Fiscal policy, public debt management and government bond market: issues for central banks

Size: px
Start display at page:

Download "Fiscal policy, public debt management and government bond market: issues for central banks"

Transcription

1 Fiscal policy, public debt management and government bond market: issues for central banks BIS CEMLA Roundtable Mexico City, November 2012 Ramon Moreno The opinions expressed in these slides are my own and do not necessarily reflect the views of the BIS.

2 Financial stability and public debt (Vargas et al, Colombia) Starting early 2000s government relied increasingly on domestic debt market. Banks reluctant to lend to private sector were willing to hold increasing amounts of public paper (called TES) in the domestic financial sector without much impact on lending rates. Private pension funds portfolios also increased demand for TES. Domestic public debt increased by (i) swaps of foreign debt for domestic currency debt, in addition to the direct placement of TES in the domestic market; (ii) sterilization of central bank intervention in the foreign exchange market 2

3 Financial stability and public debt (Colombia) Result: growing exposure of the financial system to nondiversified market risk (large fraction of its TES holdings are long term, fixed rate bonds that are valued mark-to-market). Concerns: an underestimation of market risk measures or moral hazard (the expectation of a bail-out) may explain growing demand for public debt B In 1997 to 2005 securities holdings by credit institutionsrose from around 12% of their assets to 32%. 3

4 Financial stability and public debt (Vargas et al) Stress test to Colombian financial system s holdings of public securities revealed important effects a 100 bps. parallel increase in the TES spot curve could cause losses close to 17% of the profits obtained by credit institutions (at the time historically high), and 2.5% of the value of their portfolios as of May Note: not implausible, in 2002 electoral uncertainty in Brazil in led Colombian sovereign spreads to rise by 490 bps with a corresponding increase in domestic long interest rates of 430 bps.. It subsequently took six months for the spread to return to its previous levels. Pension funds exposure to market risk is also significant 4

5 Session III Issues for discussion 1. To what extent have central banks become major issuers of domestic debt securities? What considerations guide the choice of maturity of central bank bills and bonds? 2. Do changes in maturity structure of debt have implications for monetary policy? Do governments and central banks actively adjust their issuance strategy to changing demand for different maturities by different investors? 3. To what extent is short-term debt issued by the government and the central bank a close substitute for bank reserves? What are the implications for the lending behaviour of banks? 4. How is central bank debt issuance coordinated with government debt management. 5

6 Day 2 Session 3 (Item 1) To what extent have central banks become major issuers of domestic debt securities? What considerations guide the choice of maturity of central bank bills and bonds?

7 7

8 8

9 Stylised facts for Latin American debt Public debt/gdp In 2010 ranged from under 10% in Peru, to 24% in Colombia and Mexico and 65% in Brazil Increased in Brazil and Mexico, stable/falling or low elsewhere. Average maturity has risen from around 2 years to 10 years or higher Central bank securities 2010 ranged from less than 1% in Peru to 3% in Mexico and 9% in Chile (more outside Latin America) fell (Chile) or was low and stable Maturity: largest share one year or less (eg 100% share in Peru, vs 61% and 88% for Mexico and Argentina respectively. 1-3 yr maturity (over 1/3) important in Chile and Mexico 9

10 Choice of maturity of central bank bills and bonds Central bank bills: monetary policy objectives; short maturities may be preferred in order to more easily adjust liquidity to meet the policy rate target Government bonds: trade off: longer maturities might reduce liquidity/refinancing risks but may imply higher costs. 10

11 Choice of maturity of central bank bills and bonds Two types of public debt management goals have a bearing on the choice of maturity Minimise costs to avoid perception that debt is unsustainable while taking into account tolerance for risk. provide fiscal insurance against budget risk, ie structure debt to provide a hedge against macroeconomic shocks to the budget. Returns on a government securities portfolio are negatively correlated with government consumption and positively with the tax base and, thus, output. For example, a well designed borrowing strategy will seek to reduce the government s repayment burden during cyclical downturns, when tax revenues decline temporarily and interest rates tend to fall. 11

12 Day 2 Session 3 (Item 2) Do changes in maturity structure of debt have implications for monetary policy? Do governments and central banks actively adjust their issuance strategy to changing demand for different maturities by different investors?

13 Maturity structure of debt and monetary policy (1) Perfect certainty about future short-term rates, implies debt of different terms would be perfect substitutes for one another. In this case, control of the overnight interest rate is sufficient for central banks to affect the near end of the yield curve. But uncertainty about the path of future interest rates (which could be caused by high public debt) will make debt of different maturities imperfect substitutes. Changes in the mix of short-term and long-term bonds will change relative prices, and so influence the shape of the yield curve. Monetary policy based on setting the policy rate becomes less effective as transmission to other interest rates is reduced. Hence central bank purchases or sales of bonds become more effective exactly when classic monetary policy reliant on the overnight rate works less well. 13

14 Maturity structure of debt and monetary policy (2) Do not need to be at zero lower bound. Even when the policy rate is above zero, imperfect asset substitutability along the yield curve means that monetary policy can be made to work more surely and more rapidly by central bank action in longerdated markets. This may become particularly relevant in the years ahead as central banks seek to reduce their bond holdings when government financing needs are still large. 14

