Elena Loukoianova

Banking Crises and Crisis Dating: Theory and Evidence

We formulate a simple theoretical model of a banking industry that we use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily information on government actions undertaken in response to bank distress. Using both country-level and firm-level samples, we show that SBS indicators consistently predict BC indicators, indicating that BC indicators actually measure lagged policy responses to systemic bank shocks. We then re-examine the impact of macroeconomic factors, bank market structure, deposit insurance, and external shocks on the probability of systemic bank shocks (SBS) and on “banking crisis” (BC) indicators. We find that the impact of these variables on the likelihood of a policy response to banking distress (as represented by BC indicators) is frequently quite different from that on the likelihood of a systemic bank shock (SBS). We argue that disentangling the effects of systemic bank shocks and policy responses is crucial in understanding the roots of banking crises. We believe that many findings of a large empirical literature need to be re-assessed.

Foreign Banks and the Vienna Initiative; Turning Sinners Into Saints?

We use data on 1,294 banks in Central and Eastern Europe to analyze how bank ownership and creditor coordination in the form of the Vienna Initiative affected credit growth during the 2008–09 crisis. As part of the Vienna Initiative western European banks signed country-specific commitment letters in which they pledged to maintain exposures and to support their subsidiaries in Central and Eastern Europe. We show that both domestic and foreign banks sharply curtailed credit during the crisis, but that foreign banks that participated in the Vienna Initiative were relatively stable lenders. We find no evidence of negative spillovers from countries where banks signed commitment letters to countries where they did not.

A Risk-Based Debt Sustainability Framework; Incorporating Balance Sheets and Uncertainty

This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Analysis of Recent Growth in Low-Income CIS Countries

This paper analyzes factors that determine recent economic growth in the low-income countries of the Commonwealth of Independent States.2 The main findings are as follows: (1) productivity gains in export-oriented sectors and expansion of exports may have become the main sources of growth in five of the seven CIS-7 countries, while in the early years of transition the output recovery was mainly driven by consumption; (2) economic growth has concentrated in agriculture and the raw material sectors, and, thus, is vulnerable to changes in external conditions; and (3) structural reforms matter for growth, which is consistent with previous research on growth in transition countries.

A New Heuristic Measure of Fragility and Tail Risks: Application to Stress Testing

This paper presents a simple heuristic measure of tail risk, which is applied to individual bank stress tests and to public debt. Stress testing can be seen as a first order test of the level of potential negative outcomes in response to tail shocks. However, the results of stress testing can be misleading in the presence of model error and the uncertainty attending parameters and their estimation. The heuristic can be seen as a second order stress test to detect nonlinearities in the tails that can lead to fragility, i.e., provide additional information on the robustness of stress tests. It also shows how the measure can be used to assess the robustness of public debt forecasts, an important issue in many countries. The heuristic measure outlined here can be used in a variety of situations to ascertain an ordinal ranking of fragility to tail risks.

Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana

The paper estimates a behavioral equilibrium exchange rate model for Ghana. Regression results show that most of the REERs long-run behavior can be explained by real GDP growth, real interest rate differentials (both relative to trading-partner countries), and the real world prices of Ghanas main export commodities. On the basis of these fundamentals, the REER in late 2006 was found to be very close to its estimated equilibrium level. The results also suggest, that deviations from the equilibrium path are eliminated within two to three years.

Mapping the Shadow Banking System Through a Global Flow of Funds Analysis

This paper presents an approach to understanding the shadow banking system in the United States using a new Global Flow of Funds (GFF) conceptual framework developed by the IMF’s Statistics Department (STA). The GFF uses external stock and flow matrices to map claims between sector-location pairs. Our findings highlight the large positions and gross flows of the U.S. banking sector (ODCs) and its interconnectedness with the banking sectors in the Euro area and the United Kingdom. European counterparties are large holders of U.S. other financial corporations (OFCs) debt securities. We explore the relationship between credit to domestic entities and the growth of non-core liabilities. We find that external debt liabilities of the financial sector are procyclical and are closely aligned with domestic credit growth.

The Impact of Unconventional Monetary Policy Measures by the Systemic Four on Global Liquidity and Monetary Conditions

The paper examines the impact of unconventional monetary policy measures (UMPMs) implemented since 2008 in the United States, the United Kingdom, Euro area and Japan— the Systemic Four—on global monetary and liquidity conditions. Overall, the results show positive significant relationships. However, there are differences in the impact of the UMPMs of individual S4 countries on these conditions in other countries. UMPMs of the Bank of Japan have positive association with global liquidity but negative association with securities issuance. The quantitative easing (QE) of the Bank of England has the opposite association. Results for the quantitative easing measures of the United States Federal Reserve System (U.S. Fed) and the ECB UMPMs are more mixed.

A Thematic Exploration of the Changing Trends in Political Risk and Global Marketing Scholarship in the Last Three Decades (1986–2015): Implications and Future Research

This chapter analyzes temporal patterns in political risk across the globe and in global marketing scholarship in 1986–2015 to offer perspectives on emerging political risk issues for current and future research. We offer a novel measure of political risk based on exploratory factor analysis (EFA) to identify the most influential sources of political risk and its latent structure within a country in three time periods, 1986–1995, 1996–2005, and 2006–2015. This EFA-based measure provides a more nuanced way of analyzing global-, regional-, and country-level political risk dynamics compared to the existing indices based on the observable characteristics of political environment. We synthesize global marketing scholarship to examine the evolution of various research topics/themes within global marketing and identify potential future research directions on the impact of political risk on global marketing activities abroad.

Pilot Project on Concentration and Distribution Measures for a Selected Set of Financial Soundness Indicators

This paper reports the main findings of a pilot project launched in July 2014 by the IMF’s Statistics Department to test augmenting the IMF’s financial soundness indicators (FSIs) with concentration and distribution measures (CDMs) to capture tail risks, concentrations, variations in distributions, and the volatility of indicators over time that simple averages can miss. Volunteer participants reported a trial set of CDMs to assess analytical usefulness and identify concerns such as confidentiality and reporting burden. The results of the pilot suggests that CDMs can help detect financial sector risks, justifying the additional reporting burden but that further input from participating countries and potential data users should be sought; indeed further refinement of the reporting requirements and the CDMs themselves may be needed.