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Program

Annual IMFResearch Conference

Fifteenth Jacques Polak AnnualResearch Conference: "Cross- BorderSpillovers"

November 13–14, 2014

T he In tern ation al Mon etary Fun d w ill hold th e Fifteen th J acques Polak

A n n ual Research C on feren ce at its h eadquarters in Washin gton D C on

N ovem ber 13– 14, 2014.

The them e of this year's conference is "Cross-Border Spillovers." The conference

is intended to provide a forum for discussing innovative research and to

facilitate the exchange of views am ong researchers and policym akers. H élène

Rey (London Business School) will deliver the Mundell-Flem ing Lecture.

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http://www.imf.org/external/np/res/seminars/2014/arc/index.htm

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F ifteen th J ac qu es P olak A n n u al R esearc h C on feren c e (A R C ). T h e view s ex pressed in

th ese papers are th ose of th e au th ors on ly , an d th e presen c e of th em , or of lin ks to th em ,

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en dorses or sh ares th e view s ex pressed in th e papers.

Thursday, November 13, 2014

8:00–9:00 am Registration and Continental Breakfast

9:00–9:15 am Opening Remarks by Olivier Blanchard, Economic

Counsellor and Director, Research Department, IMF

9:15–10:45 am SESSION 1: Spillovers from Monetary Policy

Chair: José Viñals, Financial Counsellor, Director of the

Monetary and Capital Markets Department, IMF

ECB Unconventional Monetary Policy Actions: Market Impact,

International Spillovers and Transmission Channels Marcel

Fratzscher (DIW Berlin, Humboldt-University Berlin), Marco Lo

Duca (European Central Bank), and Roland Straub (European

Central Bank)

PaperDiscussant: Laurence Ball (Johns Hopkins University and

IMF)

U.S. Monetary Policy and Foreign Bond Yields

Simon Gilchrist (Boston University), Vivian Yue (Emory

University and Federal Reserve Bank of Atlanta), and Egon

Zakrajšek (Federal Reserve Board)

Paper

Discussant: Jonathan Wright (Johns Hopkins University)http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 2/6

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm

10:45-11:00 am ***Coffee Break***

11:00–12:30 pm SESSION 2: Fiscal Spillovers

Chair: Vitor Gaspar, Director, Fiscal Affairs Department, IMF

Effects of Fiscal Shocks in a Globalized World

Alan J. Auerbach (University of California, Berkeley) and Yuriy

Gorodnichenko (University of California, Berkeley)

Paper

Discussant: Christopher Erceg (Federal Reserve Board)

Linkages across Sovereign Debt Markets

Cristina Arellano (Federal Reserve Bank of Minneapolis) and

Yan Bai (University of Rochester)

Paper

Discussant: Alberto Martin (CREI and IMF)

12:30–2:00 pm ***Lunch***

(By invitation only, HQ2, Conference Hall 2)

Luncheon Remarks – David Wessel, The Brookings

Institution

2:10–3:40 pm SESSION 3: Policy Frameworks to Mitigate Spillovers

Chair: Changyong Rhee , Director, Asia and Pacific

Department, IMF

On the Desirability of Capital Controls

Jonathan Heathcote (Federal Reserve Bank of Minneapolis)

and Fabrizio Perri (Federal Reserve Bank of Minneapolis)

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Paper

Discussant: Markus Brunnermeier (Princeton University)

International Spillovers and Guidelines for Policy

Cooperation

Anton Korinek (Johns Hopkins University)

Paper

Discussant: Fernando Broner (CREI)

3:40–4:00 pm ***Coffee Break***

4:00–5:30 pm Mundell-Fleming Lecture—Monetary Policy and

International Capital Flows

Hélène Rey (London Business School)

Introduction by: Olivier Blanchard, Economic Counsellor

and Director, Research Department, IMF

Friday, November 14, 2014

8:30–9:15 am Registration and Continental Breakfast

9:15–10:45 am SESSION 4: Real and Financial Spillovers

Chair: Sharmini Coorey, Director, Institute for Capacity

Development, IMF

Does a Currency Union Need a Capital Market Union?

