues that this would not eliminate the inherent instability of the sovereign bond markets in a monetary union. During crises this instability becomes systemic, and no amount of financial engineering can stabilise an otherwise unstable system.

Ousmène Jacques Mandeng, Piroska Nagy-Mohacsi, 15 March 2018

Cryptocurrencies have been the subject of recent attacks by official sector representatives, and the G20 finance ministers will consider regulatory proposals at their next meeting in Buenos Aires. This column argues that while cryptocurrencies present certain risks, they also represent an important innovation that promises to enhance choice and efficiency in monetary transactions. A proportionate, risk-based regulatory approach is required to accommodate differential attitudes and experiences and to avoid stifling innovation and competition. This implies having an open debate before sweeping regulatory action.

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