dilemma not trilemma - 2013 rey

8/12/2019 Dilemma Not Trilemma - 2013 Rey

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DilemmanotTrilemma:

TheGlobal

Financial

Cycle

and

Monetary

Policy

Indepe

HlneRey*

LondonBusinessSchool,CEPRandNBER

August2013

Abstract

Thereisaglobalfinancialcycleincapitalflows,assetpricesandincreditgrowth.

withtheVIX,ameasureofuncertaintyandriskaversionofthemarkets.Assetma

withmorecreditinflowsaremoresensitivetotheglobalcycle.Theglobalfinanc

alignedwithcountriesspecificmacroeconomicconditions.Symptomscangofro

assetpricebubblesandexcesscreditcreation,whichareamongthebestpredict

crises.

A

VAR

analysis

suggests

that

one

of

the

determinants

of

the

global

financipolicyinthecentrecountry,whichaffectsleverageofglobalbanks,capitalflows

intheinternationalfinancialsystem.Whenevercapitalisfreelymobile,thegloba

constrainsnationalmonetarypoliciesregardlessoftheexchangerateregime.

Forthepastfewdecades,internationalmacroeconomicshaspostulatedthetril

capitalmobility,independentmonetarypoliciesarefeasibleifandonlyifexchan

floating.Theglobalfinancialcycletransformsthetrilemmaintoadilemmaora

duo:independent

monetary

policies

are

possible

if

and

only

if

the

capital

accoun

Soshouldpolicyrestrictcapitalmobility?Gainstointernationalcapitalflowshav

whetherincalibratedmodelsorinthedata. Largegrossflowsdisruptassetmar

intermediation,sothecostsmaybeverylarge.Todealwiththeglobalfinancialc

dilemma,wehavethefollowingpolicyoptions:(a)targetedcapitalcontrols;(b

"Embargoed until presentation time of 9:00 a.m. Mountain Daylight Time, Saturda


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Introduction

Ifonelooksattheevolutionoffinancialintegrationoverthepasthalfcenturyin

onemightconcludethatfinancialopennessisanirresistiblelongruntrend,haile

andacademiceconomistsalike.Bothemergingmarketsandadvancedeconomie

openedtheirborderstofinancialflows. Thescopeforinternationalcapitalflows

gainsortodoharmhaswidenedconsiderablysincethe1990s.

Ininternationalmacroeconomicsandfinanceweoftenthinkwithintheframewo

trilemma:inafinanciallyintegratedworld,fixedexchangeratesexportthemo

centrecountrytotheperiphery.Thecorollaryisthatiftherearefreecapitalflow

haveindependentmonetarypoliciesonlybyhavingtheexchangeratefloat;and

floatingexchangeratesenablemonetarypolicyindependence(seee.g.Obstfeld

Butdoesthescaleoffinancialglobalizationandinparticulartheroleofglobalba

intoquestion?Arethefinancingconditionssetinthemainworldfinancingcentr

fortherestoftheworld,regardlessoftheexchangerateregime?Isthereaglob

ifyes,whatareitsdeterminants?

Riskyassetpricesaroundtheglobe,fromstockstocorporatebonds,haveastron

component. Sodocapitalflows. Creditflowsareparticularlyprocyclicalandvol

cyclesandcapitalflowsobeyglobalfactors,theymaybeinappropriateforthecy

many

economies.

For

some

countries,

the

global

cycle

can

lead

to

excessive

credtimesandexcessiveretrenchmentinbadtimes.Astherecentliteraturehasconf

creditgrowthisoneofthebestpredictorsofcrisis(GourinchasandObstfeld(201

Taylor(2012)).Globalfinancialcyclesareassociatedwithsurgesandretrenchme

b d b t i t i d i Th i t i i th t f



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Butevenifcapitalflows,especiallycreditflows,arelargelydrivenbyaglobalfac

bringimportantbenefitstotheworldeconomy. Abriefreviewoftheempiricale

quantificationofstandardgrowthmodels,however,showshowelusivewelfareg

flowsappeartobe,thoughitcouldjustbethattheyarehardtomeasure.

InpartI,Idescribethecharacteristicsofcapitalflows(grossandnet),showimpr

movementingrossflowsanddiscusshowtheyrelatetoglobalfactors,asproxie

theVIX. InpartII,Ishowtheexistenceofanimportantcommonfactorininterna

whichisalsocloselyrelatedtotheVIX. Iconcludethatthereisapotentglobalfi

grosscapitalflows,creditcreationandassetprices,whichhastightconnectionsw

uncertaintyandriskaversion.PartIIIanalysestheassociationofdifferenttypeso

theglobalfinancialcycleandreinforcestheconclusionthatcreditflowsareparti

theglobalfinancialcycle. InpartIV,Ihuntforthedeterminantsoftheglobalfina

anditstransmissionmechanism,focusinginparticularontheroleofmonetaryp

country,ontheleverageoffinancialintermediaries,creditcreationandcreditflo

thatourfindingsinvalidatethetrilemmaandleadtoadilemma,anirreconc

independentmonetarypoliciesarepossibleifandonlyifthecapitalaccountisma

indirectlyviamacroprudentialpolicies.PartVIdiscussesbrieflythefindingsofthe

gainstocapitalmobility. Iconcludethatmacroprudentialpoliciesarenecessary

policyindependenceforthenoncentralcountries.Theycansubstituteforcapita

iftheyarenotsufficient,capitalcontrolsmustalsobeconsidered.

I ) The global financial cycle and international capital flows

A)Characteristicsofinternationalcapitalflows



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spikes.Morerecently,ForbesandWarnock(2012)andBrunoandShin(2013a)e

incapitalflowsassociatedwiththeloweringoftheVIX.

Figure2plotscapitalinflowsdisaggregatedbyassettypes(FDI,portfolioequity,

credit)asaproportionoftheworldGDPfortheperiod1990Q12012Q4anditre

(invertedscale)onthesamegraph.Particularlystrikingistheprolongedlowering

theperiod20022007,duringwhichcapitalinflowssurged.Flowstendtobehigh

oneanotherandnegativelycorrelatedwiththeVIX(exceptFDI).Creditinflowsa

inflowsshowahighdegreeofcomovementovertime(correlationof0.52).Cred

morevolatileandprocyclicalcomponentofallflowswithaparticularlydramatic

tothecrisisandanequallydramaticcollapseduringthecrisis.Theircorrelationw

(invertedscale)is0.24onthewhole1990Q12012Q4sample(quarterlydata).

[Figure2here]

InTable1(a),Ipresentthecorrelationsbyregionsofeachtypeofinflowswithth

inflowsarenegativelycorrelatedwiththeVIX,evenatageographicallydisaggreg

Overwhelmingly,duringtranquilperiodscharacterisedbylowVIX,whenuncerta

aversionarelow,capitalinflowsarelarger.Inlinewithaggregatedata,theonlyc

exceptionsareFDIinflowsforwhichthecorrelationwiththeVIXispositiveinall

CreditflowsintodevelopedeconomiesinAsiaarealsopositivelycorrelatedwith

Table1(a):UnconditionalcorrelationsofliabilityflowswiththeVIX,quarterly,19

Correlations

inflows/VIXNorth

America

Latin

America

Central

Eastern

Europe

Western

Europe

Emerging

Asia



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fluctuationsincapitalinflows,exceptforFDIinflows.Theresultsaresimilarwith

theunconditionalandfortheconditionalcorrelationsfortheUSandWesternEu

weakerfortheothergeographicalareas. Incontrast,andinagreementwithour

thesamepatternofcorrelationsdoesnotholdfornetflows.Idonotreportthes

spaceconstraints.