15 Maturity structure of debt and monetary policy (3) Imperfect substitutability of assets at various maturities may be more relevant in EMEs, where financial markets are thinner EME domestic investor base is often quite small and dominated by a few large, local banks. Implication: local bonds are less reliable as collateral at times of market stress (Fostel and Geanakopolos, 2008). Need additional measures for monetary policy to work. Example: Following Sep 2008 Lehman bankruptcy, Mexico with well developed domestic debt markets faced loss of confidence in bond markets. Lowering policy rates not enough as would not pass through to long-term rates. Responses: A shortening of the maturity of new debt issuance; Official purchases of long-term government bonds in the market; The creation of a central bank facility for interest rate swaps which allowed bond holders to reduce their exposure to the long-term interest rate. 15

16 Adjusting issuance strategy to changing demand by investors Public debt management: Data suggest that over the medium term, demand for long-term assets (and also for domestic currency bonds) has been accommodated through issuance policies Central banks: the data indicate issuance concentrated at very short maturities 16

17 Day 2 Session 3 (Item 4) How is central bank debt issuance coordinated with government debt management.

18 Issues of coordination of central bank and public debt Public debt management can complicate monetary policy eg issuance at short maturities may affect ability to achieve the policy rate target Central bank debt issuance can crowd out public debt issuance Central bank debt issuance can also make it harder to use public debt management to provide a hedge against macroeconomic shocks to the budget (eg seeking to ensure that interest payments of the government decline during cyclical downturns). 18

19 Solutions to conflict between central bank and public debt (complications for monetary policy, crowding out of public debt) Government issue the debt securities needed for monetary regulation (Mexico). Arrangements for the central bank to issue debt at short maturity while the government issues public debt at longer maturities Korea : central bank issues debt up to 2 year maturity, while the government issues debt from 3 to 20 years. Still there are cases where maturities may overlap; in Chile 38% of the central bank debt has maturity exceeding three years 19

20 Fiscal insurance A central bank that issues debt will usually do so because it does not have public debt available for its monetary options. If monetary policy is countercyclical, the fiscal insurance role can be preserved the cost of debt will indeed It will then structure its own debt to achieve its interest rate target and not necessarily to provide fiscal insurance that minimises the government debt service burden in response to shocks. Nevertheless, the central bank may play an important fiscal insurance role that is not necessarily emphasised in the public debt management literature, by providing cover for currency mismatches of the public sector (and the rest of the economy). 20

21 Day 2 Session 3 (Item 3) To what extent is short-term debt issued by the government and the central bank a close substitute for bank reserves? What are the implications for the lending behaviour of banks

22 Short-term debt and bank credit Conventional monetary transmission mechanism, bank credit is determined primarily by demand factors. Issuance of short-term debt (or bank reserves) should play little role in determining the level of financial intermediation. When banks increase their holdings of government bonds, they may crowd out credit to the private sector (Kuttner and Lown (1998)). Under imperfect market conditions, however, debt maturity can affect banks lending behaviour. For example, banks may face financing constraints. Short-term government and central bank bills could then act as liquidity buffers, relaxing these constraints and enhancing banks capacity to lend. 22

23 Likely impact depends on the sensitivity of banks holdings of bills and securities to the level of interest rates. Low interest rates imply banks have a greater incentive to seek finance by liquidating their holdings of short-term paper rather than by borrowing from the central bank. Liquid assets provide an easy way for investors to leverage up their balance sheets. Banks and other investors may use their bond holding to build riskier exposures (see Borio and Zhu (2008)). Liquidity and risk-taking may interact in a mutually reinforcing way, increasing the strength of the monetary transmission mechanism and creating a destabilising credit boom. 23

24 Desired asset maturity may matter maturity structure, and if the government does not supply enough long maturity assets banks may create them by making loans, even though such lending may not be a perfect substitute; ie, the shorter debt maturity of sovereign bonds may lead banks to finance a greater amount of long-term projects. Some support from emerging market economies: strong growth in short-term official sector debt is associated with credit growth. 24

Coordinating Policies: The Central Bank and the DMO

Coordinating Policies: The Central Bank and the DMO Coordinating Policies: The Central Bank and the DMO Monetary policy and fiscal operations -Stephen M Vajs Manila, June 2015 Introduction This talk focuses on three aspects of the central bank s role in

More information

Public Debt Management and

Public Debt Management and Public Debt Management and Monetary Policy Philip Turner* Debt Management Facility (DMF) Stakeholders Forum 2011 Managing debt: lessons learnt and emerging issues Session 6: Domestic debt market development

More information

Developing domestic capital markets

Developing domestic capital markets Series Developing domestic capital markets International Finance Corporation (World Bank Group) July 2016 More Information http://www.un.org/esa/ffd/ffd-follow-up/inter-agency-task-force.html Disclaimer:

More information

Saving, Investment, and the Financial System

Saving, Investment, and the Financial System Introduction to Macroeconomics Session 5: Saving, Investment, and the Financial System [Chapter 26] Sebastian Koch Lauder Business School Summer 2016 1 Course Description UPDATED! M & T Chapters covered

More information

Factoring Exchange Rate Policy into your Investment Strategy: Risks Facing Andean Countries

Factoring Exchange Rate Policy into your Investment Strategy: Risks Facing Andean Countries Factoring Exchange Rate Policy into your Investment Strategy: Risks Facing Andean Countries September 2011 Dr. Eliot Kalter President, E M Strategies Senior Fellow, The Fletcher School Ekalter@EMStrategies.com

More information

Background. Hartadi A Sarwono 1

Background. Hartadi A Sarwono 1 Indonesian policy on non-residents participation in the money market: the restriction of rupiah transactions by non-residents and foreign currency credit offered by banks to non-residents Hartadi A Sarwono

More information

Banks and financial intermediation in Asia: what has changed?

