Ott 272018
 
  • US dollar credit to non-bank borrowers outside the United States rose to nearly $11.5 trillion at end-June 2018, up by 6% over the previous year, with debt securities continuing to grow much faster than loans: by 8.5% compared with 2.5%.
  • Euro-denominated credit to non-bank borrowers outside the euro area also increased rapidly (7% year on year), reaching €3.1 trillion (equivalent to $3.7 trillion) at end-June 2018.
  • US dollar credit to non-bank borrowers in emerging market and developing economies (EMDEs) rose to $3.7 trillion at end-June 2018. Its annual growth (7%) continued to be driven by debt securities, which expanded by 14% year on year.

US dollar credit expansion led by growth in debt securities

US dollar credit expansion led by growth in debt securities

Graph 1: Annual percentage change in US dollar-denominated credit to non-bank borrowers outside the United States (interactive graph).
Source: BIS global liquidity indicators

US dollar credit to non-bank borrowers outside the United States rose to nearly $11.5 trillion at end-June 2018, up by 6% over the previous year (Graph 1, red line). The growth was largely due to debt securities, which expanded at an annual rate of 8.5% (blue line) to stand at $6 trillion. Loans increased more slowly, at 2.5% (yellow line), to reach $5.5 trillion. Notably, the share of US dollar-denominated credit in the form of debt securities has risen substantially recently, from 48% at end-2015 to 52% at end-June 2018.

The above estimates of US dollar credit do not include borrowing through foreign exchange swaps and forwards, which create debt-like obligations. Such borrowing is similar in size to, and probably exceeds, borrowing through loans and debt securities.

Euro-denominated credit to non-bank borrowers outside the euro area grew at an annual rate of 7%, rising to over €3.1 trillion ($3.7 trillion) at end-June 2018. This was driven by both bank loans (8%) and debt securities (6%).

US dollar credit to EMDEs remained strong

US dollar credit to EMDEs remained strong

Graph 2: Annual percentage change in US dollar-denominated credit to non-banks in EMDEs (interactive graph).
Source: BIS global liquidity indicators

US dollar credit to EMDEs continued to grow rapidly, up by 7% (Graph 2, red line) in the year to end-June 2018, taking the outstanding stock to $3.7 trillion. The expansion continued to be propelled by strong issuance of dollar-denominated debt securities, which grew at an annual pace of 14% (blue line). As of end-June 2018, 44% of outstanding dollar credit to EMDEs was in the form of debt securities, up from 35% at end-2015.

While as of end-June 2018 outstanding euro-denominated credit to EMDEs (€661 billion, or $771 billion) remained much smaller than dollar credit, it grew at a rapid annual pace of 11%. The growth rate of euro credit to EMDEs has exceeded that of dollar credit since late 2014. Euro credit to emerging Asia recorded the most rapid expansion among EMDE regions in the year to end-June 2018. Still, over 50% of the outstanding euro credit to EMDEs as of end-June 2018 was to borrowers in emerging Europe.

BIS global liquidity indicators (PDF)

Ott 272018
 

L’Istituto per la vigilanza sulle assicurazioni (IVASS) ha redatto lo scorso 25 ottobre il tredicesimo Bollettino statistico annuale. Il Bollettino riguarda l’attività assicurativa in Italia nel comparto auto delle imprese vigilate dall’IVASS (imprese nazionali e Rappresentanze per l’Italia di imprese con sede legale in uno stato extra Spazio Economico Europeo), che raccolgono il 94,9% dei premi del comparto. Il comparto auto comprende le coperture obbligatorie della responsabilità civile (“r.c. auto e natanti”) e quelle per l’auto non obbligatorie (“corpi di veicoli terrestri”), relative a rischi come il furto e l’incendio. Riportiamo qui una sintesi dei principali risultati ottenuti.

Nel 2017, i premi contabilizzati complessivamente nel comparto si sono attestati a 16.030 milioni di euro, costituendo il 49,6% della produzione dei rami danni, quota in continuo calo negli ultimi anni (era 50,6% nel 2016 e 58,5% nel 2011).

Nel 2017, i premi contabilizzati dalle 43 imprese del settore sono stati pari a 13.234 milioni di euro, con una diminuzione del –2,2%. I premi sono in flessione per il sesto anno consecutivo (i premi del 2017 sono i tre quarti di quelli del 2012). Conseguentemente la quota dei premi r.c. auto e natanti sul totale dei rami danni è continuata a scendere nel 2017, attestandosi al 41% (49,6% nel 2012).

