Global Financial Stability Report Research Articles

The Impacts of Employment-to-Population, Interest Rate Spread and Inflation on Malaysian Economic Growth: Evidence from 1991 to 2019

The International Monetary Fund (IMF), in its latest Global Financial Stability Report issued in October 2022, foresees that the world economy is going to be in deep recession in 2023. The main issues highlighted in the report that contribute to the global recession are the multi-decades higher-than-anticipated inflation and the hike in the interest rates. The report further highlights that the large-sized firms are facing a declining profitability due to skyrocketing cost and the increasing number of bankruptcy cases among the small and medium-sized firms because of rising borrowing cost. In the wake of this, the firms need to close down the businesses or to scale down by cutting down the number of employees. This, consequently, will affect the employment rate relative to increasing number of world population. Therefore, based on these current issues, we aim to examine the relationship and the impacts of the macroeconomic determinants on the economic growth focusing on Malaysia. Four macroeconomic determinants were selected namely employment-to-total population ratio (EPR), MYR-to-USD exchange rate (EXC), lending-borrowing interest rate spread (IRS) and consumer price index (CPI). Gross domestic product growth rate (GDPGR) was used as a proxy for the economic growth. Annual secondary data from 1991 to 2019 were gathered from the World Bank Open Data and the Department of Statistics Malaysia (DOSM) Official Portal. We based our analyses on the descriptive statistics to look at the mean, maximum-minimum and standard deviation of the data of respective variables, then we use the Pearson’s correlation test to show the negative or positive correlation between the dependent variable (DV) and independent variables (IVs) and finally we employ the multiple regressions test to reveal the significant or insignificant relationships together with the positive or negative impacts of each IV on the DV. The main findings from the correlation test indicate EPR, EXC and IRS have negative correlations, where EXC has moderate correlation whilst the other two have very weak correlations with GDPGR. Meanwhile, CPI shows positive but very weak correlation with GDPGR. Meanwhile, the regressions test reveals EPR and IRS positively influence GDPGR whilst EXC and CPI have negative impacts on the Malaysian economic growth. However, only EXC is found to be significant out of the four determinants. The results imply the higher employment creates larger productivity to the economy and the more stable monetary policy (IRS) the better contribution to economic growth. On contrary, depreciation of MYR against USD and fluctuation in price level of goods and services lead to economic instability. The findings have significant implications for policy makers, businesses and investors in their decision making. For future research, we suggest to test on other economic variables such as industrial production index, foreign direct investment and money supply together with non-economic variables such as human development index, corruption perception index and global peace index of the country. We also suggest future studies to apply other methodologies for robustness. Comparison with other countries will also make the findings more meaningful.

THE COVID-19 PANDEMIC AND THE GLOBAL ECONOMY :A SYNOPSIS

Several countries are affected by the coronavirus, causing panic across the globe. The coronavirus originated during late December,2019 and spread across borders in few months. The pandemic caused by the virus has resulted in intense social and economic disruptions. It has caused a severe global recession. Social distancing measures are undertaken to reduce the spread of the virus. According to the recent Global Financial Stability Report, further aggravation of the virus will affect global nancial security and if nancial conditions are tightened even further, the global nancial system will suffer more “cracks”. The prices of commodities and risk assets have begun to fall sharply, volatility of assets has increased, corporate credit markets are crumbling, and market liquidity is seen to be deteriorating. Country authorities are taking several scal measures, implementing social distancing and self-quarantine, supporting the corporate sector and providing unemployment benets for those affected. Few countries that have been hugely affected by the crisis are USA, Spain, Italy, Germany, France, United Kingdom, Turkey, Iran and China. The countries have been implementing various policies for the same. The following article briefs on the measures taken by countries to minimize the spread of the virus and its economic repercussions, the countries most affected and policies implemented in order to tackle COVID-19 repercussions.