Banks and financial intermediation in Asia: what has changed? Banks and financial intermediation in Asia: what has changed? Madhusudan Mohanty Bank for International Settlements A presentation at the OECD-ADBI 8 th Round Table on Capital Market Reform in Asia, 11

More information

Central bank foreign reserve accumulation: Motives and implications

Central bank foreign reserve accumulation: Motives and implications Central bank foreign reserve accumulation: Motives and implications Ramon Moreno 26 April 2007 1 Stock of foreign currency reserves At year-end, as a percentage of world GDP 12.0 10.0 8.0 6.0 4.0 2.0 0.0

More information

Preview. Chapter 21. Gains from Trade. International Capital Markets. The Global Capital Market: Performance and Policy Problems

Preview. Chapter 21. Gains from Trade. International Capital Markets. The Global Capital Market: Performance and Policy Problems Chapter 21 The Global Capital Market: Performance and Policy Problems Preview Gains from trade Portfolio diversification Players in the international capital markets Attainable policies with international

More information

Capital Flows to Emerging Markets

Capital Flows to Emerging Markets Capital Flows to Emerging Markets Vittorio Corbo Centro de Estudios Públicos October 2, 2009 Prepared for presentation in a session organized by the Bank of Spain in the LACEA/LAMES Meetings in Buenos

More information

Macroprudential Policies in Korea

Macroprudential Policies in Korea 1 IMF-Riksbank Conference Stockholm, November 13~14, 2014 Macroprudential Policies in Korea Tae Soo Kang Disclaimer This presentation represents the views of the author and not necessarily those of the

More information

MONETARY POLICY IMPLEMENTATION Class Notes By Saki Bigio, Assistant Professor in Finance and Economics

MONETARY POLICY IMPLEMENTATION Class Notes By Saki Bigio, Assistant Professor in Finance and Economics MONETARY POLICY IMPLEMENTATION Class Notes By Saki Bigio, Assistant Professor in Finance and Economics LIQUIDITY MANAGEMENT Liquidity management is recognized as one of the fundamental problems in banking

More information

ECONOMIES. Malcolm D Knight

ECONOMIES. Malcolm D Knight HIGH-LEVEL REGIONAL SEMINAR ON INFLATION TARGETING Rabat, Morocco, April 4, 2007 INFLATION TARGETING IN EMERGING MARKET ECONOMIES Malcolm D Knight Presented at the High-Level Regional Seminar on Inflation

More information

DFA INVESTMENT DIMENSIONS GROUP INC.

DFA INVESTMENT DIMENSIONS GROUP INC. PROSPECTUS February 28, 2015 Please carefully read the important information it contains before investing. DFA INVESTMENT DIMENSIONS GROUP INC. DFA ONE-YEAR FIXED INCOME PORTFOLIO Ticker: DFIHX DFA TWO-YEAR

More information

Mr Duisenberg discusses the role of capital markets and financing in the euro area Speech by Willem F Duisenberg, President of the European Central

Mr Duisenberg discusses the role of capital markets and financing in the euro area Speech by Willem F Duisenberg, President of the European Central Mr Duisenberg discusses the role of capital markets and financing in the euro area Speech by Willem F Duisenberg, President of the European Central Bank, at the Waarborgfonds Sociale Woningbouw in Utrecht,

More information

FINANCIAL STABILITY ASSESSMENT

FINANCIAL STABILITY ASSESSMENT FINANCIAL STABILITY ASSESSMENT The international financial environment As inflation has been very low due to the weakness in the economic environment and the fall in commodities prices, many central banks

More information

HOUSING FINANCE IN TRANSITION ECONOMIES

HOUSING FINANCE IN TRANSITION ECONOMIES HOUSING FINANCE IN TRANSITION ECONOMIES OECD Workshop Warsaw, Poland December 5-6, 5 2002 Loïc Chiquier The World Bank 1 Challenge in Transition Economies! Key for growth, poverty, wealth (75 wealth),

More information

Monetary and Financial Aspects of Issuing Public Debt Instruments in Kuwait (1)

Monetary and Financial Aspects of Issuing Public Debt Instruments in Kuwait (1) Monetary and Financial Aspects of Issuing Public Debt Instruments in Kuwait (1) I would like to thank the Faculty of Commerce for arranging this meeting, which I hope will lead to the clarification of

More information

Exchange Rates and International Finance

Exchange Rates and International Finance Chapter 20 Exchange Rates and International Finance By Charles I. Jones Media Slides Created By Dave Brown Penn State University 20.1 Introduction In this chapter, we learn: How nominal and real exchange

More information

GOVERNMENT OF SAINT LUCIA DEBT MANAGEMENT STRATEGY

GOVERNMENT OF SAINT LUCIA DEBT MANAGEMENT STRATEGY Page 1 of 5 Introduction GOVERNMENT OF SAINT LUCIA DEBT MANAGEMENT STRATEGY Debt management is the process of establishing and executing a strategy for managing the government s debt in order to raise

