Download Macroeconomic Policies under Globalisation

THE INTERNATIONAL FINANCIAL
SYSTEM AND CONSEQUENCES FOR
DEVELOPMENT
Heiner Flassbeck
Director
Division on Globalization and
Development Strategies, UNCTAD
1
PER CAPITA GDP GROWTH BY REGION AND ECONOMIC
GROUP, 1981-2007
(Per cent)
10
10
Developing Economies
5
5
0
0
-5
-5
1981-1989
1990-2002
2003-2007
World
Developed Economies
Economies in transition
Developing Economies
1981-1989
1990-2002
Africa
America
West Asia
East and South Asia
2003-2007
2
WIDENING OF THE GLOBAL IMBALANCES
Size and pattern
Size (2006):
US, -6.6%GDP, $870 bl,
China: +10%GDP $240 bl,
Japan: +4%GDP $170 bl.
pattern:
large surplus economies -> recurrent depreciations
Japan, Germany, Switzerland and Malaysia
deficit economies -> recurrent appreciations
Euro area, Hungary, New Zealand UK, Australia, Turkey, India, South Africa.
Is the international adjustment mechanism working?
Is the RER relevant? What are the sources of divergence?
3
DESTABILIZING SPECULATION
•Interest rate differentials and relatively stable currencies induce
short terms speculation as in the pre-90s crisis scenario.
•Floating exchange rates can move in the wrong direction
Market price determination in the international capital markets
"False pricing" in the international product markets
Widening of the imbalances and worldwide financial fragility
CARRY TRADE: a “species” of a broader “genus”
•A source of imbalance for some economies.
•An amplifying factor in the divergent pattern of global imbalances .4
YEN-CARRY TRADE ON THE ICELANDIC KRONA, US
DOLLAR AND BRAZILIAN REAL, 2005-2007
Dollar
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
Per cent
Per cent
Krona
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2005
2006
2007
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2005
2006
2007
Real
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
Note: A positive change in the exchange
Per cent
rate means an appreciation of the
corresponding currency vis-à-vis the yen.
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2005
2006
2007
Uncovered interest return
Nominal exchange-rate change
Interest rate differential
5
YEN-CARRY TRADE ON THE ICELANDIC KRONA, US
DOLLAR AND TURKEY LIRA, 2005-2007
Dollar
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
Per cent
Per cent
Krona
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2005
2006
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2007
2005
Turkey New Lira
Per cent
Per cent
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2006
2007
Hungarian Forint
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
2005
2006
2007
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5
2005
2006
2007
6
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1996-2006
LATIN AMERICA
Latin America
Latin America
10
140
8
10
130
6
120
5
4
110
2
0
100
-2
0
90
-4
80
-5
-6
70
-8
-10
1996M3
60
1997M11
1999M7
2001M3
2002M11
2004M7
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
2006M3
-10
1996M3
1997M11
1999M7
2001M3
2002M11
2004M7
2006M3
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
Interest rate differentials induced by anti-inflation monetary policies
drive nominal appreciations + inflation differentials = real appreciations
undermining international competitiveness in exchange rate sensitive exports.
7
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1996-2006
SUB-SAHARAN AFRICA
Sub-Saharan Africa
Sub-Saharan Africa
10
140
10
130
5
120
5
110
0
100
0
90
-5
80
-5
70
-10
1996M3
60
1997M11
1999M7
2001M3
2002M11
2004M7
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
2006M3
-10
1996M3
1997M11
1999M7
2001M3
2002M11
2004M7
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
2006M3
Speculation opportunities are fading and appreciation trend
leveled off, but volatility persist
8
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1996-2006
EASTERN EUROPE
Eastern-European Countries
Eastern European Countries
10
200
10
180
8
160
6
140
4
120
2
100
0
80
-2
60
-4
40
-6
20
-8
5
0
-5
-10
1996M3
0
1997M11
1999M7
2001M3
2002M11
2004M7
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
2006M3
-10
1996M3
1997M11
1999M7
2001M3
2002M11
2004M7
2006M3
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
Speculation opportunities, appreciation trend and volatility persist
despite the reduction in interest rates.
