Measuring and Analyzing Rapidly Changing Economic Conditions Rob Vos United Nations Seminar on Early Warning and Business Cycle Indicators Scheveningen, The Netherlands December 2009

Outline 1.The global crisis and early warning systems: what for? Do they help? What exactly should we be monitoring? 2.What analytical frameworks do decide on what to monitor? 3.How to bridge immediate and future data gaps? 4.Moving forward and dissemination Towards a new data template

1. Early warning systems Global crisis: a story foretold…but: –Who listened to warnings? –We knew why, didn’t know when Will better early warning systems help? –Lessons from Asia crisis and failure to identify systemic risks –Present policy questions: what do we know about Persisting financial fragilities (e.g. interest rate spreads)interest rate spreads Need for early “exit” strategies (“counter-cyclical stance measures”) Impact on poverty and employment?  Analytical purposes and measurement issues need to go hand in hand  Monitoring frameworks should facilitate communications

Declining interest rate spreads, but… Corporate Spreads in Europe and US (basis points) Spreads in Emerging Economies (basis points)

… if your AAA, else tight credit Corporate Spreads (basis points; averages of Europe and United States) Private-Sector Borrowing Rate and S-T Policy Rate (percent) 09 Q3 Jul- 09

Bank lending also still tight in most EME’s

1. Early warning systems Global crisis: a story foretold…but: –Who listened to warnings? –We knew why, didn’t know when Will better early warning systems help? –Lessons from Asia crisis and failure to identify systemic risks –Present policy questions: what do we know about Persisting financial fragilities (e.g. interest rate spreads)interest rate spreads Need for early “exit” strategies (“counter-cyclical stance measures”) Impact on poverty and employment?  Analytical purposes and measurement issues need to go hand in hand  Monitoring frameworks should facilitate better communication with analysts and policy makers

2. How to improve monitoring and analytical frameworks? G20 request for monitoring impact of this and future crisis on the “vulnerable” –Financial surveillance (IMF) –Global Impact and Vulnerability Alert System (GIVAS) (UN) –Integrated Monitoring and Analysis System (UN/DESA) Challenges: –‘real-time’ measurements and ex-ante assessments –how to define and measure risks related to global shocks, their transmissions, and likely effects on developing countries and various population groups –how to transmit information and “alerts” to policy makers for policy responses and monitoring of the effectiveness of these

“IMAS” Integrated Monitoring and Analysis Framework (IMAS)

“IMAS”

Example: Trade shocks Severe fall in global aggregate demand and its impact on commodity prices Most developing countries severest hit through trade channels (demand, terms of trade) How to measure the trade shocks “real time”? –Only aggregate high-frequency global trade and commodity price data –Link global trends to country level past trends and vulnerabilities to changes in external demand and terms-of-trade

Monthly merchandise trade (volume) Index, average 2000 = 100

Most severely affected countries grouped by sector of export specialization: (Trade shocks as per cent of GDP)

Most severely affected countries grouped by sector of export specialization: (Trade shocks as per cent of GDP)

Further elaboration analytical framework and measurement challenges Definition of vulnerability indicators (including composite indicators) Incorporating distributional factors: –Distribution of risks (both global and national level) –Distribution of impacts (across and within countries) Linking better ‘real’ and financial data Linking “observed” trends to “confidence” indicators and to “forward-looking” measures

Matching “observed” and forward- looking measures

4. Moving forward and dissemination Identify data gaps and development of new data templates (12 categories)  Comparative review of the analytical frameworks used by international agencies and a selected set of countries have been undertaken by UNSD  Use of existing platforms to review

4. Moving forward and dissemination Using existing platforms to review Engage users (analysts and policy makers) and allow flexibility to absorb feedback into data templates  Dissemination and reporting is essential  Public website  World Economic Vulnerability Monitoring reports (UN- DESA) (  Beyond G20: Country level reporting and dissemination