More information

Economic Outlook and Recent Developments in Latin America and Chile

Economic Outlook and Recent Developments in Latin America and Chile Economic Outlook and Recent Developments in Latin America and Chile Rodrigo Vergara Governor Central Bank of Chile, October 1 Introduction Latin America has made great advances in the s. The commodity

More information

CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 MODULE 2: ETHICS AND REGULATION 6 MODULE 3: INPUTS AND TOOLS 8 MODULE 4: INVESTMENT INSTRUMENTS 12

CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 MODULE 2: ETHICS AND REGULATION 6 MODULE 3: INPUTS AND TOOLS 8 MODULE 4: INVESTMENT INSTRUMENTS 12 SYLLABUS OVERVIEW 1 CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 CHAPTER 1 The Investment Industry: A Top-Down View MODULE 2: ETHICS AND REGULATION 6 CHAPTER 2 CHAPTER 3 Ethics and Investment Professionalism

More information

Local currency bond markets and its benefits for financial stability

Local currency bond markets and its benefits for financial stability Local currency bond markets and its benefits for financial stability Presentation at the EBRD-G20 French Presidency-Reinvesting Bretton Woods Committee Joint conference May 2011 Bernd Braasch Financial

More information

Brazilian Economy outlook and its impacts on Real Estate sector. Joao Cesar Tourinho - CIO

Brazilian Economy outlook and its impacts on Real Estate sector. Joao Cesar Tourinho - CIO Brazilian Economy outlook and its impacts on Real Estate sector Joao Cesar Tourinho - CIO Agenda I. Brazil s Fundamentals II. Challenges i. Fiscal Consolidation, ii. Investment and iii. Productivity III.Near-Term

More information

Foreign Exchange Exposure of the Non- Financial Corporate Sector in Turkey

Foreign Exchange Exposure of the Non- Financial Corporate Sector in Turkey Foreign Exchange Exposure of the Non- Financial Corporate Sector in Turkey April 2015 Economic Research Division 1 Foreign Exchange Exposure of the Non-Financial Corporate Sector in Turkey During the last

More information

18 ECB STYLISED FACTS OF MONEY AND CREDIT OVER THE BUSINESS CYCLE

18 ECB STYLISED FACTS OF MONEY AND CREDIT OVER THE BUSINESS CYCLE Box 1 STYLISED FACTS OF MONEY AND CREDIT OVER THE BUSINESS CYCLE Over the past three decades, the growth rates of MFI loans to the private sector and the narrow monetary aggregate M1 have displayed relatively

More information

International capital, International Debt

International capital, International Debt International capital, International Debt The lecture notes use partly material from Chapter 20 in the textbook. 20-1 Topics to be Covered International Capital Mobility International Debt IMF and IMF

More information

Government Debt. We will examine the effect of monetary policy on government debt, which in turns influences savings and investment.

Government Debt. We will examine the effect of monetary policy on government debt, which in turns influences savings and investment. Debt We will examine the effect of monetary policy on government, which in turns influences savings and investment. s frequently finance current deficits by borrowing. s issue two forms of : money and

More information

Subnational Borrowing Framework Lili Liu Lead Economist Economic Policy and Debt Department

Subnational Borrowing Framework Lili Liu Lead Economist Economic Policy and Debt Department International Seminar on Building New Countryside and Promoting Balanced Regional Development for a Harmonious Society Haikou, China 2006 年 8 月 21-26 日 Subnational Borrowing Framework Lili Liu Lead Economist

More information

Medium-Term Debt Strategy

Medium-Term Debt Strategy Medium-Term Debt Strategy Based on Client Presentation May 2010 1 Outline Developing a Medium-Term Debt Strategy Risk Indicators and Sensitivity Analysis Cost-Risk Analysis Implementation Performance Measurement

More information

Recent Developments in Local Currency Bond Markets (LCBMs) 1. October 2013

Recent Developments in Local Currency Bond Markets (LCBMs) 1. October 2013 Recent Developments in Local Currency Bond Markets (LCBMs) 1 October 2013 Given the importance of local currency bond markets (LCBMs), including in the context of the work now underway on financing for

More information

The global financial crisis which began in the

The global financial crisis which began in the What is responsible for the easing of credit standards before the crisis: monetary policy or the savings glut? Adrian Penalver Monetary and Financial Analysis Directorate This letter presents the findings

More information

Lecture 10: International banking

Lecture 10: International banking Lecture 10: International banking The sessions so far have focused on banking in a domestic context. In this lecture we are going to look at the issues which arise from the internationalisation of banking,

More information

Notes to Interim Balance Sheet

Notes to Interim Balance Sheet Notes to Interim Balance Sheet 1. Amounts less than one million have been omitted. 2. Transactions for trading purposes (seeking gains arising from short-term changes in interest rates, currency exchange

More information

Exchange Rates and International Finance

Exchange Rates and International Finance Chapter 19 Exchange Rates and International Finance By Charles I. Jones Media Slides Created By Dave Brown Penn State University 19.1 Introduction In this chapter, we learn: How nominal and real exchange

More information

Four Reasons Why the Bond Market Is Not Headed Toward a Liquidity Crisis

Four Reasons Why the Bond Market Is Not Headed Toward a Liquidity Crisis Four Reasons Why the Bond Market Is Not Headed Toward a Liquidity Crisis January 14, 2016 by Tony Wong of Invesco Blog Liquidity in fixed income markets has become a major focus of concern inside and outside

More information

Lecture 2: The nature of financial intermediation:

Lecture 2: The nature of financial intermediation: Lecture 2: The nature of financial intermediation: The issue of why financial intermediaries exist is a puzzle for the complete markets paradigm of Arrow and Debreu. As we describe in this lecture, the

More information

Sovereign Debt Management Forum 2014

Sovereign Debt Management Forum 2014 FINANCIAL ADVISORY & BANKING Sovereign Debt Management Forum 2014 Background Note for Breakout Session 4 An asset liability management (ALM) framework can help governments to assess risks in the sovereign

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The term structure of interest rates is ) the structure of how interest rates move over time. B)

More information

Chinese Economic Growth: Is it Sustainable?

