Macro-Financial Policymaking in Emerging Markets
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The current global crisis starkly conveys the relevance of international financial links across countries and their impact on the real economy. This interconnectedness poses a set of challenges for policymakers and researchers alike, as international shocks have increasingly influenced macroeconomic outcomes. With these challenges in mind, Columbia University School of International and Public Affairs (SIPA) and the Inter-American Development Bank (IDB) have developed a course on macro-financial policymaking in emerging markets.The goal of this executive training program is to help world practitioners design and implement macroeconomic and financial policies in a cohesive and comprehensive fashion based on state-of-the-art emerging-market knowledge.
This program is designed for the experienced global policymaker from Emerging Market governments as well as international financial institutions. It covers macro-financial analytical issues and provides quantitative tools such as growth vulnerability to external factors, international liquidity and vulnerability to financial crises, fiscal vulnerability to Sudden Stops and banking stress tests. The course sessions will be led by a group of experts in the field from Columbia University, UMD, IDB, CERES, and the US Federal Reserve Bank bringing together the appropriate focus, theory, and best-practice methods in training.
- International liquidity and vulnerability to financial crisis
- International shocks, monetary and exchange rate responses, and international reserve management
- Monetary policy responses to Sudden Stops in capital flows
- Financial Regulation
- Debt, bonanzas and financial crisis in history
- Banking crisis development and resolution
- China, Brazil and the European crisis
*The global environment, initial macro-financial conditions and output outcomes. *
Before the subprime crisis, the developing world benefited from extremely favorable external conditions (with some exceptions). Many believed that the consequent bonanza was the result of the success of domestic policies. Unfortunately, the recent financial crisis and the associated output slowdown have made it clear that external factors continue to play a key role in output outcomes in emerging markets. But, more importantly, it made it clear that financial sector factors play a key role, making imperative a deep analysis of financial sector vulnerabilities.
*External factors, growth, international liquidity and vulnerability to financial crisis. *
Recent research suggests that a small set of external factors (US T-bond rates, high yield spreads, terms of trade and G-7 growth) account for a large share of Emerging Market (EM) GDP fluctuations. How do shocks to external factors affect EM GDP growth? How does that impact on public sector accounts? Considering debt maturity profiles and precarization of international financial market access conditions, what is the final effect of external factors and fiscal expenditure decisions on international liquidity and the chances of facing a financial crisis?
*The key role of the financial sector and policy responses to sudden stop episodes. *
Based on country experiences, recent research suggest that high foreign-exchange-denominated debt and current account deficits have been major determinants of financial crisis and output performance in emerging economies during systemic sudden stops. What are the channels involved? What indicators are available to gauge the soundness of the financial and public sectors?
Are current monetary regimes adapted to confront swift changes in the global financial environment? Can emerging countries afford expansionary monetary and fiscal policies in times of crisis? Could Chile’s success with counter-cyclical policy and Kazakhstan’s success with a stabilization fund be replicated? What are the constraints? How have recently developed, hard-to-trace financial instruments impacted global financial markets? Which policies can (or cannot) buffer the impact of such instruments? Is more regulation the solution? Is there room for a strategic use of international reserves to buffer the impact of shocks? How could international financial organizations help?
The recent experiences of Latin America with recoveries from systemic financial crises suggest that output collapses have been followed by credit-less recoveries to pre-crisis output levels in a relatively short span (the so-called phoenix miracles). What are the implications of these findings for the design of the policy response?
Inflation, deflation and exchange rate regimes.
What have we learned from recent experiences of commodity price increases and inflation? The current global growth slowdown has raised concerns about price deflation. Is inflation targeting the right regime to manage deflation? Under what conditions?
Debt challenges: The developing world seems to have learned the debt lessons of the 1990s. Low public debt and longer maturities have been significantly achieved in many emerging markets. But debt risks have not disappeared. What are optimal debt management policies under changing conditions in international financing terms? Today, private debt has become a source of fiscal risk for emerging markets since in several instances the government has acted as domestic lender of last resort. What have been the channels of private sector indebtedness? What are the links between public debt and inflation expectations?
Analytical discussions will be complemented by the following applications:
- The impact of external factors on growth
- A liquidity framework for the analysis of financial crisis vulnerability
- Fiscal sustainability under Sudden Stops and under uncertainty
- Banking stress tests