Table1(b):ConditionalcorrelationsofliabilityflowswiththeVIX,quarterly,1990

Correlations

inflows/VIXNorth

America

Latin

America

Central

Eastern

Europe

Western

Europe

Emerging

Asia

Equity0.06 0.31 0.32 0.38 0.08

FDI0.10 0.35 0.07 0.06 0.08

Debt0.30 0.15 0.36 0.23 0.28

Credit0.29 0.15 0.16 0.24 0.26

InTable1(c),IinvestigatewhetherfluctuationsintheVIXarealsoassociatedwit

creation

and

leverage

using

various

measures.

We

report

the

conditional

correlaagainfortheclassicpushfactors(worldgrowthrateandshorttermrealrate). Fo

(2012),Imeasureleverageastheratioofprivatecreditbydepositmoneybanks

institutionstobankdeposits,includingdemand,timeandsavingdepositsinnonb

definitionsofleverageanddomesticcreditcanbefoundinAppendixB.

Table1(c)offersthisstrikingfinding:inallareasoftheworld,creditgrowthisne

theVIX.CorrelationstendtobethestrongestinNorthAmericaandWesternEur

leveragegrowtharealsonegativelyrelatedtotheVIXinallthemainfinancialce

America,WesternEuropeandAsia),whicharethehomesoftheglobalbanks. B



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Correlations

credit/VIXNorth

America

Latin

America

Central

Eastern

Europe

Western

Europe

Emerging

Asia

Domesticcredit

growth0.26 0.14 0.14 0.11 0.01

Leverage 0.17 0.05 0.30 0.09 0.12

Leverage

growth0.32 0.06 0.07 0.21 0.06

Tosumup,thedatashow(i)commonalityincapitalinflowsandoutflowsac

andtypesofassets(exceptforFDIflowsandasubsetofAsianandAfricanflow

commonalityisparticularlystrongforcreditandportfoliodebtinflows(seeFigu

isabsentfornetcapitalflows(Figure1c);(ii)surgesingrosscapitalflowsinper

volatilityanddeclineinflowswhentheVIXgoesup(withtheexceptionofFDIf

volatilityandprocyclicalityofcreditflows(seeFigure2andTables1a,b);(iii)in

creditgrowtharoundtheworldinparallelwithfallsoftheVIX(seeTable1c);(i

leverageandleveragegrowthinallthemainfinancialcentreswhentheVIXislo

1c).

AsnotedinBrunnermeieretal.(2012)andShin(2012),creditflowsgrewatav

the20032007precrisisperiodandcollapsedduringthefinancialcrisis.Thepa

inflowsandoutflowsfollowsaglobalfinancialcyclewhichissynchronizedwith

worldmarketriskaversionanduncertaintyasproxiedbytheVIX.Furthermore,

creditcreationinthebankingsectorandleveragearedancingtothesametune



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countryspecificandcompanyspecificfactors.But,asshownbyMirandaAgrippi

usingalargecrosssectionof858riskyassetpricesdistributedonthefivecontine

partofthevarianceofriskyreturns(25%)isexplainedbyonesingleglobalfactor

remarkablegiventhesizeandtheheterogeneityoftheset. Irrespectiveoftheg

ofthemarketinwhichtheassetsaretradedorthespecificassetclasstheybelon

loadtoalargeextentonthisglobalfactor.

AsapparentfromFigure3,takenfromMirandaAgrippinoandRey(2012),thefa

withthetimingofmajoreventssuchastheGulfWarstartingfromthesecondha

thefirstquarterof2009whenthemostrecentfinancialcrisisreacheditsclimax.

goesupfromtheearly1990suntilmid1998whentheRussiancrisiseruptsfollow

bankruptcy,andeventuallytheburstingofthedotcombubble.Fromthebeginni

index

increases

rapidly

until

the

beginning

of

the

third

quarter

of

2007.

This

is

shcollapseofthesubprimemarketandcoincideswiththefirstsignalsofincreased

financialmarkets. ThehighdegreeofcorrelationoftheglobalfactorwiththeVIX

BuildingontheanalysesofAdrianandShin(2008)andDanielsson,ShinandZygr

MirandaAgrippinoandRey(2012)proposeastructuralinterpretationofthefact

understoodasreflectingthejointevolutionoftheeffectiveriskappetiteofthem

realizedmarketvolatility.Inturntheeffectiveriskappetiteofthemarketcanbe

totheleverageofasubsetoffinancialmarketintermediarieswhoseinvestment

approximatedbyaVaRconstraint(brokerdealerintheUS,largeEuropeanbanks

tradingoperationsand,moregenerally,banksclassifiedinthecapitalmarketc

Bankscope5).Giventhatstructuralinterpretation,itisnotsurprisingthatthefact

empiricallybeclosely(negatively)correlatedwiththeVIX. AspointedoutinBru

(2012)andBorioandDisyatat(2011),thereisapositivefeedbackloopbetweeng

supply,assetpriceinflation,andacompressionofspreads.Smallerriskpremium

boom. Measured risk is low and balance sheets look healthier as asset prices go u



9/41

Figure3:GlobalfactorandVIX. Source:MirandaAgrippinoandRey(2012).

Tosumup,wehavenowestablishedinflowdata(acrossmosttypesofflowsand

someexceptions)andinpricedata(acrossasectorallyandgeographicallywidec

assetprices)theexistenceofaglobalfinancialcycle.Interestingly,theVIXisapo

globalfinancialcycle,whetherforflowsorforreturns. Ouranalysissofarempha

correlationsandpatterns,butcannotaddresscausalityissues. Lowvalueofthe

longperiodsoftime,areassociatedwithabuildupoftheglobalfinancialcycle:m

andoutflows,morecreditcreation,moreleverageandhigherassetpriceinflatio



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volumesanddifferenttypesofcapitalflowsmatterforthesensitivityofnational

globalfactor.

Iinvestigatewhethercrosssectionally,thesensitivitiesofcountryspecificvariab

factor(logged)canberelatedtodifferenttypesandintensitiesofcapitalflo

market.Thecountryspecificvariables , arestockmarketreturns, ,banking

growth, , andhousepriceinflation, . Irunthefollowingsetofregressions

,

wheredenotesflowsintocountryi (inflows,outflows,differenttypesofflo

theGDPofcountryi, isavectorofcontrolvariables(laggedGDPgrowthofc

nominaleffectiveexchangerate ofcountryi). Ialsoinclude,thechangei

The

interaction

terms

and

are

meant

to

capture

the

pheterogeneoussensitivityofagivenmarkettotheglobalfinancialcycledependi

andtypesofcapitalflowsitreceivesorexports.Irunfixedeffectsestimatorswit

standarderrorsbycountryandincludealineartimetrend. Wecheckedthestat

usingaPesarantest.Wehavealargenumberofobservations(between2770an

onthespecification).Table2reportstheresultsofselectedspecifications.Panel

resultsforstockmarketreturns(logdifferenceoflocalstockmarketindices),App

resultsfor2(b)bankingsectorleveragegrowth(differenceofleverageratio)and

priceinflation(logdifferenceofpropertypriceindices).

Table2(a)Stockmarketreturnssi,t isthedependentvariable(1990

flit CreditL C.nonbankL CreditA DebtL DebtA E

VIXt

0.0952*** 0.0914*** 0.0951*** 0.0952*** 0.0962***

(12.64) (12.78) (12.25) (12.66) (12.34)

*** *** *** *** ***



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Panel

(a)

shows

that

stock

prices

are

significantly

negatively

related

to

the

globaltoitsgrowthrate.Creditflowsintoandoutofcountryitendtobeassociatedwi

sensitivityofthestockmarketofcountryitotheglobalfinancialcycle(theintera

significantlynegative).But,interestingly,debtoutflowsandespeciallyequityinfl

tendtobeassociatedwithalessersensitivitytotheglobalcycle(interactionterm

sectionally,justlikeinthetimeseries,creditflowsseemmorestronglyrelatedto

thanotherflowsandinparticularthanequityflows.

