beatrice scheubel* what do we know about the global ... · yes economic and political links with...

What do we know about the global financial safety net?

A new database.

ECB-PUBLIC

Beatrice Scheubel*Livio Stracca*European Central Bank

NBER Summer InstituteIFM data session

Boston, 10 July 2017

* The views expressed do not necessarily reflect those of the ECB or the European System of Central Banks

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www.ecb.europa.eu ©

Agenda

What do we know about the global financial safety net? 2

1

2 What is covered in the data set?

Why we do we need data on the Global Financial Safety Net?

3 How can the data be used?

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4 Concluding remarks

Appendix5

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Agenda


1


Why do we need data on the Global Financial Safety Net?


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Appendix5

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Significant volatility in capital flows, particularly to and from EMES.•Net portfolio flows to EMEs (USD bn) •EME Financial Stress Index

Why do we need data on the GFSN?


Notes: Monthly data up to 04/2017.

Sources: IIF

‐40

‐20

0

20

40

60

80

2010 2011 2012 2013 2014 2015 2016 2017

Equity (in billion $)Debt (in billion $)Total (in billion $)

-0.75

-0.50

-0.25

0.00

0.25

0.50

0.75

1.00

2006w1

2007w1

2008w1

2009w1

2010w1

2011w1

2012w1

2013w1

2014w1

2015w1

2016w1

Notes: Latest observations 02/12/2016. The indicatorcombines: (1) portfolio flows, (2) exchange rate against USdollar; (3) domestic bond market spreads. 12-week movingaverage. Country sample: Brazil, China, India, Indonesia,Mexico, South Africa, South Korea, Thailand and Turkey.

Sources: Haver and ECB calculations.

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The GFSN is a set of institutions/mechanisms that provide financial support to countries hit by a crisis.GFSN element Conditionality Availability and key factors determining

accessFX Reserves No Past reserve accumulation, exchange rate

regime

Central bank swap lines

Yes Economic and political links with the reserve currency issuer with which the country has a bilateral swap line.

IMF financing For most instruments

IMF forward commitment capacity, IMF quota, political factors (e.g. alliance with the US)

RFA financing For many RFAs RFA forward commitment capacity; sometimes limited to a multiple of paid-in capital



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Research has focused largely on these elements in isolation1) Reserves accumulation, use, effectiveness: Aizenman and Lee (2008), Obstfeld et. al

(2009), Aizenman and Sun (2012), Dominguez et al. (2012), Fernández-Arias and Levy-Yeyati (2012), Bussière et al. (2013), Cheng (2015), Alberola et al. (2016), Gosh et al. (2016)

2) Swap line use, role as LOLR: Capie and Wood (1989), Goldberg et al. (2010), Truman (2013), Papadia (2013), Bordo et al. (2014)

3) IMF use and effectiveness: Radelet and Sachs (1998), Jeanne and Zettelmeyer (2001), Bird et al. (2004), Dreher and Vaubel (2004), Barro and Lee (2005), Bird (2007), Eichengreen et al. (2008), Jeanne et al. (2008), Dreher (2009), Dreher et al. (2009), Bird and Mandilaras (2011), Chapman et al. (2015), Dreher et al. (2015), Erce and Riera-Chrichton (2015), Papi et al. (2015)

4) RFAs: McKay et al. (2011), Ocampo and Titelman (2009), Sussangkarn (2011), Miyoshi et al. (2013), Eichengreen (2012)

5) Capital flow reversals: Calvo et. al (2004), Calvo et al. (2006), Jeanne (2010), Agosinand Huaita (2012), Forbes and Warnock (2012), Alfaro et al. (2014), Korinek and Mendoza (2014), Cavallo et al (2015)

6) GFSN: Fernández-Arias and Levy-Yeyati (2012), Cheng (2016), Denbee et al. (2016), Scheubel and Stracca (2016)


What do we know about the Global financial safety net? 6

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Agenda


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Appendix5

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Existing GFSN data – harmonisedExisting data Added value

FX reserves WB World Development Indicators (WDI)

IMF International Financial Statistics (IFS)

Harmonized Database

Country levelLarge sample (198 countries)Annual frequency (1960-2014)

Stata & Excel

Publicly accessible at https://www.ecb.europa.eu/pub/rese

arch/occasional-papers/html/index.en.html

Swap lines Central bank websites

RFA lending RFA websites

IMF lending IMF Monitoring of Fund Arrangements (MONA)

IMF International Financial Statistics

WB World Development Indicators

MDB loans () MDB websites

Hedging instruments /

What is covered in the data set?


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Plus: crises data, private capital flow episodes, macro data

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Measures of actual and potential GFSN accessType Variable DefinitionActual GFSN use based onpast GFSN access

GFSN_CARDGFSN_COUNT

Reserve use, drawn amount from Fed swap line, drawn amount from IMF programme, disbursed RFA loan

Potential GFSN access

GFSN_POT_COUNTGFSN_POT_CARD

Total reserves or reserves buffer, total swap line limit, maximum cumulative access to IMF facility (weighted with political alignment with US), maximum of RFA forward commitment capacity and potential financing needs

What is covered in the data set?

