Spreads on sovereign bonds are at an all-time low, at least since the current era of emerging economy bond markets began in the 1990s. This paper examines the current state of the international and domestic bond markets and asks whether the current favorable trends will constitute a durable change or a temporary fad and discusses what the IDB and other international financial institutions can do to help consolidate the positive trends and prevent new sudden stop episodes in Latin America.
Much as Paul David described the invention of the mechanical typewriter – it was invented 51 times before being patented by Christopher Sholes in 1867, licensed to the Remington Company and successfully commercialized – the connections between the gold-exchange standard and the Great Depression have been discovered repeatedly. They were discovered by Ehsan Choudhri and Levis Kochin in a seminal article in 1980. They were discovered by Barry Eichengreen and Jeffrey Sachs in articles published in 1985 and 1986. They were discovered by James Hamilton in an insightful article published in 1988. They were discovered by Peter Temin in his Robbins Lectures published in 1989. They were discovered by the now chairman of the Federal Reserve Board in his 1994 Journal of Money Credit and Banking Lecture. Moreover, these contributors to the contemporary literature had important antecedents, including Robert Triffin in the 1950s, Ragnar Nurkse in the 1940s, and Leo Pasvolsky in the 1930s.
The structure and policy architecture of the world economy, as it emerges from the historic challenges now underway, will be affected by the dramatic rise of Asian economies and deepening connections among them. This important book examines the rapid transformation of the Asian economy, the challenges it faces, emerging regional solutions, and how Asia can play a more constructive role in the global economy.
Notwithstanding concerns that the dollar’s prospects as a reserve currency have been dimmed by the crisis, there has been no actual diminution of the dollar’s international role. The dollar will remain the principal form of international reserves for the foreseeable future.
Read moreComments and Discussion Barry Eichengreen and Jeffrey A. Frankel Barry Eichengreen: The first rule of forecasting is, "Give them a forecast or give them a date, but never give them both."1 Michael Dooley and Peter Garber have given us a forecast, namely, that the dollar will fall and U.S. Treasury yields will rise. Bravely, they have also given us a date. Unfortunately for those of us interested in the future, that date is 1971. Like Dooley and Garber, I agree that what cannot go on forever generally will not. But unlike them I do not believe that recent events in financial markets can help us pin down the timing. The middle of March, just before the Brookings Panel meeting, saw an increase in noise about the possibility that foreign central banks might diversify out of dollars. The governor of the Bank of Korea made some widely reported comments about the need for more-active reserve management. Prime Minister Junichiro Koizumi of Japan told a parliamentary committee that reserve diversification was "necessary."2 Y. V. Reddy, governor of the Reserve Bank of India, said that the diversification of reserves was under active discussion.3 Ukrainian economy minister Sergiy Teriokhin argued publicly that the country should diversify its reserves out of dollars and into euros.4 This upsurge in noise was associated with an eight-month high in Treasury yields, reinforcing the belief that reserve diversification could eventually force the dollar down and Treasury yields up. At the same time, that eight-month high in Treasury yields was not all that high. I would acknowledge that this is a troubling point. I am not alone, of [End Page 188] course: Federal Reserve Chairman Alan Greenspan has commented on this issue extensively, to the point where it is now known as the Greenspan conundrum. Factors invoked to help explain it include the relatively short supply of new long-term Treasury debt coming onto the market as the debt managers at the U.S. Treasury shorten maturities, and the inelastic demands of various institutional investors for government securities. In Dooley and Garber's view, the proper interpretation is that financial market participants are attaching a positive probability to Asian central banks continuing to support the dollar by making massive purchases of Treasury bonds. This is the substance of the first of the authors' three notes. Who am I to second-guess the markets, much less to second-guess our esteemed authors? Well, I'm an economic historian who can recall a substantial number of previous episodes where major imbalances leading to sharp changes in exchange rates were not obviously factored into financial markets until immediately before the event. For example, the January March 1933 run on the dollar, a suggestive precedent, had virtually no discernible impact on interest rate differentials or forward exchange rates until almost immediately before it occurred, despite the fact that the possibility had been actively discussed for the better part of a year.5 The 1992 attacks on the pound sterling, a currency that commentators regularly cited as ready for a fall, were similarly not preceded by the emergence of noticeable interest rate differentials or a forward discount in the foreign exchange market until a couple of weeks before the denouement.6 Particularly interesting, given the context, is that in 1968-71, in the run-up to the collapse of the Bretton Woods system, the forward discount on the dollar was very modest, as was the interest rate differential between the United States and Germany.7 Then, in the summer of 1971, the forward discount jumped upward. Although one can always ascribe such behavior to the arrival of new information, it is not as if people failed to see the collapse of the Bretton Woods system and a substantial devaluation of the dollar coming. To the contrary, there was an immense contemporary literature warning [End Page 189] that the system would dissolve and that the dollar would have to fall substantially. Yet there seemed to be a striking reluctance to take a position on this basis until one minute before the clock struck midnight. This behavior may be hard to reconcile with perfect foresight, but, if it exists...
Read moreIt is a great honor to receive this prize from the International Schumpeter Society. It is especially an honor to receive it in Vienna, the European capital where Schumpeter received the education that was central to his intellectual development. I have had a few occasions over the years to enjoy the hospitality of the Austrian National Bank and the University of Vienna. It is always a pleasure to be back in this exceptional city.