AscanbeseeninAppendixC,theresultsforbanksleverage(b)andhouseprices

somerespect. Thereisanegativecorrelationofbanksleverageandhouseprice

VIXandapositivecorrelationwiththegrowthrateoftheVIX.Thereishoweveri

nosignofanyflowsassociatedwithahighersensitivityofleverageofbanks(oro

theglobalfinancialcycle(theinteractiontermisneversignificant).

Onceagain,itisworthemphasizingthattheseregressionsindicatecorrelationsa

thetimeseriescreditflowsareveryprocyclical. Inthecrosssection,creditflows

associatedwithastrongercorrelationofstockmarketreturnswiththeglobalcyc

flowstendtobeassociatedwithaweakercorrelation6.

IV)Monetarypolicy,capitalflowsandtheglobalfinancia

A)RecursiveVARanalysis

Theglobalfinancialcycleappearsincomovementsofgrossflows,assetprices,le



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raisinglargequantitiesoffundsindollarsandtransferringthemtooverseasmar

globalbankswerenotonlyintermediatingsavingsbackintheUSmarketbutwer

Asian,LatinAmerican,AfricanandMiddleEasternmarkets. Iwillthereforetreat

Europeanbanksasakeyvariableoftheanalysis.Thedollaristhemaincurrency

Sincesurgesincapitalflows especiallycreditflows areassociatedwithincreas

worldwide,anaturalinterpretationisthatmonetaryconditionsinthecentrecou

transmittedworldwidethroughthesecrossbordergrosscreditflows. Itisthere

flowsthatshouldbetrackedinordertoassessfinancialfragilityandoverallcred

emphasizedbyBorioandDisyatat(2011),Gourinchas,TruemplerandRey(2012)

(2012). Itisalsoonlybylookingatgrossflowsthatonecankeeptrackofcurrenc

mismatchonbalancesheetsoffinancialintermediariesandhouseholds.Bothof

arewellknowncontributorstofinancialinstability.

Thisisofcoursenottosaythatnetflowsareirrelevant: currentaccountimbalan

longrunsustainabilityofthenetexternalassetposition,asalongliteratureshow

surveyedinGourinchasandRey(2013)).

Toanalyzethedynamicinteractionbetweenmonetarypolicy,riskaversionandu

leverageand

credit

flows,

Iperform

arecursive

VAR

analysis

7

.Ibuild

on

the

stud

HoerovaandLoDuca(2012).Theyshowthatmovementsinthefederalfundsrat

uncertainty(expectedstockmarketvolatility)andriskaversion,twocomponents

theVIX. Likethem,Ifocusonthedynamiclinksbetweenthefederalfundsratea

alsostudytheirdynamicinterrelationswithcreditcreation,leverageandcreditf

quarterlydatafortheperiod19902012.Iimposecontemporaneousrestrictions

responsesofthevariables,basedoninstitutionalknowledge.Iorderthevariable

variablecannotrespondtocontemporaneousshocks(withinthequarter)ofany

secondonecanrespondtocontemporaneousshocksaffectingvariable1butnot

I th t GDP d i d ith l th l i hil



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banksleverage(definedasthemedianofEUbankleverage)(EULEV),FedFundst

VIX(logged).8

Inotethatsincewearefirstandforemostinterestedintheimpactoftheshocks

variablesintheVAR(VIX,FFRandleverage),howtheothervariablesareordered

differenceforthosethreeshocks(allIneedispartialidentification). Forexampl

bothcreditandflowswillstayputinthefirstquarterandthenarefreetoreact,

ofthosetwodoesnotmattertoFFR.Thatorderonlymattersinbetweenthetwo

assuming thatiftherewereashockoncrossborderflows, globalcreditwouldt

reacttothat,butIamnotfocusingonthis.

IuseatwolagVAR,usingtheusualcriteria(BICandLR). Bootstrappedconfiden

computedusing1000replications;lightanddarkgreyshadedareascorrespondt

confidenceintervalsrespectively. Ireportasubsetofkeyimpulseresponsesint

and4b).ThecompletesetofimpulseresponsefunctionsarereportedinFigure5

Ourkeyfindingsarethefollowing:

(i) Anincreaseintheeffectivefederalfundsrate(FFR)leadstoanincreabout5quartersanduntil11quarters. (Figure4a)

(ii) AnincreaseintheVIXleadstoafallinEuropeanbanksleverage.(Fig(iii) AfallintheVIXleadstoanincreaseincrossbordercreditflowsupto

4b)

(iv) AnincreaseintheVIXleadstoafallinglobaldomesticcreditfrom4(Figure

4b)

(v) AnincreaseintheVIXleadstodeclineintheFFR.(Figure4b)(vi) AnincreaseintheFFRleadstoafallinEUbankleverageafter15qua(vii) AnincreaseintheFFRleadstoafallingrosscreditflowsafter12qua



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TheVARresultsarethereforeconsistentwiththefollowinginterpretation.When

rategoesdown,theVIXfalls(afterabout5quarters),Europeanbanksleverager

creditflows(after12quarters). AfallintheVIXleadstoanincreaseinglobaldo

quarters.

FurthermoreIfindthatincreasedbankleverageandcapitalflows,aswellascred

(thoughforcredititisonlymarginallysignificant)areassociatedwithasubseque

index.Thisisconsistentwiththefollowingmechanism:ascreditandcapitalflow

asnotedinparticularbyAdrianandShin(2010),thequasiconstancyofriskweig

balancesheetofglobalbanks(mostlythebankshavinglargecapitalmarketdivis

theunweightedvolumeofassetsrisessubstantiallysuggestsafallinmeasuredr

times. Whenleverageishighandcreditisabundant,spreadsarecompressedan

low.ThistranslatesintoadeclineintheVIX. Thereisthereforeapositivefeedba

loosemonetarypolicy,fallintheVIX, riseincredit,capitalflowsandleveragean

VIX9.

FromFigure5,IalsonotethatanincreaseintheVIXhasasignificantnegativeef

Bloom(2009))andontheGDPdeflator.Asexpected,anincreaseintheFFRrate

effectonprices. IalsonotethatmonetarypolicyloosenswhentheVIXgoesup(



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Figure4b:Responsestoa1%increaseintheVIX.

B)Robustness

Icheckrobustnessontheprecrisissample19902007.Ialsocheckrobustnessby

ourvariables(Idropsuccessivelycredit,leverage,flowsonebyone)andbydrop

sureoverfittingisnotanissue. Importantly,twostudieswithadifferentfocusb

results(Bekaertetal.(2012)andBrunoandShin(2013b),allowustoassessfurth

ofsomeofthefindings.

Bekaertetal.(2012)decomposetheVIXindexintoacomponentreflectingexpec



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BrunoandShin(2013b)runsa4variablerecursiveVARwithFFR,logVIX,leverag

effectivedollarexchangerateonquarterlydatafortheperiod19952007.Form

measurestheyusetherealFFRandtherealeffectiveFFR,growthofUSM1,and

Taylorrule.TheyuseUSbrokerdealerleverageinsteadofthebroadermeasureo

TheyfindthatapositivemonetarypolicyshockleadstoanincreaseintheVIXaft

declineinUSbrokerdealerleverageafterabout10quarters;anincreaseintheV

inUSbrokerdealerleverageafterquarter10.Theseresultsarecompatiblewith

(ii) withsomedifferencesintiming. Theauthorsalsofind,afteraugmentingthe

increaseintheFFRreducescreditflows(intheircasedefinedasthefirstdifferen

liabilitiesofbankslocatedoutsidetheUS)afterabout7quarters;thatanincreas

flows.Theseadditionalresultsarealsocompatiblewithmine(see(vii),(iii))with

intiming.BrunoandShin(2013b)presentinadditionveryinterestingevidenceo

effectiveexchangeratedynamicsandthedelayedovershootingpuzzle.

