advanced economies divergences, emerging markets convergence? nicolas … · 2016-06-02 ·...

Advanced Economies

Divergences,

Emerging Markets

Convergence?

Nicolas E. Magud International Monetary Fund

Jornadas Económicas 2016

Guatemala

The views expressed in this presentation are those of the presenter and do not necessarily represent the views of the

IMF, its Executive Board, or IMF management.

Overview

• World growth: AEs vs. EMs; differences among AEs

– US

– EU

– Japan

• Highlight: AEs’ real exchange rate and inflation divergence

• Tighter US monetary policy

– Capital flows, commodity prices’ retrench

– EMs investment slowdown (commodity prices & monetary shocks)

• Policy

– Exchange rate flexibility smoothes real effects of capital flows cycles

– Capital controls not much effective

2015 3.1 1.9 2.4 0.5 1.6 4.0 6.9 7.3 -3.8 -3.7

2016 3.2 1.9 2.4 0.5 1.5 4.1 6.5 7.5 -3.8 -1.8

Revision

from Jan.

2016

-0.2 -0.2 -0.2 -0.5 -0.2 -0.2 0.2 0.0 -0.3 -0.8

2017 3.5 2.0 2.5 -0.1 1.6 4.6 6.2 7.5 0.0 0.8

Revision

from Jan.

2016

-0.1 -0.1 -0.1 -0.4 -0.1 -0.1 0.2 0.0 0.0 -0.2

Sources: IMF, World Economic Outlook January 2016 Update; and IMF, World Economic Outlook April 2016.

Global growth remains moderate and uneven (Growth projections, percent change from a year earlier)

2

3

Growth convergence (down)

Real GDP Growth

(Year-over-year percentage change)

Source: IMF, World Economic Outlook database.

-4

-2

0

2

4

6

8

2008 2009 2010 2011 2012 2013 2014 2015 2016

Advanced Economies Emerging Market and Developing Economies

-2

0

2

4

6

8

-3

-2

-1

0

1

2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4

Oil investment Government consumption and investment Net exports

Real GDP growth

(percent, right scale)

Private sales growth


United States: Contribution to Growth

(Percentage points)

Sources: Bureau of Economic Analysis; and IMF staff calculations. 4

Consumption-driven U.S. growth…

Sources: Bloomberg, L.P.; Federal Reserve; and IMF staff estimates.

4.5

5.5

6.5

7.5

8.5

0

100

200

300

400

2013 2014 2015 2016

Change in nonfarm

payrolls

(thousands) Average 2004–06

United States: Payrolls and Unemployment Rate

5

United States: Unemployment Rate Projections

(Percent, seasonally adjusted)

4

5

6

7

8

2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4

Sources: BLS; Haver Analytics; and IMF staff estimates.

… on the back strengthening labor market…

Actual

Spring 2015 WEO

Spring 2014 WEO

Spring 2013 WEO

Unemployment rate

(percent; right scale)

Sources: Haver Analytics; IMF staff calculations.

United States: Housing Activity

(Seasonally adjusted, million units)

6

United States: Household Formation

(12-month moving average, thousands)

Sources: Haver Analytics; and IMF staff calculations.

4.5

4.8

5.1

5.4

5.7

0.8

0.9

1.0

1.1

1.2

1.3

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

Total existing home

sales (right scale)

Housing starts

-40

0

40

80

120

160

200

1995 2000 2005 2010 2015

Pre-crisis average

… and increasing wealth…

Source: IMF staff estimates.

United States: Consumption and Saving Rate

(Percent)

7

United States: Consumer Credit

(Percent)

Sources: Federal Reserve Board; New York Times; Wall Street Journal; and Haver Analytics.

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

1.0

1.5

2.0

2.5

3.0

3.5

2013Q1 2013Q4 2014Q3 2015Q2 2016Q1 2016Q4 2017Q3

Consumption

growth

(year-over-year)

Saving rate (right scale)

& 2013-2014 avg.

Projections Oil shock

-6

-4

-2

0

2

4

6

8

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016

Home mortgage rate

(30-year fixed)

New car loan rate

(48 months)

Consumer credit growth

(year-over-year, right scale)

… which, along with the recovery in credit growth, helped

boosting consumption and saving

Sources: Haver Analytics; IMF, Global Assumptions database; and IMF staff estimates.

United States: Oil Investment and Price

8

United States: Nonresidential Investment

(Percent of GDP)

Sources: Haver Analytics; and IMF staff estimates.

25

45

65

85

105

45

70

95

120

145

170

195

2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4

WTI (US$ per

barrel, right scale)

Oil Investment

(2009$)

Projections

0

2

4

6

8

10

12

14

16

1990 1995 2000 2005 2010 2015

Non-oil Oil Proj.

Investment is adjusting to lower oil prices but rebounding


United States: Manufacturing

(Seasonally adjusted)

9

United States: Net Exports


45

50

55

60

65

70

-10

-5

0

5

10

15

Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16

ISM new orders index

(50+ = increasing, right scale)

Non-energy IP

(percent, year-over-year)

80

85

90

95

100

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

2012 2013 2014 2015 2016 2017

Net exports

(%pts, cont. to growth)

Projections

A stronger U.S. dollar compressing net exports, with

sector differentiation

REER

(1973Q1=100,

right scale)

REER

(percent, year-over-year)


United States: Wage Growth

(Percent, year-over-year)

10

United States: Output Gap and Labor Market Quit Rate


0

1

2

3

4

5

2005 2007 2009 2011 2013 2015

Employment

cost index

Average hourly

earnings

3

4

5

6

7

-6

-4

-2

0

2

4

2005Q1 2008Q1 2011Q1 2014Q1 2017Q1 2020Q1

Projections

Labor market

quit rate


Output gap

(percent of potential)

Output recovery starting to impact wage growth and

closing the output gap

Source: Haver Analytics.

United States: Core Inflation

(Percent; year-over-year)

11

0.5

1.0

1.5

2.0

2.5

2010 2011 2012 2013 2014 2015 2016

Core PCE

Core CPI

… with some rebound in inflation, though still to come

Euro Area: slow growth, weakening confidence…

Consumer and Business Confidence

Contributions to Growth

(Percentage point)

-1.0

-0.5

0.0

0.5

1.0

2012Q

1

2012Q

3

2013Q

1

2013Q

3

2014Q

1

2014Q

3

2015Q

1

2015Q

3

Net exports

Domestic demand

GDP 60

70

80

90

100

110

120

-40

-35

-30

-25

-20

-15

-10

-5

0

Jan

-12

Jun

-12

No

v-1

2

Ap

r-13

Sep

-13

Feb

-14

Jul-

14

Dec-

14

May-1

5

Oct

-15

Mar-

16

Household confidence (balance of

opinions)

Business confidence (ESI,

long-term average=100, rhs)

50

60

70

80

90

100

110

120

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec-

15

Jan

-16

Feb

-16

Mar-

16

Ap

r-16

Eurostoxx

S&P500

Eurostoxx banks

Stock Market

(7/1/2015 = 100)

Sources: Haver Analytics and Eurostat.



12

… lower inflation and inflation expectations

-1

0

1

2

3

4

Mar-

09

Sep

-09

Mar-

10

Sep

-10

Mar-

11

Sep

-11

Mar-

12

Sep

-12

Mar-

13

Sep

-13

Mar-

14

Sep

-14

Mar-

15

Sep

-15

Mar-

16

Headline

Core

2y2y inflation expectation

Europe: Various Inflation Measures

(Percent, y-o-y)

Sources: Bloomberg, L.P.; and Haver Analytics.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Apr-13 Apr-14 Apr-15 Apr-16

5y5y 2y2y

1y1y

Jackson Hole Speech

QE Announcement

QE Implementation

Europe: Inflation-Linked Swap Rates

(Percent)

Sources: Bloomberg, L.P.; and Haver Analytics.

13

14

Japan: modest growth, some investment rebound, soft

exports…

Japan: Private Investment

(Percent; quarter-over-quarter)


Japan: Contributions to Growth

(Percent; quarter-over-quarter)

Sources: Haver Analytics; and IMF staff estimates. Source: CPB World Trade Monitor.

World Exports

(Index: January 2013 = 100;

seasonally adjusted; volume)

-1

0

1

2

3

2012 2013 2014 2015 2016 2017 2018 2019

Net exports

Government spending

Private inventories

Private gross fixed investment

Private consumption

GDP growth

-25

-20

-15

-10

-5

0

5

10

15

20

2010Q

1

2011Q

1

2012Q

1

2013Q

1

2014Q

1

2015Q

1

Dwellings

Plant and Equipment

2015Q

4 95

100

105

110

115

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

Oct

-15

Feb

-16

United States Japan

Euro Area Emerging economies

15

… hovering deflation, as the Yen appreciates while

exports/imports prices continue nosing down…


Japan: Inflation Indicators


Japan: Export and Import Price Indices



-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jan

-10

Feb

-11

Mar-

12

Ap

r-13

May-1

4

Jun

-15

Headline w/o VAT

Core (ex. fresh food) w/o VAT

Core (ex. fresh food and energy) w/o VAT

Ap

r-16 -25

-20

-15

-10

-5

0

5

10

15

20

25

Ap

r-10

Ap

r-11

Ap

r-12

Ap

r-13

Ap

r-14

Ap

r-15

Ap

r-16

Import Price Index

Export Price Index

Japan: Selected Exchange Rates

(Index: 2005 = 100)

Source: Bloomberg, L.P.

