Cbbh and sesox high level seminar south east europe in an environment of volatile capital flows
Download
1 / 13

Amir Hadžiomeragić Sarajevo, 6 June 2014 - PowerPoint PPT Presentation


  • 108 Views
  • Uploaded on

CBBH and SESOX high level seminar South East Europe in an Environment of Volatile Capital Flows. Amir Hadžiomeragić Sarajevo, 6 June 2014. Capital flows to emerging markets: „Master or servant?“„Benefactor or menace?“.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Amir Hadžiomeragić Sarajevo, 6 June 2014' - romeo


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Cbbh and sesox high level seminar south east europe in an environment of volatile capital flows

CBBH and SESOXhighlevel seminarSouth East Europe in an Environment of VolatileCapitalFlows

Amir Hadžiomeragić

Sarajevo, 6 June 2014


Capital flows to emerging markets master or servant benefactor or menace
Capital flows to emerging markets: „Master or servant?“„Benefactor or menace?“

  • Unprecedentedvolume of capitalflows to emergingcountries in the last 20 years

  • Veryintensivediscussion on impact of capitalflows and capitalaccountliberalization

  • Twostrands of opinions on benefits of removingcapitalbarriers and enabling free capitalmovement

    • how to measuredirect and indirectbenefits and contribution to growth?

  • ...And veryuniformview about threats and possible negative aspects of capitalinflows



Macroeconomic imbalances
Macroeconomic imbalances: three major categories

  • Excessive expansion of aggregate demand („overheating“) resulting with boom-bust growth

  • Exchange rate misalignment – real appreciation and loss of international competetivness

  • Widening current account

  • Increase in asset prices („bubbles“)

  • Inflationary pressure

  • Loss of monetary control


Financial stability problems from cross border banking flows
Financial stability problems three major categoriesfrom cross-border banking flows

  • Very rapid credit expansion

  • Underestimation of the build-up in credit risk

    • Deterioration of loan portfolio quality

  • Sharp slowdown or reversal in bank-intermediated capital flows

  • Risk of financial contagion from other economies and regions


Macroeconomic performance and capital flows
Macroeconomic performance and capital flows three major categories

  • Sustainability of growth – prior to crises it was not questioned, but...

  • Real growth very much dependant on net capital flows

  • External disbalances also fueled with capital flows



Managing of capital flows for small open transition economy
Managing of capital flows for small open (transition) economy

  • Very difficult challenge („living in bathtube next to the ocean“)

  • Repeated episodes of large inflows and subsequent crises

  • Increased demand for capital inflows due to disbalance between investment and saving ratios

  • Global conditions are key factor driving capital inflows

    • increased liquidity (lower global interest rates)

    • risk appetite by investor, but also...

  • Country-specific factors also play important role for the EU accession countries,

    • lower risk premia associated with macroeconomic stabilization,

    • EU-related structural reforms


Managing of capital flows for small open transition economy1
Managing of capital flows for small open (transition) economy

  • recipient economy has got very limited capacities to control and influence capital flows

  • Mixed results with capital controls

  • EU accession dictates capital account liberalization

  • a need to have prudent economic policies in order to reap benefits from capital inflows and mitigate related risks


What makes economies more resilient to a surge in capital inflows
What makes economies more resilient to a surge in capital inflows?

  • WEO (2013) concluded that more resiliant economies have:

    • more flexible exchange rate

    • lower government spending (counter-cyclical fiscal policy)

    • inflation targeting (lower inflation)

    • significantly better economic institutions


Counter cyclical fiscal policy fiscal restraint is not very likely
Counter-cyclical fiscal policy (Fiscal restraint) is not very likely

  •  „When it rains, it pours" (Kaminsky et al.2004)

    • Study on procyclicality and economic policies

  • instead offsetting capital inflows, government often contribute with even higher expenditures in periods of economic growth and capital inflows


Did we very likelyrepeat the same mistakes? Procyclicalfiscalpolicy in Bosnia and Herzegovinaduringcapitalsurge

Note: positive amplitude signals procyclicality


Conclusion
Conclusion very likely

  • How to reap benefits from capital flows and reduce related risk?

  • Financial integration and economic globalization will continue

  • Need to be very cautious about magnitude and structure of capital flows to domestic economy

  • Volatility is highly unpredictable and beyond of our control

  • Sound macroeconomic policies and adequate prudential measures


ad