  •   I sinistri denunciati con seguito nel corso del 2017 (e accaduti nello stesso anno) sono stati 2.184.835, senza variazioni di rilievo rispetto al 2016. Rispetto al 2012, le denunce di sinistro sono complessivamente diminuite (–5,0%).
  •   La frequenza sinistri complessiva1 rispetto ai veicoli assicurati (pari a 39.006.389; +0,6% rispetto al 2016) è del 6,12% nel 2017, in leggera diminuzione rispetto al valore di 6,18% del 2016 e di 6,48% nel 2012.
  •   Il premio medio per polizza emessa nel 2017, al netto di oneri fiscali e parafiscali si attesta a 339 euro (–3,7% rispetto all’anno precedente, considerando l’inflazione), con un rallentamento del ritmo di riduzione dei quattro anni precedenti.
  •  Il pagamento medio per sinistro è stato di 2.516 euro, in aumento (a prezzi costanti 2017) del +2,8% rispetto al 2012.
  •   Per effetto della riduzione della raccolta premi di competenza e della maggiore diminuzione nel 2017 degli oneri complessivi, si è registrato un lieve miglioramento del loss ratio, sceso dal 76,1% del 2016 al 75,9% del 2017.
  •   L’expense ratio, ossia l’incidenza delle spese di gestione sui premi, è risultato in lieve diminuzione rispetto al 2016, dal 21,4% al 21,2%.
  •   Tenuto conto delle componenti economiche derivanti dai rendimenti finanziari2 e dalle cessioni in riassicurazione, si registra un utile di 696 milioni di euro, stabile rispetto al 2016. Il risultato tecnico netto per polizza è pari a 18 euro (come nel 2016), in diminuzione rispetto ai 63 euro del 2013.
  •   Se si escludono le componenti finanziarie, di riassicurazione e altre voci residuali, il margine tecnico atteso per polizza emessa nel 2017 è negativo (–4 euro), mentre nel 2016 era pari a –2 euro e a 65 euro nel 2012.

    1 Inclusiva della stima per i sinistri accaduti ma non denunciati (IBNR).
    2 Quote degli utili da investimenti attribuiti al ramo, derivanti dagli attivi a copertura delle riserve tecniche, pari nel 2017 a 531 milioni di euro.

 RAMO CORPI DI VEICOLI TERRESTRI

  •   I premi contabilizzati nel 2017, raccolti da parte delle 47 imprese del settore, raggiungono

    2.796 milioni di euro (8,7% sul totale dei premi danni e in crescita del +6,1% rispetto al 2016). Si conferma il trend d’aumento mostrato nel 2016 (+7,4%) e nel 2015 (+2,9%), dopo una riduzione della raccolta di quasi il 30% nei sette anni precedenti (2008-2014). La consistente ripresa della raccolta premi è riconducibile alla crescita delle immatricolazioni di nuovi veicoli (+8,3% nel 2017).

  •   I sinistri sono in totale 1.078.854, in netto aumento (+6,9%) rispetto al 2016 (ma in flessione del –2,2% rispetto al 2012).
  •  La frequenza sinistri complessiva rispetto ai veicoli assicurati è del 5,84%, in leggero aumento rispetto al 2016 (5,65%).
  •   Il premio medio per polizza emessa nel 2017, al netto degli oneri fiscali e parafiscali, è pari a 151 euro (senza variazioni di rilievo rispetto al 2016).
  •   Per ogni sinistro sono stati pagati in media 1.418 euro (con un incremento di +1% rispetto al 2012, a prezzi costanti 2017).
  •   Tenuto conto delle componenti economiche derivanti dai rendimenti finanziari e dalle cessioni in riassicurazione, l’utile del ramo si è attestato nel 2017 a 188 milioni di euro, in calo (–20%) rispetto al 2016. L’utile del ramo è stato sempre positivo negli ultimi venti anni.
  •  Il risultato tecnico netto per polizza è pari a 10 euro (13 euro nel 2016), in diminuzione rispetto ai 22 euro del 2012.
  •   Se si escludono le componenti finanziarie, di riassicurazione e altre voci residuali, il margine tecnico atteso per polizza emessa nel 2017 ammonta a 14 euro (18 euro nel 2016).

Bollettino Statistico Anno V – N. 13 – Ottobre 2018 (PDF)

Ott 272018
 

The European Securities and Markets Authority (ESMA) published its first Annual Statistical Report (Report) on the European Union’s (EU) derivatives markets. The Report, based on data submitted under the European Markets and Infrastructure Regulation (EMIR), provides the first comprehensive market-level view of the EU’s derivatives markets, which in 4Q17 amounted to €660tn of gross notional outstanding transactions.

The primary objective of this data analysis is to contribute to ESMA’s risk assessment, to facilitate entity oversight by supervisory authorities, both national and European, and enhance supervisory convergence.

At the end of 2017, trade repositories reported a total of 74mn open transactions amounting to a gross notional outstanding of around EUR 660tn, including both over the counter (86% of the total) and exchange traded derivatives (14%).