Read moreAI agents increasingly excel at generating, testing, and refining code. However, they fall short on tasks requiring formal guarantees of full coverage that testing alone cannot provide. Distributed systems are a prime example: properties such as consistency between reads and writes must hold under every possible interleaving of events. Mechanized formal verification can guarantee such correctness, but typically demands months to years of expert effort. As evidence, even SOTA coding agents (Codex with GPT-5.4 and Claude Code with Opus 4.6) succeed on only 2/7 distributed key-value-store specifications. In this paper, we present the first effective approach to addressing this gap, Inductive Deductive Synthesis (IDS), which jointly and incrementally synthesizes implementation and proof, and learns from failed attempts to systematically try promising strategies. Built as an agentic LLM system, IDS achieves 7/7 in about 6.8 hours and $106 per spec on average, roughly 200x faster than expert effort and 17% cheaper than SOTA agents. IDS further incorporates performance feedback into the same loop, yielding implementations up to 3x faster than published verified systems.
Read moreA review of AIMS MCGUINNESS. Path of Empire: Panama and the California Gold Rush. Ithaca, NY and London: Cornell University Press, 2008. Pp. xiii, 249. $35.00 (US).
Read moreEste ensayo analiza las explicaciones en pugna del patrón de desequilibrios globales y la magnitud del déficit externo norteamericano. Aquí se sostiene que, lejos de ser incompatibles, las explicaciones propuestas son parte de una historia más grande. La caída de la tasa de ahorro de Estados Unidos ha desempeñado un papel importante en el advenimiento de los desequilibrios de EE. UU. y el mundo. Al mismo tiempo, tendencias favorables de productividad convirtieron a EE. UU. en un buen lugar para invertir, atrayendo el ahorro externo que ayuda a financiar la inversión norteamericana y su cuenta corriente. El exceso de ahorro global es un factor que también cuenta, en tanto respalda los flujos de capital hacia EE. UU. y la inversión en EE. UU. Por último, la visión de la codependencia sino-norteamericana subraya el nivel de satisfacción de los países asiáticos con una situación en la que la demanda de exportaciones es desproporcionadamente importante en relación con la demanda doméstica (debido a una combinación de elevada aversión al riesgo después de la crisis de 1997-98 y su compromiso continuo con el crecimiento liderado por las exportaciones), una posición que se sostiene mediante tipos de cambio subvaluados y se refleja en el acelerado crecimiento de las importaciones de EE. UU. Clasificación JEL: F42 ; F44 ; G01
Read moreIt is a pleasure to be here for Rating Agency Malaysia’s conference on “Free Capital Flows: What’s In Store for Asia. ” When I first received the invitation, this session was framed as a debate between a prominent critic of capital account liberalization, who shall remain nameless, and a prominent proponent, namely me. It is
Read moreThis Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.We use data on the extent to which residents of one country hold the bonds of issuers resident in another as a measure of financial integration or interrelatedness, asking how Asia compares with Europe and Latin America and with the base case in which the purchaser and issuer of the bonds reside in different regions.Not surprisingly, we find that Europe is more financially integrated than other regions.Asia, more interestingly, already seems to have made more progress on this front than Latin America and other parts of the world.The contrast with Latin America is largely explained by stronger creditor and investor rights, better contract enforcement, and greater transparency, all of which are conducive to foreign participation in local markets and to intraregional cross holdings of Asian bonds generally.Further results based on a limited sample suggest that one factor holding back investment in foreign bonds in East Asia may be limited geographical diversification by mutual funds, in turn reflecting a dearth of appropriate assets.Asian Bond Fund 2, by creating a passively managed portfolio of local currency bonds potentially attractive to mutual fund managers and investors, may help to relax this constraint.
Read moreThe accession economies of Eastern Europe and the rapidly industrializing economies of East Asia are face similar problems of managing capital inflows.2 Both regions are attractive destinations for foreign investment by virtue of their relatively low labor costs, which make them competitive export platforms, and their rapidly growing
Read moreAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives. This is an update of the authors ' 6 April 2009 column comparing today's global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion-- today's crisis is at least as bad as the Great Depression. Editor’s note: The 6 April 2009 Vox column by Barry Eichengreen and Kevin O’Rourke shattered all Vox readership records, with 30,000 views in less than 48 hours and over 100,000 within the week. The authors will update the charts as new data emerges; this updated column is the first, presenting monthly data up to April 2009. (The updates and
Read moreThe thesis of this paper is that there is no historical precedent for Europe's monetary union (EMU). While it is possible to point to similar historical experiences, the most obvious of which were in the 19th century, occurred in Europe, and had “union†as part of their names, EMU differs from these earlier monetary unions. The closer one looks the more uncomfortable one becomes with the effort to draw parallels on the basis of historical experience. It is argued that efforts to draw parallels between EMU and monetary unions past are more likely to mislead than to offer useful insights. Where history is useful is not in drawing parallels but in pinpointing differences. It is useful for highlighting what is distinctive about EMU.
Read moreWe present updated estimates of central bank for 100 countries up through 2006 and use them to analyze both the determinant and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely in countries with strong and stable political institutions. They are more likely in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency monetary policy operating procedures are associated with less inflation variability though not also with less inflation persistence.
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