70

75

80

85

90

95

100

105

110

115

120

May-1

4

Au

g-1

4

No

v-1

4

Feb

-15

May-1

5

Au

g-1

5

No

v-1

5

Feb

-16

May-1

6

Yen/US$ Yen/Euro

Yen/KWN NEER

16

… weak market expectations and lack of credit impulse…

Japan: Senior Loan Officer Survey Opinion

Survey-Spreads of Loan Rates

(Diffusion index for the past three months; +

values correspond to increase spreads)

Sources: Bank of Japan, Senior Loan Officer Opinion Survey.

Japan: JGB Yield Curve and Range

(Percentage points)

Source: Bloomberg, L.P.

Note: Range indicates maximum and minimum yields per maturity

per indicated period.


Japan: Excess Reserves

(Percent of GDP)

0

10

20

30

40

50

2010Q

1

2011Q

1

2012Q

1

2013Q

1

2014Q

1

2015Q

1

2016Q

1

-40

-20

0

20

40

60

80

2001Q1 2004Q1 2007Q1 2010Q1 2013Q1 2016Q1

Spreads-High ratings

Spreads-Medium Ratings

Spreads-Low Ratings

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3M

6M

1Y

2Y

3Y

4Y

5Y

6Y

7Y

8Y

9Y

10Y

15Y

20Y

30Y

40Y

5/12/2016

Hi-Lo Range 1Y-to-date

Hi-Lo Range since CME (Oct 2010)

Before Abenomics - Sep 2012

Inflation

target

17

… continue to decrease inflation expectations


Japan: Tankan Survey: Inflation Outlook Japan: Inflation Expectations

(Percentage points; year-over-year)

Sources: Bloomberg, L.P.; and IMF staff estimates.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jan-13 Sep-13 May-14 Jan-15 Sep-15

Inflation-Swaps 5Y

Inflation-Swaps 10Y

Break-even rate 10Y JGBs

Apr-16

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1

1 Year ahead

3 Year ahead

5 Year ahead

18

Inflation divergence, …


Observed Inflation

(Year-over-year percentage change)

-4

-3

-2

-1

0

1

2

3

4

5

6

2008

2009

2010

2011

2012

2013

2014

2015

2016

United States Euro Area Japan

-0.5

0.0

0.5

1.0

1.5

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec-

15

Jan

-16

Feb

-16

Mar-

16

Ap

r-16


19

…inflation expectations differences…

Source: Consensus Forecasts.

Expected Inflation

(Year-over-year percentage change, 1-year ahead)

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

2008

2009

2010

2011

2012

2013

2014

2015

2016


0.5

1.0

1.5

2.0

2.5

3.0

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec-

15

Jan

-16

Feb

-16

Mar-

16

Ap

r-16


20

… and exchange rate divergence…

Real Exchange Rate Divergence

(Index: 2010 = 100)

Source: IMF, Information Notice System database.

60

70

80

90

100

110

120

2008Q

1

2008Q

2

2008Q

3

2008Q

4

2009Q

1

2009Q

2

2009Q

3

2009Q

4

2010Q

1

2010Q

2

2010Q

3

2010Q

4

2011Q

1

2011Q

2

2011Q

3

2011Q

4

2012Q

1

2012Q

2

2012Q

3

2012Q

4

2013Q

1

2013Q

2

2013Q

3

2013Q

4

2014Q

1

2014Q

2

2014Q

3

2014Q

4

2015Q

1

2015Q

2

2015Q

3

2015Q

4

2016Q

1


30%

15%

21

… is reversing capital inflows to emerging markets

Source: IMF, Balance of Payments Statistics database.

Emerging and Developing Economies: Net Capital Inflows

(Billions of U.S. dollars)

Emerging and Developing Economies: Gross Capital Inflows

(Billions of U.S. dollars)

Source: IMF, Balance of Payments Statistics database.

-200

-150

-100

-50

0

50

100

150

200

250

300

2008Q

1

2008Q

3

2009Q

1

2009Q

3

2010Q

1

2010Q

3

2011Q

1

2011Q

3

2012Q

1

2012Q

3

2013Q

1

2013Q

3

2014Q

1

2014Q

3

2015Q

1

2015Q

3

Total Direct investment Portfolio investment Other investment

-200

-100

0

100

200

300

400

500

600

2008Q

1

2008Q

3

2009Q

1

2009Q

3

2010Q

1

2010Q

3

2011Q

1

2011Q

3

2012Q

1

2012Q

3

2013Q

1

2013Q

3

2014Q

1

2014Q

3

2015Q

1

2015Q

3

Total Direct investment Portfolio investment Other investment

22

Commodity prices mirror the US dollar…

Sources: Bloomberg, L.P.; and IMF, Information Notice System database.

United States Real Effective Exchange Rate versus Overall CRB Index

(Index: 2010 = 100)

40

50

60

70

80

90

100

110

120

130

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

USA REER CRB Overall

60

70

80

90

100

110

120

130

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

USA REER CRB Overall

In a nutshell

• Weak global growth and inflation, especially in AEs

• However, among AEs, US

– Stronger growth

– Closing output gap

• Would it close faster if potential is lower than estimated?

– Indication of labor market stabilization

– Stronger US dollar

– Thus, is it growth, or expected inflation differentials that matter?

– Divergent implications for monetary policy…

– Plus, US dollar “global” unit of account, medium of exchange, and

store of value: weaker commodity prices

• Softer EM growth (Druck, Magud, & Mariscal 2015) 23

Historical perspective: proxy decade-dollar cycles

-4

-2

0

2

4

6

8

10

90

100

110

120

130

140

150

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Depreciation Appreciation USA Real interest rate (right scale) U.S. real

appreciation

Gr_SLAC (right scale)

Oil shocks

Volcker disinflation Greenspan's put

Plaza

accord Clinton years' expansion Commodity super-cycle

24

Druck, Magud, & Mariscal (2015)

• Do dollar cycles affect EM growth? (REER vs. ToT)

– Yes! (historical evidence)

• Through which channels?

– Income effect offsets expenditure-switching eff.

• Highly persistent dollar cycles result in:

– Net commodity exporters: stronger USD, lower USD commodity prices, income effect reduces domestic demand growth, slows real GDP growth—despite any expansionary effect owing to domestic currency depreciation

– Importers of capital/inputs in production: stronger USD, weaker currencies (relative price), higher import costs, slower production and domestic demand growth

25

Side effects (especially going forward)

• US interest rates at zero-lower bound – Tighter financial conditions going forward, slower growth, especially

in highly dollar-leveraged countries

• Effects amplify for less flexible exchange rate regimes

• Prospects: – Dollar cycle is persistent and it is just starting

– Weak commodity prices projected

– US interest rate lift-off

26

Identifying U.S. dollar cycles

Markov-switching model:

Mu I (2009)

Regime 1 Δ REER Coeff. 3.17 9.48 3.54

(Appreciation) t-stat 3.07 2.55 7.89

p-value 0.00 0.02 0.00

Regime 2 Δ REER Coeff. -3.76 9.48 3.54

(Depreciation) t-stat -4.06 2.55 7.89

p-value 0.00 0.02 0.00

Descriptive statistics for scaled residuals:

Normality test: Chi^2(2) = 5.5771 [0.0615]

ARCH 1-1 test: F(1,37) = 0.41741 [0.5222]

Portmanteau( 6): Chi^2(6) = 10.635 [0.1003]

Regime 1 years avg.prob.

1979 - 1985 7 0.909

1993 - 2001 9 0.896

2012 - 2014 3 0.897

Total: 19 years (42.22%) with average duration of 6.33 years.


1970 - 1978 9 0.961

1986 - 1992 7 0.912

2002 - 2011 10 0.936


Transition probabilities

Regime 1, (t) Regime 2, (t)

Regime 1, (t+1) 0.833 0.124

Regime 2, (t+1) 0.167 0.876

Left-hand varible

Right-hand variable

SigmaMu I (2009)

Regime 1 Δ REER Coeff. 3.43 9.49 3.60

(Appreciation) t-stat 2.98 2.55 8.24

p-value 0.01 0.02 0.00

Regime 2 Δ REER Coeff. -3.74 9.49 3.60

(Depreciation) t-stat -4.34 2.55 8.24

p-value 0.00 0.02 0.00

Descriptive statistics for scaled residuals:

Normality test: Chi^2(2) = 4.3971 [0.1110]

ARCH 1-1 test: F(1,34) = 0.22521 [0.6381]

Portmanteau( 6): Chi^2(6) = 10.302 [0.1125]


1979 - 1985 7 0.898

1993 - 2001 9 0.875



1970 - 1978 9 0.977

1986 - 1992 7 0.940

2002 - 2011 10 0.953


Transition probabilities

Regime 1, (t) Regime 2, (t)

Regime 1, (t+1) 0.827 0.173

Regime 2, (t+1) 0.083 0.917

Left-hand varible

Right-hand variable

Sigma

21

22

2009

2009

Regime 1: , ~ (0, )

Regime 2: , ~ (0, )

t t t

t t t

reer N

reer I N

I

Including current episode Excluding current episode

27

U.S. dollar cycles

• Appreciation and depreciation cycles

Depreciation Cycles Appreciation Cycles

1970–1978 1979–1985

1986–1992 1996–2001

2002–2011 2012–2014

D REER

Fitted

1-step prediction

Appreciation

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

-12

-8

-4

0

4

8

12D REER

Fitted

1-step prediction

Appreciation

1970 1975 1980 1985 1990 1995 2000 2005 2010 20150.00

0.25

0.50

0.75

1.00P[Depreciation] smoothed

1970 1975 1980 1985 1990 1995 2000 2005 2010 20150.00

0.25

0.50

0.75

1.00P[Appreciation] smoothed

28

Stylized facts: Stronger dollar, lower EMs growth and domestic demand

90

110

130

150 -2

0

2

4

6

8

10

1970 1981 1992 2003 2014

LAC (3-year moving average, percent change)

U.S. REER (index: 2010=100; right scale)

Sources: IMF, World Economic Outlook; and IMF, International Financial Statistics; and IMF staff calculations.