9
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1996-2006
ASIA
Asia
Asia
10
140
8
10
130
6
120
5
4
110
2
0
100
-2
0
90
-4
80
-5
-6
70
-8
-10
1996M3
60
1997M11
1999M7
2001M3
2002M11
2004M7
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
2006M3
-10
1996M3
1997M11
1999M7
2001M3
2002M11
2004M7
2006M3
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
Little speculation opportunities, moderate average appreciation
and volatility.
10
REAL COSTS: EXCHANGE-RATE VOLATILITY AND REAL
INTEREST RATE DIFFERENTIALS, 1995-2006 (per cent)
Asia
Latin America
15
10
5
0
-5
0
5
10
15
y = 0.8253x + 0.0766
Uncovered interest rate
Uncovered interest rate
15
10
5
0
-5
Real exchange-rate appreciation
Real exchange-rate appreciation
Sub-Saharan Africa
Eastern-European countries
15
15
10
5
0
0
5
10
15
y = 1.0552x + 1.3406
-5
Real exchange-rate appreciation
Uncovered interest rate
Uncovered interest rate
5
10
15
y = 0.9588x + 2.7056
-5
-5
-5
0
10
5
0
-5
0
5
10
15
y = 0.6289x + 2.6447
Real exchange
rate changes and
uncovered interest
returns in selected
economies, 19952006 (per cent)
-5
Real exchange-rate appreciation
11
DOMESTIC POLICIES, OPEN CAPITAL MARKET AND EXCHANGE
RATE MANAGEMENT:
BEYOND STANDARD TRILEMMAS
National policies to prevent speculation and overvaluation:
•Explore non-monetary anti-inflationary policies and resilience to depreciation
•Temporary measures to prevent speculative flows
while moving towards structurally lower interest rates differentials
Globally coordinated policies to reduce global imbalances:
•Floating and unilateral hard pegs "no panacea"
Intermediate or regional cooperative schemes
•Code of conduct
•Multilateral oversight and negotiations
•Identification of the size of the deviation and
enforcement of the necessary correction by a multilateral body
Multilateral monetary system as necessary as the multilateral trading system
12
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1995-2007
BRAZIL
10
160
8
20
15
140
6
10
4
120
5
2
0
100
-2
0
-5
80
-4
-10
-6
60
-15
-8
-10
40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
-20
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
13
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1995-2007
TURKEY
10
8
180
20
160
15
140
10
120
5
100
0
80
-5
60
-10
40
-15
20
-20
6
4
2
0
-2
-4
-6
-8
-10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
14
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1995-2007
MEXICO
10
8
140
20
130
15
120
10
110
5
100
0
90
-5
80
-10
70
-15
60
-20
6
4
2
0
-2
-4
-6
-8
-10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
15
UNCOVERED INTEREST RETURNS, EXCHANGE-RATE CHANGES,
INFLATION AND INTEREST RATE DIFFERENTIALS, 1995-2007
CHINA
10
8
140
20
130
15
120
10
110
5
100
0
90
-5
80
-10
70
-15
60
-20
6
4
2
0
-2
-4
-6
-8
-10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real exchange-rate change
Inflation rate differential
Real exchange-rate trend (right scale)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Uncovered interest return
Interest rate differential
Nominal exchange-rate change
16
SELECTED ECONOMIES PER REGION
Asia: China, Hong Kong (China), India, Indonesia, Rep. Korea, Malaysia,
Pakistan, Philippines, Singapore, Taiwan (Province of China) and Thailand.
Latin America: Argentina, Bolivia, Brazil, Colombia, Dominica, Mexico, Uruguay
and Venezuela.
Eastern European Countries: Czech Republic, Hungary, Lithuania, Poland,
Russian Federation and Bulgaria.
Sub-Saharan Africa: Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Kenya,
Mali, Mauritius, Niger, Senegal and South Africa.
17
18
CURRENT ACCOUNT BALANCE AS PER CENT OF GDP, 1995–2006
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
1995
1997
1999
2001
2003
G7
Developing economies
Germany
Japan
United States
2005 '06
1995
1997 1999 2001 2003 2005 '06
G7
Developing economies: Asia
Developing economies: America
Developing economies: Africa
Economies in transition
19
UNIT LABOUR COSTS, 1993–2006
(United States dollars, 1993 = 100)
160
220
150
200
140
180
130
160
120
110
140
100
120
90
100
80
80
70
60
60
1993 1995 1997 1999 2001 2003 2005 '06
G7
Other developed economies
Germany
United States
Japan
1993 1995 1997 1999 2001 2003 2005 '06
Eastern European economies
Latin America
Asia
China
Note: Unit labour costs: whole economy excl. Slovakia and Taiwan Province of China (industry), and the United States (non-agriculture).
