IMF Updates

The IMF recently added the following working papers and surveys:

• Banking Structure and Credit Growth in Central and Eastern European Countries Working Paper No. 08/215. Author/Editor: Aydin, Burcu
  Summary: Recent developments have increased questions about vulnerabilities in Central and Eastern European Countries (CEE) that are experiencing credit booms. This paper analyzes the role of foreign-owned banks in these credit booms. The results show that the CEE countries depend on foreign banks, and these foreign banks depend on interbank funding. Lending by foreign banks seems driven by economic growth and interest rate margins. This lending appears independent of economic but not financial conditions in the foreign bank's home country.


• Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil? Working Paper No. 08/216. Author/Editor: Hakura, Dalia ; Billmeier, Andreas
  Summary: The analysis in this paper suggests that import and export volume elasticities are markedly lower in oil-exporting Middle East and Central Asian countries than in non-oil countries in the region. A key implication of this finding is that a real appreciation of the exchange rate in oil-exporting countries would achieve little in terms of expenditure switching: an appreciation does not boost imports and non-oil exports constitute only a small share of GDP and total trade in these countries. Therefore, while a real appreciation lowers the current account surplus of oil-exporting countries through valuation effects, the contribution to lowering global imbalances may be more limited.


• Public Financial Management and Fiscal Outcomes in sub-Saharan African Heavily-Indebted Poor Countries. Working Paper No. 08/217. Author/Editor: Prakash, Tej ; Cabezon, Ezequiel
  Summary: This paper examines, in a formal econometric framework, the linkages between public financial management and fiscal outcomes in sub-Saharan African countries. Similar analyses have been done for Latin America, Europe, and the United States, but none in the context of low-income countries. Using public financial management indicators, as measured in two recent assessments related to the Heavily-Indebted Poor Countries Initiative, this study shows that improving public financial management leads to better fiscal outcomes, as measured by the overall fiscal balance and external debt levels, after controlling for other characteristics that might alter fiscal outcomes.


• The Impact of Public Capital, Human Capital, and Knowledge on Aggregate Output. Working Paper No. 08/218. Author/Editor: Abdih, Yasser ; Joutz, Frederick L.
  Summary: This paper investigates the impact of public capital on private sector output by testing and estimating an aggregate production function for the U.S. economy over the postwar period augmented to include the stock of public capital as an additional factor input. We use patent applications to proxy for knowledge/technology stocks and adjust labor hours for changes in human capital or skill. Using Johansen's (1988 and 1991) multivariate co-integration analysis, we find a positive and significant long run effect of public capital, private capital, skill adjusted labor, and technology/ knowledge on private sector output. We find that public capital accounts for about half of the post-1973 productivity slowdown, but only plays a minor role in the partial recovery of labor productivity growth since the mid 1980s. The largest contribution to that (partial) recovery comes from the knowledge stock and human capital.


• An Analysis of So-Called Export-led Growth. Working Paper No. 08/220. Author/Editor: Yang, Jie
  Summary: The stylized fact that strong economic growth is usually accompanied with strong export growth leads many people to conclude that the export sector is the main driving force behind those episodes. The model in this paper, however, shows that the non-tradable sector may also generate high economic growth together with high export growth. Evidence shows that out of 71 "so-called" export-led growth episodes, only 37 of them are consistent with the "exports driving growth" hypothesis. Most of the remaining episodes (24 cases) experienced significant real exchange rate depreciation and are more likely to be characterized by "growth driving exports".


• Are Weak Banks Leading Credit Booms? Evidence from Emerging Europe. Working Paper No. 08/219. Author/Editor: Tamirisa, Natalia T. ; Igan, Deniz
  Summary: This paper examines the behavior of bank soundness indicators during episodes of brisk loan growth, using bank-level data for central and eastern Europe and controlling for the feedback effect of credit growth on bank soundness. No evidence is found that rapid loan expansion has weakened banks during the last decade, but over time weaker banks seem to have started to expand at least as fast as, and in some markets faster than, stronger banks. These findings suggest that during credit booms supervisors need to carefully monitor the soundness of rapidly expanding banks and stand ready to take action to limit the expansion of weak banks.


• IMF Policy Paper: Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation
  Summary: This report provides an update on the status of implementation, impact and costs of the Enhanced Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). With a view to the upcoming Financing for Development meetings in Doha, the report not only reports on recent progress since mid-2007, but also on developments since the Monterrey Consensus recommendations on external debt relief.


• Commodities and the Market Price of Risk. Working Paper No. 08/221. Author/Editor: Roache, Shaun K.
  Summary: Commodities are back following a stellar run of price performance, attracting financial investor attention. What are the fundamental reasons to hold commodities? One reason is the exposure offered to underlying risk factors. In this paper, I assess the macro risk exposure offered by commodity futures and test whether these risks are priced, using Merton's (1973) inter temporal capital asset pricing model for a sample of commodity prices covering the period January 1973 - February 2008. I find that commodity futures offer a hedge against lower interest rates and that investors are willing to accept lower expected returns for this position. Although some commodities are also a hedge against U.S. dollar depreciation, this risk is not priced.


• IMF Policy Paper: Implementation of the Basel Core Principles for Effective Banking Supervision - Experience with Assessments and Implications for Future Work
  Summary: This paper reviews the experience to date in assessing countries' compliance with the Basel Core Principles for Effective Banking Supervision (BCP). This review is based on 136 assessments conducted under the FSAP/OFC programs, using the methodology associated with the 1997 version of the BCP. It follows earlier reviews presented to the Board in 2000, 2002, and 2004. The Fund has developed a strong collaborative relationship with the Basel Committee in promoting financial stability, in particular, in its work through the FSAP program in assessing (together with the Word Bank) the quality of countries' supervisory structures. Experience gained from these assessments are also being reported back to the Committee through the Fund's participation in Basel working groups, and staff has also been actively involved in the update of the BCP in 2006, with the objective of maintaining the BCP's relevance as a global standard of good practice.


• IMF Survey: Financial Crisis Weighs on Global Economy
  The crisis in U.S. financial markets is raising uncertainty and dampening growth prospects around the world, but the IMF still expects a gradual economic recovery during 2009, IMF Managing Director Dominique Strauss-Kahn says.


• Macroeconomic Effects of EU Transfers in New Member States. Working Paper No. 08/223. Author/Editor: Allard, Céline ; Choueiri, Nada ; Schadler, Susan ; van Elkan, Rachel
  Summary: Large inflows from the European Union to the New Member States are likely to significantly impact macroeconomic outcomes. In this paper, we use the IMF's Global Integrated Monetary and Fiscal model (GIMF) to analyze the impact of the transfers and show the conditions under which they would help speed up convergence. We find that the EU funds need to be directed predominantly to investment rather than to income support and that to best accompany the EU fund inflows, the policy-mix would need to combine counter-cyclical policy with a strong commitment to the existing monetary regime.