Tag Archives: emerging markets

US Monetary Policy and East Asia

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I visited Korea earlier this summer and gave a talk on effects of U.S. Tapering on Emerging Markets.  (This was also the subject of comments at an Istanbul conference sponsored by the NBER and the Central Bank of Turkey in June.)

An interview on the effects of policy at the Fed and other advanced-country central banks on East Asian EMs now appears in KRX magazine (in Korean), August. Here is the English version:

Special Interview with  Jeffrey A. Frankel <KRX MAGAZINE> August

Q: On 10 June 2014, Federal Reserve Bank of Boston President Eric Rosengren said in a speech that the Fed’s “new” monetary policy tools, including forward guidance and large-scale asset purchases, were “essential” in ensuring the economic recovery in the United States. What do you think about the ‘ongoing’ U.S’s ‘Tapering’ policy? And what is your idea about appropriate “new” monetary policy? read more

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Should Bond Benchmarks Shift from Traditional to GDP-Weighted Indices?

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Some prominent institutional bond investors are shifting their focus away from traditional benchmark indices that weight countries’ debt issues by market capitalization, toward GDP-weighted indices.   PIMCO (Pacific Investment Management Company, LLC, the world’s largest fixed-income investment firm) and the Government Pension Fund of Norway (one of the world’s largest Sovereign Wealth Funds), have both recently made moves in this direction.  

There is a danger that some investors will lose sight of the purpose of a benchmark index.   The benchmark exists to represent the views of the median investor dollar.  For many investors, going with the benchmark is a good guideline – especially those who recognize themselves to be relatively unsophisticated and also those who think they are sophisticated but really aren’t.   This is the implication of the Efficient Markets Hypothesis (EMH), for example.   read more

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Recap: Obama Recovery, Emerging Markets & 2012 Crash

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A recent video interview from Project Syndicate recaps some of my recent op-eds.  It covers the following territory:

  •           The Obama Recovery.    The U.S. economy was in free fall in late 2008, whether measured by GDP statistics, the monthly jobs numbers, or inter-bank spreads.     Was the end of the recession in mid-2009 attributable to policies adopted by President Obama?   A full evaluation of that question to economists’ standards would require delving into the complexity of mathematical models.  The public generally has a simpler standard:   was the impact big enough to be visible to the naked eye?   Amazingly, the answer is “yes.”   Whichever of those statistics one looks at, and whether it is coincidence or not:  the economic free-fall ended almost precisely the month that Obama took office, January 2009.
  •           Emerging markets have generally had much better economic fundamentals over the last decade than advanced economies.    For example, one third of developing countries have succeeded in breaking the historical syndrome of procyclical (destabilizing) fiscal policy.   For the first time, they took advantage of the boom of 2003-08 to strengthen their budget balances, which allowed a fiscal easing when the global recession hit in 2008-09.
  •           The 15-year cycle in EMs.  Market swings that start out based firmly on fundamentals can eventually go too far.   Some emerging markets like Turkey look vulnerable this year.  A crash would fit the biblical pattern: seven fat years, followed by seven lean years.  Here are the last three cycles of capital flows to developing countries:
    • 1975-81: 7 fat years (“recycling petrodollars”)
    • 1982: crash (the international debt crisis)
    • 1983-1989: 7 lean years (the “Lost Decade” in Latin America)
    • 1990-1996: 7 fat years (Emerging Market boom)
    • 1997: crash (the East Asia crisis)
    • 1997-2003: 7 lean years (currency crises spread globally)
    • 2003-2011: 7 fat years (the triumph of the BRICs)
    • 2012: ?
      • read more

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