Global Financial Stability Report
Market Developments and Issues
September 2003
September 2003
©2003 International Monetary Fund
Ordering Information
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The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.* |
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| 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) | |
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Ample Liquidity
Dominates Developments in Major Financial Markets |
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| Mature Market Vulnerabilities Have Eased | ||
|
Favorable External
Environment Helped Push Emerging Bond Yields Lower |
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| 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 |
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| 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 |
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| 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 | |
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