White Papers
IMF Working Paper-Tokenization and Financial Market Inefficiencies
January 29, 2025--Summary
Most financial assets are digital today. Tomorrow, they may be tokenized. Tokenization implies recording and transferring assets on a widely shared and trusted digital ledger that can be programmed. Interest in tokenization is strong and experiments abound, but what are the consequences of this new trend for financial markets?
This note introduces a taxonomy and a conceptual framework centered on market inefficiencies to evaluate this question. Some inefficiencies could decline across the asset life cycle. Others would remain, however, and new ones could emerge. Issuing, servicing, and redeeming assets might involve fewer intermediaries and thus become cheaper. The costs of trading assets may also decrease as tokenization lowers some counterparty risks and search frictions and offers flexibility in settlement. Additionally, greater competition among brokers could lower transaction fees.
However, tokenization may amplify shocks if it induces institutions to become more interconnected and hold lower liquidity buffers or higher leverage, potentially jeopardizing financial stability. Programs themselves may introduce new risks related to strings of contingent contracts or faulty code. While competition may grow among financial intermediaries, the provision of market infrastructure could become more concentrated due to network effects.
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Source: imf.org
IMF Working paper-Long-Term Debt and Short-Term Rates: Fixed-Rate Mortgages and Monetary Transmission
January 24, 2016--Summary
We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stock by type of rate-fixation and monetary policy shocks cleaned of information effects.
Using instrumental-variablel local projections, we find both path-and state-dependency in monetary transmission. Monetary policy shapes mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank's ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to key macro-variables.
Spillovers from Large Emerging Economies: How Dominant Is China?
January 24, 2016--Summary
This paper investigates the global economic spillovers emanating from G20 emerging markets (G20-EMs), with a particular emphasis on the comparative influence of China. Employing a Bayesian Global Vector Autoregression (GVAR) model, we assess the impacts of both demand-side and supply-side shocks across 63 countries, capturing the nuanced dynamics of global economic interactions. Our findings reveal that China's contribution to global economic spillovers significantly overshadows that of other G20-EMs.
Specifically, China's domestic shocks have significantly larger and more pervasive spillover effects on global GDP, inflation and commodity prices compared to shocks from other G20-EMs. In contrast, spillovers from other G20-EMs are more regionally contained with modest global impacts. The study underscores China's outsized role in shaping global economic dynamics and the limited capacity of other G20-EMs to mitigate any potential negative implications from China's economic slowdown in the near term.
view the IMF Working paper-Spillovers from Large Emerging Economies: How Dominant Is China?
Source: IMF
IMF-Walkways, Not Walls
December 31, 2024 -Macroeconomics, by definition, focuses on the big picture. It neglects smaller micro developments at the business or sectoral level. In 2007, Edward Leamer, an economics professor at the University of California, Los Angeles, pointed out the high costs of this neglect by arguing that it's meaningless to try to understand business cycles without paying attention to the housing sector.
As he argued in a now-famous paper titled "Housing IS the Business Cycle," the housing market is central to understanding why economies go through booms and busts. He pointed out that nearly all recessions in the United States since World War II were preceded by problems in the housing sector. Macroeconomics would, in other words, be better served by building walkways to housing economics rather than simply walling it off.
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Source: imf.org
New IRENA-WTO report highlights key trade policies for renewable hydrogen and derivatives
November 14, 2024--The International Renewable Energy Agency (IRENA) and the WTO Secretariat launched on 14 November at the 29th UN Climate Change Conference (COP29) in Baku a new report which outlines key policy considerations for fostering trade in renewable hydrogen and its derivatives. The report highlights, in particular, their crucial role in helping economies achieve decarbonization goals by 2050.
Building on the WTO-IRENA joint report published last year about scaling up green hydrogen production, the new publication titled "Enabling global trade in renewable hydrogen and derivative commodities" further explores the critical role of sound and coherent trade strategies in promoting renewable hydrogen and derived feedstocks and fuels, such as renewable ammonia, methanol and e-kerosene.