Note: REER = Real Effective Exchange Rate. Increase = depreciation.

South America's Growth

90

110

130

150 -2

0

2

4

6

8

10

1970 1981 1992 2003 2014

South America (3-year moving average, percent

change)

Emerging Asia's Growth

90

110

130

150 0

5

10

1970 1981 1992 2003 2014

Emerging Asia (3-year moving average, percent

change)

Middle East and North Africa's Growth

Central America and Mexico's Growth

90

110

130

150 -5

0

5

10

1970 1981 1992 2003 2014

Central America + Mexico (3-year moving average,

percent change)

Emerging Europe's Growth

90

110

130

150 -2

3

8

1970 1981 1992 2003 2014

Emerging Europe (3-year moving average, percent

change)

Latin America and Caribbean's Growth

Dollar Strength and Economic Growth

90

110

130

150 -2

0

2

4

6

8

10

1970 1981 1992 2003 2014

MENA (3-year moving average, percent change)


29

South America's Growth

90

110

130

150 -15

-5

5

15

25

1970 1981 1992 2003 2014

South America (3-year moving average, percent change)


Emerging Asia's Growth

90

110

130

150 -10

0

10

20

1970 1981 1992 2003 2014

Emerging Asia (3-year moving average, percent change)


Middle East and North Africa's Growth

Central America and Mexico's Growth

90

110

130

150 -15

-5

5

15

25

1970 1981 1992 2003 2014

Central America + Mexico (3-year moving average, percent

change)

Emerging Europe's Growth

90

110

130

150 -15

-5

5

15

25

1970 1981 1992 2003 2014

Emerging Europe (3-year moving average, percent change)


Latin America and Caribbean's Growth

90

110

130

150 -10

0

10

20

1970 1981 1992 2003 2014

LAC (3-year moving average, percent change)


Dollar Strength and Domestic Demand

90

110

130

150 -60

-40

-20

0

20

40

1970 1981 1992 2003 2014

MENA (3-year moving average, percent change)


Sources: IMF, World Economic Outlook; and IMF, International Financial

Statistics; and IMF staff calculations.


Stylized fact: Higher US interest rates, stronger dollar & US growth

U.S. Dollar Strength and Real Interest Rate

(Percent)

90

100

110

120

130

140

150 -4

-2

0

2

4

6

8

10

1970 1981 1992 2003 2014

U.S. Real interest rate

U.S. REER (index: …

Sources: IMF, World Economic Outlook database; and IMF, International Financial

Statistics database; and IMF staff calculations.


30

U.S. Real GDP growth and Real Interest Rate

(Percent)

-4

-2

0

2

4

6

8

10

1970 1981 1992 2003 2014

U.S. Real

interest rate

Sources: IMF, World Economic Outlook; and IMF, International

Financial Statistics; and IMF staff calculations.

Note: REER = Real Effective Exchange Rate. Increase =

depreciation.

Event analysis: dollar appreciation cycles, weaker EM and dom dem growth

Source: authors' calculation.

90

100

110

120

130

140

150

t0 t1 t2 t3 t4

depreciation

appreciation

LAC: Average Real GDP

(Index, t-1 = 100)

90

100

110

120

130

140

150

t0 t1 t2 t3 t4

depreciation

appreciation

SLAC: Average Real GDP

(Index, t-1 = 100)

90

100

110

120

130

140

150

t0 t1 t2 t3 t4

depreciation

appreciation

CAM: Average Real GDP

(Index, t-1 = 100)

100

110

120

130

140

150

160

170

180

190

t0 t1 t2 t3 t4

depreciation

appreciation

Asia: Average Real GDP

(Index, t-1 = 100)

90

100

110

120

130

140

150

160

170

180

t0 t1 t2 t3 t4

depreciation

appreciation

MENA: Average Real GDP

(Index, t-1 = 100)

90

100

110

120

130

140

150

t0 t1 t2 t3 t4

depreciation

appreciation

Euro: Average Real GDP

(Index, t-1 = 100)

31

90

110

130

150

170

190

210

230

t0 t1 t2 t3 t4

depreciation

appreciation

LAC: Average Domestic Demand

(Index, t-1 = 100)

90

110

130

150

170

190

210

230

250

270

t0 t1 t2 t3 t4

depreciation

appreciation

SLAC: Average Domesitic Demand

(Index, t-1 = 100)

80

90

100

110

120

130

140

150

160

t0 t1 t2 t3 t4

depreciation

appreciation

CAM: Average Domestic Demand

(Index, t-1 = 100)

100

110

120

130

140

150

160

170

180

190

200

t0 t1 t2 t3 t4

depreciation

appreciation

Asia: Average Domestic Demand

(Index, t-1 = 100)

80

130

180

230

280

330

t0 t1 t2 t3 t4

depreciation

appreciation

MENA: Average Domestic Demand

(Index, t-1 = 100)

70

90

110

130

150

170

190

210

t0 t1 t2 t3 t4

depreciation

appreciation

Euro: Average Domestic Demand

(Index, t-1 = 100)

Source: authors' calculations.

Results: real GDP growth—Latin America

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.206*** -0.202*** -0.213*** -0.210*** -0.207*** -0.209***

(0.025) (0.025) (0.026) (0.026) (0.026) (0.026)

U.S. real interest rate (t-1) -0.270*** -0.314*** -0.320*** -0.415*** -0.424*** -0.430***

(0.087) (0.091) (0.096) (0.114) (0.116) (0.116)

U.S. real GDP growth (t-1) 0.154** 0.218*** 0.222*** 0.221*** 0.199***

(0.064) (0.059) (0.059) (0.061) (0.061)

Ln real GDP per capita (t-1) -0.082 -0.060 -0.057 -0.073

(0.072) (0.069) (0.070) (0.073)

China real GDP growth 0.147** 0.155*** 0.153***

(0.054) (0.052) (0.052)

Net capital inflows -0.025 -0.028

(0.026) (0.027)

Volatility, S&P -0.169***

(0.049)

Constant 3.963*** 3.641*** 4.434*** 3.086*** 3.104*** 5.091***

(0.224) (0.250) (0.840) (0.820) (0.829) (1.180)

Observations 946 946 865 865 858 858

Adjusted R2 0.0699 0.0739 0.0890 0.0979 0.0978 0.1056

Standard errors in parentheses.

+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.

Panel regression with country fixed-effects and robust standard errors.


Panel LAC: real GDP growth rate (in percent)

32

Results: real GDP growth—South America

(1) (2) (3) (4) (5) (6)


(0.028) (0.027) (0.029) (0.029) (0.031) (0.031)


(0.098) (0.101) (0.094) (0.103) (0.103) (0.102)

U.S. real GDP growth (t-1) 0.182* 0.240** 0.246** 0.250** 0.230**

(0.096) (0.085) (0.085) (0.086) (0.088)


(0.080) (0.075) (0.076) (0.081)

China real GDP growth 0.246*** 0.241*** 0.237***

(0.070) (0.067) (0.067)


(0.051) (0.052)

Volatility, S&P -0.179**

(0.079)

Constant 4.195*** 3.814*** 4.899*** 2.634** 2.743** 4.872**

(0.247) (0.331) (1.078) (1.099) (1.097) (1.739)

Observations 516 516 489 489 489 489

Adjusted R2 0.1027 0.1071 0.1177 0.1395 0.1389 0.1452


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel SLAC: real GDP growth rate (in percent)

33

Results: real GDP growth—Central America and Mexico

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.131** -0.127** -0.127** -0.125** -0.119** -0.121**

(0.044) (0.043) (0.043) (0.044) (0.041) (0.042)

U.S. real interest rate (t-1) -0.249* -0.296** -0.337** -0.401** -0.423** -0.427**

(0.109) (0.114) (0.118) (0.131) (0.141) (0.140)

U.S. real GDP growth (t-1) 0.165+ 0.249** 0.252** 0.247** 0.220**

(0.100) (0.083) (0.082) (0.082) (0.078)

Ln real GDP per capita (t-1) 0.216+ 0.267* 0.243 0.188

(0.132) (0.130) (0.151) (0.165)

China real GDP growth 0.100+ 0.129** 0.125*

(0.059) (0.051) (0.053)

Net capital inflows -0.019 -0.020+

(0.013) (0.011)

Volatility, S&P -0.176**

(0.052)

Constant 4.173*** 3.829*** 2.033* 0.823 0.873 3.271*

(0.299) (0.364) (1.065) (1.221) (1.185) (1.491)

Observations 344 344 290 290 283 283

Adjusted R2 0.0411 0.0455 0.0823 0.0859 0.0780 0.0903


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel CAM: real GDP growth rate (in percent)

34

Results: real GDP growth—Developing Asia

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.058 -0.059 -0.061 -0.061 -0.087+ -0.088+

(0.047) (0.048) (0.052) (0.052) (0.053) (0.053)

U.S. real interest rate (t-1) 0.042 0.054 0.015 -0.027 -0.099 -0.101

(0.093) (0.090) (0.097) (0.093) (0.096) (0.096)

U.S. real GDP growth (t-1) -0.041 -0.035 -0.031 -0.033 -0.046

(0.064) (0.066) (0.065) (0.062) (0.065)

Ln real GDP per capita (t-1) -0.435** -0.416** -0.315** -0.331**

(0.166) (0.166) (0.128) (0.129)

China real GDP growth 0.064 0.074 0.073

(0.064) (0.063) (0.063)

Net capital inflows 0.079*** 0.079***

(0.017) (0.017)

Volatility, S&P -0.083

(0.074)

Constant 4.628*** 4.714*** 8.313*** 7.664*** 6.818*** 7.848***

(0.217) (0.284) (1.362) (1.518) (1.258) (1.495)