Joseba Martinez (New York University) and Thomas

Philippon (New York University)

Paper

Discussant: Stijn Claessens (IMF)

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 4/6

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Input Linkages and the Transmission of Shocks: Firm-Level

Evidence from the 2011 Tōhoku Earthquake

Christoph Boehm (University of Michigan), Aaron Flaaen

(University of Michigan) and Nitya Pandalai Nayar (University

of Michigan)

Paper

Discussant: Robert Johnson (Dartmouth College)

10:45-11:00 am ***Coffee Break***

11:00–12:30 pm SESSION 5: Management of Capital Flow Measures

Chair: Alejandro Werner, Director, Western Hemisphere

Department, IMF

Capital Controls in Brazil: Effective?

Marcos Chamon (IMF) and Márcio Garcia (PUC-Rio)

Paper

Discussant: Sebastian Edwards (UCLA)

Capital Flow Management when Capital Controls Leak

Julien Bengui (Université de Montréal) and Javier Bianchi

(University of Wisconsin-Madison)

Paper

Discussant: Olivier Jeanne (Johns Hopkins University and

IMF)

12:30–2:00 pm ***Lunch***

(By invitation only, HQ2, Conference Hall 2)

2:10–3:40 pm SESSION 6: Policy Frameworks in Open Economies

Chair: Tamim Bayoumi, Deputy Director, Strategy, Policy,

and Review Department, IMF

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C on feren c e Prog ram C om m ittee: : E steban R . V esperon i (IMF, C on feren c e C h air), R abah

A rez ki (IMF), Pierre- O livier G ou rin c h as (E ditor of th e IMF E c on om ic R eview , U n iversity of

C aliforn ia at B erkeley ), M. A yh an K ose (T h e W orld B an k), L u c L aeven (IMF an d C o- E ditor of

th e IMF E c on om ic R eview ), R u i C . Man o (IMF), C am elia Min oiu (IMF), an d Sw eta Saxen a

(IMF).

C on feren c e C oordin ator: T rac ey L ookadoo

Policy Cooperation, Incomplete Markets and Risk Sharing

Charles Engel (University of Wisconsin-Madison)

Paper

Discussant: Linda Tesar (Council of Economic Advisers)

The Great Recession: Divide between Integrated and Less

Integrated Countries

Guillermo Hausmann-Guil (University of Virginia),Eric van

Wincoop (University of Virginia), and Gang Zhang (University

of Virginia)

Paper

Discussant: Marianne Baxter (Boston University)

3:40–3:55 pm ***Coffee Break***

4:00–5:30 pm Economic Forum: Cross-Border Spillovers and

International Policy Coordination

Moderator: Olivier Blanchard, Economic Counsellor and

Director, Research Department, IMF

Panelists:

1.Jean Boivin (Blackrock)

2. Hector Torres Jr. (IMF)

3. Maurice Obstfeld (Council of Economic Advisers)

4. David Vines (University of Oxford)

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 6/6

Posted on November 12, 2014 by iMFdirectBy Olivier Blanchard (http://blog-imfdirect.imf.org/bloggers/olivier-blanchard/), Luc

Laeven (http://blog- imfdirect.imf.org/bloggers/luc-laeven/) and Esteban Vesperoni

(http://blog- imfdirect.imf.org/bloggers/esteban-vesperoni/)

The global crisis—which challenged paradigms about the functioning of financial

markets and had significant consequences in other markets—and the sluggish recovery

since 2009, are a reminder of the importance of understanding interconnections and

risks in the global economy. The increasing trend in global trade, and even more

significant, in cross-border financial activities, suggests that spillovers can take many

different forms.

The understanding of transmission channels of spillovers

(http://www.imf.org/external/pubs/ft/survey/so/2014/pol072914a.htm) has become

essential, not only from an academic perspective, but also policymaking. The

challenges faced by policy coordination after the initial response to the crisis in 2009—

illustrated by the debate on the impact of unconventional monetary policy in

emerging economies—raise wide ranging issues on fiscal, monetary, and financial

policies.