C)Economicsignificanceoftheresults

Aretheshockstothefederalfundsrateanimportantsourceofvariationfortheglobalfinancialcycle,indexedbytheVIX?

Intheir4variableVAR,BrunoandShin(2013b)findthatshockstotheFFRexplai

varianceoftheVIXathorizonslongerthan10quarters.

Similarlyintheir4variablestructuralVARmodel,Bekaertetal(2012)findthatm

shocksaccountforover20%ofthevarianceofriskaversionathorizonslongerth

alsoaccountforacomparablepartofthevarianceofuncertainty.Intheirsixvar

monetarypolicyshockaccountsforabout12%ofthevarianceofriskaversionat

than10quarters.

DependingontheexactspecificationoftheVARanalysis,Ifindthatshockstothe



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V)Takingstock:monetaryconditions,capitalflowsand

financialcycle

Thereisaglobalfinancialcycleincapitalflows,assetpricesandincreditgrowth.

withtheVIX,ameasureofuncertaintyandriskaversionofthemarkets. Assetm

creditinflowstendtobemoresensitivetotheglobalcycle.Theglobalfinancialc

withcountriesspecificmacroeconomicconditions.Inanumberofcountries,thi

creditgrowth(oralternativelytomonetaryconditionswhicharetootight).Exces

oneofthebestpredictorsofcrisis.GourinchasandObstfeld(2012)showthatac

crisis,threevariablesplayastatisticallyandeconomicallysignificantrole:therat

credittooutput,therealexchangerate,andtheratioofofficialreservestooutp

Taylor(2012)demonstratethatcreditgrowthisapowerfulpredictoroffinancial

thatsuchcrisesarecreditboomsgonewrongandthatpolicymakersignorecr

SimilarfindingsareechoedinLundJensen(2012),whofindsthathighassetprice

associatedwithsystemicbankingcrises.Ouranalysisclearlyimpliesthatgrossflo

creditanddebt)shouldbemonitoredclosely(inparallelwithnetflowswhichare

sustainabilityissues)inordertoassessfinancialfragilityandoverallcreditcondit

bylookingatgrossflowsandgrosscrossborderpositions(theentirebalanceshe

thatonecankeeptrackofcurrencyandmaturitymismatch. Bothofthesemism

tocontributetofinancialinstability10

.

Theimportanceoftheglobalfinancialcycleincreatingboomandbustcyclesin

andadvancedeconomiesalikewithcapitalinflowssurgesgoesbackalongwaya

mentionedindifferentcontextsbyDiazAlejandro(1983),Calvoetal.(1996),(ide

factorsforcapitalflows),EichengreenandPortes(1987),ReinhartandReinhart

flowsbonanzas),LaneandMcQuade(2012)andmanyothers.Theroleofcross



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aworldoffreecapitalmobility,independentmonetarypoliciesarefeasibleifand

ratesarefloating.Instead,whileitiscertainlytruethatcountrieswithfixedexch

haveindependentmonetarypoliciesinaworldoffreecapitalmobility,myanaly

crossborderflowsandleverageofglobalinstitutionstransmitmonetaryconditio

underfloatingexchangerateregimes.

Soshouldpolicyrestrictcapitalmobility?

VI)Benefitsofinternationalcapitalflows

Ifrestrictingthemovementofcapitalacrossborderistobeapolicyoption,itspo

shouldbeassessedagainstitscosts.Sowhatdoweknowaboutthegainstointe

mobility?

Theliteraturehasattemptedtomeasuregainstofreecapitalmobilitymostlyint

calibratingstandardinternationalmacroeconomicmodelsandevaluatingwelfare

fromautarkytofinanciallyintegratedmarkets;bytestingforgrowtheffectsand

(lowervolatility)followingfinancialintegration,usingeitherpaneldataorevent

A)Calibrationofstandardmodels

Theneoclassicalgrowthmodelisbehindmanyofoureconomicintuitionsregard

freeflowofcapitalcouldbebeneficial. Withinthismodel,financialintegrationb

improvementsinallocativeefficiency(capitalflowstoplaceswiththehighestma

d b i k h i I i l i hi h di li i lib



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orderofafewtenthsofapercentofpermanentconsumptionforrealisticcalibra

B)Empiricalevidencefrompaneldataandeventstudies

Crossborderinvestmentpositionshaverisenforadvancedeconomiesfrom68%

438%ofGDPin2007;foremergingmarketstheyhavegonefrom35%to73%of

sameperiod(LaneandMilesiFerretti2007andLane(2012)). Ifcapitalflowsbrin

beobservinglargeeffectsinthedata,duetothesheerscaleoffinancialglobalisa

1990s.Therearenumerousstudiesthattrytotestforeffectsofinternationalcap

growthoronconsumptionvolatility.Surprisingly,theseeffectsarehardtofindin

data. Asattestedbythemostrecentsurveysreviewingalonglistofempiricalpa

find

robust

evidence

of

an

impact

of

financial

openness

on

growth

or

on

improveEichengreen2002;Jeanneetal.2012;Koseetal.2006;Obstfeld2009). Somepa

theexistenceofthresholdeffects:capitalflowsarebeneficialonlyafteracountr

certainamountofinstitutionalorfinancialsectordevelopment(seeBekaerteta

alsosomedifferencesifonelooksacrossdifferenttypesofcapitalflows:FDIflow

deliveringgrowthandrisksharingbenefitsthanothers. Butthisevidenceisnotv

becausethesampleusedoftenmakesadifference(seeJeanneetal.(2012)). Th

oneventstudiesisoftenmorepositive(seeHenry(2007))andpointstowardsaf

capitalandincreasedinvestmentatthetimeoffinancialintegration. Butthesim

economicreformsorpoliciesputinplaceatthetimeoffinancialopeningishowe

concern. Further,fromatheoreticalpointofview,evaluatingwelfaregainsrequ

pathofintegratingeconomiesfromthepointofcapitalaccountintegrationtoth

Alongsuchpaths,onecanobserveinitialinvestmentincreasesandcurrentaccou

thenreverselateronascountrieshavetorepaytheirexternaldebt.Welfaregain

are found to be small (see Coeurdacier et al (2013))


"E b d til t ti ti f 9 00 M t i D li ht Ti S t d


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ofcertaintypesofflows. Theexistingliteratureonthistopichastodealwithhar

issues andisalsonotveryconclusive(foradiscussionseeObstfeld2009,p.89).

possibilityisthatfinancialFDIfavoursfinancialmarketdeepeningandtherebyim

prospects11

. Yetanotherpossibilityistoinvestigatemorecloselytherisksharing

theexternalbalancesheetofcountriesduringcatastrophiceventssuchasthe20

financialcrisis.Gourinchasetal.(2012)showthatthereweremassivewealthtra

theUSandtherestoftheworldwhentheglobalfinancialcrisishit(about2trillio

valuationlossesontheUSnetexternalassetposition,whichisequivalenttoaw

totherestoftheworld).TheUS,centreoftheinternationalmonetarysystem,ac

insurer. Itiseasytoseehowthisinsurancetransferisimplemented:sinceemerg

tendtobelonginUSgovernmentdebt(thereserveasset)andshortequityandF

versafortheUnitedStates)12

,intimesofcrisisthevalueofalargepartoftheira

governmentbonds)isstableorevengoesupwhilethevalueoftheirliabilities,co

riskyassets,collapses.Thus,whilelargeexternalbalancesheetscanhelppropag

crisis,theycanalsocontributetorisksharingdependingontheirexactstructure

furtherreasonwhymonitoringgrossflowsandgrosspositions(asopposedtoon

currentaccounts)isessential.