Observations 812 812 755 755 629 629

Adjusted R2 0.0028 0.0019 0.0209 0.0213 0.0588 0.0599


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel DevAsia:real GDP growth rate (in percent)

35

Results: real GDP growth—Developing Europe

(1) (2) (3) (4) (5) (6)


(0.058) (0.059) (0.055) (0.055) (0.052) (0.053)

U.S. real interest rate (t-1) -0.222+ -0.300* -0.301* -0.274* -0.176 -0.173

(0.127) (0.151) (0.145) (0.138) (0.112) (0.117)

U.S. real GDP growth (t-1) 0.280* 0.297* 0.297* 0.342* 0.339*

(0.124) (0.128) (0.128) (0.143) (0.153)


(0.111) (0.108) (0.147) (0.137)

China real GDP growth -0.040 -0.010 -0.013

(0.037) (0.061) (0.063)

Net capital inflows 0.040* 0.043+

(0.018) (0.023)


(0.107)

Constant 3.301*** 2.719*** 4.020** 4.460*** 4.078** 4.370***

(0.309) (0.242) (1.087) (1.021) (1.288) (1.079)

Observations 271 271 271 271 255 255

Adjusted R2 0.0287 0.0381 0.0392 0.0361 0.0304 0.0265


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel DevEuro: real GDP growth rate (in percent)

36

Results: real GDP growth—Middle East & Northern Africa

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.002 -0.002 -0.015 -0.015 0.033 0.030

(0.074) (0.074) (0.072) (0.071) (0.067) (0.066)

U.S. real interest rate (t-1) -0.222 -0.226 -0.262 -0.221 -0.302* -0.307*

(0.256) (0.262) (0.260) (0.186) (0.170) (0.172)

U.S. real GDP growth (t-1) 0.016 0.064 0.061 0.125 0.105

(0.184) (0.193) (0.193) (0.189) (0.191)

Ln real GDP per capita (t-1) -0.826** -0.852** -0.706+ -0.747+

(0.292) (0.360) (0.463) (0.482)

China real GDP growth -0.062 -0.102 -0.100

(0.270) (0.261) (0.260)


(0.018) (0.018)


(0.118)

Constant 5.148*** 5.115*** 12.917*** 13.626** 12.841* 14.902*

(0.644) (0.751) (3.116) (5.518) (6.604) (7.672)

Observations 645 645 645 645 633 633

Adjusted R2 -0.0006 -0.0021 0.0067 0.0054 0.1152 0.1149


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel MENA: real GDP growth rate (in percent)

37

Results: real domestic demand growth—Latin America

(1) (2) (3) (4) (5) (6)


(0.132) (0.131) (0.146) (0.146) (0.145) (0.146)


(0.214) (0.235) (0.221) (0.265) (0.262) (0.261)

U.S. real GDP growth (t-1) 0.445* 0.639*** 0.658*** 0.663*** 0.674***

(0.227) (0.216) (0.216) (0.220) (0.221)

Ln real GDP per capita (t-1) -0.242** -0.162* -0.154* -0.147*

(0.094) (0.082) (0.084) (0.083)


(0.143) (0.143) (0.144)

Net capital inflows -0.164*** -0.163***

(0.057) (0.057)

Volatility, S&P 0.085

(0.165)

Constant 7.304*** 6.374*** 8.574*** 3.683** 4.554** 3.556

(0.544) (0.662) (1.517) (1.702) (1.728) (2.718)

Observations 939 939 858 858 858 858

Adjusted R2 0.0245 0.0254 0.0599 0.0684 0.0722 0.0712


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel LAC: real domestic demand growth rate (in percent)

38

Results: real domestic demand growth—South America

(1) (2) (3) (4) (5) (6)


(0.212) (0.211) (0.219) (0.220) (0.222) (0.224)


(0.274) (0.279) (0.304) (0.365) (0.374) (0.370)


(0.299) (0.304) (0.304) (0.319) (0.323)

Ln real GDP per capita (t-1) -0.245** -0.150* -0.137+ -0.136+

(0.091) (0.078) (0.083) (0.084)


(0.190) (0.189) (0.192)

Net capital inflows -0.189* -0.188*

(0.096) (0.100)


(0.304)

Constant 8.427*** 7.153*** 9.986*** 3.700+ 4.463* 4.246

(0.734) (1.020) (1.972) (2.157) (2.096) (4.334)

Observations 516 516 489 489 489 489

Adjusted R2 0.0710 0.0740 0.0870 0.0975 0.0997 0.0978


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel SLAC: real domestic demand growth rate (in percent)

39

Results: real domestic demand growth—Central America

and Mexico

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.290** -0.287** -0.237* -0.228* -0.228* -0.227*

(0.111) (0.111) (0.111) (0.115) (0.113) (0.114)

U.S. real interest rate (t-1) -0.178 -0.211 -0.640* -0.918** -1.020** -1.018**

(0.284) (0.364) (0.294) (0.318) (0.323) (0.324)

U.S. real GDP growth (t-1) 0.119 0.498 0.515 0.526 0.536

(0.411) (0.372) (0.370) (0.358) (0.350)

Ln real GDP per capita (t-1) -1.052+ -0.837+ -0.880+ -0.861+

(0.559) (0.486) (0.484) (0.470)

China real GDP growth 0.449* 0.444* 0.445*

(0.225) (0.225) (0.228)

Net capital inflows -0.137+ -0.137+

(0.078) (0.079)


(0.113)

Constant 6.213*** 5.964*** 14.026** 8.667* 9.828* 9.008*

(0.765) (0.768) (4.821) (4.391) (4.332) (4.432)

Observations 337 337 283 283 283 283

Adjusted R2 -0.0026 -0.0055 0.0180 0.0250 0.0288 0.0254


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel CAM: real domestic demand growth rate (in percent)

40

Results: real domestic demand—Developing Asia

(1) (2) (3) (4) (5) (6)


(0.155) (0.155) (0.159) (0.158) (0.190) (0.191)

U.S. real interest rate (t-1) -0.286 -0.352 -0.449 -1.177*** -0.964*** -0.952***

(0.364) (0.371) (0.389) (0.264) (0.282) (0.286)

U.S. real GDP growth (t-1) 0.231 0.268 0.329+ 0.210 0.306

(0.214) (0.214) (0.212) (0.234) (0.235)

Ln real GDP per capita (t-1) -1.866** -1.534* -1.490* -1.369+

(0.776) (0.803) (0.821) (0.798)

China real GDP growth 1.123*** 1.184** 1.194**

(0.362) (0.435) (0.438)


(0.071) (0.070)

Volatility, S&P 0.618**

(0.239)

Constant 5.779*** 5.303*** 20.338*** 9.051 8.388 0.680

(0.912) (1.009) (6.809) (9.362) (10.176) (10.870)

Observations 778 778 732 732 629 629

Adjusted R2 0.0558 0.0553 0.0733 0.1037 0.0939 0.0988


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel DevAsia: real domestic demand growth rate (in percent)

41

Results: real domestic demand—Developing Europe

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate -0.755** -0.758** -0.870*** -0.845*** -0.889*** -0.886***

(0.208) (0.209) (0.190) (0.193) (0.220) (0.214)

U.S. real interest rate (t-1) 0.436+ 0.470 0.533 -0.292+ -0.840 -0.853

(0.239) (0.441) (0.511) (0.162) (0.688) (0.761)

U.S. real GDP growth (t-1) -0.127 0.176 0.199 0.077 0.091

(0.915) (0.872) (0.858) (0.959) (0.885)

Ln real GDP per capita (t-1) -2.071** -1.703** -1.981** -1.962**

(0.754) (0.596) (0.782) (0.754)


(0.866) (1.267) (1.345)


(0.692) (0.767)


(0.725)

Constant 3.052*** 3.321* 24.996** 11.629+ 15.974** 14.426

(0.556) (1.579) (8.372) (6.617) (5.514) (11.367)

Observations 262 262 262 262 255 255

Adjusted R2 0.0180 0.0143 0.0623 0.0764 0.0958 0.0923


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel DevEuro: real domestic demand growth rate (in percent)

42

Results: real domestic demand—Middle East and

Northern Africa

(1) (2) (3) (4) (5) (6)


(0.264) (0.267) (0.265) (0.262) (0.258) (0.260)

U.S. real interest rate (t-1) -1.024 -0.983 -1.013 -1.088 -1.098 -1.104

(1.411) (1.300) (1.294) (1.642) (1.643) (1.650)

U.S. real GDP growth (t-1) -0.147 -0.097 -0.092 -0.078 -0.099

(0.553) (0.556) (0.542) (0.539) (0.555)

Ln real GDP per capita (t-1) -0.911* -0.866 -0.838 -0.880

(0.508) (0.622) (0.633) (0.611)


(0.592) (0.588) (0.590)

Net capital inflows 0.032 0.031

(0.035) (0.035)


(0.274)

Constant 8.439** 8.746* 17.315*** 16.036** 15.912** 18.025**

(3.462) (4.416) (5.035) (6.414) (6.460) (6.587)

Observations 633 633 633 633 633 633

Adjusted R2 0.0051 0.0036 0.0028 0.0012 -0.0001 -0.0017


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01.