Strains in Offshore US Dollar Funding during the COVID-19 Crisis

This note analyzes recent trends in offshore US dollar funding markets and explores the drivers of dollar funding costs during the COVID-19 pandemic crisis. Preliminary evidence suggests that only part of the sharp increase in observed dollar funding costs can be attributed to the standard supply- and demand-side factors analyzed in the October 2019 Global Financial Stability Report (GFSR), including the dollar funding fragility of non-US global banks. Changes in market structure since the global financial crisis, as well as heightened uncertainty and tensions in the commercial paper market, may provide further explanations for the movements in dollar funding costs in late March 2020. The US Federal Reserve’s swap line arrangements have helped lessen strains in dollar funding markets, but funding pressure remains significant for some emerging market economies, notably those with-out access to the swap lines. Furthermore, tighter dollar funding conditions appear to have accompanied increases in financial stress in the home economies of affected non-US global banks and to have generated adverse spill-over effects in the form of cutbacks in cross-border lending.

Non-performing assets in India: A critical analysis of public and private sector banks

The paper identifies and analyzes the causes that affect non performing assets (NPAs), hinder its effective observance, and recommends appropriate measures to ensure their effective monitoring and control. The banks selected for this research work are having higher NPAs and are top banks in their sector. As per the Global Financial Stability Report of International Monetary Fund (IMF, 2009), identifying and dealing with distressed assets, and recapitalizing weak but viable institutions and resolving failed institutions are stated as the two of the three important priorities which directly relate to NPAs. This research work finds the reasons for non-performing loans by considering a set of 50 variables and provides the necessary measures. Statistical tool SPSS was used to run the factor analysis test. Sectoral disparities in the NPA ratio to advances in public and private sector banks were the main source of motivation to analyze and compare factors affecting non-performing assets (NPAs) of public and private sector banks in India. Some of the reasons for NPA are lack of frequent interaction or follow-up with borrowers, manipulation of income or financial statement by borrowers, industrial problem and death of earning member of the family.

A Monitoring Framework for Global Financial Stability

This paper describes the conceptual framework that guides assessments of financial stability risks for multilateral surveillance, as currently presented in the Global Financial Stability Report (GFSR). The framework emphasizes consistency in measuring financial vulnerabilities across countries and over time and offers a summary statistic to quantify aggregate financial stability risks. The two parts of the empirical approach—a matrix of specific vulnerabilities and a summary measure of financial stability risks—are distinct but highly complementary for monitoring and policymaking.

Insurance and financial stability

PurposeThis paper aims to consider implications of the IMF Global Financial Stability Report (April 2016 edition) for the regulation and supervision of insurers.Design/methodology/approachThis paper first summarises the IMF Report and then discusses possible implications, examining the underlying hypothesis on which the “Tsunami view” has been formulated.FindingsThis paper finds that the Report provides some important implications for the regulation and supervision of insurers, although no commonalities in life insurers’ asset composition, which is the underlying hypothesis of the Tsunami view expressed in the Report, have been observed at a global level. One of the key implications is the importance of monitoring insurers’ exposures at granular levels in a more intensive manner from the perspective of macro-prudential supervision.Originality/valueThis is one of the first papers that try to challenge the findings and recommendations of the IMF Report and, at the same time, consider what implications can be taken for enhanced regulation and supervision of insurers.

Rising level of stressed assets in public sector banks and their impact on the banks’ stability in India

According to the International Monetary Fund's (IMF) Global Financial Stability Report, 36.9 per cent of India's total debt is at risk, which is among the highest in the emerging economies while India's banks have only 7.9 per cent loss absorbing buffer, which is among the lowest. Bad loans of the banking system have risen alarmingly in the fiscal year 2015. The gross Non-Performing Assets (NPAs), for Public Sector Banks (PSBs), as on March 2015, stood at 5.17 per cent while the stressed assets ratio stood at 13.2 per cent, nearly 230 basis points more than that for the banking system. PSBs have been reeling under pressure, due to the rising number of defaults, affecting their bottom line. As a result, there is a substantial increase in the need for a Corporate Debt Restructuring (CDR) mechanism, to streamline their loans. The sharp increase in stressed assets has adversely affected the profitability of the banks. The annual return on assets has come down from 1.09 per cent, during 2010–11, to 0.78 per cent, during 2014–15. Considering the effect it has on both capital and liquidity position of the bank, there is an urgent need for banks to reduce their stressed assets and clean up their balance sheets. To test the hypotheses, multivariate regression was employed. Findings indicated a negative relationship between stressed assets and profitability.