In notional terms, interest rate derivatives dominate the market, with 69% of the total amount outstanding, followed by currency derivatives, at 12%, while all other asset classes i.e. equity, credit and commodity derivatives, account for less than 5% of the total amount outstanding.

Central clearing rates for new transactions have been increasing significantly, demonstrating the effectiveness of the EMIR clearing obligation. For all outstanding contracts in 4Q17, central clearing rates were around 27% (25% in 1Q17) for credit derivatives and 58% (40% in 1Q17) for interest rate derivatives, including also contracts concluded before the clearing obligation came into force.

The report includes three sections on:

  • market monitoring providing an analysis of structures and trends in European derivatives markets during each reporting period, building on the indicators developed for risk monitoring;
  • statistical methods dedicated to topical issues in developing and exploring derivatives data;
  • derivatives market statistics offering a full list of indicators and metrics currently monitored by ESMA.

Annual Statistical Report of the EU Derivatives Market – 2018 (PDF)

Ott 272018
 

The Financial Stability Board (FSB) Plenary met in Ottawa on October 23rd to discuss market developments and vulnerabilities in the global financial system. Members considered that, while global growth remained solid, it has become more uneven across economies, and some downside risks have begun to materialise. Increases in policy interest rates and benchmark yields have to date been gradual. However, some developments warrant attention: normalisation of monetary policy in some advanced economies has contributed to a marked tightening of financial conditions in some emerging market economies; some asset classes – including real estate in a number of economies – are showing signs of overvaluation, and geopolitical uncertainties persist.

The Plenary considered risks that could be particularly relevant if a snap-back in interest rates were to occur:

  • Interest rate rises and widening credit spreads would increase debt service costs for many borrowers, and test debt sustainability for some, given high debt levels and significant rollover needs in the next few years for a number of sovereigns and corporates. Concerns over sovereign and corporate debt servicing have already contributed to market participants reassessing risks in some emerging market and developing economies.
  • The core of the financial system is much more resilient than before the global financial crisis, with strengthened bank capital and liquidity. At the same time, non-bank financial intermediation (NBFI) has grown, adding to diversity of funding, but with associated maturity and liquidity transformation risks, and concentrations in holdings of risky assets. New forms of interconnectedness have emerged that could, in some scenarios, act as channels for domestic and cross-border amplification of risks.

Plenary members highlighted that authorities should consider using the current window of opportunity to build resilience, particularly macroprudential buffers where appropriate.

The increasing role of NBFI underscored the importance of work being taken forward by the FSB and other standard-setting bodies (SSBs) to better understand how new market structures could respond to, and transmit, shocks, and of implementing the FSB’s recommendations to address structural vulnerabilities arising from asset management activities.

Deliverables to the G20 Leaders’ Summit

The Plenary discussed and endorsed the following reports that will be published next month and delivered to the G20 Summit:

  • The fourth Annual Report on Implementation and Effects of G20 Financial Regulatory Reforms will describe the progress made in implementing post-crisis reforms, the effects of those reforms, and areas of focus going forward. The Report also summarises the findings of work being done as part of the FSB’s pivot to evaluate, under the FSB framework agreed in 2017, whether G20 reforms are working as intended to deliver efficient and effective resilience.
  • The first such evaluation, of incentives to centrally clear over-the-counter (OTC) derivatives, which was conducted jointly by the FSB and other SSBs. The relevant SSBs are considering particular standards or policies that may need to be adjusted in response to the findings. In this regard, the Basel Committee on Banking Supervision issued on 18 October a public consultation setting out options for adjusting, or not, the leverage ratio treatment of client cleared derivatives.
  • The evaluation on infrastructure finance, which is the first part of a broader evaluation of the effects of reforms on financial intermediation. The report finds that G20 reforms have been of second order relative to other factors. The second part, focusing on the effects on the financing of small and medium-sized enterprises, will be the subject of a public consultation launched ahead of the June 2019 G20 Summit.
  • A progress report on its coordinated action plan to assess and address the risks from the decline in correspondent banking relationships. A coherent four-point action plan was in place and being taken forward by the private sector, national and international authorities. The FSB expects that comprehensive implementation of the action plan will improve access to correspondent banking over time. Given this work has not yet translated into an improvement of the situation on the ground, the FSB will continue to monitor delivery of this plan, including the recommendations in the FSB’s March 2018 report on remittance firms’ access to banking services.
  • The Cyber Lexicon to support the work of the FSB, SSBs, authorities and private sector participants in their work on cyber security.
  • A discussion paper setting out considerations for evaluating the adequacy of financial resources for central counterparty (CCP) resolution and the treatment of CCP equity in resolution, which takes forward the final important piece of policy development to address the resilience, recoverability and resolvability of CCPs. The FSB will finalise guidance on financial resources in CCP resolution by 2020, drawing on resolution planning by authorities and crisis management groups.