Tosumup, gainstointernationalcapitalflowshaveprovedelusivewhetherinca

inthedata,thoughperhapsthisisjustbecausethosegainsarehardtomeasure.

mightoccurthroughimprovementsinTFP,whichwehavenotbeenabletomeas

thenwhydontweseethemingrowthrates?) ortheymightmanifestthemselve

large

shocks

hit.

One

thing

is

clear

at

this

stage:

we

cannot

take

them

for

grante

VII)Policyoptions:dealingwiththedilemma


"Embargoed ntil presentation time of 9 00 a m Mo ntain Da light Time Sat rda


21/41

analysessuggestmonetaryconditionsaretransmittedfromthemainfinancialc

theworld throughgross credit flowsand leverage, irrespectiveof theexchang

putsthetraditionaltrilemmaviewoftheopeneconomyintoquestion.Fluctua

cannotinsulateeconomiesfromtheglobalfinancialcycle,whencapitalismobil

morphs into a dilemma independent monetary policies are possible if an

accountismanaged,directlyorindirectly,regardlessoftheexchangerateregim

Thisimplies

that

gross

flows,

particularly

credit

flows,

are

of

great

importance

fo

andhavetobemonitoredcarefully.Itisalsoonlybylookingatgrossflowsandg

positions(theentirebalancesheetofcountries)thatonecankeeptrackofcurre

mismatch. Bothofthesemismatcheshaveprovedtocontributetofinancialinsta

timeagain(seeforexampleFarhietal.(2012)). Oncemore,thisisnottosaynet

matter,astheyareimportantforsustainabilityissues14

.

Aswelfaregainsfromcapitalflowscannotbetakenforgranted(thoughthejury

shouldconsiderthefollowingrangeofoptionstoweakenthepotencyoftheglob

andtherebyincreasefinancialstability.Onecould:a) imposetargetedcapitalco

ofthesourcesofthefinancialcycleitself:themonetarypolicyoftheFedandoth

banks;c)actonthetransmissionchannelcyclicallybylimitingcreditgrowthand

upturnofthecycleusingnationalpolicies(andpossiblydoingthereverseduring

puttinginplacemacroprudentialpolicies;d)actonthetransmissionchannelstr

imposingstricterlimitsonleverageforallfinancialintermediaries.

a) CapitalcontrolsOnecouldconsidercapitalcontrolseithercyclicalorpermanenttoinsulatethee

global financial cycle. Permanent capital controls can be applied on subset of ass


"Embargoed until presentation time of 9:00 a m Mountain Daylight Time Saturda


22/41

Temporarycontrols,especiallyoncreditflowsandportfoliodebtwhenthecycle

couldbeused.Thisoptionhasbeentestedinvariouscontexts: theChileanencaj

2010and2011Braziliantaxesonequityinflowsetc Oftenthough,controlshav

theprimaryaimofpreventingexcessiveappreciationoftheexchangerate.Whe

excessiveexchangerateappreciationmayhurttheexportsector. Asaresult,Ce

wishtointerveneontheforeignexchangemarkettokeepthecurrencydown,ac

reserves.Theyfacethetradeoffofhigherinflationorincreasedsterilizationcosts

effectofanincreasedinterestrateleadingtofurtherinflows(alsoreinforcedby

furtherappreciationoftheexchangerate).Taxinginflows,ifeffectivelyimpleme

circuitbreakerinsuchasituation. Thereisalivelydebateastherearealsodiffi

issueslinkedtoselectionandendogeneity ontheeffectivenessandsideeffects

controlsinthiscontext(seeforexampleForbesetal. (2012),ChamonandGarcia

(2012),Werning(2012)).

Ultimately,sinceinourcontext,itisreallyexcessivecreditgrowththatisthema

capitalcontrolsshouldbeviewedmoreaspartialsubstituteswithmacroprudent

tendtobemoretargeted. Butcapitalcontrolsmaybeappropriateifthereisalo

borderlendingandthebankingsystemcanbecircumvented(seeOstryetal(201

tonotethatmacroprudentialpoliciescanweakenthelinkbetweendomesticmo

capitalinflows,withouttheimpositionofcapitalcontrols.Forinstance,bypreve

creditgrowthinboomtimes,theCentralBankmayreducetheincentiveforbank

externallywhendomesticmonetarypolicytightens.

b) InternalisationoftheglobalspilloversofthecentresmonetarypolicyOnecouldconsideractingononeofthesourcesoftheglobalcycleitself,themo

inthemainfinancialcentres. Monetaryconditionsinlargefinancialcentressuch

theglobalfinancialcycleviatheendogenousresponseofleverageandtheprocy

Embargoed until presentation time of 9:00 a.m. Mountain Daylight Time, Saturda

"Embargoed until presentation time of 9:00 a m Mountain Daylight Time Saturda


23/41

GlobalFinancialSystemoftheBIS.Thisgroupwoulddiscussandassesstheimpli

policiesforgloballiquidity,leverage,andexposures,andtheappropriatenessof

andcreditpoliciesfromthepointofviewofglobalprice,output,andfinancialsta

issueashortreportdiscussingpolicytradeoffsandinternationalinconsistencies.

shouldatleasthelptounderstandbetterthesecomplexissuesalsobystimulat

theseareasandmightencourageCentralBankerstointernalizesomeoftheex

thepolicies.Thedifficultiesofsuchapolicyoptionareobvious:internationalcoo

monetaryspilloversmayconflictwiththedomesticmandatesofcentralbanks.F

internationalfinancialstabilityanddomesticactivityandinflationtargetsmaybe

theshorttomediumrun. Furthermorethemanagementofaggregatedemandin

importanteconomiesalsohasimportantconsequencesforeconomicactivityint

world.Itiseasytoseethatthetradeoffsareextraordinarilycomplex.

c) Mutingthetransmissionchanneloftheglobalcyclebytakingcyclicalmeprudentialmeasures)tolimitexcessivecreditgrowth.

Since,foracountry,themostdangerousoutcomeofinappropriatelyloosegloba

conditionsisexcessivecreditgrowth,asensiblepolicyoptionistomonitordirect

andleverageineachmarket. Recently,muchefforthasgoneintoputtinginplac

measureshavingjustthisgoal.Thearsenalhasseverallayers. Basel3hasacoun

cushionthatcanbeactivatedinboomtimes.Loantovalueratiosanddebttoin

usedinordertorestrictlendingandkeeprealestatepricesincheck.Oneshould

lendingstandardsandtradingstrategiesduringperiodsofhighcreditgrowth. Th

experiencebeinggatheredaroundtheworldrecentlyonthepracticalimplement

prudentialtools(seeforexampletheReserveBankofIndiaortheBankofKorea

macroprudentialmeasureswereimposedincludingleveragecapsonFXderiv

d i l bili l li bili i f b k ( k f




24/41

OneoptionistodeviseautomaticrulesbasedonthecredittoGDPratioandact

thresholdiscrossed(Borioetal.(2011)).Thishastheadvantageofbeingrobustt

interestedparties.Italsoovercomesthewellknownbiastowardsinactionwhen

unfoldingandeveryoneishappilysharingthedividendsofincreasingassetretur

theriskbuildingup.