Chinese Economic Growth: Is it Sustainable? Chinese Economic Growth: Is it Sustainable? Ian Sheldon (Ohio State University) Prepared for Lecture: Tecnológico de Monterrey, Campus Guadalajara, Guadalajara, Mexico, February 2011 China s Economic Growth

More information

The Kingdom of Denmark's New Inflation-Linked Bond

The Kingdom of Denmark's New Inflation-Linked Bond 1 Danmarks Nationalbank Government Debt Management The Kingdom of Denmark's New Inflation-Linked Bond Published on 22 May 2012 2 Contents WHAT IS AN INFLATION-LINKED BOND?...3 THE MARKET FOR INFLATION-LINKED

More information

Mauritius Banking Association Treasury & Risk Management for Depository Institutions in the New Regulatory Environment

Mauritius Banking Association Treasury & Risk Management for Depository Institutions in the New Regulatory Environment Mauritius Banking Association Treasury & Risk Management for Depository Institutions in the New Regulatory Environment 5 Day Programme Port Louis, Mauritius WORKSHOP OUTLINE COURSE BACKGROUND The banking

More information

Fiscal policy, public debt and monetary policy in EMEs: an overview

Fiscal policy, public debt and monetary policy in EMEs: an overview Fiscal policy, public debt and monetary policy in EMEs: an overview M S Mohanty 1 1. Introduction During the 1980s and 1990s, the vulnerability of EMEs to shocks was often exacerbated by high fiscal deficits,

More information

Foreign currency mismatches and leverage in emerging market companies

Foreign currency mismatches and leverage in emerging market companies Foreign currency mismatches and leverage in emerging market companies Michael Chui Bank for International Settlements UNCTAD 26 January 2016, Geneva michael.chui@bis.org These slides were prepared on the

More information

Closer coordination between debt policy and monetary policy? Lars Hörngren October 29, 2012

Closer coordination between debt policy and monetary policy? Lars Hörngren October 29, 2012 Closer coordination between debt policy and monetary policy? Lars Hörngren lars.horngren@riksgalden.se October 29, 2012 1 Points of reference One reason to avoid the zero lower bound in monetary policy

More information

The Australian Semi-government Bond Market

The Australian Semi-government Bond Market The Australian Semi-government Bond Market David Lancaster and Sarah Dowling* The semi-government bond market has grown rapidly in recent years, reflecting developments in state government financing needs,

More information

Monetary Policy. Global Interdependence Center Central Banking Series: Helsinki June 6, 2016 at House of the Estates

Monetary Policy. Global Interdependence Center Central Banking Series: Helsinki June 6, 2016 at House of the Estates Governor Erkki Liikanen Bank of Finland Monetary Policy Global Interdependence Center Central Banking Series: Helsinki June 6, 2016 at House of the Estates 6.6.2016 1 Growth and inflation outlook in the

More information

Inside and outside liquidity provision

Inside and outside liquidity provision Inside and outside liquidity provision James McAndrews, FRBNY, ECB Workshop on Excess Liquidity and Money Market Functioning, 19/20 November, 2012 The views expressed in this presentation are those of

More information

Investing in emerging markets A primer for UK pension schemes

Investing in emerging markets A primer for UK pension schemes September 2012 Investing in emerging markets A primer for UK pension schemes Jonathan Smith, UK Strategic Solutions, Schroders Introduction At present most UK pension schemes have some exposure to emerging

More information

VA Short-Term Fixed Portfolio

VA Short-Term Fixed Portfolio VA Short-Term Fixed Portfolio SHARE CLASS: INSTITUTIONAL CLASS Summary Prospectus February 28, 2016 Before you invest, you may want to review the Portfolio s Prospectus, which contains more information

More information

Developments in Banks Funding Costs and Lending Rates

Developments in Banks Funding Costs and Lending Rates Developments in Banks Funding Costs and Lending Rates Eduardo Tellez* This article updates previous Reserve Bank research on how developments in the composition and pricing of banks funding have affected

More information

1. A capital market brings together those who want to invest money and those who

1. A capital market brings together those who want to invest money and those who Chapter 12 The Global Capital Market True / False Questions 1. A capital market brings together those who want to invest money and those who want to borrow money. True False 2. Market makers are companies

More information

Study on Enterprise Financing

Study on Enterprise Financing Study on Enterprise Financing Mei ZHOU School of Management Shanghai University of Engineering Science China Meng Liu School of Management Shanghai University of Engineering Science China Abstract The

More information

MACROECONOMICS I. Class 11. Inflation. May 16 th, 2014

MACROECONOMICS I. Class 11. Inflation. May 16 th, 2014 MACROECONOMICS I Class 11. Inflation May 16 th, 2014 Announcements Final Exam: May 30 th, 10:30 12:30, S6 HW Assignment #4 is due: May 23 rd Project deadline: May 30 th, before exam N!B! Project is an