Panel MENA: real domestic demand growth rate (in percent)

43

Results: exchange rate flexibility and real GDP growth

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate (Fixed reg.) -0.171*** -0.171*** -0.175*** -0.174*** -0.183*** -0.183***

(0.029) (0.029) (0.030) (0.031) (0.031) (0.031)

U.S. real effective exchange rate (Floating reg.) -0.151*** -0.147** -0.136** -0.136** -0.138** -0.141**

(0.056) (0.056) (0.056) (0.056) (0.057) (0.056)

U.S. real interest rate (t-1) -0.085 -0.134+ -0.142* -0.164** -0.169** -0.170**

(0.081) (0.081) (0.083) (0.077) (0.079) (0.078)

U.S. real GDP growth (t-1) 0.179*** 0.205*** 0.206*** 0.251*** 0.223***

(0.064) (0.068) (0.067) (0.065) (0.065)


(0.156) (0.156) (0.153) (0.160)

China real GDP growth 0.036 -0.015 -0.022

(0.064) (0.057) (0.057)


(0.046) (0.045)


(0.033)

Constant 4.394*** 4.029*** 4.950*** 4.593*** 4.548*** 6.541***

(0.189) (0.245) (1.303) (1.458) (1.466) (1.648)

Observations 2558 2558 2461 2461 2377 2377

Adjusted R2 0.0197 0.0234 0.0244 0.0243 0.0875 0.0925

Standard errors in parentheses

+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01

Panel regression with country fixed-effects and robust std. errors.

Panel All: Real GDP growth rate (in percent)

44

Results: exchange rate flexibility and real domestic

demand growth

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate (Fixed reg.) -0.531*** -0.534*** -0.534*** -0.518*** -0.505*** -0.505***

(0.095) (0.095) (0.099) (0.095) (0.095) (0.095)

U.S. real effective exchange rate (Floating reg.) -0.733*** -0.724*** -0.816*** -0.808*** -0.808*** -0.803***

(0.160) (0.161) (0.163) (0.160) (0.161) (0.162)

U.S. real interest rate (t-1) -0.260 -0.371 -0.477 -0.741+ -0.739+ -0.739+

(0.399) (0.376) (0.396) (0.473) (0.477) (0.477)


(0.152) (0.152) (0.148) (0.148) (0.149)

Ln real GDP per capita (t-1) -0.448+ -0.339 -0.316 -0.276

(0.293) (0.273) (0.265) (0.258)

China real GDP growth 0.443** 0.443** 0.452**

(0.189) (0.191) (0.191)

Net capital inflows -0.040* -0.041*

(0.021) (0.022)

Volatility, S&P 0.233***

(0.088)

Constant 6.472*** 5.648*** 9.338*** 4.838* 4.826* 1.856

(0.913) (1.123) (2.750) (2.591) (2.514) (2.736)

Observations 2505 2505 2408 2408 2377 2377

Adjusted R2 0.0134 0.0141 0.0177 0.0200 0.0195 0.0198


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01


Panel All: Real domestic demand growth rate (in percent)

45

Results: net commodity exporter/importer and real GDP

growth

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate (net comm. exp.) -0.135*** -0.132*** -0.149*** -0.148*** -0.138*** -0.139***

(0.037) (0.037) (0.039) (0.039) (0.043) (0.043)

U.S. real effective exchange rate (net comm. imp.) -0.104*** -0.102*** -0.100*** -0.100*** -0.121*** -0.123***

(0.026) (0.026) (0.028) (0.028) (0.026) (0.026)

U.S. real interest rate (t-1) -0.135* -0.179** -0.176** -0.194*** -0.213*** -0.216***

(0.069) (0.070) (0.074) (0.065) (0.069) (0.069)


(0.050) (0.053) (0.053) (0.055) (0.055)

Ln real GDP per capita (t-1) -0.152* -0.147* -0.148* -0.165**

(0.077) (0.079) (0.076) (0.079)


(0.064) (0.066) (0.066)


(0.038) (0.037)


(0.038)

Constant 4.242*** 3.925*** 5.297*** 5.032*** 4.759*** 6.549***

(0.172) (0.204) (0.730) (1.042) (1.086) (1.328)

Observations 3413 3413 3218 3218 2946 2946

Adjusted R2 0.0101 0.0123 0.0156 0.0154 0.0656 0.0687


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01


Panel All: Real GDP growth rate (in percent)

46

Results: net commodity exporter/importer and real

domestic demand growth

(1) (2) (3) (4) (5) (6)

U.S. real effective exchange rate (net comm. exp.) -0.683*** -0.677*** -0.750*** -0.739*** -0.745*** -0.744***

(0.131) (0.132) (0.141) (0.138) (0.147) (0.147)

U.S. real effective exchange rate (net comm. imp.) -0.690*** -0.687*** -0.706*** -0.694*** -0.684*** -0.682***

(0.085) (0.085) (0.090) (0.089) (0.094) (0.094)

U.S. real interest rate (t-1) -0.604* -0.694** -0.760** -1.134*** -1.102*** -1.100***

(0.306) (0.289) (0.312) (0.364) (0.388) (0.389)


(0.162) (0.164) (0.161) (0.170) (0.173)

Ln real GDP per capita (t-1) -0.556*** -0.449** -0.433** -0.417**

(0.202) (0.183) (0.176) (0.175)


(0.172) (0.182) (0.182)


(0.029) (0.029)


(0.106)

Constant 6.808*** 6.150*** 11.229*** 5.650*** 5.777*** 4.118+

(0.749) (0.944) (2.168) (2.117) (2.115) (2.569)

Observations 3304 3304 3121 3121 2946 2946

Adjusted R2 0.0200 0.0204 0.0257 0.0300 0.0275 0.0274


+ p<0.15, * p<0.10, ** p<0.05, *** p<0.01


Panel All: Real domestic demand growth rate (in percent)

47

Weaker commodity prices, slower investment growth in

emerging markets (Magud & Sosa 2015)

-40-20

02040

2004 2006 2008 2010 2012 2014

Real private investment Commodity export price

Real Private Investment and Commodity Export Price Growth, 2004–141

(Percent change )

Sources: IMF, World Economic Outlook; Gruss 2014; and IMF staff calculations. 1 PPP-weighted average.

-40

-20

0

20

40

2004 2006 2008 2010 2012 2014

Commonwealth of Independent States

-30

-20

-10

0

10

20

30

2004 2006 2008 2010 2012 2014

Emerging Europe

-30

-20

-10

0

10

20

30

2004 2006 2008 2010 2012 2014

Latin America and the Caribbean

-20

-10

0

10

20

30

40

2004 2006 2008 2010 2012 2014

Asia excluding China

48

Results: baseline (1) (2) (3) (4) (5) (6)

VARIABLES ICR ICR ICR ICR ICR ICR

Q 0.0231*** 0.0226*** 0.0200*** 0.0188*** 0.0184*** 0.0179***

(0.00514) (0.00510) (0.00508) (0.00490) (0.00465) (0.00465)

Cash flow 0.00406** 0.0118*** 0.0114*** 0.0114*** 0.0112***

(0.00161) (0.00208) (0.00221) (0.00219) (0.00212)

Leverage (t-1) -0.0340*** -0.0323*** -0.0315*** -0.0318***

(0.00345) (0.00292) (0.00305) (0.00315)

Interest expense ratio (t-1) -0.0448* -0.0415 -0.0394 -0.0421

(0.0261) (0.0274) (0.0281) (0.0281)

Change in debt 0.00334*** 0.00296*** 0.00292*** 0.00291***

(0.000911) (0.00100) (0.00101) (0.00101)

Commodity export price (t-1) 0.000445*** 0.000475*** 0.000461***

(0.000105) (9.97e-05) (0.000101)


(0.000680) (0.000709)

Uncertainty 3.80e-06

(3.32e-06)

Constant 11.75*** 11.77*** 10.94*** 10.28*** 10.04*** 9.832***

(0.953) (0.942) (1.010) (0.806) (0.863) (1.013)

Observations 121,047 121,006 83,921 64,276 64,276 63,460

Number of firms 18,624 18,621 15,165 12,317 12,317 12,280

Number of countries 38 38 38 36 36 36

R2

0.0203 0.0239 0.0352 0.0345 0.0414 0.0416

Source: Authors' calculations.

Note: Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1.1 Robust standard errors (clustered by country), and controling for time effects and firm-level fixed effects.

49

Baseline results: EMs, LAC

Investment-Capital Ratio Response to 1 Standard Deviation Shock to RHS Variables

(Percentage points)

2.9 5.3 3.3 1.9 0.6 1.4

3.5

15.0

3.2

7.5

3.2 3.8

0

2

4

6

8

10

12

14

16

Tobin's Q Cash flow Leverage Change

in debt

Commodity

export

prices

Capital

inflows

Full sample LAC

50

Recent slowdown: Contributions1

(Main effects, percent)

-25

-20

-15

-10

-5

0

5

10

LAC Asia Europe & CIS EMs total

Tobin's Q Cash flow Leverage Change in debt

Capital inflows Comm. Exp. price growth Actual ICR Predicted ICR

Source: IMF staff calculations. 1 Relative contribution of each factor to the 2011–13 investment slowdown (averaged across firms in each region). Contributions computed

based on region-specific regression results.