Anotheroptionistostresstestthebalancesheetofthefinancialsector(banksa

banks)

very

frequently,

either

in

a

targeted

way

or

broadly,

and

judge

whether

larealisticchangesinassetpricescouldjeopardizefinancialstability.Stresstesting

exerciseingeneralandestimatingsecondroundeffectsisparticularlychallengin

Furthermore,thisisnotapopularundertakingwithmarketparticipants,asitreq

inputsontopofmandatoryreportings.Italsorequirescarefulthinkingaboutcom

policy(and/orabsoluteconfidentialityasthecasemaybe).Moreover,fiscalback

areneededtoguaranteethecredibilityofthestresstesting.Noneofthisiseasy.

stresstestsregularlyandoften,evenifthisisanimperfectprocess,isanecessary

tool. Itimprovestheknowledgeofsupervisorsandinsurestheyareuptodatew

marketdevelopments;importantlyitmayalsogiveconstructivechallengestoth

monitoringofinstitutions.Itmayrevealfailuresincorporategovernanceinorga

incentivesarenotnecessarilyalignedtokeepriskincheckorwhereinformation

orcentralizedadequately.Itmayevenrevealblindspotsofrisktakingactivitie

belowtheradarscreenoftheChiefRiskOfficer.Anaggressivepolicyoffrequent

sometargeted,somebroad,isthereforeanappropriateandflexiblewaytotackl

excessivecreditgrowthandleverage. Insteadofseekingtoidentifybubbles,sup

stresstestwhetherwhencurrentfinancingconditions(includingintheshadowb

getdisruptedandassetpricesdecline,financialstabilitycouldbeendangered15

.

brakesshouldbeappliedimmediately.




25/41

Attheheartofthetransmissionmechanismdescribedinthispaperistheability

intermediaries,whetherbanksorshadowbankstoleverageupquicklytoveryhi

financingconditionsarefavourable.Creditisexcessivelysensitivetothefinancin

again,asinc)withtheusefulobservationthatthemostdangerousoutcomeofin

globalfinancialconditionsisexcessivecreditgrowth. Hence,asensiblepolicyop

additiontoorinsteadofmonitoringthecyclicalpropertiesofcreditgrowthisto

abilityoffinancialintermediariestobeexcessivelyprocyclical.Onepolicyleverse

appropriatefordoingthis:theleverageratio. Byputtingatougherlimitonlever

usefullyreducetheabilityofthefinancialsystemtoengageinthefeedbackloop

sectionsVandVI. Byusingsuchastraightforwardtool,onewouldalsohelpmak

macroprudentialpoliciesdescribedabovemorerobust.Errorsofjudgementsby

RiskOfficers,CEOsandboardsarepossibleandevenlikelyinourexcessivelycom

regulatoryenvironment.Tougherleverageratiosareasensiblewaytodecrease

costoftheseerrors,withoutimposinganylargecosts,ifatall,ontherealeconom

(2012),Jenkins(2012),AdmatiandHellwig(2013))16

.

Conclusion

Ofthesefouroptions,ifhistoryisofanyguidance,puttinginaplaceaneffective

cooperationamongthemaincentralbankstointernalisethespilloversoftheirm

therest

of

the

world

seems

out

of

reach

17

.

Andthere

are

some

reasons

for

that:

cooperationonmonetaryspilloversmayconflictwiththedomesticmandatesof

example,internationalfinancialstabilityanddomesticactivityandinflationtarge

atleastintheshorttomediumrun. Furthermorethemanagementofaggregate

g p y g ,



26/41

levelofeconomicactivityanddemandstimulusinthesamecountries.Tradeoffs

complexandpolicyactionwillmostlikelyremainbiasedtowardsnationalpriorit

foruminwhichthecollectivemonetarypolicystanceofthesystemicallyimporta

activelydiscussedandinconsistenciesanalysedwouldneverthelessbebeneficial

Themostappropriatepoliciestodealwiththedilemmaareprobablytotakeac

aimedatthemainsourceofconcerns(excessiveleverageandcreditgrowth). Th

aconvexcombinationofawellthoughtoutimplementationofmacroprudential

aggressivestresstesting(b)andtougherleverageratios(c). Dependingontheso

instabilityandinstitutionalsettings,theuseofcapitalcontrols(a)asapartialsub

macroprudential measuresshouldnotbediscarded.

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31/41

AppendixA

Listofcountriesincluded:

NorthAmerica LatinAmerica Central&EasternEurope WesternEurope EmergingAsia ACanada Argentina Belarus Austria China A

US Bolivia Bulgaria Belgium Indonesia Ja

Brazil Croatia Cyprus Malaysia K

Chile CzechRepublic Denmark Thailand N

Z

Colombia Hungary Finland

CostaRica Latvia France

Ecuador Lithuania Germany

Mexico Poland Greece

Romania Iceland

RussianFederation Ireland

Serbia Italy

SlovakRepublic Luxembourg

Slovenia Malta

Turkey Netherlands

Norway

Portugal



32/41

DataonCapitalflows:

Sourceof

flow

data:

quarterly

gross

capital

inflows

and

outflows

from

the

Intern

FundsInternationalFinancialStatistics(accessedthroughIMFwebsiteinMarch

PortfolioEquityInflows,OutflowsandNetFlowsconstructedasOutflowsInflow

FDIInflows,OutflowsandNetFlows

PortfolioDebtInflows,OutflowsandNetFlows,and

OtherInvestmentInflows,OutflowsandNetFlows

Datatransformations:FlowsarereportedinmillionsofU.S.dollars

IFSdoesnotdifferentiatebetweentruezerosandnotavailables;mostofthetim

valuesaserrorsandomissions,unlesstheyevidentlyrepresentzeroflows.

Mapping

of

the

flows

from

BPM5

(until

2004

Q4)

to

BP6

(2005

Q1

onwards)

in

acguidelinesofthe6theditionoftheBalanceofPaymentsandInternationalInvest

ManualofIMFReconciliationforquarters2005Q12008Q4forwhichthereis

ConstructionofNetFlowsonlywhendataonInflowsandOutflowsareavailable

WorldGDPGrowth(Quarterly):InternationalMonetaryFundsInternational

(accessedthroughIMFwebsiteinMarch2013).



33/41

AppendixB

GlobalFactor:commonfactorextractedfromacollectionof858assetpriceserie

Pacific,Australia,Europe,LatinAmerica,NorthAmerica,CommodityandCorpora

detailsonextractionandoriginalassetpricesdatasetcompositionpleasereferto

andRey(2012).

BankingSectorLeverage:constructedastheratiobetweenClaimsonPrivateSec

TransferableplusOtherDepositsincludedinBroadMoneyofDepositoryCorpora

CentralBanks.DataareinnationalcurrenciesfromtheOtherDepositoryCorpora

MonetaryStatistics,InternationalFinancialStatisticsdatabase.Classificationofd

formerDepositMoneyBanksSurveycorrespondstoDemand,Time,Savingsand

Deposits.

EUBankingSectorLeverage:constructedasthemedianBankingSectorLeverage

EuroAreaCountries(Austria,Belgium,Finland,France,Germany,Greece,Ireland

theNetherlands,PortugalandSpain)andtheUK.

USBrokersDealersFinancialLeverage:constructedastheratioofSecurityBrok

FinancialAssetsandTotalLiabilities;FederalReserveBoard;FinancialAccounts,

DomesticCredit:constructedasthesumofdomesticclaimsofDepositoryCorpo

CentralBanks.DomesticclaimsaredefinedasClaimsonPrivateSector,PublicNo

Corporations,

Other

Financial

Corporations

and

Net

Claims

on

Central

or

Genera(ClaimslessDeposits);OtherDepositoryCorporationSurveyandDepositMoney

MonetaryStatistics;IFS.Originaldatainnationalcurrencies.

DirectCrossBorderCredit:measuredasdifferenceinclaimsonallsectorsorno

givencountryofallBISreportingcountriesinallcurrencies;LocationalStatistics

InternationalBankPositionsbyResidence;BIS;Tables7Aand7B.

