Keeping track of global trade in real time (146 KB)
Jaime Martínez-Martín and Elena Rusticelli
We build an innovative composite world trade-cycle index by means of a dynamic factor model for shortterm forecasts of world trade growth of both goods and (usually neglected) services. Trade indicators are selected using a multidimensional approach, including Bayesian model averaging techniques, dynamic correlations, and Granger non-causality tests in a linear vector autoregression framework. The dynamic factor model is extended to account for mixed frequencies, to deal with asynchronous data publication, and to include hard and survey data along with leading indicators. Nonlinearities are addressed with a Markov switching model. Pseudo-real-time empirical simulations suggest that: (i) the global trade index is a useful tool for tracking and forecasting world trade in real time; (ii) the model is able to infer global trade cycles very precisely and better than several competing alternatives; and (iii) global trade finance conditions seem to lead the trade cycle, a conclusion that is in line with the theoretical literature.
Hedger of last resort: Evidence from Brazilian FX interventions, local credit, and global financial cycles (227 KB)
Rodrigo Barbone Gonzalez, Dmitry Khametshin, José-Luis Peydró and Andrea Polo
Local central bank policies can attenuate spillovers from global financial cycles. This result is obtained by looking at the global shocks triggered by the US monetary policy and Brazilian interventions in foreign exchange (FX) derivatives. After the U.S. Federal Reserve Taper Tantrum, Brazilian banks with larger ex-ante reliance on foreign debt reduced credit supply. However, a large FX intervention program supplying derivatives against FX risks – hedger of last resort – halved the negative effects. Similar results hold in a larger panel dataset.
Previous studies have identified negative effects of macroprudential policy on GDP growth. This study uncovers that this is the result of using conditional mean models, and that important benefits of macroprudential policy are observed on the left-tail of the GDP growth distribution. This impact is highly dependent on the position in the financial cycle, the direction of the policy, the type of instrument, and the time elapsed since its implementation. This study provides a useful framework to assess the impact of macroprudential policy in terms of GDP growth and to identify the term-structure of specific types of instruments.
Real-time weakness of the global economy: a first assessment of the coronavirus crisis (605 KB)
Danilo Leiva-Leon, Gabriel Perez-Quiros and Eyno Rots
The Global Weakness Index (GWI) is a real-time measure of how weak the global economy is. We use this index to assess on the spot how the repercussions of the coronavirus (COVID-19) crisis are playing out. After the release of certain soft indicators on 2 March 2020 the GWI increased sharply – much faster than in the 2008 crisis. And at the time of writing it remains at a record high.
International bank lending channel of monetary policy
Silvia Albrizio, Sangyup Choi, Davide Furceri and Chansik Yoon
Since the 90s, the rapid financial integration has stimulated a sharp increase in international bank lending. In this context, should we expect a monetary policy tightening in systemic countries to increase cross-border bank lending or to trigger a sudden reversal of capital flows? Using a panel of nine systemic countries of origin and 46 recipient countries, we find that a tightening of domestic monetary policy decreases international bank lending, due to an increase in funding costs or a rise in risk-aversion.
Measuring the procyclicality of impairment accounting regimes: a comparison between IFRS 9 and US GAAP
Alejandro Buesa, Francisco Javier Población García and Javier Tarancón
We compare the cyclical behaviour of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is less procyclical than the previous regulation (IAS 39), it is more procyclical than US GAAP because it merely requests to provision the expected loss of one year under Stage 1 (initial category). Instead, since US GAAP prescribes that lifetime expected losses are fully provisioned at inception, the amount of new loans originated is negatively correlated with realized losses. This leads to relatively higher (lower) provisions during the upswing (downswing) phase of the financial cycle. Nevertheless, the lower procyclicality of US GAAP seems to come at cost of a large increase in provisions