51

Lift-off: Financial shocks and firm-level investment

(Li, Magud, & Valencia 2015)

• High global financial volatility, higher borrowing costs, often

followed by declines in firms’ capital expenditures in EMs

• To what extent firm & country fundamentals reduce/increase

the response of investment? Through what channels? 52


53


54


• Owing to firm heterogeneity, regardless of the shock, stronger responses

by firms with relatively weaker balance sheets (higher net leverage)

• Effects on MPI depend on the shock

– After interest-rate shocks, MPI increases: Ability

– After uncertainty shocks, MPI decreases: Willingness

• Country fundamentals matter: weaker response of investment when

public debt is low, foreign reserves is high, or financial deepening is high

55


56


57

Capital Inflow booms: Exchange rate flexibility matters

(Magud, Reinhart, Vesperoni 2014)

• Exchange rate flexibility affect domestic credit in EME during capital inflows bonanzas:

– Less flexible regimes associated with larger volumes of domestic credit

– Less flexible regimes also associated with higher share of FX credit

– No clear relationship between flexibility and capital flows: when it rains, it rains everywhere

58

– Robustness: country and time effects, cross-section weights, period weights, IV

C 13.53 *** 60.02 *** -1.10

Capital Inflows 1.04 *** 0.55 *

Exchange Rate Regime -4.26 *** -14.14 *** 0.27

Inflation (-1) -0.01 0.11

Broad Money/GDP 0.71 ***

Dummy Crisis 26.81 * 16.13 -11.33 **

Domestic deposit in FC/Tot Deposits 0.27 ***

Interest Rate Differential 0.75 ***

Financial Deepness (-1) -0.01

Financial Integration (-1) 0.92 ***

Trade Openness (-1) 0.04 ***

Real GDP 0.00

Output Growth -0.08

External Debt/GDP (-1) 0.05 ***

International Interest Rate 0.00

Observations 202 150 202

Adjusted R-squared 0.57 0.31 0.30

Prob(F-statistic) 0.0000 0.0000 0.0000

Table 1. Main Results.

FX Credit/Total Credit Capital Inflows/GDPCredit/GDP

59

Policy Implications

• ER flexibility matters in policy-mix to cope with KI: lack of it countries more vulnerable to credit booms and reversals

– Lower ER flexibility:

• Stronger external funding in banking sector

• More foreign currency lending, no currency mismatch at the cost of credit risk

– Interest rate differentials matter for borrowers

• Macro-prudential may ‘counteract’ lack of flexibility by:

– Reducing incentives for banks to tap external markets

– Contain domestic credit and reduce interest rate differentials

– Place incentives for banks to factor in credit risk from foreign currency lending 60

Macro prudential

• Increasing currency-dependent reserve requirements (CRR) and/or

marginal CRR on external wholesale financing can reduce

– (i) incentives to tap external markets

– (ii) interest rate differentials

• Increasing capital requirements/introducing dynamic provisioning on FX-loans

to internalize credit risks associated w/ borrowers’ currency mismatches

• Tightening debt-to-income and loan-to-value ratios to contain credit directly,

and complement monetary policy efforts

61

Capital flow reversals (Magud & Vesperoni 2015)

• During capital flows reversals (KFR)

– Is bank credit still more resilient in Flex? Yes, but partially

• Though smoother, flex also experience credit reversals (no perfect shield): ticket to purgatory, but no entrance to paradise

• Credit recovery puzzle: well after capital flows reverse, credit growth remains tepid in flex

– Different ERR call for different macroprudentials? Yes, to some extent

– LTV, RR, DSTI in fixed (contain credit growth during boom)

– CS, DP in flex (build buffers for credit growth during after KFR)

– Does net vs. gross outflows matter? No. Results hold for net & gross inflows

– As controls to baseline

– If used to defined KFR

62

Methodology

• Theory: Vegh (2013)

• Capital inflows booms (KIB):

– Distributional criteria (Reinhart & Reinhart, 2009) • Top 20th percentile

– Cyclical deviations (Mendoza & Terrones, 2008, 2012) • KIB cyclical deviations larger than (m*cycl. deviation)

– m= 1.0, 1.5, 1.75, 2.0

• Capital flows reversal (KFR): conditional on KIB, KF drop of at least 10% from peak (robust to alternative thresholds)

• Net and gross flows to define KIB and KFR

63

Stylized facts: macro variables

Real GDP growth (percent) External current account (percent of GDP)

Saving (percent of GDP)

1.0

1.5

2.0

2.5

3.0

3.5

4.0

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex RR-Fix

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex RR-Fix

15

16

17

18

19

20

21

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex RR-Fix

Investment (percent of GDP)

Consumption (percent of GDP)

19

20

21

22

23

24

25

26

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex RR-Fix

79

80

81

82

83

84

85

86

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex RR-Fix

Stylized facts: Credit

– Credit growth: consistently

higher in fixed regimes, but

less so during reversals

– Containing credit growth during

the boom is the key policy

challenge for fixed regimes

– Supporting credit recovery

seems to be a policy challenge

for flexible regimes after

reversals 0

1

2

3

4

5

6

7

8

9

10

T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

Credit Growth Differential(In percent)

- 4

- 2

0

2

4

6

8

10

12

14

T - 5 T - 4 T - 3 T - 2 T - 1 T T+1 T+2 T+3 T+4 T+5

RR - Flex RR - Fix

Real Credit Growth (In percent)

65

– Fixed regimes are exposed to

sharp adjustments in non-

deposit funding

– The credit impulse is more

procyclical in economies with

fixed exchange rate regimes

– Consumption growth-banking

credit nexus

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

RR-Flex

RR-Fix

Banking Sector Loan to Deposit Ratio(In percent)

-6

-5

-4

-3

-2

-1

0

1

2

3

4

T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5

Credit impulse Flex

Credit impulse Fix

Credit Impulse(In percent)

66

Stylized facts: Credit

R & R Cross-section Baseline Regional Time effect IV baseline IV regional IV period Reversal

(1) (2) (3) (4) (5) (6) (7) VARIABLES real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth cred_reversal

Financial account balance 0.000263* 0.000262* 0.000240* 8.85e-05 0.000206 0.000178 (0.000147) (0.000145) (0.000146) (0.000181) (0.000137) (0.000137)

Real GDP (RGDP) growth 1.763*** 1.697*** 1.712*** 1.572*** 1.734*** 1.726*** (0.120) (0.121) (0.121) (0.151) (0.123) (0.125)

Broad money real growth 0.624*** 0.605*** 0.626*** 1.428*** 0.652*** 0.665*** (0.0314) (0.0318) (0.0312) (0.133) (0.0327) (0.0323)

Real effective exchange rate (REER) 11.35*** 12.98*** 11.57*** 9.152** 11.92*** 10.50*** (3.450) (3.445) (3.430) (4.251) (3.734) (3.736)

Exchange rate regime -3.155*** -3.740*** -3.197*** -2.645*** -3.836*** -3.080*** -2.093* (0.462) (0.540) (0.458) (0.571) (0.741) (0.640) (1.278)

Lagged credit/GDP 1/ -0.0532*** -0.0600*** -0.0506*** -0.0861*** -0.0879*** -0.0749*** (0.0109) (0.0122) (0.0108) (0.0144) (0.0150) (0.0138)

Latin America dummy -9.214* -11.14 (5.169) (7.104)

Emerging Europe dummy -1.473 -2.368 (4.418) (6.191)

ASEAN 5 dummy -2.966 -3.994 (5.302) (7.284)

Central & East Europe dummy -4.677* -6.113* (2.793) (3.632)

Other advanced countries dummy -7.149 -8.003 (5.223) (7.180)

Average RGDP growth during boom 1.377** (0.545)

Average finan. account bal boom 0.00546*** (0.00122)

Average REER during boom 19.51 (18.94)

Average real broad mon growth boom 0.551*** (0.199)

Constant -1.030 6.377 -0.426 4.000 10.63 2.010 -12.74 (3.626) (6.419) (3.889) (4.543) (8.251) (4.232) (19.32)

Observations 1,148 1,148 1,148 1,141 1,141 1,141 124 R-squared 0.358 0.418 0.413 0.355 Number of countries 129 129 129 129 129 129 Chi squared 749.2 793.3 783.3 361.7 796.9 800.0 Log likelihood -4636 -4622 -4625 -500.5 Source: authors' calculations. Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 1/ The lagged credit to GDP ratio is a proxi for financial deepness in banking credit.

Panel: credit growth

67

M & T Cross-section

Baseline Regional Time effect IV baseline IV regional IV period Reversal (1) (2) (3) (4) (5) (6) (7)

VARIABLES real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth cred_reversal

Financial account balance 0.000247 0.000243 0.000220 0.000160 0.000219 0.000189

(0.000200) (0.000199) (0.000199) (0.000211) (0.000196) (0.000196) Real GDP (RGDP) growth 1.807*** 1.806*** 1.751*** 1.804*** 1.920*** 1.874***

(0.146) (0.146) (0.147) (0.163) (0.156) (0.158) Broad money real growth 0.488*** 0.472*** 0.491*** 0.883*** 0.445*** 0.464***

(0.0377) (0.0383) (0.0374) (0.139) (0.0430) (0.0424) Real effective exchange rate (REER) 5.864 6.540 6.054 4.529 7.961* 7.261

(4.118) (4.159) (4.087) (4.715) (4.669) (4.641) Exchange rate regime -4.549*** -5.027*** -4.602*** -4.308*** -5.225*** -4.790*** -2.261^

(0.653) (0.728) (0.648) (0.737) (0.881) (0.809) (1.794) Latin America dummy -2.785** -2.879*

(1.377) (1.672) Emerging Europe dummy 4.549 6.665

(4.652) (5.605) ASEAN 5 dummy -0.762 -0.872

(2.170) (2.636) Central & East Europe dummy -2.236 -3.105

(4.587) (5.534) Other advanced countries dummy -1.652 -2.253

(1.810) (2.191) Average RGDP growth during boom 1.934***

(0.626) Average finan. account bal boom 9.173

(18.82) Average REER during boom 0.00483***

(0.00104) 0.586***

(0.211) Constant 3.364 4.662 2.615 5.254 3.022 1.398 -4.710

(4.268) (4.425) (4.670) (4.904) (5.015) (5.220) (19.44)

Observations 1,186 1,186 1,186 1,069 1,069 1,069 114

R-squared 0.224 0.258 0.263 0.364

Number of countries 118 118 118 118 118 118

Chi squared 414.6 427.0 443.5 253.2 351.2 361.4

Log likelihood -5150 -5146 -5140 -471.3

Sources: authors' calculations. Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1, ^ p<0.15


