presentación de powerpoint · 2019. 10. 15. · october 9, 2019 emerging economies perspectives...

October, 2019

Alejandro Díaz de León Carrillo, Governor, Banco de México*

*/ The opinions/points of view herein stated are the author’s responsibility and do not necessarily represent the institutional view of Banco de México or its Governing Board.

Federal Reserve Bank of New York

Emerging Economies Perspectives

INFORMACIÓN RESERVAD A

1

Recent Trends in Global Financial Markets and Spillovers to EMs2

Greater Integration of EMs with Global Financial Markets 1

Final Remarks3


Outline


2

0

20

40

60

80

100

120

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

-1

0

1

2

3

4

5

6

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Search for higher returnsIn response to the 2008 financial crisis, central banks in AEs adopted an accommodative monetary policy,leading investors to a search for higher returns.

Reference Rates%

Source: Bloomberg.

Balance of Selected Central Banks % of GDP

Source: Bloomberg.


October

❶

Advanced Economies

European Central Bank

Federal Reserve

Bank of Canada

Bank of Japan

European Central

Bank

Federal Reserve

Bank of Japan

October

Significant portfolio recomposition As a result of the search for higher returns, the participation of non-resident investors in EMs assets increased.

-150,000

-100,000

-50,000

0

50,000

100,000

150,000

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

5%

10%

15%

20%

25%

30%

35%

40%

45%

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

3

Non-residents’ Holdings of Government Bonds in Local Currency

% of total outstanding debt

Source: Banco de Mexico with EPFR data.

Equity and Fixed Income Flows Dedicated to Emerging Economies

Millions of dollars

Note: Average by region of the percentage of ownership of local bonds denominated in local currency by foreigners from the following countries: Mexico, Peru, Colombia, Brazil, Indonesia, Malaysia, Thailand, Poland, Turkey, Israel, Russia, Hungary, South Africa and South Korea(enters since December2009).Source: Finance ministries, central banks and other national authorities.

❷

Fixed income

Equity

July

Mexico

Emerging Europe and South Africa

Latin America

Asia

2008 - 2019 2019

Fixed income 141,427 32,600

Equity 109,741 31,478-

Total 251,168 1,122 September


11 15 18

5743 48

25

5

14

1213

8

2024

59

36

45

1

42

6

6

8

21

4450

135

97

114

20

30

40

50

60

70

80

90

100

0

20

40

60

80

100

120

140

160

180

2004 2007 2010 2013 2016 2019

233 258 600 749 653

1,900

620

1,210

1,272 1,388

1,859

4,144

1,025

1,686 2,054

2,311 2,677

6,501

10

20

30

40

50

60

70

80

90

100

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2004 2007 2010 2013 2016 2019

631 1,005

1,489 2,047

1,652 1,987

209

362

475

679

700

999

954

1,714

1,759

2,240 2,378

3,202

1,934

3,324

3,973

5,357 5,066

6,590

10

20

30

40

50

60

70

80

90

100

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2004 2007 2010 2013 2016 2019

Stronger integration of EMs with Global Financial Markets Additionally to the ample liquidity, financial markets have become deeper as result of technological advancement, bigger derivative markets and greater participation of non-traditional financial institutions.

Foreign Exchange Interest Rate2/

1/ The category “other FX products” covers highly leveraged transactions and / or trades whose notional amount is variable and where a decomposition into individual plain vanilla components was impractical orimpossible. 2/Single currency interest rate contracts only. 3/ The solid line is defined as the share of transactions involving at least one external counterpart as percentage of the total market. 4/ The solid line is defined asthe share of transactions between external counterparties as percentage of the total market. Source: 2019 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets. Bank for InternationalSettlements and Banco de México.


OTC Turnover By InstrumentBillions of US dollars, %

Options and other FX products /1

Spot market

Foreign exchange swaps

Outright forwards

MXN Foreign Exchange Market Turnover by Instrument

Billions of US dollars

Options and other productsSwapsFRAs

4

❸

TotalTotal

Options and other FX products /1

Spot market

Foreign exchange swaps

Outright forwards

External counterparties 4/

TotalExternal

counterpart 3/

External counterpart 3/


5

EMs have been strongly influenced by changes in global risk appetite and US interest ratesThe higher participation of international investors in emerging countries’ assets has increased theircorrelation, in particular, in episodes of high volatility.