What do we know about the Global financial safety net? A new database. 9

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Agenda


1




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Appendix5

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How much GFSN support is (made) available?

Source: GFSN data base. Own calculations. Notes: The chart shows the IMF Forward Commitment Capacity (i.e. available funds) relative to sample (total) GDP and swap line limits from the Federal Reserve normalized to country GDP and then summed up. Unlimited swap lines from the Federal Reserve are not included.

•Total IMF available funding and committed limited swap lines from the Federal Reserve

How can the data be used?


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0.1

.2.3

.4.5

% o

f GD

P

2000 2005 2010 2015Year

Total limit ofFed swap lines

IMF FCC relativeto sample GDP

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How much GFSN support is used?

Source: GFSN data base. Own calculations. Notes: The chart shows drawings from EU BOP facility, EFSF, EFSM and ESM, of which ESM drawings are largest. IMF drawings are summed up over the whole sample. Drawings are normalized to country GDP and then summed up.

•Total IMF drawings and drawings from the European RFAs



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050

100

150

% o

f GD

P

2000 2005 2010 2015Year

Drawings from theEuropean RFAs(% of country GDP)

Total drawings from the IMF(% of country GDP)

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0.5

11.

52

% o

f GD

P

2000 2005 2010 2015Year

Drawn IMF amount Drawn reserve amountDrawn RFA amount

Ecuador

01

23

45

% o

f GD

P

2000 2005 2010 2015Year

Drawn IMF amount Drawn reserve amount

ArgentinaBankingcrisis

Which layer of the GFSN will be used and when?

Source: GFSN data base. Own calculations. Notes: Reserve use defined as negative reserve flow whose absolute value is larger than the country-specific standard deviation; otherwise zero. Crises based on Laeven and Valencia (2012).



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•Argentina •Ecuador

Currencycrisis

Banking crisis start 1998, currency crisis start 1999

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Does GFSN use trigger or attenuate capital outflows?

Source: GFSN data base. Own calculations. Notes: GFSN_CARD adds disbursed IMF loans, disbursed RFA loans, drawn Fed swap lines and use of reserves defined as negative flow of reserves larger than country-specific standard deviation, measured as % of GDP.

•Argentina



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•Thailand

05

10

1960 1980 2000 2020

213

Drawn amount from the GFSN Private capital outflows

year

Graphs by 3-digit IMF country code

-50

510

1980 1990 2000 2010

578

Drawn amount from the GFSN Private capital outflows

year

Graphs by countrycode

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How do GFSN access and crisis outcomes compare between countries?

Source: GFSN data base. Own calculations.

•Greece



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•Latvia

-20

-10

010

20%

of G

DP

11.

52

2.5

% o

f GD

P

2000 2005 2010 2015Year

Drawings from theIMF

Drawings from theEU BOP facility(2nd axis)

Total private capitaloutflows (2nd axis)

Latvia

-10

010

20%

of G

DP

020

4060

% o

f GD

P

2008 2010 2012 2014 2016Year

Drawings from theEFSF/ESM

Drawings from theIMF

Total private capital outflows(2nd axis)

Greece

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Does GFSN use affect the duration of a sudden stop?

Source: GFSN data base. Own calculations. Notes: Change of reserves defined as negative reserves flow larger than country-specific standard deviation, measured as % of GDP. Sudden stop defined as in Forbes and Warnock (2012), applied to measure of private capital flows provided in the data base. Capital account restrictions as measured by Fernández et al. (2015). Below average restrictions defined as overall restrictions index below sample median.

•Below-average cap. account restrictions



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•Above-average cap. account restrictions

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Is potential GFSN access correlated with a country’s risk rating?

Source: PRS Group and GFSN data base. Own calculations. Notes: The chart shows a measure of potential access which adds the stock of reserves, maximum cumulative access under a standard IMF facility and the maximum of a country’s financing needs and an RFA’s forward commitment capacity.

•Correlation between the country composite risk rating and potential GFSN access



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Potential GFSN access Fitted values

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Agenda


1



3 How can the data set be used?

ECB-PUBLIC


Appendix5

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• Global insurance against (financial) crises becomes more important.

• There is no clear single international lender of last resort.• To answer the question which institution would be in the best

position to provide lending for a particular crisis, we need to understand the interaction between the different layers of the GFSN.

• Our data base provides comprehensive data on both GFSN coverage and key macro variables.

• Correlation analysis suggests a relation between sudden stops and use of the GFSN (also confirmed by a local projections exercise)

• Follow-up work: Taming the global financial cycle. What role for global safety nets?

Concluding remarks


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Contact

Beatrice Scheubel:beatrice.scheubel(at)ecb.europa.euLivio Stracca:livio.stracca(at)ecb.europa.eu

Concluding remarks


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Concluding remarks


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