11/13/2014 Understanding Spillovers | iMFdirect - The IMF Blog

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm7/4

iMFdirect – The IMF Blog

Understanding Spillovers

11/13/2014 Understanding Spillovers | iMFdirect - The IMF Blog

Against this backdrop, the IMF’s 15th Jacques Polak Annual Research Conference, “Cross-Border Spillovers

(http://www.imf.org/external/np/res/seminars/2014/arc/index.htm),”on November 14-15 is timely. While

spillovers are at the core of the IMF’s surveillance

(http://www.imf.org/external/pubs/ft/survey/so/2014/NEW100514A.htm) mandate, it is clear that a lot of

work is taking place outside the IMF.

This year’s conference program brings together contributions by researchers both inside and outside the IMF,

aimed at understanding the different channels through which shocks can be transmitted among economies,

and how policies can help mitigate their impact. In particular, the conference will look at the main challenges

posed by the outcome delivered by market forces, and whether there are adequate policy instruments at the

national level to deal with these challenges. And if not, what can be realistically done in terms of policy

coordination.

Global financial cycles and monetary independenceHélène Rey, Professor of Economics at the London Business School, and Research Fellow at the Center for

Economic Policy Research (CEPR) and the National Bureau of Economic Research (NBER), will give the

keynoteMundell-Fleming lecture on the controversial issue of global financial cycles and the extent of

monetary policy independence of national central banks.

The conference will also discuss 12 papers on key transmission channels of cross-border spillovers from

monetary and fiscal policies, linkages in debt markets and trade integration, as well as policy instruments to

manage capital flows and international policy cooperation.

Just to give you a flavor of what to expect, here are some of the questions that we will be discussing:1. What is the impact of changes in US monetary policy on foreign bonds yields? Does it differ depending

on the policy instrument used? Do conventional and unconventional policies have a different impact on

the yield curve?2. How has unconventional monetary policy by the European Central Bank worked? What was the impact

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm

8/4

http://blog-imfdirect.imf.org/2014/11/12/understanding-spillovers/

on Europe and the on the rest of the world? What are the relevant transmission channels; are

these similar to the ones under US UMP?

3. What is the impact of government spending on the exchange rate? Is it really associated to

exchange rate depreciations, i.e. ‘beggar-thy-neighbor’ type of effects?

4. Do sovereign debt defaults in one country trigger defaults in other countries? Do they change

the cost of financing and incentives to default in other countries?

5. What are the conditions under which international spillovers effects are Pareto efficient?

How does equilibrium with strategic policy setting at the global level compare against

equilibrium with global policy cooperation?

6. Is it optimal to restrict international capital flows amid financial markets incompleteness, i.e.

prices sending signals that do not induce socially optimal outcomes?

7. Have capital controls been effective? How is their potential effectiveness affected by leaks—

i.e. the limited enforcement of these measures?8. Does deeper trade integration through internat'l input linkages amplify cross-border spillovers?9. Can fiscal and capital market integration dampen the transmission of leveraging/deleveraging

shocks within a monetary union –i.e. Europe?

10. Did growth in countries with higher trade and financial integration fall more during the

Great Depression?

The conference will conclude with an Economic Forum. A panel of experts, Jean Boivin (Deputy

Chief Strategist at BlackRock and former Canada’s deputy finance minister), Hector Torres (Brazil’s

Alternate Executive Director at the IMF Executive Board), Maurice Obstfeld (United States Council

of Economic Advisers and University of California at Berkeley), and David Vines (Professor of

Economics at the University of Oxford), will discuss their views on cross-border spillovers and

policy coordination.