Global Risk Aversion Index and EMBIIndex and basis points

1/ The Citigroup Global Risk Aversion Index measures risk aversion across asset classes. It is an equallyweighted index of developed and emerging economy sovereign spreads, US credit spreads, TED spread andimplied FX, equity and swap volatility. The index is shown as standard deviations from the mean.Source: Central Bank of Mexico with Citi and Bloomberg data.

Emerging Economies Volatility and VIX IndexIndex

2/ The EM ETF volatility is the implied volatility of the EM ETF, the iShares MSCI Emerging Economires Index.Source: Central Bank of Mexico with Citi and Bloomberg data.

❹

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

200

250

300

350

400

450

500

550

600

650

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

0

10

20

30

40

50

60

70

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Global Risk Aversion Index 1/

EMBI

EM ETF Volatility Index 2/

Volatility of the S&P 500 Index


OctoberOctober


6

Outline



Final Remarks3



7

Trade tensions have become a significant obstacle to global economic growth, with important effects onmanufacturing production, investment and business confidence.

Global Activity IndicatorsAnnual % change, Index

Note: Annual change is calculated to the 3 month moving average of the world trade volume index and theindustrial production volume index, both base 2010. ISM Manufacturing PMI is based on the report onbusiness new orders SA.Source: CPB Netherlands, Bloomberg.

World GDP Growth 1/

Annual % change

1/ Figures for Q2 include estimations for some countries. The sample of countries used in the calculations accounts for 85.6% of world GDP measured by purchasing power parity.Source: Prepared by Banco de México with data from Haver Analytics, J.P. Morgan and International Monetary Fund (IMF).

20

01

20

04

20

07

20

10

20

13

20

16

20

19

-6

-4

-2

0

2

4

6

8

10

-2

-1

0

1

2

3

4

5

6

20

15

20

16

20

17

20

18

20

19

World

Advanced

Emerging Markets and Developing Economies

World Trade Volume

Industrial Production

Volume

ISM Manufacturing PMI


Q2 2019 September

July

Advanced Economies: Government Bonds Interest Rates

%

Weak economic growth and low inflationary pressures in advanced economies have been reflected in sharpdeclines in interest rates for all terms in these economies.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

2-year

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-16

May

-16

Sep

-16

Jan

-17

May

-17

Sep

-17

Jan

-18

May

-18

Sep

-18

Jan

-19

May

-19

Sep

-19

10-year

Source: Bloomberg. Source: Bloomberg.

8

United States

Euro area

October

Japan

October

United States

Euro area

Japan


Emerging economies have different degrees of exposure to terms of trade shocks and trade tensionsdepending on their export composition and degree of trade openness.

Merchandise Exports By Main Product Group% of total exports

Trade Openness% of GDP

Source: World Trade Organization. Note: Trade openness is gauged as exports plus imports between GDP.Source: Haver Analytics.

0

10

20

30

40

50

60

70

80

90

100

Ch

ile

Co

lom

bia

Arg

enti

na

Per

u

Bra

zil

Sou

th A

fric

a

Can

ada

Po

lan

d

Turk

ey

Ph

ilip

pin

es

Mex

ico

Hu

nga

ry

Ko

rea

Others Manufactures Primary Goods

155.3

85.1

68.7

51.6 49.4 48.743.8

38.8

28.021.1 19.3

0

20

40

60

80

100

120

140

160

180

Hu

nga

ry

Po

lan

d

Mex

ico

Sou

th A

fric

a

Ch

ile

Ph

ilip

pin

es

Turk

ey

Per

u

Co

lom

bia

Arg

enti

na

Bra

zil

9Emerging Economies Perspectives

Accumulated Equity Flows to Emerging Economies Billions of US dollars

Source: EPFR.

Equity Markets in Advanced and Emerging EconomiesIndex Jan 2, 2018=100

Story Count for “TRADE WAR” and Emerging Economies Currency Index

Index, Number of news

1/ The emerging economies currency index includes Peru, Philippines,Poland, Hungary, South Korea, South Africa, Russia, Brazil, Colombia, Chile,Malaysia, Czech Republic, India and Mexico.Source: Central Bank of Mexico with Bloomberg data.

Uncertainty and volatility in global financial markets have had spillover effects on EMs. Periods of acuteuncertainty and trade tensions have induced flight to quality episodes.

