{
  "title": "With Global Financial Markets, How Much Control Do Countries Have Over Economic Policies?",
  "publication": "IMF Blog, April 6, 2017",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2017/04/06/with-global-financial-markets-how-much-control-do-countries-have-over-economic-policies",
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  "summary": "Publication: Selim Ali Elekdag, Gaston Gelos",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Publication: Selim Ali Elekdag, Gaston Gelos\n- Date: April 6, 2017\n- Core question: In an increasingly integrated global financial system, how much control do countries outside of the US retain over their economic policies?"
    },
    {
      "heading": "Key findings",
      "content": "- Global events account for between 20 percent and 40 percent of local financial conditions across countries.\n- Even as financial markets have become more integrated, the degree of control countries exert over domestic conditions has only diminished mildly over the past two decades.\n- Global conditions appear to be strongly driven by the United States, in part because the dollar is the predominant currency in international transactions.\n- The global financial conditions index correlates strongly with those in the United States and with the Chicago Board Options Exchange Volatility Index (VIX), a gauge of perceived risk in US equities.\n- Emerging markets are more sensitive to global conditions than advanced economies.\n- Rapid speed and strength by which external financial shocks affect local markets often makes it difficult for policymakers to react in a timely and effective manner."
    },
    {
      "heading": "Mechanism and example",
      "content": "- A US Federal Reserve decision to raise interest rates increases yields on US assets and attracts capital from other countries.\n- Capital attraction can push up interest rates abroad, making credit more costly and constraining consumers and companies.\n- Such an outcome can be unwelcome for countries aiming to keep borrowing costs low to combat unemployment or sustain economic growth."
    },
    {
      "heading": "Policy recommendations and resilience measures",
      "content": "- Emerging markets should take steps to bolster resilience to global shocks:\n  - Deepen domestic financial markets.\n  - Develop a local investor base to make markets less susceptible to fluctuations in cross-border capital flows.\n- These steps are particularly important when financial conditions are tightening in response to the Fed’s rate hike."
    },
    {
      "heading": "Further analysis",
      "content": "- The IMF will release more analysis from the Global Financial Stability Report on April 19.\n\nIMF blog post: With Global Financial Markets, How Much Control Do Countries Have Over Economic Policies? — April 6, 2017\n\n---\n\n Content in this bundle\n\n- 040617ar\n  - 040617ar (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 040617ar (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- عربي\n- Global Financial Stability Report\n\nSource: https://www.imf.org/en/blogs/articles/2017/04/06/with-global-financial-markets-how-much-control-do-countries-have-over-economic-policies"
    }
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    "Authors: Selim Ali Elekdag, Gaston Gelos",
    "Published: April 6, 2017",
    "Publication: Selim Ali Elekdag, Gaston Gelos",
    "Date: April 6, 2017",
    "Core question: In an increasingly integrated global financial system, how much control do countries outside of the US retain over their economic policies?",
    "Global events account for between 20 percent and 40 percent of local financial conditions across countries.",
    "Even as financial markets have become more integrated, the degree of control countries exert over domestic conditions has only diminished mildly over the past two decades.",
    "Global conditions appear to be strongly driven by the United States, in part because the dollar is the predominant currency in international transactions.",
    "The global financial conditions index correlates strongly with those in the United States and with the Chicago Board Options Exchange Volatility Index (VIX), a gauge of perceived risk in US equities.",
    "Emerging markets are more sensitive to global conditions than advanced economies.",
    "Rapid speed and strength by which external financial shocks affect local markets often makes it difficult for policymakers to react in a timely and effective manner.",
    "A US Federal Reserve decision to raise interest rates increases yields on US assets and attracts capital from other countries.",
    "Capital attraction can push up interest rates abroad, making credit more costly and constraining consumers and companies.",
    "Such an outcome can be unwelcome for countries aiming to keep borrowing costs low to combat unemployment or sustain economic growth.",
    "Emerging markets should take steps to bolster resilience to global shocks:",
    "These steps are particularly important when financial conditions are tightening in response to the Fed’s rate hike.",
    "The IMF will release more analysis from the Global Financial Stability Report on April 19.",
    "**040617ar**",
    "[عربي](http://blog-montada.imf.org/?p=4818)",
    "[Global Financial Stability Report](http://www.imf.org/en/Publications/GFSR/Issues/2017/03/30/global-financial-stability-report-april-2017)"
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