GlobalInflows:constructedasthesumofdirectcrossbordercredittononbank

countriessampledforthepaneldataanalysis;listofcountriessampledattheen

NominalGDPDatainUSD:originaldatainnationalcurrenciesfromNationalSta

HaverAnalyticsconversionusingspotendofperiodFXrates.



34/41

USINFLATION:GrossDomesticProduct:ImplicitPriceDeflator(Index2005=100)

EconomicAnalysis

FFRUS:EffectiveFederalFundRates,EndofPeriod(%p.a.);FederalReserveBoa

InterestRates,releaseH.15

Countriesinthepanel:Argentina,Australia,Austria,Belarus,Belgium,Bolivia,Br

Canada,Chile,Colombia,CostaRica,Croatia,Cyprus,CzechRepublic,Denmark,

France,Germany,Greece,HongKong,Hungary,Iceland,Indonesia,Ireland,ItalyLatvia,Lithuania,Luxembourg,Malaysia,Malta,Mexico,Netherlands,NewZeala

Portugal,Romania,Russia,Serbia,Slovakia,Slovenia,SouthAfrica,Spain,Sweden

Thailand,Turkey,UnitedKingdom,UnitedStates.



35/41

AppendixC

Table2

Table2(b)BankingSectorLeverageGrowth, , isthedependantvaria

flit CreditL C.nonbankL CreditA DebtL DebtA

VIXt

0.0125*** 0.0122*** 0.0127*** 0.0121*** 0.0127***

(3.84) (3.82) (3.87) (4.02) (3.87)

VIXt

0.0164*** 0.0167*** 0.0171*** 0.0167*** 0.0174***

(4.06) (4.4) (4.44) (4.26) (4.39)

flit*VIXt0.00 0.0014 0 0.0007 0

(1.28) (1.39) (0.67) (1.09) (0.89)

flit

1*VIXt1

0.0002 0.0014 0 0.0001 0.0001

(0.61) (1.43) (0.56) (0.34) (0.67)

Adj.R2 0.01 0.008 0.008 0.009 0.008

N 2352 2405 2370 2273 2332

Fixedeffectestimator,standarderrorsadjustedforclusteringoncountry,tstati

specificationsincludethecontrolvariablesandalineartrend.

Table2(c)House priceinflation , isthedependantvariable(19902013)

flit CreditL C.nonbankL CreditA DebtL DebtA

VIXt

0.0174*** 0.0127*** 0.0170*** 0.0183*** 0.0179***

(3.66) (3.68) (3.52) (3.52) (3.74)

VIXt

0.0073*** 0.0051** 0.0072*** 0.0076*** 0.0082***

(2.91) (2.03) (2.88) (2.87) (3.5)

flit*VI

Xt

0.00 0.001 0.0001 0.0003 0

(1.04) (0.99) (1.07) (1.16) (0.3)

flit

1*VIX0.0001 0.0018 0 0.0001 0

(1 00) ( 1 11) ( 0 09) (0 56) (0 08)



36/41

AppendixD:

Figures1a,b,c:heatmapsofcorrelationsofgrossinflows,grossoutflowsandne

Figure2: plotscapitalinflowsdisaggregatedbyassettypes(FDI,portfolioequit

andcredit)asaproportionoftheworldGDPfortheperiod1990Q12012Q4an

(invertedscale)onthesamegraph.

Figure5:CompletesetofImpulseresponsefunctionsoftheVAR.

CCCCCCC



37/41

FDILatAm

0.41

0.10

0.08

0.29

0.3

20

.07

0.04

0.68

1.00

FDICE.EU

0.46

0.11

0.08

0.18

0.2

30

.12

0.09

0.61

0.65

1.00

FDI

W.EU

0.57

0.21

0.19

0.38

0.3

5

0.01

0.16

0.61

0.59

0.75

1.00

FDIEm.As

0.47

0.24

0.16

0.34

0.3

60

.04

0.04

0.65

0.77

0.69

0.64

1.00

FDI

Asia

0.36

0.16

0.03

0.29

0.3

00

.17

0.05

0.60

0.70

0.57

0.51

0.69

1.00

FDI

Africa

0.33

0.01

0.10

0.18

0.0

30

.16

0.19

0.31

0.36

0.35

0.35

0.34

0.27

1.0

0

DebtN.Am

0.42

0.17

0.32

0.51

0.2

9

0.21

0.31

0.40

0.39

0.55

0.51

0.48

0.37

0.0

8

1.00

DebtLatAm

0.20

0.40

0.33

0.16

0.1

3

0.00

0.05

0.16

0.35

0.13

0.05

0.31

0.26

0.0

6

0.10

1.00

DebtCE.EU

0.37

0.42

0.50

0.43

0.1

3

0.17

0.19

0.14

0.35

0.14

0.12

0.47

0.21

0.0

4

0.37

0.52

1.00

DebtW.EU

0.49

0.05

0.33

0.50

0.2

3

0.27

0.47

0.29

0.10

0.44

0.27

0.25

0.02

0.1

0

0.58

0.13

0.28

1.00

DebtEm.As

0.40

0.58

0.65

0.35

0.2

0

0.23

0.20

0.13

0.24

0.25

0.37

0.35

0.15

0.0

2

0.32

0.38

0.53

0.14

1.00

Debt

Asia

0.16

0.18

0.24

0.22

0.1

60

.04

0.16

0.35

0.31

0.30

0.30

0.45

0.26

0.1

4

0.45

0.27

0.42

0.19

0.39

1.00

DebtAfrica

0.26

0.27

0.39

0.18

0.0

7

0.14

0.09

0.12

0.21

0.10

0.01

0.41

0.21

0.0

7

0.21

0.46

0.61

0.15

0.44

0.32

1.

CreditN.Am.

0.29

0.02

0.21

0.38

0.1

50

.01

0.32

0.20

0.02

0.19

0.20

0.12

0.09

0.0

4

0.37

0.14

0.23

0.25

0.23

0.25

0.

CreditLatAm

0.41

0.34

0.21

0.26

0.1

2

0.04

0.22

0.38

0.35

0.42

0.27

0.48

0.35

0.2

4

0.35

0.25

0.41

0.30

0.29

0.46

0.

CreditCE.EU

0.42

0.25

0.27

0.28

0.3

2

0.15

0.21

0.54

0.38

0.72

0.55

0.47

0.36

0.2

8

0.54

0.14

0.13

0.56

0.25

0.48

0.

CreditW.EU

0.19

0.03

0.24

0.31

0.1

90

.16

0.26

0.27

0.08

0.20

0.30

0.19

0.13

0.1

5

0.45

0.20

0.25

0.33

0.26

0.45

0.

CreditEm.As

0.25

0.54

0.39

0.21

0.1

0

0.16

0.05

0.22

0.16

0.30

0.29

0.38

0.24

0.0

0

0.40

0.31

0.33

0.15

0.56

0.51

0.

CreditAsia

0.08

0.03

0.02

0.01

0.0

00

.40

0.12

0.23

0.23

0.32

0.24

0.31

0.23

0.2

5

0.32

0.18

0.17

0.01

0.13

0.37

0.

CreditAfrica

0.11

0.06

0.01

0.15

0.0

10

.20

0.12

0.40

0.30

0.35

0.33

0.24

0.37

0.1

8

0.32

0.11

0.00

0.13

0.03

0.34

0.