Removing legal barriers to trade reporting of OTC derivatives

The FSB considered a report on member jurisdictions’ actions to remove remaining barriers on trade reporting, following up on the recommendations of a peer review in 2015. The report will be published in November 2018.

Trade reporting data provides important information for authorities concerning risks in OTC derivatives markets. Barriers to the full reporting of, and authorities’ access to, this information reduces the usefulness of this data.

Systemic risk in the insurance sector

The FSB discussed progress by the International Association of Insurance Supervisors (IAIS) in developing a holistic framework to assess and mitigate systemic risk in the insurance sector. In November, the IAIS will publish a consultation paper on the holistic framework.

Non-bank financial intermediation

With regard to the work to transform shadow banking into resilient market-based finance, the FSB has decided to replace the term “shadow banking” with the term “non-bank financial intermediation” in future communications. The new terminology emphasises the forward-looking aspects of the FSB’s work to enhance the resilience of non-bank financial intermediation.

This change in terminology is intended to clarify the use of technical terms. It does not affect the substance of the agreed monitoring framework and policy recommendations, which aim to address bank-like financial stability risks arising from non-bank financial intermediation. FSB members will continue to implement these recommendations and share information on their progress and challenges through the FSB’s annual monitoring exercise, as well as in progress reports and peer reviews.

The FSB plans to publish the 2018 global monitoring report on non-bank financial intermediation at the end of this year.

Processes and transparency review

Plenary members concluded their review of the FSB’s processes and transparency and agreed on a set of measures to ensure its continued effective operation and further enhance its focus and ability to promote financial stability. The FSB will report further in November on the conclusions of the review, including recommendations for strengthening external outreach.

Separately, the Plenary approved a framework for collection and handling of non-public firm-level data, for use in cases where data is not more efficiently available through public sources.

FSB work programme for 2019 and beyond

Plenary members discussed the main elements of the FSB work programme for 2019 and future years, including potential deliverables to the G20 next year during the Japanese Presidency. The work programme will focus on (i) finalising and operationalising post-crisis reforms; (ii) monitoring the implementation and evaluating the effects of post-crisis reforms; and (iii) addressing new and emerging vulnerabilities in the financial system.

Specific new initiatives include:

  • An evaluation on the effects to date of reforms to end too-big-to-fail, which will be launched in early 2019 and completed in 2020.
  • An initiative to explore ways to address the risk of market fragmentation.
  • A project on financial stability implications of decentralised financial technologies.
  • A project to develop effective practices relating to a financial institution’s response to, and recovery from, a cyber incident, on which a progress report will be published by mid-2019.

The FSB will publish an overview of its work programme once a final version has been agreed by the Plenary.

Other items

Members received updates about ongoing workstreams including:

  • Work by the International Organization of Securities Commissions to finalise its consultative report on leverage measures for funds, to be published before the G20 Summit. This operationalises one of the FSB recommendations to address possible structural vulnerabilities from asset management activities.
  • Work by the Official Sector Steering Group to coordinate the transition to risk-free rates in a number of currency areas, and thus to transition away from LIBOR.
  • Progress by the International Accounting Standards Board (IASB) in addressing implementation and auditing issues related to IFRS 17, the international standard on insurance contracts issued in 2017. The FSB welcomed the IASB’s and other stakeholders’ ongoing work in this area.
  • The work of the FSB’s Task Force on Climate-related Financial Disclosures, which published a status report in September on companies’ adoption of its recommendations, and will publish a further status report in June 2019.

Plenary members reaffirmed the importance of regulators having access to data required to carry out supervisory and enforcement mandates while maintaining regard for data privacy.

 

FSB reviews financial vulnerabilities and deliverables for G20 Summit (PDF)

Ott 272018
 

L’iniziativa di Finriskalert.it “Il termometro dei mercati finanziari” vuole presentare un indicatore settimanale sul grado di turbolenza/tensione dei mercati finanziari, con particolare attenzione all’Italia.