More information

The experience of Peru with financial dedollariza6on. Zenón Quispe Central Reserve Bank of Peru

The experience of Peru with financial dedollariza6on. Zenón Quispe Central Reserve Bank of Peru The experience of Peru with financial dedollariza6on Zenón Quispe Central Reserve Bank of Peru 01 Content 1. Dollarization: the main vulnerability of the Peruvian economy 2. Why are we dollarized? 3. Rebuilding

More information

Financial Repression: Evidence and Theory Banks should be required to hold government debt at low interest rates only under limited conditions

Financial Repression: Evidence and Theory Banks should be required to hold government debt at low interest rates only under limited conditions ECONOMIC POLICY PAPER 16-04 MARCH 2016 Financial Repression: Evidence and Theory Banks should be required to hold government debt at low interest rates only under limited conditions EXECUTIVE SUMMARY Financial

More information

The Challenges of Efficient Government Cash Management. Gemloc Peer Group Discussion March 2013

The Challenges of Efficient Government Cash Management. Gemloc Peer Group Discussion March 2013 The Challenges of Efficient Government Cash Management Gemloc Peer Group Discussion March 2013 Mike Williams mike.williams@mj-w.net Today s Discussion Cash management what it is and the characteristics

More information

Development of Money Markets

Development of Money Markets Development of Money Markets Mats Filipsson International Monetary Fund Monetary and Exchange Affairs Department Workshop on Developing Government Bond Markets in APEC Economies Shanghai, November 12 15,

More information

Session 11. Fixed Exchange Rates and Currency Crisis. Review: The IS/LM Model for a Small Open Economy (with a flexible exchange rate)

Session 11. Fixed Exchange Rates and Currency Crisis. Review: The IS/LM Model for a Small Open Economy (with a flexible exchange rate) Session 11. Fixed Exchange Rates and Currency Crisis v The IS/LM Model for a Fixed Exchange Rate Regime v The Impossible Trinity and capital controls. v The 1994-95 Mexican Peso Crisis Review: The IS/LM

More information

THE IMPACT OF THE CURRENCY AND COUNTRY OF ORIGIN ON GLOBAL

THE IMPACT OF THE CURRENCY AND COUNTRY OF ORIGIN ON GLOBAL INVESTMENT PRINCIPLES INFORMATION SHEET FOR CFA PROFESSIONALS THE BENEFITS OF THE IMPACT OF THE CURRENCY AND COUNTRY OF ORIGIN ON GLOBAL REQUIREMENTS IMPORTANT NOTICE The term financial advisor is used

More information

MACROECONOMICS. Government Debt MANKIW N. GREGORY. PowerPoint Slides by Ron Cronovich C H A P T E R SIXTH EDITION

MACROECONOMICS. Government Debt MANKIW N. GREGORY. PowerPoint Slides by Ron Cronovich C H A P T E R SIXTH EDITION C H A P T E R 15 Government Debt MACROECONOMICS N. GREGORY MANKIW 2008 Worth Publishers, all rights reserved SIXTH EDITION PowerPoint Slides by Ron Cronovich In this chapter, you will learn about the size

More information

the actions of the party who is insured. These actions cannot be fully observed or verified by the insurance (hidden action).

the actions of the party who is insured. These actions cannot be fully observed or verified by the insurance (hidden action). Moral Hazard Definition: Moral hazard is a situation in which one agent decides on how much risk to take, while another agent bears (parts of) the negative consequences of risky choices. Typical case:

More information

Financial Stability Report Press Conference. Tuesday 5 th July Opening Remarks by the Governor

Financial Stability Report Press Conference. Tuesday 5 th July Opening Remarks by the Governor Financial Stability Report Press Conference Tuesday 5 th July 2016 Opening Remarks by the Governor Today, I want to outline how the Financial Policy Committee (FPC) is ensuring that the financial system

More information

Importance of Credit Rating

Importance of Credit Rating Importance of Credit Rating A credit rating estimates ability to repay debt. A credit rating is a formal assessment of a corporation, autonomous governments, individuals, conglomerates or even a country.

More information

Introduction to Fixed Income (IFI) Course Syllabus

Introduction to Fixed Income (IFI) Course Syllabus Introduction to Fixed Income (IFI) Course Syllabus 1. Fixed income markets 1.1 Understand the function of fixed income markets 1.2 Know the main fixed income market products: Loans Bonds Money market instruments

More information

Macroprudential Surveillance: Lessons from Bank of Jamaica

Macroprudential Surveillance: Lessons from Bank of Jamaica Macroprudential Surveillance: Lessons from Bank of Jamaica R. Brian Langrin Head, Financial Stability Department Bank of Jamaica CARTAC/CACS/SVG FSA CREDIT UNION WORKSHOP AND REGULATORY MEETING CARIBBEAN

More information

"Dollarisation in Emerging Market Economies" Part 2: IMPLICATIONS

Dollarisation in Emerging Market Economies Part 2: IMPLICATIONS Part 2: IMPLICATIONS FISCAL IMPLICATIONS OF CURRENCY SUBSTITUTION DOLLARISATION AND FINANCIAL DEEPENING DOLLARISATION AND FINANCIAL FRAGILITY Solvency risk Liquidity risk Liquidity risk and solvency risk