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Source: World Trade Organization (WTO)
IMF Working Paper-How Far Has Globalization Gone? A Tale of Two Regions
December 8, 2023--Summary:
We study the evolution of trade globalization in a set of countries in Latin America (mostly the largest ones) and Asia over the past 25 years. Relying on structural gravity models, we first estimate a proxy of trade globalization that captures the ease of trading internationally with respect to trading domestically. Results indicate that the evolution of trade globalization since the mid-1990s has been similar between the two regions, but very heterogeneous within them.
Trade globalization has been particularly strong in agriculture, mining and manufacturing, but has lagged in services. The paper also documents that trade globalization has been particularly strong in agriculture, mining and manufacturing, but it lagged in services. Within region heterogeneity is associated to a set of trade policy instruments, including tariffs, non-tariff measures, WTO membership. and trade agreements. Next, we quantify the economic implications of the estimated globalization trends. Simulations of a multi-sector trade model point to heterogeneous long-term impacts of globalization on GDP-some countries exhibiting substantial gains and others experiencing large losses-, with no single sector playing a preponderant role.
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Source: imf.org
IMF Working Papers-Feeling Rich, Feeling Poor: Housing Wealth Effects and Consumption in Europe
December 8, 2023-Summary:
Households across Europe are struggling with a double crisis-the worst inflation shock since the World War II and a sudden correction in house prices. There is a rich literature on how housing price cycles affect consumer spending, finding mixed results with a wide range of consumption responses to changes in housing wealth.
In this paper, using quarterly data on 20 countries in Europe over the period 1980-2023, we analyze the dynamic relationship between inflation-adjusted housing wealth and consumer spending and obtain statistically significant and economically intuitive results.
Household consumption responds positively and swiftly to changes in real house prices and gross disposable income as expected. Using the estimated coefficients, we can deduce that the average quarter-on-quarter decline of -1.96 percent in real house prices in the first quarter of 2023 in Europe could dampen consumer spending by about -0.51 percentage points in real terms on a cumulative basis over a horizon of eight quarters.
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Source: imf.org
IMF Working Papers-Geoeconomic Fragmentation: What's at Stake for the EU
December 1, 2023-- Summary:
Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on-and adopted by-the EU and considers how exposed the EU is through trade, financial and technological channels.
Motivated by current policies adopted by other countries, the paper then simulates how various measures-raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies-would affect the EU economy.
Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU's best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.
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Source: imf.org
IMF Working Paper-Digital Tokens: A Legal Perspective
July 28, 2023--Summary:
Tokens are units digitally represented in a distributed ledger or blockchain. The various uses of this technology have the potential to transform a wide array of economic activities, from traditional commercial transactions to sophisticated financial undertakings.
This paper explores the similarities and differences of tokens with traditional legal instruments in commercial law and how tokens could offer superior solutions, provided that proper legal foundations are established for their operation, including aspects of the law of securities and consumer protection law.
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Source: imf.org
IMF Working Paper-Climate Shocks and Domestic Conflicts in Africa
December 16, 2022--Summary:
This paper analyzes the interlinkages between climate shocks, domestic conflicts, and policy resilience in Africa. It builds on a Correlated Random Effect model to asess these interrelationships on a broad sample of 51 African countries over the 1990-2018 period.
We find suggestive evidence that climate shocks, as captured through weather shocks, increase the likelihood of domestic conflicts, by as high as up to 38 percent. However, the effect holds only for intercommunal conflicts, not for government-involved conflicts. The effect is maginified in countries with more unequal income distribution and a stronger share of young male demographics.
The results are robust to a wide set of sensitivity checks, including using various indicators of weather shocks and domestic conflicts, and alternative estimation techniques. The findings shed light on key policy resilience factors, including steadily improving domestic revenue mobilization, strengthening social protection and access to basic health care services, scaling up public investment in the agriculture sector, and stepping up anti-desertification efforts.
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Source: imf.org
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