95

96

97

98

99

100

101

102

103

104

0

100

200

300

400

500

600

700

800

900

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

Emerging economies currency index 1/

Story count “TRADE WAR”

Ap

pre

ciat

ion

Dep

reci

atio

n

Note: The graph presents the MSCI indices of developed and emerging economies (MSCIWorld Index and MSCI Emerging Economy Index). 2/ The MSCI of emerging economiesincludes Mexico, Brazil, Chile, China, Colombia, Peru, Czech Republic, Egypt, Greece, Hungary,India, Indonesia, South Korea, Malaysia, Philippines, Poland, Qatar, Russia, South Africa,Taiwan, Thailand, Turkey and United Arab Emirates. 3/ The MSCI of developed economiesincludes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong,Ireland, Israel, Italy, Japan, Holland, New Zealand, Norway, Portugal, Singapore, Sweden,Switzerland, United Kingdom United and United States. Source: Bloomberg

80

85

90

95

100

105

110

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Advanced economies 3/

Emerging economies 2/

October

-90

-60

-30

0

30

60

90

J F M A M J J A S O N D

2011

2012

20132014

2015

2016

2017

2018

10

October

October 9, 2019


11

Short and long-term interest rates in EMs have decreased, following the trend in AEs. EMs fixed incomemarkets have attracted capital inflows leading to a reduction in interest rates.

Source: Citivelocity and Bloomberg.

World Government Bond Index (WGBI) and 10 Year US Treasury

Index value in US dollars, %

Source: Bloomberg.

Accumulated Fixed Income Flows to Emerging Economies

Billions of US dollars

Source: EPFR.

-30

0

30

60

90

J F M A M J J A S O N D

2011

2012

20132014

2015

2016

2017

2018

5

6

7

8

9

10

11

12

13

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

October 9, 2019


10-year Sovereign Bond Yields ofSelected Emerging Economies

%, 5-day moving average

890

910

930

950

970

990

1010

1030 1.0

1.5

2.0

2.5

3.0

3.5

May

-17

Au

g-1

7

No

v-1

7

Feb

-18

May

-18

Au

g-1

8

No

v-1

8

Feb

-19

May

-19

Au

g-1

9

World Global Bond Index Value

10Y US TreasuryOctober

Brazil

Indonesia

Russia

Colombia

South Africa

Mexico

October


12

Given the stronger integration of EMs with global financial markets:

Global cyclical conditions and interest rates in advanced economies play a keyrole.

Global and idiosyncratic risk factors could increase monetary policy tradeoffs.Thus, requiring a prudent approach.

The monetary policy role of smoothing the business cycle in a small openemerging economy highly integrated into global financial markets facesadditional challenges.

Small Open Emerging Economies: The conduction of monetary policy in anuncertain environment.


Small Open Economy Model of an Emerging Market (EM)

13

Blocks Benchmark Equations

IS Curve

Phillips Curve

Real Exchange Rate

Monetary Policy Rule

𝑋𝑡𝑡𝐸𝑀 = 𝛽1𝑋𝑡𝑡−1

𝐸𝑀 + 𝛽2𝐸𝑡𝑋𝑡𝑡+1𝐸𝑀 − 𝛽3𝑅𝑡

𝐸𝑀 − 𝛽4𝐸𝑡Δ𝑞𝑡+1 +

𝜋𝐶,𝑡𝐸𝑀 = 𝜌1𝜋𝐶,𝑡−1

𝐸𝑀 + 𝜌2𝐸𝑡𝜋𝐶,𝑡+1𝐸𝑀 + 𝜌3𝑋𝑡

𝐸𝑀 + 𝜌4𝑑𝑒𝑝𝑡 + 𝜌5∆𝑤𝑡

𝑞𝑡 = 𝜆1𝑞𝑡−1 + 𝜆2𝐸𝑡𝑞𝑡+1 + 𝜆3 𝑅𝑡𝑈𝑆 − 𝑅𝑡

𝐸𝑀 +

𝑟𝑡𝐸𝑀 = 𝛼1𝑟𝑡−1

𝐸𝑀 + 𝛼2𝜋𝑡𝐹 + 𝛼3𝑋𝑡

𝐸𝑀 +

𝑋𝑛𝑡𝑡𝐸𝑀 = 𝜃1𝑋𝑛𝑡𝑡−1

𝐸𝑀 + 𝜃2𝐸𝑡𝑋𝑛𝑡𝑡+1𝐸𝑀 − 𝜃3𝑅𝑡

𝐸𝑀 − 𝜃4𝐸𝑡Δ𝑞𝑡+1 +

𝜋𝑡𝐹 = 𝐸𝑡

𝑗=0

∞

𝛿𝑗𝜋𝑡+𝑗𝐸𝑀

Where:

𝑋𝑡𝑡𝐸𝑀 is the tradable output gap.