Significato degli indicatori

  • Rendimento borsa italiana: rendimento settimanale dell’indice della borsa italiana FTSEMIB;
  • Volatilità implicita borsa italiana: volatilità implicita calcolata considerando le opzioni at-the-money sul FTSEMIB a 3 mesi;
  • Future borsa italiana: valore del future sul FTSEMIB;
  • CDS principali banche 10Ysub: CDS medio delle obbligazioni subordinate a 10 anni delle principali banche italiane (Unicredit, Intesa San Paolo, MPS, Banco BPM);
  • Tasso di interesse ITA 2Y: tasso di interesse costruito sulla curva dei BTP con scadenza a due anni;
  • Spread ITA 10Y/2Y : differenza del tasso di interesse dei BTP a 10 anni e a 2 anni;
  • Rendimento borsa europea: rendimento settimanale dell’indice delle borse europee Eurostoxx;
  • Volatilità implicita borsa europea: volatilità implicita calcolata sulle opzioni at-the-money sull’indice Eurostoxx a scadenza 3 mesi;
  • Rendimento borsa ITA/Europa: differenza tra il rendimento settimanale della borsa italiana e quello delle borse europee, calcolato sugli indici FTSEMIB e Eurostoxx;
  • Spread ITA/GER: differenza tra i tassi di interesse italiani e tedeschi a 10 anni;
  • Spread EU/GER: differenza media tra i tassi di interesse dei principali paesi europei (Francia, Belgio, Spagna, Italia, Olanda) e quelli tedeschi a 10 anni;
  • Euro/dollaro: tasso di cambio euro/dollaro;
  • Spread US/GER 10Y: spread tra i tassi di interesse degli Stati Uniti e quelli tedeschi con scadenza 10 anni;
  • Prezzo Oro: quotazione dell’oro (in USD)
  • Spread 10Y/2Y Euro Swap Curve: differenza del tasso della curva EURO ZONE IRS 3M a 10Y e 2Y;
  • Euribor 6M: tasso euribor a 6 mesi.

I colori sono assegnati in un’ottica VaR: se il valore riportato è superiore (inferiore) al quantile al 15%, il colore utilizzato è l’arancione. Se il valore riportato è superiore (inferiore) al quantile al 5% il colore utilizzato è il rosso. La banda (verso l’alto o verso il basso) viene selezionata, a seconda dell’indicatore, nella direzione dell’instabilità del mercato. I quantili vengono ricostruiti prendendo la serie storica di un anno di osservazioni: ad esempio, un valore in una casella rossa significa che appartiene al 5% dei valori meno positivi riscontrati nell’ultimo anno. Per le prime tre voci della sezione “Politica Monetaria”, le bande per definire il colore sono simmetriche (valori in positivo e in negativo). I dati riportati provengono dal database Thomson Reuters. Infine, la tendenza mostra la dinamica in atto e viene rappresentata dalle frecce: ↑,↓, ↔  indicano rispettivamente miglioramento, peggioramento, stabilità.

Disclaimer: Le informazioni contenute in questa pagina sono esclusivamente a scopo informativo e per uso personale. Le informazioni possono essere modificate da finriskalert.it in qualsiasi momento e senza preavviso. Finriskalert.it non può fornire alcuna garanzia in merito all’affidabilità, completezza, esattezza ed attualità dei dati riportati e, pertanto, non assume alcuna responsabilità per qualsiasi danno legato all’uso, proprio o improprio delle informazioni contenute in questa pagina. I contenuti presenti in questa pagina non devono in alcun modo essere intesi come consigli finanziari, economici, giuridici, fiscali o di altra natura e nessuna decisione d’investimento o qualsiasi altra decisione deve essere presa unicamente sulla base di questi dati.
Ott 202018
 

The European Central Bank (ECB) recently issued a working paper which attempts to construct a measure of stress for European sovereign bond markets detaches itself from the use of sovereign bond spreads.

Quantifying stress in sovereign bond markets is a relevant task since such tensions can easily spill over to other important financial market segments, raising the odds of a systemic crisis in the financial system as a whole. The so-called sovereign-bank nexus is a case in point for one possible transmission mechanism via which sovereign market stress may become systemic. In the literature sovereign stress is usually measured in terms of either the yield spread of a particular government bond against a “safe” benchmark bond, or by the spread of a credit default swap written on government debt. Both indicators are usually interpreted as a measure of the (excess) default risk premium embedded in the price of a more risky government bond.

A composite indicator of sovereign market stress which is based on a wider set of stress symptoms that includes, apart from yield spreads, a measure of yield volatility and bid-ask spreads. Country information from both the short and the long end of the yield curve is also included. All these different measures of sovereign stress are aggregated into a composite indicator based on the methodology of the ECB’s Composite Indicator of Systemic Stress, CISS. In order to recognise this affinity, we call our indicator the Composite Indicator of Systemic Sovereign Stress, or just SovCISS.

Accordingly, the SovCISS results as a correlation-weighted average of its components which are homogenised in a particular way before the aggregation step. The basic idea is that the overall level of sovereign stress increases (decreases) with a stronger (weaker) correlation between the different measures of stress symptoms. The SovCISS both for euro area member states individually and for the euro area as a whole. The latter provides a yardstick for quickly gauging the extent to which sovereign stress is a more local or a more widespread phenomenon within the euro area.

Beyond spreads: measuring sovereign market stress in the euro area (PDF)

Ott 202018
 

The Basel Committee on Banking Supervision has issued its Stress testing principles, which replace the Principles for sound stress testing practices and supervision published in May 2009.