More information

ECON 4311: The Economy of Latin America. Debt Relief. Part 1: Early Initiatives

ECON 4311: The Economy of Latin America. Debt Relief. Part 1: Early Initiatives ECON 4311: The Economy of Latin America Debt Relief Part 1: Early Initiatives The Debt Crisis of 1982 severely hit the Latin American economies for many years to come. Balance of payments deficits and

More information

Understanding Commercial Bank Reserves

Understanding Commercial Bank Reserves Understanding Commercial Bank Reserves Garreth Rule Monetary Policy Management, Analysis and Operation PFTAC / Reserve Bank of Fiji 24 28 March 2014 The Bank of England does not accept any liability for

More information

High Yield Bonds A Primer

High Yield Bonds A Primer High Yield Bonds A Primer With our extensive history in the Canadian credit market dating back to the Income Trust period, our portfolio managers believe that there is considerable merit in including select

More information

Corporate Debt in Emerging Markets Where are the risks? JUNE 1, 2015

Corporate Debt in Emerging Markets Where are the risks? JUNE 1, 2015 CMM RESEARCH NOTE Corporate Debt in Emerging Markets Where are the risks? JUNE 1, 215 Since 28, total corporate bonds outstanding have almost doubled, surpassing $6.8 trillion in 214. This increase has

More information

LECTURE NOTES ON MACROECONOMIC PRINCIPLES

LECTURE NOTES ON MACROECONOMIC PRINCIPLES LECTURE NOTES ON MACROECONOMIC PRINCIPLES Peter Ireland Department of Economics Boston College peter.ireland@bc.edu http://www2.bc.edu/peter-ireland/ec132.html Copyright (c) 2013 by Peter Ireland. Redistribution

More information

The global crisis and Latin America: financial impact and policy responses 1

The global crisis and Latin America: financial impact and policy responses 1 Alejandro Jara alejandro.jara@bis.org Ramon Moreno ramon.moreno@bis.org Camilo E Tovar camilo.tovar@bis.org The global crisis and Latin America: financial impact and policy responses 1 The financial impact

More information

The role and responsibility of the Ministry of Finance in developing government bond markets: the case of Canada

The role and responsibility of the Ministry of Finance in developing government bond markets: the case of Canada September 2005 The role and responsibility of the Ministry of Finance in developing government bond markets: the case of Canada Pierre Gilbert, CFA Department of Finance Canada gilbert.pierre@fin.gc.ca

More information

On Corporate Debt Restructuring *

On Corporate Debt Restructuring * On Corporate Debt Restructuring * Asian Bankers Association 1. One of the major consequences of the current financial crisis is the corporate debt problem being faced by several economies in the region.

More information

LVIP PIMCO Low Duration Bond Fund. Summary Prospectus May 1, (Standard and Service Class) Investment Objective.

LVIP PIMCO Low Duration Bond Fund. Summary Prospectus May 1, (Standard and Service Class) Investment Objective. LVIP PIMCO Low Duration Bond Fund (Standard and Service Class) Summary Prospectus May 1, 2016 Before you invest, you may want to review the Fund s Prospectus, which contains more information about the

More information

The international banking crisis: impact on Thailand s financial system and policy responses

The international banking crisis: impact on Thailand s financial system and policy responses The international banking crisis: impact on Thailand s financial system and policy responses Bank of Thailand 1. Impact on the banking system The direct impact of the global financial crisis on the Thai

More information

Lessons from the European sovereign debt crisis

Lessons from the European sovereign debt crisis Lessons from the European sovereign debt crisis BIS CEMLA Roundtable Fiscal policy, public debt management and government bond market: issues for central banks Mexico City, November 2012 Jose Luis Escrivá

More information

Development of the government bond market and public debt management in Singapore

Development of the government bond market and public debt management in Singapore Development of the government bond market and public debt management in Singapore Monetary Authority of Singapore Abstract This paper describes the growth of the Singapore Government Securities (SGS) market.

More information

Option Markets: Introduction

Option Markets: Introduction Option Markets: Introduction Option Terminology Buy - Long Sell Short Call Holder has the right to purchase an asset for a specified price Put Holder has the right to purchase an asset for a specified

More information

THE ROLE OF CENTRAL BANK IN ECONOMIC DEVELOPMENT AND TRANSFORMATION: BEYOND MACROECONOMIC AND FINANCIAL STABILITY

THE ROLE OF CENTRAL BANK IN ECONOMIC DEVELOPMENT AND TRANSFORMATION: BEYOND MACROECONOMIC AND FINANCIAL STABILITY THE ROLE OF CENTRAL BANK IN ECONOMIC DEVELOPMENT AND TRANSFORMATION: BEYOND MACROECONOMIC AND FINANCIAL STABILITY RESERVE BANK OF MALAWI 50 TH ANNIVERSARY Njuguna Ndung u November 23, 2015 The Focus Economic

More information

Public debt management and open market operations in Brazil

Public debt management and open market operations in Brazil Public debt management and open market operations in Brazil Luiz Fernando Figueiredo, Pedro Fachada and Sérgio Goldenstein 1 1. Public debt management An inflation targeting regime was introduced in Brazil

More information

Important Information about Structured Products

Important Information about Structured Products Robert W. Baird & Co. Incorporated Important Information about Structured Products Definition and Background Structured products, as described by the Financial Industry Regulatory Authority (FINRA), are

More information

Government Cash Management: Challenges, Techniques and Sound Practice

Government Cash Management: Challenges, Techniques and Sound Practice Government Cash Management: Challenges, Techniques and Sound Practice Mike Williams, External Consultant 1 mike.williams@mj-w.net The Objectives of Cash Management Ensuring cash is available to meet commitments

More information

BIS Papers. Currency carry trades in Latin America. No 81. Monetary and Economic Department

BIS Papers. Currency carry trades in Latin America. No 81. Monetary and Economic Department BIS Papers No 81 Currency carry trades in Latin America Report submitted by a Study Group established by the Consultative Group of Directors of Operations in the Americas Region and chaired by Julio A

More information

Market volatility and foreign exchange intervention in EMEs: what has changed?