11/13/2014 Understanding Spillovers | iMFdirect - The IMF Blog

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 9/4

http://blog-imfdirect.imf.org/2014/11/12/understanding-spillovers/

Just to give you a flavor of what to expect, here are some of

the questions that we will be discussing:

1) What is the impact of changes in US monetary

policy on foreign bonds yields? Does it differ

depending on the policy instrument used? Do

conventional and unconventional policies

have a different impact on the yield curve?

2) How has unconventional monetary policy by

the European Central Bank worked? What

was the impact on Europe and the on the rest

of the world? What are the relevant

transmission channels; are these similar to the ones under US UMP?

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 10/

6

Understanding Spillovers

3) What is the impact of government spending on the exchange rate? Is it really associated to exchange rate depreciations, i.e. ‘beggar-thy-neighbor’ type of effects?

4) Do sovereign debt defaults in one country trigger defaults in other countries? Do they change the cost of financing and incentives to default in other countries?

5) What are the conditions under which international spillovers effects are Pareto efficient? How does equilibrium with strategic policy setting at the global level compare against equilibrium with global policy cooperation?

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 11/

6

Understanding Spillovers

6) Is it optimal to restrict international capital

flows amid financial markets

incompleteness, i.e. prices sending signals

that do not induce socially optimal

outcomes?

7) Have capital controls been effective? How

is their potential effectiveness affected by

leaks—i.e. the limited enforcement of these

measures?

8) Does deeper trade integration through

international input linkages amplify cross-

border spillovers?

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 12/

6

Just to give you a flavor of what to expect, here are some of the questions that we will be discussing:

9) Can fiscal and capital market integration

dampen the transmission of

leveraging/deleveraging shocks within a

monetary union –i.e. Europe?

10)Did growth in countries with higher trade

and financial integration fall more during the

Great Depression?

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 13/

6

Understanding Spillovers

Just to give you a flavor of what to expect, here are some of the questions that we will be discussing:

1) What is the impact of changes in US monetary policy on foreign bonds yields? Does

it differ depending on the policy instrument used? Do conventional and

unconventional policies have a different impact on the yield curve?

2) How has unconventional monetary policy by the European Central Bank worked?

What was the impact on Europe and the on the rest of the world? What are the

relevant transmission channels; are these similar to the ones under US UMP?

3) What is the impact of government spending on the exchange rate? Is it really

associated to exchange rate depreciations, i.e. ‘beggar-thy-neighbor’ type of effects?

4) Do sovereign debt defaults in one country trigger defaults in other countries? Do

they change the cost of financing and incentives to default in other countries?

5) What are the conditions under which international spillovers effects are Pareto

efficient? How does equilibrium with strategic policy setting at the global level

compare against equilibrium with global policy cooperation?

6) Is it optimal to restrict international capital flows amid financial markets

incompleteness, i.e. prices sending signals that do not induce socially optimal

outcomes?

7) Have capital controls been effective? How is their potential effectiveness affected by

leaks—i.e. the limited enforcement of these measures?

8) Does deeper trade integration through international input linkages amplify cross-

border spillovers?

9) Can fiscal and capital market integration dampen the transmission of

leveraging/deleveraging shocks within a monetary union –i.e. Europe?

10) Did growth in countries with higher trade and financial integration fall more during

the Great Depression?

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 14/

6

Understanding Spillovers

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 15/

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http://www.imf.org/external/pubs/ft/survey/so/2014/pol072914a.htm

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http://www.imf.org/external/pubs/ft/survey/so/2014/pol072914a.htm

Posted on November 7, 2014 by iMFdirect(https://imfdirect.files.wordpress.com/2014/09/evan-

papageorgio.jpg)By Evan Papageorgiou (http://blog-

imfdirect.imf.org/bloggers/evan-papageorgio/)

When the U.S. Federal Reserve first mentioned in 2013 the prospect of a

cutback in its bond buying program, markets had a “taper tantrum.” Many

emerging markets saw large increases in volatility, even though outflows

from their domestic markets were small and short-lived. Now the Fed has

ended its bond buying and is looking ahead to

rate hikes, and portfolio flows continue to arrive at the shores of emerging market

economies. So everything’s fine, right? Not quite.

