Eoin Treacy's view

Privatisation in the euro area: Governments should grasp opportunities.

As a major element on the new reform agenda for Greece stipulated at the latest Eurozone summit in Brussels privatization has become an important issue for the southern European country. However, privatization should be a topic for other governments in the euro area, too. Privatisation can generate substantial receipts for the public purse, and it opens up the prospect of increased efficiency in the economy. In several countries the potential for privatizations is by no means exhausted.

IMF: The Potential Macroeconomic Impact of the Unconventional Oil and Gas Boom in the United States

This paper uses two of the IMF's structural macroeconomic models to estimate the potential global impact of the boom in unconventional oil and natural gas in the United States. The results suggest that the impact on the level of U.S. real GDP over roughly the next decade could be significant, but modest, ranging between 1 and 1½ percent. Further, while the impact on the U.S. energy trade balance will be large, most results suggest that its impact on the overall U.S. current account will be negligible. The impact outside of the United States will be modestly positive on average, but most countries dependent on energy exports will be affected adversely.

BdI: Is deflation good or bad? Just mind the inflation gap

We explain why the macroeconomic effects of shocks to inflation of the same size but opposite sign are not necessarily symmetric. All in all, the costs of deflation and disinflation tend to exceed those of inflation owing to the presence of constraints in the economy, namely the zero lower bound on nominal interest rates, borrowing limits, and downward nominal wage rigidity. When these constraints are binding, they can prevent monetary policy from closing the inflation gap, agents from deleveraging, and the labor market from clearing. The impact of a disinflationary shock on the tightness of these constraints depends on the cyclical and structural conditions of the economy. We also argue that it would be a mistake to assume that perverse effects can arise only when prices decrease, and that the classification of deflationary episodes into good (supply driven) and bad (demand driven) is not only incorrect, it is also misleading in terms of policy implications.

Fed (San Francisco): THE RISE OF ASIAN SOVEREIGN WEALTH FUNDS

This Asia Focus provides an overview of sovereign wealth funds, evaluates the structure and activities of major funds in Asia, and compares the transparency of Asian funds relative to international best practices.

Fed (Kansas City): Credit Scoring and Loan Default

We examine the performance of origination FICO scores as measures of ex ante borrower creditworthiness using loan-level data on ex post performance of subprime mortgages.

Fed  (St. Louis): Forward Guidance and the State of the Economy

Because of the Federal Reserve’s unconventional approaches to monetary policy during the Great Recession and recovery, the Fed now finds itself in an unconventional situation. Short-term nominal interest rates have been close to zero for more than six years, and the Fed’s balance sheet is currently more than four times as large as in 2007. This article explains how and why the Fed got into this situation and the challenges this creates in returning Fed policy to “normal”—a state in which the Fed’s nominal interest rate target is above zero and its balance sheet is reduced in size.

IMF: “Global Financial Spillovers to Emerging Market Sovereign Bond Markets”

Foreign holdings of emerging markets (EMs) government bonds have increased substantially over the last decade. While foreign participation in local-currency sovereign bond markets provides an additional source of financing and reduces sovereign yields, it raises concerns about increased sensitivity of yields to shifts in market sentiment. The analysis in this paper suggests that foreign participation and an undiversified investor base transmit global financial shocks to local-currency sovereign bond markets by increasing yield volatility and, beyond a certain threshold, amplify these spillovers. These estimates are robust to a range of econometric techniques including panel smooth threshold regression.

BIS: “Is the unthinkable becoming routine?”

Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the most remarkable symptom of a broader malaise in the global economy: the economic expansion is unbalanced, debt burdens and financial risks are still too high, productivity growth too low, and the room for maneuver in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.

Fed (St. Louis): Monetary Policy Normalization in the United States

Because of the Federal Reserve’s unconventional approaches to monetary policy during the Great Recession and recovery, the Fed now finds itself in an unconventional situation. Short-term nominal interest rates have been close to zero for more than six years, and the Fed’s balance sheet is currently more than four times as large as in 2007. This article explains how and why the Fed got into this situation and the challenges this creates in returning Fed policy to “normal”—a state in which the Fed’s nominal interest rate target is above zero and its balance sheet is reduced in size.

Fed (Board of Governors): Is the Intrinsic Value of Macroeconomic News Announcements Related to their Asset Price Impact?

The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same now-casting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise. We find that in the 1998{2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise. 

IMF: Systemic Risk: A New Trade-off for Monetary Policy?

We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare.