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A quarterly magazine of the IMF |
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June 2008
Volume 45,
Number 2 |
The Financial Market Crisis
A Crisis of Confidence... and a lot more
Laura Kodres
What can be done to prevent future crises like the one that began in the U.S. subprime mortgage market? This article argues that the source of the problem lies in incentives. But the remedies may be difficult to implement because faulty incentives are entrenched in the marketplace and in regulatory and supervisory systems.
(432 kb, pdf file)
Outbreak: U.S. Subprime Contagion
Randall Dodd and Paul Mills
The authors examine the origins of the subprime mortgage crisis and the reasons for its large spillover effects. They suggest policies to deal with such problems should aim to moderate leverage, improve liquidity management, foster market liquidity, promote due diligence, and increase transparency in the public availability of price and trading information.
(276 kb, pdf file)
Point of View: Asia: A Perspective on the Subprime Crisis
Khor Hoe Ee and Kee Rui Xiong
The authors, from the Monetary Authority of Singapore, examine the current crisis through the lens of the financial crisis that hit Asia in 1997. They discuss lessons industrial countries can take from the Asian crisis and lessons Asian countries can learn from the subprime crisis. They also explore the reasons for Asia's resilience, so far, to the current crisis.
(328 kb, pdf file)
Banking on More Capital
Jaime Caruana and Aditya Narain
One reason that banks succumbed to the subprime crisis is that they did not hold adequate amounts of capital. Against that background, the authors discuss the Basel II New Capital Adequacy Framework, suggesting that it does not address all the regulatory issues that arose from the crisis but that it does, nonetheless, have a key role to play.
(300 kb, pdf file)
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Point of View: Will Basel II Help Prevent Crises or Worsen Them?
Jesús Saurina and Avinash D. Persaud
The authors offer opposing views on whether the Basel II capital adequacy guidelines are too procyclical—that is, too lax on capital requirements during good times and too strict when conditions deteriorate.
(172 kb, pdf file)
Also in This Issue
How Much Decoupling? How Much Converging?
M. Ayhan Kose, Christopher Otrok, and Eswar Prasad
Recent dramatic changes in the global economic landscape—driven by rising economic integration and the increasing prominence of emerging market economies—have raised questions about global business cycles. The authors conclude that business cycles among industrial countries and among emerging market economies seem to be converging, but that the two groups also seem to be decoupling from each other.
(117 kb, pdf file)
Turning Currencies Around
Atish Ghosh
With major currencies fluctuating sharply in recent times, the possibility of exchange market intervention has come to the fore. This article discusses how central banks can influence exchange rates and what they would have to do to make intervention work.
(276 kb, pdf file)
A Capital Story
Thomas Dorsey
Private capital flows to low-income countries around the world have grown dramatically over the past quarter century. Although a development success story, the increased flows have implications that policymakers must be prepared to address.
(340 kb, pdf file)
In Sight, but Not Yet within Reach
Zia Qureshi
The author gives a progress report on countries' efforts to achieve the eight UN Millennium Development Goals. Although the picture thus far is mixed, he argues that if countries and their development partners redouble their efforts, the MDGs are achievable for most countries.
(268 kb, pdf file)
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Departments
Letter from the Editor
(120 kb, pdf file)
In Brief
Melting mountains; Counting the cash; Greater voice; Smaller is better; More women working; Events calendar
(204 kb, pdf file)
People in Economics
A Legacy of Model Elegance
James L. Rowe
Jacques Polak joined the IMF in its infancy in 1947 and, through his path-breaking research, helped shape how the IMF goes about its business. He is best known for developing an economic model in 1957 that explained a country's balance of payments in monetary terms.
(452 kb, pdf file)
Back to Basics
Over-the-Counter Markets: What Are They?
Randall Dodd
Over-the-counter (OTC) markets are one of two basic ways that financial markets are organized—the other is exchanges. OTC markets are less formal but often well-organized networks of trading relationships centered on one or more dealers.
(132 kb, pdf file)
Picture This
Bridging the Technology Divide
Andrew Burns
Although technological progress has helped reduce the share of people living in absolute poverty, developing countries must radically improve their capacity to absorb technology if they are to catch up with high-income countries.
(404 kb, pdf file)
Book Reviews
The VAT in Developing and Transitional Countries, Richard M. Bird and Pierre-Pascal Gendron
The Logic of Life: The Rational Economics of an Irrational World, Tim Harford
(148 kb, pdf file)
Country Focus
Algeria
This north African country has managed its hydrocarbon wealth soundly and achieved strong growth and macroeconomic stability. Its top priorities now include boosting productivity and diversifying the economy away from hydrocarbons.
(168 kb, pdf file)
Straight Talk
Automatic "Destabilizers"
Simon Johnson
Normally, says the IMF's Economic Counsellor, when growth slows in a major economy, the demand for and prices of commodities decline. In the current turmoil, however, the prices of food and fuel have remained high and are having a destabilizing effect on the world economy.
(140 kb, pdf file)
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