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Fat Tails and their (Un)happy Endings: Correlation Bias and its Implications for Systemic Risk and Prudential Regulation -IMF Paper
April 15, 2011--Summary: The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders’ preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system.
The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested.
Improving the Odds of Achieving the MDGs-IMF Report
April 15. 2011--Forward
This year we are facing historic development
challenges—from natural disasters,
to food and fuel price spikes, and profound change in the Middle East. Despite high average growth in the developing world, it is crucial to provide opportunities to those that are
being left behind. Wealthier economies are experiencing slower growth—but development assistance needs remain high. In our interconnected
world, sustainable recovery means supporting inclusive growth.
Only four years remain until the 2015 deadline for reaching the Millennium Development
Goals. The Global Monitoring Report 2011: Improving the Odds of Achieving the MDGs— Heterogeneity, Gaps, and Challenges underlines the urgency of helping countries that are behind
on meeting key targets for extreme poverty, hunger, disease, and child and maternal mortality.
The report lays out the challenges that remain;
analyzes efforts to improve human development; and assesses the role of growth, policy reforms, trade, and donor policies in meeting the MDGs.
view report-Improving the Odds of Achieving the MDGs
IOSCO progresses G20 objectives on commodities markets
April 15, 2011--The Technical Committee of the International Organization of Securities Commissions (IOSCO) has published its Task Force on Commodity Futures Markets - Report to the Financial Stability Board (Report). The Report sets out IOSCO’s current work on the supervision of commodity derivative markets, market transparency, and the ongoing monitoring of developments in OTC financial oil markets.
The Report was prepared in response to the G20’s request in Seoul, November 2010, for an update to be provided to the Financial Stability Board on IOSCO’s workstreams in support of the G20’s aim of improving the regulation and supervision of exchange-traded, OTC derivative and physical commodity markets. It also outlines IOSCO’s future plans and possible additional new areas of focus.
view the report-Task Force on Commodity Futures Markets
Report to the Financial Stability Board
Emerging markets inflation surges
April 15, 2011--Data released on Friday showed a surge in Chinese and Indian inflation, highlighting the threat to the global economic recovery as emerging markets overheat and commodity prices rise.
Consumer prices in China increased 5.4 per cent year-on-year in March – their biggest jump since July 2008.
Gold retreats from new record high
April 15, 2011--Gold prices steadied off record highs in Europe on Friday and silver edged back below $42 an ounce as a decision by rating agency Moody's to cut Ireland's debt rating to just above junk pressured the euro.
The metal earlier hit a record high and silver a 31-year peak as the dollar index fell to 16-month lows, with inflation concerns, worries over unrest in North Africa, and expectations US interest rates will stay low also supporting gold.
Overheating, Inflation Threatens Region’s Economic Success
April 14, 2011--- It is no secret now that Latin America is one of the world's best performing regional economies with growth averages that almost double the rates in high income countries.
After leaving behind a global economic crisis that bruised many around the world but did not inflict major trauma on the region's economies, Latin America is on a path to achieving 4-5 rate percent annually, similar to the East Asia Tigers. Meanwhile inflation rates are expected to remain below the two-digit mark, between 6 and 7 percent.
But its own success may be creating the conditions for future difficulties, according to a report on the region's economic outlook, presented at the World Bank's headquarters to a global audience via the Bank's social networks.
view the report-Latin America and the Caribbean's Success Put to the Test
Brics eye global monetary reform
April 14, 2011-The five Brics nations discussed reform of the international monetary system at a meeting in southern China on Thursday, but steered clear of the contentious topic of the Chinese exchange rate, a senior Chinese official said.
Wu Hailong, an assistant Chinese foreign minister, said the leaders of Brazil, Russia, India, China and South Africa had also discussed the composition of the Special Drawing Right, the International Monetary Fund’s unit of account.
Base-Metal ETFs May Attract Less Interest Than Gold, BlackRock’s Fuhr Says
April 13, 2011--Exchange-traded funds for base metals are unlikely to attract as much demand as those for gold and silver, according to Deborah Fuhr, head of ETF research at BlackRock Inc. (BLK), which is planning a product backed by copper.
“I don’t expect them to be as popular as gold and silver, that’s my personal view,” said Fuhr, who’s led the ETF research team at the world’s largest asset manager since September 2008. Caroline Hancock, a BlackRock spokeswoman, declined comment, citing regulatory constraints as the New York-based company applies for the copper-backed exchange-traded fund, or ETF.
Commodity-backed funds and products have proved popular with investors seeking to diversify their portfolios as prices for metals, grains and energy gain on increased demand. They enable buyers to invest in commodities without taking physical delivery of them. Gold held in exchange-traded products climbed to 2,050.33 metric tons yesterday, from 12 tons in 2003, when Bloomberg started data tracking such holdings.
Global Financial Stability Report Durable Financial Stability: Getting There from Here
April 13, 2011--The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.
Global financial stability has improved over the past six months, bolstered by better macroeconomic performance
and continued accommodative macroeconomic policies (see the April 2011 World Economic Outlook),
but fragilities remain. The two-speed recovery—modest in advanced economies and robust in emerging
market economies—has posed different policy challenges for countries.
Currency wars fade as inflation hits emerging world
April 13, 2011--One by one, the countries of the emerging world are loosening the shackles with which they tried to prevent their currencies from appreciating.
It is not that they care less about export competitiveness than they did even a few weeks ago. It’s that they now care more, much more, about inflation. And with rising prices of commodities, especially food and oil, stoking inflation, officials are deciding that allowing a currency to appreciate is a good way to relieve the pressure.