Everything Must Change so that the IMF Can Remain the Same: The World Economic Outlook and the Global Financial Stability Report

Development and ChangeVolume 45, Issue 5 p. 1193-1204 Assessment Everything Must Change so that the IMF Can Remain the Same: The World Economic Outlook and the Global Financial Stability Report Matías Vernengo, Matías VernengoSearch for more papers by this authorKirsten Ford, Kirsten FordSearch for more papers by this author Matías Vernengo, Matías VernengoSearch for more papers by this authorKirsten Ford, Kirsten FordSearch for more papers by this author First published: 24 August 2014 https://doi.org/10.1111/dech.12111Citations: 11 The editors of Development and Change were shocked and saddened to learn, during the production of this Assessment, of the death of one of the authors, Kirsten Ford. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume45, Issue5FORUM 2014September 2014Pages 1193-1204 RelatedInformation

2014 Triennial Surveillance Review - External Study - Integrating Bilateral and Multilateral Surveillance on a Continuing Basis

Overall the Fund has done a good job anticipating possible problems in each of the cases being examined here, which for shorthand we will label Fed tapering, Abenomics, China growth risks, and German fiscal policy. Moreover, the messaging has been broadly consistent across the Fund’s diverse range of products including multilateral surveillance products (e.g., the World Economic Outlook and the Global Financial Stability Report), bilateral products (including especially Article IV country reports), and the Fund's various new exercises aimed at proactively identifying risks, especially those of global systemic significance. The messaging is consistent in the sense that differences across products can mostly be explained by differences in timing, approach and emphasis, understanding that the problems involved are profoundly difficult with no one clear answer, much less a one-size-fits-all answer. Various modalities are listed and briefly summarized in the appendix to this report. The extent to which the Fund’s analysis has weaknesses is largely related to political and market sensitivities, particularly in dealing with large influential members. For example, we will raise concerns about whether the Fund was forceful enough in pointing out possible risks posed by the U.S. Federal Reserve’s third round of quantitative easing (QE III), initiated in September 2012, and whether it was forceful enough in advocating structural reforms (e.g., tax reform) that might have helped support long-term U.S. growth and helped soften spillover effects to other countries. In the case of Japan, the Fund was understandably quite supportive of Abenomics. But should it have worried about the financial stability risks if rising inflation expectations led to proportional (or greater) rises in long-term nominal interest rates in Japan? Given that the initial impulse of Abenomics was a large depreciation in the yen, should the Fund have placed even greater emphasis on “third arrow” structural reforms as an assurance that Abenomics would have a lasting long-term positive global impact, and not just short-term competitive effects? In the case of China, the Article IV reports were in fact quite alert to potential problems, and the 2013 report even incorporated results from a working paper on the global effects of a hard landing in China over the

Ms. Muffet, the Spider(Gram) and the Web of Macro-Financial Linkages

The global financial crisis has underscored the importance of understanding macro-financial developments and spillovers in an increasingly interconnected and intricate system. At the IMF, staff is focusing on the linkages between the real economy and the financial sector, as well as the inter-relationships between global and individual-country risks. The Country Financial Stability Map provides an empirical framework for explicitly linking these various aspects of the IMF’s surveillance of its member countries. It identifies potential sources of macro-financial risks particular to a country and also enables an assessment of these risks in a global context through comparisons with the corresponding Global Financial Stability Map from the Global Financial Stability Report. The authors have developed an Excel-based tool (“Ms. Muffet”) to facilitate this analysis, which may be replicated by external users with access to the necessary databases, using the accompanying template.

