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Nowcasting and Near-Term Forecasting Cambodia’s Economy
Assessing the current state of the economy and forecast the economic outlook in the next few quarters are important inputs for policymakers. This paper presents a suite of models with an integrated approach to forecast Cambodia’s economy in the current and next few quarters. First, we estimate historical quarterly GDP using information extracted from high-frequency indicators to construct quarterly nowcasting model. Second, we forecast current economic activities using a high-frequency data such as credit, export, tourist arrival, foreign reserves, and trading partner’s GDP. Third, we present inflation forecasting models for Cambodia. Fourth, the paper present a vector autoregression model to forecast Cambodia’s GDP in the next few quarters using global forecasts of China’s and US’s economy as well as oil and rice price. This paper showcase how high-frequency data set can be utilized in assessing current economic activities in countries with limited and lagged data.
Measuring External Risks for Peru
This paper quantifies the effects of external risks for Peru, with particular attention to two major external risks, China’s investment slowdown and the U.S. monetary policy tightening. In particular, a macroeconomic model for a small open and partially dollarized economy is developed and estimated for Peru to measure the risk spillovers, and simulate domestic macroeconomic responses in different scenarios with these two external risks. The simulation results suggest that Peru’s output is vulnerable to both risks, particularly the U.S. monetary policy tightening. Simulations also highlight the importance of higher exchange rate flexiblity and a lower degree of dollarization, which could help mitigate the negative spillover effects of these external risks.
What Drives Credit Growth in Emerging Asia?
This paper seeks to uncover the main drivers of credit growth in emerging Asia using a multi-country structural vector autoregressive (SVAR) model. Taking a novel approach, we developed a two-block SVAR whereby shocks within blocks are identified using sign restrictions, whereas shocks across the blocks are identified using a recursive (block-) Cholesky structure. We find that domestic factors are more dominant than external factors in driving rapid credit growth in emerging Asia. This is particularly true for domestic monetary policy, which can play a pivotal role in terms of managing rapid credit growth in emerging Asia.
Scarcity Effects of Quantitative Easing on Market Liquidity: Evidence from the Japanese Government Bond Market
Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank’s holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)’s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ’s holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock.
Integrating Solvency and Liquidity Stress Tests: The Use of Markov Regime-Switching Models
The paper presents a framework to integrate liquidity and solvency stress tests. An empirical study based on European bond trading data finds that asset sales haircuts depend on the total amount of assets sold and general liquidity conditions in the market. To account for variations in market liquidity, the study uses Markov regime-switching models and links haircuts with market volatility and the amount of securities sold by banks. The framework is accompanied by a Matlab program and an Excel-based tool, which allow the calculations to be replicated for any type of traded security and to be used for liquidity and solvency stress testing.
Demographics and the Natural Rate of Interest in Japan
Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.
Credit Expansion in Emerging Markets
This paper explores the contribution of credit growth and the composition of credit portfolio (corporate, consumer, and housing credit) to economic growth in emerging market economies (EMs). Using cross-country panel regressions, we find significant impact of credit growth on real GDP growth, with the magnitude and transmission channel of the impact of credit on real activity depending on the specific type of credit. In particular, the results show that corporate credit shocks influence GDP growth mainly through investment, while consumer credit shocks are associated with private consumption. In addition, taking Brazil as a case study, we use a time series model to examine the role that the expansion and composition of credit played in driving real GDP growth in the past. The results of the case study are consistent with those found in the cross-country panel regressions.
Assessing Macro-Financial Risks of Household Debt in China
High household indebtedness could constrain future consumption growth and increase financial stability risks. This paper uses household survey data to analyze both macroeconomic and finanical stability risks from the rapidly rising household debt in China. We find that rising household indebtedness could boost consumption in the short term, while reducing it in the medium-to-long term. By stress testing households’ debt repayment capacity, we find that low-income households are most vulnerable to adverse income shocks which could lead to signficant defaults. Containing these risks would call for a strengthening of systemic risk assessment and macroprudential policies of the household sector. Other policies include improving the credit registry system and establishing a well-functioning personal insolvency framework.
Dao Companion to the Philosophy of Han Fei
Han Fei, who died in 233 BC, was one of the primary philosophers of China’s classical era, a reputation still intact despite recent neglect. This edited volume on the thinker, his views on politics and philosophy, and the tensions of his relations with Confucianism (which he derided) is the first of its kind in English. Featuring contributions from specialists in various disciplines including religious studies and literature, this new addition to the Dao Companions to Chinese Philosophy series includes the latest research. It breaks new ground with studies of Han Fei’s intellectual antecedents, and his relationship as a historical figure with Han Feizi, the text attributed to him, as well as surveying the full panoply of his thought. It also includes a chapter length survey of relevant scholarship, both in Chinese and Japanese.
Fiscal Risk Sharing in China: Is It Significant and How to Further Improve It?
The COVID-19 pandemic has weakened the fiscal positions of local governments in China, while the recent stress in the Chinese property market has further compounded this issue, calling for stronger fiscal risk sharing among provinces. This paper examines the existing central to local governmental transfer system and its effect on interprovincial risk sharing and redistribution in China. We show that the fiscal transfers have played an important role in risk sharing although their main purpose is still redistribution. We also propose an alternative transfer mechanism with the size of transfers to each province linked to the shocks that the province is facing to enhance the fiscal risk-sharing effect. Using counterfactual simulations, we show that such an alternative mechanism can significantly enhance risk sharing among all provinces against idiosyncratic shocks while maintaining a comparable level of redistribution effect. Intergovernmental reforms and other structural measures could also be considered to further improve policy efficiency and effectiveness.