DDDDDDDCCCCCCC



38/41

FDILatAm

0

.04

0.07

0.12

0.07

0.27

0.30

0.16

0.55

1.00

FDICE.EU

0

.03

0.21

0.18

0.04

0.42

0.44

0.11

0.65

0.63

1.00

FDI

W.EU

0

.26

0.26

0.40

0.23

0.53

0.66

0.26

0.66

0.62

0.77

1.00

FDIEm.As

0

.09

0.09

0.18

0.02

0.44

0.35

0.18

0.66

0.54

0.68

0.64

1.00

FDI

Asia

0

.12

0.09

0.02

0.18

0.45

0.37

0.30

0.49

0.60

0.57

0.58

0.68

1.00

FDI

Africa

0

.06

0.29

0.16

0.20

0.04

0.06

0.48

0.17

0.02

0.15

0.04

0.10

0.16

1.00

DebtN.Am

0

.37

0.50

0.51

0.52

0.21

0.25

0.20

0.21

0.18

0.06

0.04

0.02

0.14

0.44

1.00

DebtLatAm

0

.17

0.21

0.43

0.41

0.08

0.09

0.12

0.25

0.15

0.04

0.19

0.08

0.12

0.07

0.30

1.00

DebtCE.EU

0

.11

0.20

0.11

0.04

0.32

0.24

0.08

0.22

0.40

0.36

0.38

0.14

0.23

0.11

0.02

0.30

1.00

DebtW.EU

0

.46

0.56

0.61

0.56

0.02

0.23

0.14

0.35

0.01

0.25

0.29

0.05

0.20

0.28

0.59

0.37

0.25

1.00

DebtEm.As

0

.30

0.52

0.46

0.45

0.39

0.20

0.07

0.38

0.12

0.36

0.33

0.37

0.10

0.34

0.30

0.31

0.06

0.36

1.00

Debt

Asia

0

.25

0.27

0.20

0.19

0.06

0.20

0.02

0.35

0.12

0.14

0.23

0.38

0.13

0.22

0.20

0.01

0.03

0.27

0.10

1.00

DebtAfrica

0

.18

0.10

0.12

0.04

0.27

0.33

0.40

0.51

0.27

0.33

0.46

0.59

0.31

0.07

0.04

0.03

0.12

0.03

0.29

0.19

1.

CreditN.Am.

0

.25

0.15

0.27

0.32

0.24

0.14

0.17

0.14

0.05

0.10

0.20

0.03

0.18

0.18

0.35

0.02

0.12

0.40

0.07

0.14

0.

CreditLatAm

0

.17

0.25

0.09

0.20

0.09

0.27

0.05

0.42

0.30

0.22

0.35

0.51

0.49

0.05

0.08

0.14

0.00

0.19

0.04

0.21

0.

CreditCE.EU

0

.01

0.02

0.10

0.11

0.35

0.33

0.25

0.47

0.52

0.61

0.59

0.45

0.49

0.05

0.16

0.15

0.20

0.20

0.13

0.13

0.

CreditW.EU

0

.42

0.16

0.43

0.25

0.19

0.20

0.25

0.39

0.11

0.19

0.33

0.12

0.09

0.34

0.28

0.21

0.17

0.53

0.20

0.25

0.

CreditEm.As

0

.36

0.41

0.55

0.44

0.41

0.38

0.01

0.43

0.16

0.35

0.47

0.35

0.26

0.16

0.43

0.34

0.26

0.45

0.47

0.24

0.

CreditAsia

0

.32

0.07

0.22

0.03

0.07

0.18

0.16

0.24

0.17

0.16

0.18

0.28

0.05

0.25

0.17

0.10

0.19

0.17

0.28

0.08

0.

CreditAfrica

0

.22

0.06

0.21

0.28

0.22

0.16

0.16

0.07

0.10

0.17

0.18

0.14

0.13

0.07

0.18

0.29

0.14

0.12

0.15

0.12

0.

DDDDDDDCCCCCCC



39/41

FDILatAm

0

.26

0.01

0.14

0.29

0.01

0.07

0.13

0.18

1.00

FDICE.EU

0

.26

0.03

0.35

0.12

0.13

0.37

0.10

0.11

0.37

1.00

FDI

W.EU

0

.05

0.21

0.17

0.19

0.19

0.28

0.03

0.09

0.30

0.40

1.00

FDIEm.As

0

.03

0.05

0.23

0.11

0.13

0.09

0.07

0.11

0.32

0.21

0.31

1.00

FDI

Asia

0

.23

0.27

0.08

0.24

0.22

0.08

0.27

0.08

0.36

0.23

0.16

0.03

1.00

FDI

Africa

0

.07

0.00

0.16

0.17

0.16

0.13

0.52

0.04

0.31

0.19

0.12

0.14

0.24

1.0

0

DebtN.Am

0

.04

0.04

0.14

0.11

0.18

0.02

0.02

0.16

0.40

0.53

0.33

0.31

0.35

0.0

81.00

DebtLatAm

0

.06

0.14

0.04

0.11

0.04

0.02

0.23

0.12

0.14

0.09

0.14

0.09

0.23

0.0

60.01

1.00

DebtCE.EU

0

.06

0.04

0.12

0.02

0.47

0.07

0.07

0.28

0.14

0.12

0.01

0.32

0.15

0.1

20.04

0.30

1.00

DebtW.EU

0

.11

0.03

0.04

0.05

0.55

0.13

0.08

0.02

0.04

0.16

0.44

0.05

0.17

0.0

30.00

0.04

0.28

1.00

DebtEm.As

0

.23

0.01

0.04

0.34

0.44

0.04

0.09

0.27

0.21

0.10

0.02

0.20

0.07

0.0

60.06

0.20

0.48

0.27

1.00

Debt

Asia

0

.15

0.33

0.14

0.16

0.01

0.02

0.15

0.03

0.01

0.21

0.06

0.20

0.04

0.0

50.13

0.10

0.07

0.00

0.02

1.00

DebtAfrica

0

.15

0.02

0.12

0.09

0.22

0.15

0.01

0.37

0.10

0.22

0.08

0.19

0.06

0.1

30.06

0.40

0.39

0.03

0.33

0.12

1.

CreditN.Am.0

.14

0.03

0.18

0.15

0.02

0.15

0.07

0.22

0.13

0.02

0.11

0.10

0.00

0.0

10.32

0.08

0.35

0.00

0.06

0.05

0.

CreditLatAm

0

.20

0.01

0.12

0.02

0.18

0.04

0.16

0.16

0.07

0.15

0.06

0.06

0.03

0.0

20.01

0.30

0.22

0.06

0.05

0.20

0.

CreditCE.EU

0

.11

0.16

0.09

0.15

0.03

0.15

0.40

0.06

0.06

0.22

0.28

0.13

0.04

0.0

60.29

0.06

0.19

0.24

0.01

0.50

0.

CreditW.EU

0

.01

0.10

0.09

0.25

0.05

0.19

0.08

0.21

0.11

0.02

0.15

0.07

0.07

0.1

40.04

0.03

0.01

0.51

0.08

0.18

0.

CreditEm.As

0

.02

0.28

0.22

0.18

0.14

0.03

0.17

0.11

0.20

0.17

0.25

0.23

0.00

0.0

90.11

0.25

0.13

0.01

0.06

0.04

0.

CreditAsia

0

.13

0.26

0.02

0.06

0.02

0.36

0.19

0.09

0.20

0.00

0.01

0.24

0.18

0.1

50.00

0.03

0.09

0.03

0.04

0.73

0.

CreditAfrica

0

.14

0.04

0.07

0.16

0.26

0.39

0.25

0.08

0.18

0.44

0.34

0.04

0.32

0.1

30.25

0.17

0.09

0.08

0.05

0.03

0.



40/41

200

0Q10Q31Q11Q32Q12Q33Q13Q34Q14Q35Q15Q36Q16Q37Q17Q38Q18Q39Q19Q30Q10Q31Q11Q32Q12Q33Q13Q34Q14Q35Q15Q36Q16Q37Q17Q3

20

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

40

"Embargoed until presentation time of 9:00 a.m. Mountain Daylight Time, Saturday, August 24, 2013"


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dilemma not trilemma - 2013 rey

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