Ms. Muffet, the Spider(gram) and the Web of Macro-Financial Linkages

The global financial crisis has underscored the importance of understanding macro-financial developments and spillovers in an increasingly interconnected and intricate system. At the IMF, staff is focusing on the linkages between the real economy and the financial sector, as well as the inter-relationships between global and individual-country risks. The Country Financial Stability Map provides an empirical framework for explicitly linking these various aspects of the IMF’s surveillance of its member countries. It identifies potential sources of macro-financial risks particular to a country and also enables an assessment of these risks in a global context through comparisons with the corresponding Global Financial Stability Map from the Global Financial Stability Report. The authors have developed an Excel-based tool (“Ms. Muffet”) to facilitate this analysis, which may be replicated by external users with access to the necessary databases, using the accompanying template.

Bank Asset Quality in Emerging Markets: Determinants and Spillovers

This paper assesses the vulnerability of emerging markets and their banks to aggregate shocks. We find significant links between banks’ asset quality, credit and macroeconomic aggregates. Lower economic growth, an exchange rate depreciation, weaker terms of trade and a fall in debt-creating capital inflows reduce credit growth while loan quality deteriorates. Particularly noteworthy is the sharp deterioration of balance sheets following a reversal of portfolio inflows. We also find evidence of feedback effects from the financial sector on the wider economy. GDP growth falls after shocks that drive non-performing loans higher or generate a contraction in credit. This analysis was used in chapter 1 of the Global Financial Stability Report (September 2011) to help evaluate the sensitivity of banks’ capital adequacy ratios to macroeconomic and funding cost shocks.

Bank Asset Quality in Emerging Markets: Determinants and Spillovers

This paper assesses the vulnerability of emerging markets and their banks to aggregate shocks. We find significant links between banks' asset quality, credit and macroeconomic aggregates. Lower economic growth, an exchange rate depreciation, weaker terms of trade and a fall in debt-creating capital inflows reduce credit growth while loan quality deteriorates. Particularly noteworthy is the sharp deterioration of balance sheets following a reversal of portfolio inflows. We also find evidence of feedback effects from the financial sector on the wider economy. GDP growth falls after shocks that drive non-performing loans higher or generate a contraction in credit. This analysis was used in chapter 1 of the Global Financial Stability Report (September 2011) to help evaluate the sensitivity of banks' capital adequacy ratios to macroeconomic and funding cost shocks.

“Price-Quakes” Shaking the World's Stock Exchanges

BackgroundSystemic risk has received much more awareness after the excessive risk taking by major financial instituations pushed the world's financial system into what many considered a state of near systemic failure in 2008. The IMF for example in its yearly 2009 Global Financial Stability Report acknowledged the lack of proper tools and research on the topic. Understanding how disruptions can propagate across financial markets is therefore of utmost importance.Methodology/Principal FindingsHere, we use empirical data to show that the world's markets have a non-linear threshold response to events, consistent with the hypothesis that traders exhibit change blindness. Change blindness is the tendency of humans to ignore small changes and to react disproportionately to large events. As we show, this may be responsible for generating cascading events—pricequakes—in the world's markets. We propose a network model of the world's stock exchanges that predicts how an individual stock exchange should be priced in terms of the performance of the global market of exchanges, but with change blindness included in the pricing. The model has a direct correspondence to models of earth tectonic plate movements developed in physics to describe the slip-stick movement of blocks linked via spring forces.Conclusions/SignificanceWe have shown how the price dynamics of the world's stock exchanges follows a dynamics of build-up and release of stress, similar to earthquakes. The nonlinear response allows us to classify price movements of a given stock index as either being generated internally, due to specific economic news for the country in question, or externally, by the ensemble of the world's stock exchanges reacting together like a complex system. The model may provide new insight into the origins and thereby also prevent systemic risks in the global financial network.

