GFSR Cover
World Economic and Financial Surveys

Global Financial Stability Report

Market Developments and Issues
September 2003

©2003 International Monetary Fund
Ordering Information

The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.*

Disclaimer
Use the free Adobe Acrobat Reader to view all chapters below.

 Contents   
 
Preface
 
Chapter I.   Overview (95KB pdf file)
Balance of Risk and Vulnerabilities
Policies to Promote Financial Stability
Chapter II.   Global Financial Market Developments (518KB pdf file)
Ample Liquidity Dominates Developments in
Major Financial Markets
Mature Market Vulnerabilities Have Eased
Favorable External Environment Helped Push
Emerging Bond Yields Lower
Emerging Market Access Improves
Emerging Market Banking Sector Performance and Risks
Appendix I: Regulatory and Supervisory Challenges and Initiatives
Appendix II: Convergence in Central Europe—Setbacks and Perspectives
References
Chapter III.   Financial Asset Price Volatility: A Source of Instability? (349KB pdf file)
Concepts: Financial Market Volatility and Financial System Instability
Empirical Evidence on Volatility, Correlations Between Markets, and Macroeconomic Factors
Case Study Analysis of Periods of Recessionless
Financial Stress
Policy Implications
Appendix: Case Studies
References
Chapter IV.   Volatility of Private Capital Flows to Emerging Markets (184KB pdf file)
Pattern and Volatility of Flows
Determinants of the Pattern and Volatility of
Capital Flows
Concluding Remarks and Policy Issues
References
 
Glossary (49KB pdf file)
 
Annex: Concluding Remarks by the Chairman (51KB pdf file)
 
Statistical Appendix (936KB pdf file)
 
Boxes
2.1   Mortgage Hedging Mechanics
2.2   Collective Action Clauses—Recent Developments
2.3   Basel Core Principles Compliance and Banking System Financial Strength
2.4   Yield Compression in Central Europe: Convergence Expectations Versus Macroeconomic Fundamentals
4.1   The Demise of Brady Bonds
 
Tables
1.1   Financial Market Data
2.1   United States: Changes in Government Securities Yields
2.2   U.S. Corporate Bond Spread: Coefficients of Variation
2.3   United States: Balance Sheet of Households and Nonprofit Organizations
2.4   Euro Area: Nonfinancial Sector Net Asset Purchases
2.5   Emerging Market Spread: Coefficients of Variation
2.6   Emerging Market Financing Overview
2.7   Currency of Issuance
3.1   Frequency of Tail Events
3.2   United States: Frequency of Monthly Equity Returns Greater Than 8 Percent
3.3   Correlations Between Historical Volatility and Recessions
3.4   Concordance Statistics for High Equity Volatility Regimes and Recessions
3.5   Equity Market Correlations During U.S. Recessions and Expansions
3.6   Regime-Switching Model for Bond-Equity Correlations: Coefficient Estimates
4.1   Changes in Bank Exposures to Emerging Markets
4.2   Balance of Payments: All Emerging Markets
4.3   Coefficient of Variation of Net Private Capital Flows to Emerging Markets
4.4   Coefficient of Variation of Private Gross Issuance to Emerging Markets
4.5   Average Probability of High-Volatility Regime of Gross Issuances to Emerging Markets
 
Figures
2.1   Inflation-Linked 10-Year Bond Yields
2.2   Inflation Expectations
2.3   Cumulative Net Flows to U.S. Mutual Funds
2.4   Equity Market Performance
2.5   Bond-to-Earnings Yield Ratio
2.6   U.S. Dollar Performance
2.7   United States: Household Net Acquisitions of Financial Assets, Selected Items
2.8   United States: Nonfinancial Corporations’ Net Borrowing, Selected Items
2.9   Euro Area: Nonfinancial Corporations’ Net Borrowing
2.10   United States: Debt Outstanding
2.11   United States: Government-Sponsored Agencies
2.12   United States: Mortgage Market and Hedging
2.13   United States: Mortgage-Backed Securities
2.14   Germany and Switzerland: Insurance Companies’ Credit Default Swap Spreads (CDS) and Stock Prices
2.15   United States: Corporate Pension Plans
2.16   Forward Price/Earnings Ratios
2.17   United States: Earnings Expectations for Recent Years
2.18   United States: Analysts’ Long-Term Earnings Expectations
2.19   Euro Area: Analysts’ Long-Term Earnings Expectations
2.20   Japan: Dividend and Government Bond Yields
2.21   Cumulative Net Flows to U.S. Mutual Funds
2.22   Sovereign Spreads
2.23   EMBI+ Total Returns, First Half of 2003
2.24   Currency Performance Versus the Dollar, First Half of 2003
2.25   Sovereign Spreads Versus Historical Lows
2.26   Emerging Bond Fund Beta Index and EMBI+ Spreads
2.27   Correlations of EMBI+ with U.S. 10-Year Treasury Returns
2.28   Emerging Market Debt Cross-Correlations
2.29   Cumulative Gross Annual Issuance of Bonds, Loans, and Equity
2.30   Cumulative Gross Annual Issuance of Bonds
2.31   Share of Bond Issues
2.32   Cumulative Gross Annual Loan Issuance
2.33   Syndicated Loan Commitments
2.34   Share of Loan Issues
2.35   Quarterly FDI Inflows for Selected Emerging Market Countries
2.36   Five-Year Benchmark Yields
2.37   Five-Year Benchmark Spreads over Bunds
2.38   Government Debt as a Percentage of GDP
2.39   Foreign Ownership of Government Securities
2.40   Percentage of FDI and Bond Flows in Current Account—Hungary and Poland
2.41   Percentage of FDI and Bond Flows in Current Account—Czech Republic and Slovak Republic
3.1   Equity Market Volatility
3.2   Bond Market Volatility
3.3   Historical Foreign Exchange Volatility
3.4   Average Cross-Country Stock Market Correlations
3.5   Bilateral Bond Market Correlations
3.6   Correlations Between Stock and Bond Returns
3.7   Probability of High Equity Volatility State and Recession Dates
3.8   Bond and Stock Return Correlations
3.9   "Flight-to-Quality" Probabilities and Implied Volatility
4.1   Net Private Capital Flows to Emerging Markets
4.2   Emerging Markets: Net Private Capital Flows by Component
4.3   Emerging Markets: Net Private Capital Flows and Current Account Balance
4.4   Emerging Markets Gross Financing: Bonds, Equities, and Loans
4.5   Probability of Being in a High-Volatility State
4.6   EMBI+ with Periods of Opening and Closure
4.7   Capital Controls and Flows to Emerging Markets
4.8   Volatility of Weekly Returns in Emerging Equity Markets and Index of Capital Control
4.9   Regional Equity Flows Through Privatization
4.10   Mergers and Acquisitions and Privatization in Emerging Markets
4.11   EMBI+ Argentina Spread and MSCI Spain
4.12   Local Claims and Total Foreign Claims Ratio
4.13   Most Active Pro Rata Investors
4.14   Emerging Markets: Interest Margin and Syndicated Loans
4.15   Changing Market Share of Emerging Market Investors
4.16   Average Credit Ratings in Emerging Markets

On this site, the term "country" does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states. Dependent territories of member countries are listed alphabetically followed by a description of the constitutional relationships with their member countries.