1. Central Bank of Ireland - RESTRICTED
International Spillovers: Implications for Monetary and Macroprudential Policies
Philip R. Lane, Central Bank of Ireland
IBRN/JIMF: Global Financial Linkages and Monetary Policy Transmission
Banque de France, 30 June 2017
Central Bank of Ireland - RESTRICTED

2. Outline Cross-Border Funding and Credit Growth: 2003-2008
International Spillovers: General Issues
Monetary Policy and Macroprudential Policy: Current Perspectives
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

3. Cross-Border Funding and Credit Growth: 2003-2008
Lane and McQuade, “Domestic Credit Growth and International Capital Flows” (Scandinavian Journal of Economics 2014)
Lane, “The Funding of the Irish Domestic Banking System During the Boom” (Statistical and Social Inquiry Society of Ireland 2015)
Lane and Pels, “Current Account Imbalances in Europe,” (Moneda y Credito 2012)
Lane, “Macro-Financial Stability under EMU” (Banco de Portugal 2015)
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

4. Credit Growth and Net Debt Flows, 2003-2008

5. International Spillovers: General Issues
Shifting patterns in world GDP
Shifting patterns in international financial linkages
Net imbalances and transmission
Time- and State- variation in transmission
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

6. Source: IMF WEO database, October 2016.
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

7. Source: ECB and Eurostat.
Note: Emerging and developing economies correspond to Latin America, Africa, Turkey, and Asia ( excl. Japan).
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

8. Source: Eurostat. Central Bank of Ireland - RESTRICTED

9. Source: Eurostat. Central Bank of Ireland - RESTRICTED

10. Source: Lane and Milesi-Ferretti (2017, forthcoming).
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

11. Central Bank of Ireland - RESTRICTED

12. LMF (2017)
Document evolution of cross-border financial claims and liabilities (“international financial integration”) since the global financial crisis
Relate this evolution to the main macroeconomic and financial trends of the period
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

13. 1. Documenting international financial integration: What is new
Global dataset (212 economies),
Breakdown of debt instruments between portfolio debt and other investment.
Special focus on financial centers, both “large” (e.g. United Kingdom; Netherlands) and “small” (Luxembourg; Cayman Islands).
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

14. Documenting international financial integration: Has it come to a halt?
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

15. Documenting international financial integration: The GDP picture
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

16. Documenting international financial integration: Why the slowdown?
Much lower capital flows to and from advanced economies and financial centers
Retrenchment in global banking
Euro area crisis
Increased weight of EMDEs in global GDP
These economies have lower shares of external claims and liabilities to GDP, and hence lower the global share as they grow in importance
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

17. Documenting international financial integration: What has changed?
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

18. The retrenchment of global banking
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

19. Intra euro area claims Central Bank of Ireland - RESTRICTED

20. The portfolio of financial centers: from other investment….
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

21. The portfolio of financial centers: ……to FDI
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

22. FDI in financial centers
FDI largest component in financial centers’ external claims and liabilities
Half of world’s FDI claims are booked by FCs
Factors explaining rising FDI:
Boom in special financial entities/special purpose vehicles
Re-domiciling of MNCs to financial centers (e.g. Ireland).
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

23. FDI in financial centers—some figures
Central Bank of Ireland - RESTRICTED

24. FDI in financial centers—some figures
Central Bank of Ireland - RESTRICTED

25. Monetary Policy and Macroprudential Policy: Current Perspectives
Analytical Issues
Lessons from Recent Experience ( )
Central Bank of Ireland - RESTRICTED
Central Bank of Ireland - RESTRICTED

26. Analytical Issues I Internalisation of spillovers: monetary union
global shocks (including commodity prices) versus local shocks
Spillovers/Spillbacks among: Euro Area; US; Japan; China; ROW
Spillovers to small open economies
Spillovers to dollarised financial systems
Spillovers to ‘currency trackers’

27. Analytical Issues II Exchange rate channel; output channel
Normal times: net spillover limited
Financial channel (international role of dollar; impact of EM thirst for safe assets on yields in advanced economies; global factor in risk appetite / investor sentiment)
Normal times: financial stability risks (macroprudential regulation)
Lower Bound: constrains response to spillovers; limits strength of output channel; increases strength of exchange rate channel (?)
Interaction of financial channel and balance sheet environment

28. Lessons from Recent Experience
International lessons in design of monetary policy (knowledge spillovers)
Global growth forecasts critical: net exports; commodity prices
Spillovers: investor sentiment; risk of large exchange rate movements
Query: actual importance of exchange rate channel?
Spillbacks: possibly relevant for US, given international role of dollar
International cooperation: sharing of analytics and conjunctural assessments; clarity about policy feedback rules

29. Central Bank of Ireland - RESTRICTED