68

(1) (2) (3) (4) (5) (6)

VARIABLES real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth

Net Non-FDI flows (percent of GDP) 0.0905 0.0167 0.0523 0.0671 0.0252 0.0265

(0.0675) (0.0688) (0.0680) (0.0686) (0.0698) (0.0695)

Real GDP growth 1.992*** 2.014*** 1.949*** 1.981*** 2.014*** 1.955***

(0.157) (0.155) (0.158) (0.159) (0.157) (0.161)

Broad money real growth 0.377*** 0.337*** 0.379*** 0.386*** 0.360*** 0.382***

(0.0412) (0.0416) (0.0410) (0.0454) (0.0456) (0.0452)

Real effecttive exchange rate (REER) 10.76*** 13.05*** 11.35*** 12.48*** 14.18*** 12.90***

(3.720) (3.727) (3.692) (4.154) (4.066) (4.080)

Exchange rate regime -3.096*** -3.007*** -3.219*** -2.914*** -3.140*** -3.124***

(0.581) (0.619) (0.577) (0.830) (0.811) (0.780)

Lagged credit to GDP -0.0384*** -0.0249* -0.0339*** -0.0658*** -0.0526*** -0.0533***

(0.0123) (0.0141) (0.0122) (0.0159) (0.0169) (0.0154)

Latin America -1.374 -2.911

(1.487) (1.928)

Emerging Europe 8.342*** 8.158**

(2.690) (3.392)

ASEAN 5 3.476** 3.462

(1.738) (2.261)

Central East Europe -4.088 -5.408

(2.649) (3.355)

Constant -2.602 -7.075 -1.422 -3.206 -5.713 -1.830

(4.043) (4.481) (4.301) (4.673) (5.070) (4.787)

Observations 709 709 709 702 702 702

Number of events 84 84 84 84 84 84

Chi squared 345.4 387.3 370.6 321.9 138.9 135.4

Log likelihood -2822 -2808 -2814

R-squared 0.333 0.366 0.352

*** p<0.01, ** p<0.05, * p<0.1

Standard errors in parentheses. Instruments: lagged real GDP growth and lagged broad money real growth.

Net Non-FDI flows (percent of GDP)

69

(1) (2) (3) (4) (5) (6)


Gross non-FDI flows (percent of GDP) 0.0487 0.0328 0.0395 0.0800* 0.0706 0.0650

(0.0429) (0.0422) (0.0423) (0.0439) (0.0437) (0.0439)

Real GDP growth 1.608*** 1.652*** 1.518*** 1.418*** 1.460*** 1.360***

(0.172) (0.168) (0.174) (0.165) (0.164) (0.170)


(0.0553) (0.0556) (0.0545) (0.0533) (0.0538) (0.0534)

Real effecttive exchange rate 18.32*** 20.71*** 18.85*** 21.14*** 21.96*** 21.97***

(4.690) (4.696) (4.575) (5.224) (5.192) (5.158)


(0.761) (0.759) (0.743) (1.178) (1.134) (1.126)

Credit to GDP (t-1) -0.0387** -0.0360** -0.0283* -0.102*** -0.101*** -0.0811***

(0.0157) (0.0171) (0.0156) (0.0234) (0.0243) (0.0227)

Latin America -3.070* -5.782**

(1.731) (2.745)

Emerging Europe 4.398 1.396

(2.744) (4.424)

ASEAN 5 2.953 2.142

(2.447) (4.009)

Central East Europe 0.0103 0.878

(2.639) (4.324)

Constant -9.782* -13.04** -9.330* -8.212 -7.671 -8.888

(5.090) (5.544) (5.139) (6.008) (6.577) (6.045)

Observations 431 431 431 431 431 431


Chi Squared 248.5 289.6 288.9 266.7 159.7 292.7

Log likelihood -1699 -1686 -1686

r2_o 0.340 0.382 0.381

Standard errors in parentheses. Regressions (4)-(6) instrumented using lagged real GDP growth and lagged broad money real growth.

*** p<0.01, ** p<0.05, * p<0.1

Gross non-FDI flows

70

Purgatory, but no paradise (stability of coefficients test)

-6-4

-20

beta

_Coa

rse

-5 0 5episode

time window is 2 (episode)confidence level = .05

Dependant variable: real_credit_growth

-4.4

-2.11

71

Summary of results

• Main empirical result:

– Flex ERR contain KF-driven credit expansion during boom

• “Cushions” reversal when KF retrench, but no panacea

• Stronger cycles in more rigid regimes

• Recovery puzzle in flexible regimes

– Trilemma, not dilemma: Rey (2013) vs., ours and Obstfeld (2014)

• Exchange rate flexibility does matter

– Net and gross flows; excluding FDI (equity bonds): no difference

72

Policy implications

– MRV (2014): fix stands to benefit the most from MPP

– …yet flex could benefit as well (credit recovery puzzle)

– All MPP may help, but main policy objective may differ

• Curbing credit growth during booms, critical in fix:

– Loan-to-value, Debt-to-income, Debt Service-to-income, Reserve Requirements.

• Containing fall in flex during reversal, critical in flex: countercyclical capital requirements/provisions

– Capital surcharges, Dynamic Provisioning

73

Capital controls don’t work (Magud, Reinhart, Rogoff 2011; Magud and Reinhart 2007)

• Policy makers in many emerging market economies seem possessed by FOUR FEARS:

– Fear of an appreciation (a cousin of fear of floating)

– Fear of “hot money”

– Fear of large inflows (capital account reversals are usually painful)

– Fear of loss of monetary autonomy 74

However, controls on inflows…

– Make monetary policy more independent? Yes

– Alter the composition of capital flows? Yes

– Reduce real exchange rate pressures? Mostly No (more controversial)

– Reduce the volume of net flows (hence, CAB): No

75

… and controls on outflows

• In Malaysia,

– controls reduced outflows, and

– Gave some room for more independent monetary policy

• Not much effectiveness in other cases

76

Wrapping up • AEs growth and inflation divergence (could widen going forward)

• For EMs

– Stronger U.S. growth, expansionary via external demand; but,

– Stronger dollar slows EMs growth (weakens domestic demand)

• Income effect: commodity prices offsets expenditure-switching effect; also for capital/inputs importers

• Persistent dollar cycles: EMs’ subdued growth for some time

• U.S. tightening, further appreciation, amplifies effects

– Weaker investment

• Weaker commodity prices, slower investment growth

• Exchange rate flexibility helps buffer effects of capital flows’ cycles

• Capital control, not very effective

• Macro-fundamentals matter 77

THANK YOU!

Advanced Economies

Divergences,

Emerging Markets

Convergence?

Nicolas E. Magud International Monetary Fund

Jornadas Económicas 2016

Guatemala

The views expressed in this presentation are those of the presenter and do not necessarily represent the views of the

IMF, its Executive Board, or IMF management.

Related literature

• I. Dollar—commodity prices link

– Frankel (1986)

– Dornbusch (1986)

– Borensztein and Reinhart (1994)

– Akram (2009)

• II. Dollar cycles

– Engel and Hamilton (1990)

– Chinn (2015)

• III. This paper: links I with II 80

Data

• Sample: 63 emerging market economies

• Frequency/time span: annual data 1970—2014

• Sources:

– IMF’s WEO and IFS

– St. Louise Fed’s FRED

– Bloomberg

– Gruss (2014) 81

The missing link: commodity terms of trade real exchange

rates South America and Mexico: Real Effective Exchange Rates

(Index: 2005=100)

70

90

110

130

150

170

190

210

230

2000 2002 2005 2007 2010 2012 2015

Consumer Price Index Commodity terms of trade¹

Sources: IMF, Information Notice System; Gruss (2014); and IMF staff calculations.

Note: South America = Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela.

¹ Calculated using net commodity terms of trade data based on Gruss 2014 (instead of domestic consumer price indices) for the partner countries. 82

Theory I: supply side

Non-tradables:

Tradables:

Taking prices as given, optimally: ; gL=w

Thus,

; ' 0; '' 0N N

t ty g L g g

; ; 0; 0; 0; 0H H

t t t L M LL MMy f L M f f f f

L

M

M

f w

f p

;H M

t t tp w p N

t tp w

83

Theory II: domestic demand and market clearing

conditions

Agent solves

s.t.

In equilibrium:

Market clearing conditions

with trade balance

inelastically supplied imports

demand for exports

, ,

; ;N H M

N H M

c c cmax u c c c

; N N H H M M

N HwL p c p c p c L L L

; ; M M M M H H

N N H H N N

u p u p u p

u p u p u p

H Hy c X

H M Mp X p c M

S MM M c

;M

Hp

X Xp

' 0X

84

Theory III: U.S. appreciation shock

• U.S. real appreciation as higher (pM/pH): ,

• Case 1: Leontieff production function

– Lower demand for imports, decrease real wage

• Consumer: lower wages, negative income effect

– lower aggregate consumption

– relative price of non-tradables decreases: lower domestic demand owing to lower wages, in equilibrium lower production

– relative price change

– Substitution effect: basket composition changes: given optimal marginal utility ratios and income effect:

0Mp 0Hp

H M

HL HMp a w a p

0 M

HL HMa w a p 0MHM

HL

aw p w

a

0 0 0M H Np p p

0N H Mc c c 85

Theory IV: other production function • Cobb-Douglas

– Given then, ambiguous

• Linear production function fL/fM=a/b

• Extensions: – Financial account balance: EM’s capital outflows increase with higher U.S. interest

rates, depreciate currency (further reducing price of non-tradables)

– Credit markets: borrow to invest amplifies capital outflows effects

• In the end: empirical issue

1( )Hy L M

1;

HH

L M

yyf f

L M

1

M

wLM

p

1

11H

M M M M

y w L

p p p p

01M

MLp w

H

M

y

p

Hy aL bM

86

Econometric model

• Vector notation

• Extended form

• Panel regression with country fixed effects and

robust standard errors

i US i

t t t ty X Z

1

1

US

t

US US

t t

US

t

REER

X RIR

RGDPgr

1

1

i

t

CH

t

t i

t

US

t

RGDPpc

RGDPgrZ

KI

Vol

1 2 1 3 1

1 1 2 3 1 4

i US US US

t t t t

i CH i US

t t t t

y REER RIR RGDPgr

RGDPpc RGDPgr KI Vol

87

Robustness

• Lagged REER of each country (expenditure-switching/income effs.)