The 2009 principles were designed to address key weaknesses in stress testing practices as highlighted by the global financial crisis. Since then, the role of stress testing has rapidly evolved and grown in importance in many jurisdictions. The principles published today have been updated to reflect that stress testing is now both a critical element of risk management for banks and a core tool for banking supervisors and macroprudential authorities. The updated principles are set at a high level so that they can be applied across banks and jurisdictions while remaining relevant as stress testing practices continue to evolve.

The principles are guidelines that focus on the core elements of stress testing frameworks. These include the objectives, governance, policies, processes, methodology, resources and documentation that guide stress testing activities and facilitate the use, implementation and oversight of stress testing frameworks. Each principle is followed by a short description of considerations that are equally relevant for banks and authorities. This description is followed by additional points applicable to either banks or authorities, as follows:

  • Additional points for banks: points with particular relevance to (a) banks’ own internal stress testing activities and (b) their participation in bank-run supervisory stress tests.
  • Additional points for authorities: points with particular relevance to (a) supervisor-run stress tests and (b) the authorities’ role in bank-run supervisory stress tests. They also cover the role of authorities in their oversight of banks’ internal stress testing activities.

BIS – Stress testing principles (PDF)

Ott 202018
 

The European Central Bank (ECB) published a research paper aimed at assessing the effects of forward guidance – the communication of central banks about the likely future course of their monetary policy stance – on the conduct of monetary policy.

This kind of expectations management aims at affecting inflation and aggregate demand by reducing uncertainty about future monetary policy and by steering longer-term interest rates. The workhorse New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model, as widely used by researchers and policy makers, predicts that a communication to keep monetary policy low in future has substantial stimulative effects on current aggregate economic activity and inflation. Empirical experience suggests yet that basic New Keynesian models tend to overstate the effects of forward guidance. One reason for the strong effects in these models is that (announced) changes in the monetary policy rate directly affect those interest rates one-to-one, on which saving and investment decisions of the private sector are based.

The yields on highly liquid government bonds react stronger to forward guidance announcements than yields on assets that are more relevant for the private sector’s intertemporal savings and investment decisions, such as corporate bond rates. The empirical analysis is based on US financial markets data and applies a method that quantifies the surprise component of the forward guidance given in all press release statements of the US Federal Open Market Committee (FOMC) between 1990 and 2016. As the main novel contribution of our empirical analysis, we show that liquidity premia rise after accommodative monetary policy decisions and that not all interest rates react one-to-one to forward guidance.

To assess the macroeconomic implications of this observation, the basic New Keynesian model is augmented by accounting for the fact that central bank money is only supplied to the private sector against eligible assets. This leads to an endogenous time-varying liquidity premium in the model between eligible and non-eligible assets. Our model, which allows to reproduce the empirically documented responses of liquidity spreads to forward guidance, predicts that the reaction of current output and inflation does not increase with the length of the guidance period and that current responses are more than ten times smaller compared to the basic New Keynesian model. Our analysis aligns the effects of forward guidance in widely-used DSGE models with empirical evidence and helps policy makers in obtaining a broader understanding of the effects of forward guidance.

Interest rate spreads and forward guidance (PDF)

Ott 202018
 

The “la Caixa” Chair for Economics and Society conference held in Madrid on October 17 was an occasion for Peter Praet, Member of the Executive Board of the European Central Bank (ECB), to discuss the consequences of population ageing for economic policy making. In particular, the reform of public pension systems and the effectiveness of macroeconomic policies are heavily influenced by population ageing, although demographic developments are to a large extent predictable over the short to medium run.

Population ageing is a challenge for the sustainability of public finances and monetary policy. High levels of public debt combined with significant implicit public pension liabilities risk leaving little room for fiscal policy to tame business cycles. In combination with other secular economic trends, population ageing has been exerting protracted downward pressure on real interest rates. As a consequence, central banks are more likely to hit the effective lower bound on policy rates, constraining the ability of standard monetary policy instruments to carry out macroeconomic stabilization. The euro area, in common with other advanced economies, has entered an era of demographic change: roughly speaking, while today each pensioner is supported by approximately three workers, by 2070 there will be just two workers for each pensioner.

One salient feature of the economic environment in advanced economies has been the steady decline of short and long-term nominal interest rates over several decades to the extremely low levels that currently prevail. While the bulk of this decline is related to central banks successfully re-anchoring inflation expectations, population ageing has contributed to a decline in the labour supply, a slowdown in productivity growth, and higher precautionary savings, thereby exerting downward pressure on potential growth.The generalised impact of ageing is exacerbated at present by the demographic effect of the baby-boomer generation. This large cohort remains in the saving part of its life cycle and is likely to exert downward pressures on real interest rates until the end of the coming decade.