Eastern European economies refer to Czech Republic, Estonia, Hungary, Lithuania, Poland, Slovakia and Slovenia.
Asia refers to Indonesia, the Philippines, the Republic of Korea, Singapore, Taiwan Province of China, and Thailand.
Latin America refers to Argentina, Brazil, Chile, Colombia, Ecuador, Mexico and Peru.
Developed economies refer to Australia, Austria, Belgium, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, the Netherlands, New
Zealand, Norway, Portugal, Spain, Sweden and Switzerland.
20
REAL EFFECTIVE EXCHANGE RATES, 1995–2006
(1995 = 100)
130
110
120
100
110
90
100
80
90
80
70
70
60
60
50
50
40
40
1995
1997
1999
Japan
Switzerland
2001
2003
2005 '06
Germany
China
1995
1997
1999
Republic of Korea
Thailand
2001
2003
2005 '06
Malaysia
Indonesia
21
REAL SHORT-TERM INTEREST RATE
AND REAL GDP GROWTH, 1986–2006
(Per cent)
South and South-East Asia, incl. China
South and South-East Asia
12
12
Real GDP growth
Real GDP growth, trend
10
8
8
6
6
4
4
2
2
0
0
-2
Real short-term
interest rate
-4
Real short-term
interest rate, trend
-8
-8
1994
1998
2002
2006
Real short-term
interest rate,
1998–2006
-4
-6
1990
Real GDP
growth
-2
-6
1986
Real GDP growth, trend
10
1986
1990
1994
1998
2002
2006
Note: South and South-East Asia: Bangladesh, India, Indonesia, Malaysia, the Philippines, the Republic of Korea,
Singapore, Taiwan Province of China, and Thailand. Trend: polynom 5 grades. Real short-term interest rates are 22
GDP weighted.
REAL SHORT-TERM INTEREST RATE
AND REAL GDP GROWTH, 1986–2006
(Per cent)
Latin America
Latin America, excluding Brazil
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
Real short-term interest
rate, trend
GDP growth, trend
-6
Real short-term interest
rate, trend
GDP growth, trend
-6
-8
-8
1986
1990
1994
1998
2002
2006
1986
1990
1994
1998
2002
Note: Latin America: Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Uruguay and Venezuela.
Trend: polynom 5 grades. Real short-term interest rates are GDP weighted.
2006
23
REAL SHORT-TERM INTEREST RATE
AND REAL GDP GROWTH, 1997–2006
(Per cent)
Eastern European economies
8
6
Real short-term
interest rate, trend
Real GDP growth,
trend
4
Real GDP growth
2
Real short-term
interest rate
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Note: Eastern European Economies: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland,
Slovak Republic and Slovenia. Trend: polynom 5 grades. Real short-term interest rates are GDP weighted.
24
REAL SHORT-TERM INTEREST RATE
AND REAL GDP GROWTH, 1986–2006
(Per cent)
Sub-Saharan Africa
12
10
Real GDP
growth, trend
8
6
Real GDP
growth
4
2
0
-2
Real short-term interest rate
-4
Real short-term
interest rate, trend
-6
-8
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Note: Sub-Saharan Africa: Burkinga Faso, Côte d'Ivoire, Mauritius, Niger, Senegal, South Africa, Togo,
Cameroon, Central African Republica, Chad, Republic of Congo, Gabon, Lesotho, Malawi, Nigeria, Sierra Leona,
25
and Uganda. Trend: polynom 5 grades.Real short-term interest rates are GDP weighted.
REAL SHORT-TERM INTEREST RATE
AND REAL GDP GROWTH, 1970–2006
(Per cent)
United States
European Union 6
12
12
10
10
8
8
6
4
6
Real GDP
growth, trend
4
2
2
0
0
-2
-4
-2
Real short-term
interest rate, trend
-4
-6
-6
-8
1970
-8
1970
1976
1982
Real GDP
growth, trend
1988
1994
2000
2006
Real short-term interest
rate, trend
1976
1982
1988
1994
2000
2006
26