In our latest Global Financial Stability Report

(http://www.imf.org/external/pubs/ft/gfsr/2014/02/index.htm), we show that the large

concentration of advanced economy capital invested in emerging markets acts as a

conduit of shocks from the former to the latter.

11/13/2014 Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog

iMFdirect – The IMF Blog

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Portfolio Investment in Emerging Markets:

More Than Just Ebb and Flow

http://blog-imfdirect.imf.org/2014/11/07/portfolio-investment-in-emerging-markets-more-than-just-ebb-and-flow/

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11/13/2014 Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog

Emerging market economies can have financial stability problems even if they don’t have

portfolio outflows. Declines in market liquidity arising from changes in the structure of

financial markets (http://blog-imfdirect.imf.org/2014/10/15/a-mirage-not-an-oasis-easy-

money-and-financial-markets/) and volatility are policymakers and investors’ main rival.

Keep an eye on the ebb and flow of portfolio investment, and on the size as well

Despite retail portfolio outflows following 2013’s “taper tantrum,” total portfolio flows

into emerging market bonds and equities have continued largely uninterrupted.

The allocation of emerging market assets (http://blog-imfdirect.imf.org/2014/03/05/the-

trillion-dollar- question-who-owns-emerging-market-government-debt/) in the portfolios

of developed market investors has increased by 2.5 times over the last decade—from 5% in

2002 to 13% in 2012.

Low interest rates in advanced economies have sent investors looking elsewhere for

higher returns. And even though this increase in portfolio investment outpaced nominal

GDP growth in emerging markets, what makes the risk systemic is the concentration of

the $4.1 trillion of allocations in a few source economies and the concentration of

allocations to the major recipient emerging market economies.

We found that 12 out of 190 emerging market economies receive 80% of all portfolio flows

from advanced economies. And portfolio equity allocations from U.S. residents alone,

account for more than a third of the total for each major emerging market economy (see

Chart 1).http://blog-imfdirect.imf.org/2014/11/07/portfolio-investment-in-emerging-markets-more-than-just-ebb-and-flow/

11/13/2014 Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog

(https://imfdirect.files.wordpress.com/2014/11/gfsr-chap1-devems-chart-1-rev.jpg)

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http://blog-imfdirect.imf.org/2014/11/07/portfolio-investment-in-emerging-markets-more-than-just-ebb-and-flow/

11/13/2014 Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog

This is happening at the same time as other changes are taking place across financial markets, which can mean a decline

in the price of emerging market assets and associated financial stability concerns.

Indeed, in our latest Global Financial Stability Report we estimate the largest increases in volatility between the low

(normal) and the high (risk averse) states to be for emerging market assets such as bonds, currencies, and equities in

addition to high-yield bonds (see Chart 2 for bonds).

(https://imfdirect.files.wordpress.com/2014/11/gfsr-chap1-devems-chart-2.jpg)

In fact, rather than interest rates, volatility may be the biggest worry for policymakers and emerging market investors,

as the estimated sensitivity of emerging market local currency government bonds tends to be higher for a volatility

shock than a commensurate U.S. interest rate shock across the major emerging market economies (Chart 3).

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 20/

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http://blog-imfdirect.imf.org/2014/11/07/portfolio-investment-in-emerging-markets-more-than-just-ebb-and-flow/

11/13/2014 Portfolio Investment in Emerging Markets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog

(https://imfdirect.files.wordpress.com/2014/11/gfsr-chap1-devems-chart-3.jpg)

Policymakers need to recognize the latent risks arising from this synchronized

relationship between advanced and emerging market economies financial systems,

and put in place policies to ensure smooth market functioning and financial

stability.

http://www.imf.org/external/np/res/seminars/2014/arc/index.htm 21/

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http://blog-imfdirect.imf.org/2014/11/07/portfolio-investment-in-emerging-markets-more-than-just-ebb-and-flow/

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http://www.imf.org/external/np/res/

seminars/2014/arc/index.htm

#ARCPolak