• 5-year averages (longer-term perspective)

• Alternative volatility measure, VIX

• Log-difference of commodity terms of trade (significantly only if U.S REER removed, not

otherwise)

• Rolling-expanding regressions

– China only significant since late 1990s

– Results holds for more regions if run separately

• Dummy variable for crisis

• Time effects

• Robust standard errors clustered by time

• Restricted sample (starting in 1999)

88

United States: Contribution to Real GDP Growth

(Percentage points; seasonally-adjusted annual rates)

Source: IMF staff estimates.

89

2015 2016 2017

Real GDP 2.4 2.4 2.5

Personal consumption expenditures 2.1 2.0 1.9

Gross private domestic investment 0.8 0.7 0.9

Fixed investment 0.6 0.7 0.8

Change in private inventories 0.2 0.0 0.0

Net exports of goods and services -0.6 -0.5 -0.5

Government consumption and investment 0.1 0.2 0.2

Main contribution to growth: consumption

Econometric specification

• About 16,000 EM (listed) firms (Worldscope)

– 38 countries

– 1990-2013

– Annual frequency

• Country-specific commodity export prices (Gruss 2014)

• Financial account balance (% GDP) (IFS, WEO)

• Stock market volatility (Bloomberg)

, , ,

1 , 2 3 , 1 4 5 , 6 , 1

, 1 , 1 , 1

7 , 8 , ,

ic t ic t ic t x

ic t ic t ic t c t

ic t ic t ic t

c t c t i t ic t

I CF DebtQ Lev Int P

K K K

KI Unc d d

90


91

Dependent Variable: Domestic Credit/GDP

IV

(1) (2) (3) (4) (5) (6) (7) a/

C 13.53 *** -5.86 15.38 *** 18.79 ** 9.32 *** 12.82 *** 10.42 ***

Capital Inflows 1.04 *** 0.94 *** 0.93 *** 1.02 *** 0.55 *** 1.04 *** 1.41 ***

Exchange Rate Regime -4.26 *** -5.19 *** -4.59 *** -4.55 *** -2.59 *** -3.68 *** -4.05 ***

Inflation (-1) -0.01 0.00 0.00 0.01 -0.01 * -0.01 -0.01

Broad Money/GDP 0.71 *** 1.16 *** 0.70 *** 0.61 *** 0.75 *** 0.69 *** 0.74 ***

Dummy Crisis 26.81 * 31.12 *** 26.68 * 29.31 *** 18.85 ** 26.73 ** 29.18 ***

Fixed Effects No Yes No Yes No No No

Time Effects No No Yes Yes No No No

Cross-Section Weights No No No No Yes No No

Period Weights No No No No No Yes No

Observations 202 202 202 202 202 202 177

Adjusted R-squared 0.58 0.90 0.59 0.91 0.65 0.59 0.57

Prob(F-statistic) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 -

a/ Instruments are lagged independent variables for capital inflows, inflation, and broad money, corrected for heteroscedasticity using weighting matrix.

Table A.1. The Exchange Rate Regime and Domestic Credit

GLSOLS

92

Dependent Variable: Domestic Credit in Foreign Currency/Total Domestic Credit

IV

(1) (2) (3) (4) (5) (6) (7) a/

C 60.02 *** 38.42 *** 60.69 *** 37.74 *** 49.75 *** 59.40 *** 65.62 ***

Capital Inflows 0.55 * 0.42 *** 0.54 * 0.30 ** 0.93 *** 0.62 ** 0.82 **

Exchange Rate Regime -14.14 *** -4.17 ** -14.48 *** -3.88 ** -11.14 *** -14.04 *** -17.09 ***

Domestic deposit in FC/Tot Deposits 0.27 *** 0.35 *** 0.27 *** 0.34 *** 0.33 *** 0.27 *** 0.21 **

Inflation (-1) 0.11 0.18 *** 0.13 0.28 *** 0.09 0.11 0.08

Interest Rate Differential 0.75 *** 0.06 0.75 *** 0.08 0.45 *** 0.76 *** 1.13 ***

Dummy Crisis 16.13 -5.51 15.56 -14.03 21.13 *** 16.18 17.21

Fixed Effects No Yes No Yes No No No

Time Effects No No Yes Yes No No No

Cross-Section Weights No No No No Yes No No

Period Weights No No No No No Yes No

Observations 150 150 150 150 150 150 131

Adjusted R-squared 0.33 0.94 0.34 0.95 0.78 0.34 0.32

Prob(F-statistic) 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 .

a/ Instruments are lagged independent variables (except for inflation and the dummy for crisis), corrected for heteroscedasticity using weighting matrix.

Table A.2. The Exchange Rate Regime and Credit Composition

GLSOLS

93

Regression analysis

• Panel

• Cross-section

94

R & R--restricted sample 1/ Cross-section Baseline Regional Time effect IV baseline IV regional IV period Reversal

(1) (2) (3) (4) (5) (6) (7) VARIABLES real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth real_credit_growth cred_reversal

Financial account balance 0.000243 0.000246* 0.000218 0.000134 0.000202 0.000170 (0.000149) (0.000148) (0.000149) (0.000161) (0.000137) (0.000137)

Real GDP (RGDP) growth 1.821*** 1.754*** 1.766*** 1.854*** 1.865*** 1.855*** (0.123) (0.124) (0.124) (0.137) (0.129) (0.130)

Broad money real growth 0.570*** 0.548*** 0.572*** 1.114*** 0.632*** 0.646*** (0.0317) (0.0324) (0.0315) (0.126) (0.0350) (0.0344)

Real effective exchange rate (REER) 12.40*** 12.98*** 12.71*** 12.44*** 11.76*** 10.99*** (3.492) (3.471) (3.476) (4.036) (3.954) (3.975)

Exchange rate regime -3.286*** -3.708*** -3.319*** -3.278*** -3.461*** -3.348*** -2.364* (0.455) (0.562) (0.451) (0.509) (0.765) (0.636) (1.221)

Latin America dummy -10.51** -9.795 (5.029) (6.889)

Emerging Europe dummy -1.843 -1.054 (4.296) (5.988)

ASEAN 5 dummy -5.361 -5.128 (5.182) (7.098)

Central & East Europe dummy -5.349** -5.620 (2.706) (3.535)

Other advanced countries dummy -9.881* -10.40 (5.073) (6.956)

Average RGDP growth during boom 1.688*** (0.525)

Average finan. account bal boom 0.00611*** (0.00116)

Average REER during boom 14.49 (19.56)

Average real broad mon growth boom 0.416** (0.190)

Constant -4.465 4.987 -4.256 -3.791 5.030 -2.464 -8.996 (3.629) (6.292) (3.895) (4.200) (8.142) (4.388) (19.94)

Observations 1,202 1,202 1,202 1,081 1,081 1,081 118 R-squared 0.350 0.393 0.389 0.333 Number of countries 123 129 123 123 123 123 Chi squared 641.2 825.5 672.8 354.4 660.3 666.9 Log likelihood -4877 -5146 -4867 -471.7 Source: authors' calculations. Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1 1/ The sample excludes those episodes where the exchange rate regime switched at the time capital flows reversed.


95

(1) (2) (3) (4) (5) (6)


Net non-FDI flows (percent of GDP) 0.110 0.0133 0.0930 0.110 0.0575 0.0886

(0.0793) (0.0790) (0.0793) (0.0807) (0.0809) (0.0820)

Real GDP growth 1.551*** 1.629*** 1.473*** 1.555*** 1.596*** 1.484***

(0.158) (0.152) (0.160) (0.155) (0.153) (0.159)


(0.0493) (0.0491) (0.0492) (0.0502) (0.0502) (0.0505)

Real effecttive exchange rate 12.63*** 17.02*** 13.34*** 10.17** 13.99*** 11.13***

(3.798) (3.749) (3.764) (4.232) (4.110) (4.253)


(0.609) (0.643) (0.601) (0.895) (0.846) (0.886)

Credit to GDP (t-1) -0.0185 -0.0128 -0.0140 -0.0480*** -0.0404** -0.0416**

(0.0130) (0.0144) (0.0130) (0.0184) (0.0183) (0.0184)

Latin America -3.411** -4.523**

(1.574) (2.113)

Emerging Europe 6.599*** 4.992

(2.426) (3.286)

ASEAN 5 5.494*** 6.037**

(2.067) (2.839)

Central East Europe -2.173 -1.961

(2.311) (3.189)

Constant -4.483 -10.33** -3.726 -0.457 -4.671 -0.279

(4.226) (4.645) (4.409) (4.895) (5.309) (5.125)

Observations 531 531 531 531 531 531


Chi Squared 264.2 330.9 289.5 116.2 148.3 275.8

ll -2091 -2069 -2082

r2_o 0.325 0.379 0.346

Standard errors in parentheses. Regressions (4)-(6) instrumented using lagged real GDP growth and lagged broad money real growth.

*** p<0.01, ** p<0.05, * p<0.1

Net non-FDI flows

96

advanced economies divergences, emerging markets convergence? nicolas … · 2016-06-02 ·...

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