Cross-border Spillovers 15th ARC Polak

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T he International Monetary Fund will hold the Fifteenth J acques Polak
Annual Research C onference at its headquarters in Washington DC on
November 13– 14, 2014.
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Program
Annual IMFResearch Conference
Fifteenth JacquesPolak Annual
Research Conference: "Cross-Border
Spillovers"
November 13–14, 2014
The theme of this year's conference is "Cross-BorderSpillovers." The conference
is intended to provide a forum for discussing innovative research and to
facilitate the exchange of views among researchers and policymakers. Hélène
Rey (London Business School) will deliver the Mundell-Fleming Lecture.
COUNTRIES
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http://www.imf.org/external/np/res/seminars/2014/arc/index.htm
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N .W., Wash in g ton D .C . For qu estion s reg ardin g th e con feren c e, please sen d an
em ail to ARC@imf.org.
P lease n ote th at, for th is even t, in vitation s for visa pu rposes will be ex ten ded on ly to
th e con feren c e partic ipan ts.
Disc laimer
T h e website con tain s papers an d web lin ks to papers th at will be presen ted at th e
Fifteen th J acqu es P olak Annu al R esearch C on feren c e (ARC ). T h e views expressed 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 ,
on th e IMF website does n ot im ply th at th e IMF, its Executive Board, or its m an ag em en t
endorses or sh ares th e views expressed 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)
Paper
Discussant: 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: JonathanWright (Johns Hopkins University)

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)

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)

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

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)
C on feren c e Prog ram C ommittee: : E steban R. Vesperon i (IMF, C on feren c e C h air), Rabah
Arez ki (IMF), Pierre- Olivier Gourin c has (E ditor of th e IMF E con om ic R eview, Un iversity of
C aliforn ia at Berkeley ), M. Ayhan Kose (T h e World Ban k), L uc L aeven (IMF an d C o- E ditor of
th e IMF E con om ic R eview), Rui C .Man o (IMF), C amelia Min oiu (IMF), an d Sweta Saxen a
(IMF).
C on feren c e C oordin ator: T rac ey L ookadoo

11/13/2014 Understanding Spillovers | iMFdirect - The IMF Blog
iMFdirect – The IMF Blog
Understanding Spillovers
Posted on November 12, 2014 by iMFdirect
By 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.
http://www.imf.org/external/np/res/seminars/2014/7a/4rc/index.htm

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

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

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

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?
6

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?
6

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?
6

http://www.imf.org/external/pubs/ft/survey/so/2014/pol072914a.htm
6

11/13/2014 Portfolio Investment in EmergingMarkets: More Than Just Ebb and Flow | iMFdirect - The IMF Blog
iMFdirect – The IMF Blog
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.
6
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/

6
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/

(https://imfdirect.files.wordpress.com/2014/11/gfsr-chap1-devems-chart-1-rev.jpg)
6

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).
6

(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.
6

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

Cross-border Spillovers 15th ARC Polak

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