With aftershocks of the recent global financial earthquake still being felt in some parts of the world, it would be useful to have a set of Early Warning Indicators to tell us what countries are most vulnerable. Nobody should be surprised that it is hard to forecast crises with high reliability; low-risk opportunities for profits are never easy to find. Thus it is especially hard to predict the timing of a crisis. Some economists, however, are skeptical that Early Warning Indicators (EWIs) have any useful predictive ability at all. A common assessment is that EWIs have failed, in the sense that in each historical round of emerging market crises (1982, 1994-2001, 2008) those particular variables that appeared statistically significant in that round did not perform well in the subsequent round. This is not the right conclusion.
Category Archives: International Monetary Fund
Let Greece Go to the IMF
The members of the eurozone and the EU have apparently decided that they must heroically rescue Greece, that this is better than having the IMF do it. Senior figures in Brussels feel that the latter alternative is unthinkable. I am a little confused about why. Martin Wolf writes in the Financial Times this week that to bring in the Fund “would demonstrate that this is not a true union at all.” But the EU and EMU and not true fiscal unions. If the citizens of Germany and other more successful countries were willing to bail out the Greeks, then fine; the EMU would be ready to be a fiscal union. But they are not; so it is not. Given that reality, what is wrong with something that “demonstrates” it?
The Dollar Share in Central Banks’ FX Reserves Resumes its Decline
Numbers newly reported from the IMF’s COFER data base show that in the most recent quarter, the spring of 2009, the share of central banks’ foreign exchange reserve holdings that they allocate to dollars resumed its downward trend. The dollar share has been gradually sliding since the beginning of the decade – perhaps because of the birth of a possible rival, the euro, in 1999, or perhaps because of the long-term path of tremendous fiscal and monetary expansion on which the United States embarked in 2001.