Introduction: the global financial crisis

There cannot now be a shadow of a doubt that ‘the flaw’ in his ideology—admitted by Alan Greenspan in response to a question by Henry A. Waxman, Chairman of the US House of Representatives Committee on Oversight and Government Reform, whether he felt ‘that your ideology pushed you to make decisions that you wish you had not made?’—is both significant and permanent. The current financial and economic crisis that has forced the likes of Greenspan to question the coherence of dominant conceptual frameworks is unprecedented in global reach and systemic gravity. Some basic figures speak for themselves: According to McKinsey’s Mapping Global Financial Markets (October 2008), global financial assets rose from US$12 trillion in 1980 to US$196 trillion in 2007. The International Monetary Fund’s Global Financial Stability Report (IMF, 2009a) estimate for the latter figure is considerably higher, at US$241 trillion. Global cross-border capital flows more than doubled between 2002 and 2007, with foreign investors holding one in four debt securities and one in five equities. While in 2000 only 11 countries had financial assets of more than 350% of gross domestic product (GDP), 25 countries had deepened their financial markets to the same extent by 2007. As early as 1990, money managers had increased their control of US corporate equities from 8% in 1950 to 60% (Porter, 1992, p. 6; Whalen, 2002, p. 402). Similarly, pension funds had extended their share of total business equities from less than 1% to just short of 39%, and their fraction of corporate debt from 13% to 50% (Ghilarducci, 1992, p. 117; Whalen, 2002, p. 402). In the period from 1986 to 2006, the US financial sector as a whole increased its share of corporate profits from 10% to 30%, while its outstanding debts grew from 20% of GDP in 1980 to 116% in 2007 (FED, 2009). According to Gillian Tett from the Financial Times, outstanding credit defaults swaps (CDS) today amount to no less than US$60 trillion, with the risk embodied after discounting mutually off-setting contracts still as high as US$14 trillion (Tett, 2009, p. 264). As we know, the curtains have now come down on this ‘dance of the trillions’ (Palma, 2009). The immediate ‘hang-over’ in the form of a pile of toxic debt is surreal not only in its

The Fund's Response to the 2007-08 Financial Crisis - Stocktaking and Collaboration with the Financial Stability Forum

The present financial crisis is testing the resilience of the global financial system as well as the robustness of national and multilateral policy frameworks. As requested by Executive Directors, this paper reviews recent progress in meeting these challenges, focusing on the role of the Fund and its collaboration with the Financial Stability Forum (FSF). In concert with other international bodies, the Fund has sought to promote appropriate policy responses to the financial turmoil, including through its report on The Recent Financial Turmoil—Initial Assessment, Policy Lessons, and Implications for Fund Surveillance, in the Global Financial Stability Report (GFSR) and the World Economic Outlook (WEO), as well as in recent Article IV consultations and Financial Sector Assessment Programs (FSAPs). The Fund has also responded to the International Monetary and Financial Committee’s (IMFC) call for closer collaboration with other international fora, including by supporting the implementation of policy lessons from the crisis, such as the 67 FSF recommendations issued in April 2008.

First: A Market-Based Approach to Evaluate Financial System Risk and Stability

This paper presents background work that has been the basis for the development of the market and credit risk indicators (MRI and CRI, respectively) as published in the IMF`s Global Financial Stability Report (GFSR) since September 2004. The fundamental idea was to build a set of Financial Indicators on Risk and Stability (FIRST) that could reflect the market perceptions for current and future stress on financial institutions. The focus of the analysis is mainly on large, complex financial institutions (LCFIs) operating in the most advanced financial markets, MRI and CRI have also been applied to internationally active commercial banks and insurance companies.

First: A Market-Based Approach to Evaluate Financial System Risk and Stability

This paper presents background work that has been the basis for the development of the market and credit risk indicators (MRI and CRI, respectively) as published in the IMF's Global Financial Stability Report (GFSR) since September 2004. The fundamental idea was to build a set of Financial Indicators on Risk and Stability (FIRST) that could reflect the market perceptions for current and future stress on financial institutions. The focus of the analysis is mainly on large, complex financial institutions (LCFIs) operating in the most advanced financial markets, MRI and CRI have also been applied to internationally active commercial banks and insurance companies.