Session 1C: Macroeconomy and Financial Stability (Auditorium 3)
Moderator: Abdul Abiad
The long-term growth prospects of the People’s Republic of China
Dominik Peschel
Economic growth in the People’s Republic of China has moderated over the past decade, even before the COVID-19 crisis. A critical question is to which level of GDP growth the country will return to after COVID-19 and, more broadly, how its long-term growth prospects are given a rapidly aging society, the ongoing high dependence of growth on investment, and a changing international environment. This paper projects the country’s GDP growth up to 2040 based on a Cobb-Douglas production function and provides policy recommendations to boost long-term growth by increasing the productivity of capital and labor as well as total factor productivity.
JEL Code/s: E20, E66, J11, L10, J20, O49, O53
Mapping sovereign debt vulnerabilities in Asia and the Pacific
Benno Ferrarini and Suzette Dagli
The paper discussed our latest debt projections and vulnerability indicators for developing Asia and the Pacific.
JEL Code/s: H63, H68
Central bank asset purchase programs in emerging market economies
John Beirne and Eric Sugandi
We investigate the impact of Asset Purchase Programs by 14 EME central banks during the COVID-19 pandemic, finding a statistically significant effect in compressing bond spreads. Counterfactual analysis shows that in the absence of the APPs, EME bond spreads would have been significantly higher. Country-specific VAR impulse response functions indicate that shocks imposed on asset purchases become persistent on bond spreads after around 5 to 10 days, with a peak effect of around 40 basis points. Persistent stabilizing effects are found on exchange rates and capital flow volatility, while inflation expectations are not affected by the APPs.
JEL Code/s: E44, E52, E58
Measuring financial stress index for Nepal
Pradeep Panthi (ADBI), Pragati Paudel (Quest International College, Pokhara University, Nepal) and Niranjan Devkota (Pokhara University, Nepal)
This paper develops a financial stress index (FSI) for Nepal using monthly time series data for the period of 2003M7 to 2022M7. First, four types of sectoral stress namely, banking stress, forex stress, equity stress and debt stress are measured, separately. A banking beta index (BBI) for banking stress, foreign exchange market pressure index (EMPI) for foreign stress, stock market volatility index (SMVI) for equity stress, and debt spread index (DS) for debt stress is calculated, separately. Finally, a composite financial stress index is developed by comprising four sectoral stress using three separate methods namely, extreme value theory (EVT), principal component analysis (PCA), and variance-equal weight (VEW) following Park and Mercado (2014). Our measure of the financial stress index of Nepal captures the stabilized period of financial stress in Nepal and, also reflects the heightened level of financial stress during various episodes of domestic as well as global shocks such as heightened political crises before the comprehensive peace accord 2006, the global financial crises 2008, central bank’s intervention on portfolio lending 2010, and covid19 crisis. More specifically, the banking sector is becoming less stressful especially after 2017, however, the equity market is more stressful after 2019. We did not find any currency crises and debt crises in our sample period in terms of forex stress and debt stress except for a few episodes of heightened policy rates. Our measure of FSI is completely a new contribution and helps policymakers to monitor the aggregate level of financial stress to set effective monetary and financial policies in Nepal.
JEL Code/s: B23, E44, E58, G10 A10
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