This brings about a number of challenges for three policy area:

  • Fiscal policy

Population ageing will have a deep impact on public finances in the euro area for decades to come. Policy can react to this challenge in several ways. First, reforming social security systems to prevent population ageing from increasing age-related expenditure. Second, fiscal consolidation outside of social security systems to finance the rise in age-related expenditure. Third, doing nothing and letting the increase in age-related expenditure feed fully into higher public debt. The latter – what could be called the procrastination strategy – is very risky for countries that start with high public debt.

There are two reasons calling for policy action sooner rather than later to address age-related costs. First, the bulk of the age-related cost increase is expected to take place during the next two decades, in which the baby boom generation will enter retirement. Incidentally, this is true for many countries that currently have high debt ratios.

Furthermore, the Ageing Report projections are based on somewhat favourable macroeconomic and demographic assumptions. If these assumptions were not to materialise, age-related costs could be substantially higher. To capture some of the uncertainty, the Ageing Report includes several adverse risk and sensitivity scenarios, which indeed suggest higher cost pressures.

The call for early policy action does not mean that action needs to be the same across countries. The appropriate course of action should reflect deep societal preferences. Some countries may favour reforms to entitlements and boosting private-sector provision of pensions beyond what has already been achieved. Other countries may favour linking retirement age to life expectancy, while maintaining the pension benefit ratio of the system. Yet other countries may opt for higher contribution rates, although this may put a strong burden on younger generations. These options are not mutually exclusive and can be implemented in combination. When designing pension reforms it is also important to be mindful of their possible implications for the supply side of the economy, as higher levels of potential growth are essential to improve social welfare.

  • Monetary policy

Demographic factors are expected to continue to exert downward pressure on real rates, hence growth-enhancing structural reforms are essential for a durable rise in equilibrium real rates. Such actions would support monetary policy in its efforts to maintain price stability and strong macroeconomic performance in an environment of low equilibrium interest rates.

Indeed, low equilibrium real interest rates affect the monetary policy stance in two ways: first, any given policy rate is less stimulatory with lower equilibrium rates. Second, the policy rate is likely to hit the lower bound much more frequently than thought possible in the past – a direct consequence of the fact that current estimates of the real equilibrium interest rate are much lower than the 2% estimate customary before the great financial crisis. These effects could have implications for the way the economy and prices evolve through time; recessions may last longer, and recoveries may be slower and shallower, with a higher risk throughout of missing the objective.

Some prominent economists have advocated raising central banks’ inflation targets. A higher steady-state inflation rate would generate higher levels of nominal interest rates and so deliver greater headroom to use conventional interest rate policy in downturns. Indeed, a higher target could reduce the frequency and duration of periods where policy rates are at their effective lower bound. Yet raising the inflation target is not costless. Raising the inflation target forces societies to bear the costs of higher inflation at all times.

An alternative monetary framework is price-level targeting. Under this framework, a central bank tries to keep the level of prices on a steady path, say rising by 2% each year. This strategy implies the central bank aims to make up for past inflation target misses by engineering inflation deviations in the opposite direction.

Bernanke recently proposed a variant of a price-level targeting regime.[7] Under this variant, the central bank would behave in normal times as a flexible inflation targeter, seeking to stabilise inflation – not the price level – over a medium-term horizon. But when interest rates become stuck at their lower bound, the central bank would switch to a commitment to bring back the price level to a certain trend. During those periods, the central bank would promise a lower-for-longer rates policy meant to engineer a period of inflation higher than target in the future in order to compensate for the near-term shortfall in inflation.

When considering the proposals put forward in this debate, lessons should also be drawn from the experience of central banks dealing with the zero-lower bound in recent years. The main lesson is that monetary policy can retain traction even when constrained by the effective lower bound. The non-standard measures introduced by major central banks over the past decade proved to be highly effective in supporting economic activity and a gradual return of inflation to its objective. Such measures have featured quantitative easing through asset purchases, negative interest rates on reserves, forward guidance and a number of credit-easing instruments meant to restore transmission. These measures, especially when combined together, did enhance the scope for central banks to engineer very accommodative financial conditions through their effects on a wide range of maturities and on a wide spectrum of assets that are relevant for the transmission of monetary policy.

  • Structural policies

While unconventional monetary policy can be used to overcome challenges from low equilibrium interest rates, we should be wary about permanently placing a large burden on central banks to deploy tools to counter problems that are ultimately caused by structural economic and financial inefficiencies. The responsibility to address the forces depressing potential growth resides with structural policies, not with monetary policy.

There are three fruitful areas for reform: mitigating the impact of demographics on the labour force and public finances, boosting productivity growth and supporting efficient financial markets.