𝑋𝑛𝑡𝑡𝐸𝑀 is the non-tradable output gap.

𝑅𝑡𝐸𝑀 is the real interest rate.

𝑞𝑡 is the real exchange rate depreciation.

𝑋𝑡𝑡𝑈𝑆 is the U.S. tradable output gap.

𝜋𝐶,𝑡𝐸𝑀 is the core inflation.

𝑑𝑒𝑝𝑡 is the nominal exchange rate depreciation.

.

𝑟𝑡𝐸𝑀 is the monetary policy rate.

𝑋𝑡𝐸𝑀 is the output gap.

𝜋𝑡𝐹 is the forward-looking inflation.

𝜋𝑡𝐸𝑀 is the inflation rate.

𝑤𝑡 are nominal wages.

𝑅𝑡𝑈𝑆 is the U.S. real interest rate.

𝑒𝑚𝑏𝑖𝑡 is the Emerging Market Bond Index.

𝑂𝑖𝑙𝑡 is the oil price.

.

휀𝑥𝑡𝑡 is the total shock to the tradable output gap.

휀𝑥𝑛𝑡𝑡 is the shock to the non-tradable output gap.

𝑒𝑡𝑂𝑖𝑙 is the shock to the oil price.

𝑒𝑡𝐸𝑀𝐵𝐼 is the shock to Emerging Market Bond Index.

휀𝑥𝑡𝑡 = 𝜔1𝑒𝑡𝑂𝑖𝑙 + 𝜔2𝑒𝑡

𝐸𝑀𝐵𝐼 + 𝜔3𝑒𝑡𝑥𝑡

1

2

4

3

Extensions for an Open EM

𝛽5𝑋𝑛𝑡𝑡−1𝐸𝑀 + 𝛽6𝑋𝑡𝑡

𝑈𝑆 + 휀𝑥𝑡𝑡

𝜃5𝑋𝑡𝑡−1𝐸𝑀 + 휀𝑥𝑛𝑡𝑡

+𝑒𝑡C

𝜆4𝑒𝑚𝑏𝑖𝑡−1 − 𝜆5𝐸𝑡𝑂𝑖𝑙𝑡+1 + 휀𝑡

휀𝑟𝑡𝐸𝑀


𝑒𝑡𝑥𝑡 is the shock to the tradable output gap.

𝑒𝑡C is the shock to the core inflation.

휀𝑡 is the shock to the real exchange rate depreciation.

휀𝑟𝑡𝐸𝑀 is the shock to the monetary policy rule.

Tradable IS Curve: 𝑋𝑡𝑡𝐸𝑀 = 𝛽1𝑋𝑡𝑡−1

𝐸𝑀 + 𝛽2𝐸𝑡𝑋𝑡𝑡+1𝐸𝑀 + 𝛽3𝑋𝑛𝑡𝑡−1

𝐸𝑀 − 𝛽4𝑅𝑡𝐸𝑀 − 𝛽5𝐸𝑡Δ𝑞𝑡+1 + 𝛽6𝑋𝑡𝑡


U.S. Nominal Interest Rate 1/

Percentage

U.S. Monetary Policy Shock

Output Gap 1/

Percentage of potential outputInflation 1/

Percentage

EMBI 1/

In basis points

Nominal Interest Rate 1/

Percentage

14

0.00

0.25

0.50

0.75

1.00

1.25

1 2 3 4 5 6 7 8 9 10 11 12

Real Exchange Rate: 𝑞𝑡 = 𝜆1𝑞𝑡−1 + 𝜆2𝐸𝑡𝑞𝑡+1 + 𝜆3 𝑅𝑡𝑈𝑆 − 𝑅𝑡

𝐸𝑀 + 𝜆4𝑒𝑚𝑏𝑖𝑡−1 − 𝜆5𝐸𝑡𝑂𝑖𝑙𝑡+1 + 휀𝑡

0.0

0.5

1.0

1.5

2.0

1 2 3 4 5 6 7 8 9 10 11 12

0.0

5.0

10.0

15.0

20.0

25.0

1 2 3 4 5 6 7 8 9 101112

-1.0

-0.5

0.0

0.5

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.1

0.2

0.3

0.4

0.5

0.6

1 2 3 4 5 6 7 8 9 10 11 12

Nominal Exchange Rate Depreciation 1/

Percentage

0.00

0.25

0.50

0.75

1.00

1.25

1 2 3 4 5 6 7 8 9 101112


1/ Deviations from the steady state. Periods in the x axis represents quarters.