Market volatility and foreign exchange intervention in EMEs: what has changed? Market volatility and foreign exchange intervention in EMEs: what has changed? An overview M S Mohanty 1 Over the past five years, huge swings in capital flows to and from emerging market economies (EMEs)

More information

The Effect of Global Liquidity on Corporate Financing in Mexico

The Effect of Global Liquidity on Corporate Financing in Mexico The Effect of Global Liquidity on Corporate Financing in Mexico Carabarín, de la Garza and Moreno, April 2015 The views and conclusions in this presentation are exclusively the responsibility of the authors

More information

The IS-LM-BP Model Agenda. The IS-LM-BP Model. Policy Analysis with Partial Capital Mobility. Capital Mobility

The IS-LM-BP Model Agenda. The IS-LM-BP Model. Policy Analysis with Partial Capital Mobility. Capital Mobility The IS-LM-BP Model Agenda The Balance of Payments International Capital Flows & Indebtedness 1 The IS-LM-BP Model the BP Curve The intersection of the IS-LM curves establishes internal equilibrium. The

More information

The development of debt markets in Peru

The development of debt markets in Peru The development of debt markets in Peru Marylin Choy 1. Introduction The market-oriented reforms implemented since 1990, along with the recovery of macroeconomic stability, has encouraged the growth of

More information

Central Bank of Iraq. Press Communiqué

Central Bank of Iraq. Press Communiqué Central Bank of Iraq Press Communiqué New Central Bank policy instruments Summary At its August 26 meeting, the Board of the Central Bank of Iraq (CBI) adopted a new Reserve Requirement regulation and

More information

Statement of Investment Policies and Procedures

Statement of Investment Policies and Procedures Effective July 1, 2015 Canadian Cancer Society Statement of Investment Policies and Procedures Background The Society wishes to invest funds in a prudent manner, with appropriate consideration given to

More information

Chile: Managing Monetary Policy during a Copper Price Bonanza

Chile: Managing Monetary Policy during a Copper Price Bonanza Chile: Managing Monetary Policy during a Copper Price Bonanza 18 September 2 0 0 6 Vittorio Corbo Governor Outline 1. Main Issues 2. Structural Features of the Economy 3. Copper Bonanza 4. Macroeconomic

More information

Financial Stability Report Press Conference 30 November 2016 Opening remarks by the Governor

Financial Stability Report Press Conference 30 November 2016 Opening remarks by the Governor Financial Stability Report Press Conference 30 November 2016 Opening remarks by the Governor Good morning. There are two main elements to today s announcements: - First, the FPC s assessment of the major

More information

MGE#12 The Balance of Payments

MGE#12 The Balance of Payments MGE#12 The Balance of Payments The Current Account, the Capital Account and the Balance of Payments Introduction to the Foreign Exchange Market Savings, Investment and the Current Account 1 From last session

More information

and the Banking System

and the Banking System CHAPTER 19 Money Supply, Money Demand, and the Banking System Questions for Review 1. In a system of fractional-reserve banking, banks create money because they ordinarily keep only a fraction of their

More information

Pre-export Finance in Russia

Pre-export Finance in Russia Pre-export Finance in Russia Going all the way Cbonds Syndicated Lending in Russia 2011 Content Who we are State of the market Fundamental drivers What if Concluding remarks Content Who we are State of

More information

Financial markets and the importance of capital market instruments. Moorad Choudhry December 2005

Financial markets and the importance of capital market instruments. Moorad Choudhry December 2005 Financial markets and the importance of capital market instruments Moorad Choudhry December 2005 YieldCurve.com 2005 2 Financial Markets and the importance of capital market instruments The financial markets

More information

Portugal s Adjustment Program: Where are We?

Portugal s Adjustment Program: Where are We? Portugal s Adjustment Program: Where are We? Albert Jaeger International Monetary Fund Presentation: Austrian Business Circle Lisbon, January 24, 2014 Overview Looking back: Four questions Growth and unemployment:

More information

Solutions for End-of-Chapter Questions and Problems

Solutions for End-of-Chapter Questions and Problems Chapter Seven Risks of Financial Institutions Solutions for End-of-Chapter Questions and Problems 1. What is the process of asset transformation performed by a financial institution? Why does this process

More information

1. The Keynesian cross and the IS-LM model [10 points]

1. The Keynesian cross and the IS-LM model [10 points] 1. The Keynesian cross and the IS-LM model [10 points] 1.1. Consumption in the economy is, with 0.8. Furthermore, 400, 0, 200 and, with 300, 2000 and 0.02. 1.1.1. Assume that the saving rate increases

More information