The demographic trends in Europe are fairly fixed, but structural policies can effectively mitigate their impact on the labour force and public finances. These include reviewing pension eligibility, in particular the retirement age, the income replacement ratio of pensions, and how they are funded.

With the likely fall in working-age population, raising productivity is a fundamental challenge for euro area countries. Higher productivity growth makes the future pension liabilities that currently exist more affordable, provides greater fiscal space and should increase real equilibrium rates, providing more space for monetary policy to use conventional interest rates for macroeconomic stabilisation

Structural policies can help in various ways: strengthening competition amongst firms and improving the business environment can increase incentives to innovate and invest in human and physical capital; institutional reforms increasing the efficient functioning of public administration can support investment.

Future growth will largely depend on our ability to revive productivity diffusion, both within and across countries. A reform agenda entails four main elements. First, support trade and international investment with a view to adapt to and to learn from global firms at the productivity frontier. Second, design policies which can encourage new entrants in the market with a focus on new technologies and business models. Third, foster investment in innovation, including research and development. Finally, support the upskilling and reskilling of the workforce, which can reap the benefits from innovation and accommodate the need for job reallocation. Investment in education and skills is particularly important to ensure that workers have the capacity to make the most of digitisation and to adapt to changing technologies and working conditions. Skills and productivity are the real sources of strong, inclusive and sustainable growth.

The third area where structural reforms can help is supporting efficient financial markets. Completing Banking Union and implementing the proposed plan for a Capital Market Union in Europe would further support a better allocation of funding, achieve a better risk sharing outcome and support long-term growth.

 

Economic policymaking under uncertainty – complete speech (HTML)

Ott 202018
 

L’iniziativa di Finriskalert.it “Il termometro dei mercati finanziari” vuole presentare un indicatore settimanale sul grado di turbolenza/tensione dei mercati finanziari, con particolare attenzione all’Italia.

Significato degli indicatori

  • Rendimento borsa italiana: rendimento settimanale dell’indice della borsa italiana FTSEMIB;
  • Volatilità implicita borsa italiana: volatilità implicita calcolata considerando le opzioni at-the-money sul FTSEMIB a 3 mesi;
  • Future borsa italiana: valore del future sul FTSEMIB;
  • CDS principali banche 10Ysub: CDS medio delle obbligazioni subordinate a 10 anni delle principali banche italiane (Unicredit, Intesa San Paolo, MPS, Banco BPM);
  • Tasso di interesse ITA 2Y: tasso di interesse costruito sulla curva dei BTP con scadenza a due anni;
  • Spread ITA 10Y/2Y : differenza del tasso di interesse dei BTP a 10 anni e a 2 anni;
  • Rendimento borsa europea: rendimento settimanale dell’indice delle borse europee Eurostoxx;
  • Volatilità implicita borsa europea: volatilità implicita calcolata sulle opzioni at-the-money sull’indice Eurostoxx a scadenza 3 mesi;
  • Rendimento borsa ITA/Europa: differenza tra il rendimento settimanale della borsa italiana e quello delle borse europee, calcolato sugli indici FTSEMIB e Eurostoxx;
  • Spread ITA/GER: differenza tra i tassi di interesse italiani e tedeschi a 10 anni;
  • Spread EU/GER: differenza media tra i tassi di interesse dei principali paesi europei (Francia, Belgio, Spagna, Italia, Olanda) e quelli tedeschi a 10 anni;
  • Euro/dollaro: tasso di cambio euro/dollaro;
  • Spread US/GER 10Y: spread tra i tassi di interesse degli Stati Uniti e quelli tedeschi con scadenza 10 anni;
  • Prezzo Oro: quotazione dell’oro (in USD)
  • Spread 10Y/2Y Euro Swap Curve: differenza del tasso della curva EURO ZONE IRS 3M a 10Y e 2Y;
  • Euribor 6M: tasso euribor a 6 mesi.

I colori sono assegnati in un’ottica VaR: se il valore riportato è superiore (inferiore) al quantile al 15%, il colore utilizzato è l’arancione. Se il valore riportato è superiore (inferiore) al quantile al 5% il colore utilizzato è il rosso. La banda (verso l’alto o verso il basso) viene selezionata, a seconda dell’indicatore, nella direzione dell’instabilità del mercato. I quantili vengono ricostruiti prendendo la serie storica di un anno di osservazioni: ad esempio, un valore in una casella rossa significa che appartiene al 5% dei valori meno positivi riscontrati nell’ultimo anno. Per le prime tre voci della sezione “Politica Monetaria”, le bande per definire il colore sono simmetriche (valori in positivo e in negativo). I dati riportati provengono dal database Thomson Reuters. Infine, la tendenza mostra la dinamica in atto e viene rappresentata dalle frecce: ↑,↓, ↔  indicano rispettivamente miglioramento, peggioramento, stabilità.

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