Tradable IS Curve: 𝑋𝑡𝑡𝐸𝑀= 𝛽1𝑋𝑡𝑡−1






Oil Price 1/

USD/barrelNominal Exchange Rate Depreciation 1/

Percentage

Output Gap 1/


Percentage

Terms of Trade (ToT) Shock

EMBI 1/

In basis points


Percentage

15



-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1 2 3 4 5 6 7 8 9 10 11 12

-2-1123456789

10111213

1 2 3 4 5 6 7 8 9 10 11 12

0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12

-60

-50

-40

-30

-20

-10

0

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1 2 3 4 5 6 7 8 9 10 11 12



Country Risk: 𝑒𝑚𝑏𝑖𝑡 = 𝜔1𝑒𝑚𝑏𝑖𝑡−1 + 𝜔2𝐸𝑡𝑒𝑚𝑏𝑖𝑡+1 − 𝜔3 𝑋𝑡𝐸𝑀 − 𝑋𝑡

𝑈𝑆 − 𝜔4 Δ𝑋𝑡𝐸𝑀 − Δ𝑋𝑡

𝑈𝑆 − 𝜔5𝐸𝑡𝑂𝑖𝑙𝑡+1 + 𝑒𝑡𝐸𝑀𝐵𝐼

Idiosyncratic Risk Shock

Output Gap 1/


Percentage

EMBI 1/

In basis points


Percentage

16



Tradable IS Curve: 𝑋𝑡𝑡𝐸𝑀 = 𝛽1𝑋𝑡𝑡−1







Percentage

Transitory Shock

Permanent Shock

0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12

-2

0

2

4

6

8

1 2 3 4 5 6 7 8 9 10 11 12

-1.0

-0.5

0.0

0.5

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.3

0.5

0.8

1.0

1.3

1.5

1 2 3 4 5 6 7 8 9 10 11 12




Percentage

Inflation 1/

PercentageOutput Gap 1/

Percentage of potential output

Oil Price 1/

USD/barrel

Simultaneous Shocks

EMBI 1/

In basis points

17

U.S. Nominal Interest Rate 1/

Percentage


Percentage

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1 2 3 4 5 6 7 8 9 10 11 12-10123456789

10111213

1 2 3 4 5 6 7 8 9 10 11 12

0.00

0.25

0.50

0.75

1.00

1.25

1 2 3 4 5 6 7 8 9 10 11 12

0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12-60

-50

-40

-30

-20

-10

0

1 2 3 4 5 6 7 8 9 10 11 12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1 2 3 4 5 6 7 8 9 10 11 12




18Emerging Economies Perspectives

Outline



Final Remarks3


19

EMs are more integrated to global financial markets. This entails challenges and opportunities.

Open capital accounts can bring much needed resources for growth and development and help develop domesticfinancial markets, and with an international, deep, liquid and efficient FX market.

Recipient economies need strong and resilient macroeconomic fundamentals.

It is essential to bolster the resilience of the financial system to outflows: a stable domestic financial system andsound borrower balance sheets may help reduce both the likelihood and the impact of flow reversals.

A floating exchange rate regime, deeper financial markets with a strong domestic investor improves marketsdynamics in a volatile global risk appetite environment.

With more integrated global financial markets, countercyclical monetary policy in emerging economies facesadditional challenges.

Transparent policy processes and clearly communicated strategies and actions can reduce the risk of market andcapital flow volatility. Managing financial markets expectations has become even more critical.

In the face of a polarized environment in both AEs and EMs, short-term policies have been adopted, puttingpressure on multilateral and domestic institutions.

Much needed structural reforms and adequate long-term policies have been absent in several of our countries,while escalating geopolitical and trade tensions have put additional pressure on central banks’ aggregatedemand management responsibilities, increasing the challenges and trade-offs of monetary policy.

Conclusions, Challenges and Opportunities


❸

❷

❶

❹

❺

❻

❼

❽

presentación de powerpoint · 2019. 10. 15. · october 9, 2019 emerging economies perspectives...

Documents