Working Papers

Abstract: The landscape of external funding flows to sub-Saharan Africa (SSA) has evolved significantly over the past two decades. This paper provides an overview of the non-official external financing sources, emphasizing the trade-offs between foreign and domestic currency-denominated debt. Using data from emerging and developing economies, we assess the likelihood of issuing Eurobonds or borrowing in the syndicated loan market, focusing on the implications for SSA. We also analyze the main drivers of yields at issuance and bond spreads, along with the reliability of credit ratings and the potential existence of an "African risk premium". Our findings suggest that global factors such as the US dollar and interest rates, along with domestic characteristics, including governance and political risk, play an impotant role. Once fundamentals are considered, we find limited evidence of credit rating agencies’ bias against the region and a modest extra risk premium in normal times. As an alternative to external financing, SSA countries have been recently issuing more domestic-currency debt, reducing exchange rate risks but facing challenges in attracting foreign investors due to underdeveloped local debt markets. 

Abstract: This paper assesses the state and resilience of corporate and banking sectors in the Middle East and North Africa (MENA) in a “higher-for-longer” interest rate environment using micro-level data to conduct the first cross-country corporate and banking sector stress tests for the MENA region. The results suggest that corporate sector debt at risk may increase sizably from 12 to 30 percent of total corporate debt. Banking systems would be broadly resilient in an adverse scenario featuring higher interest rates, corporate sector stress, and rising liquidity pressures with Tier-1 capital ratios declining by 2.3 percentage points in the Gulf Cooperation Council (GCC) countries and 4.0 percentage points in non-GCC MENA countries. In the cross-section of banks, there are pockets of vulnerabilities as banks with higher ex-ante vulnerabilities and state-owned banks suffer greater losses. While manageable, the capital losses in the adverse scenario could limit lending and adversely impact growth. 

Abstract: During the past two decades, the commercial real estate (CRE) market has been impacted by major disruptions, including the global financial crisis and the Covid-19 pandemic. Using granular data from the U.S., we document how these crises have unfolded and elaborate on the role of heterogeneity and underlying shocks. Both a set of reduced-form approaches and a structural framework suggest a prominent role for demand-side local factors in the short run, along with significant shifts in preferences during crisis episodes. However, valuations become more closely linked to macro-financial factors over the long term. A one-standard deviation tightening in financial conditions is associated with a drop of about 3% in CRE prices in the following quarter, with a stronger impact on the retail sector and milder effects in states where household indebtedness is lower.

Abstract: This paper studies the US housing market using a proprietary and comprehensive dataset covering nearly 90 million residential transactions over 1998–2018. First, we document the evolution of different types of investment purchases such as those conducted by short-term buyers, out-of-state buyers, and corporate cash investors. Second, we quantify the contributions of non-primary home buyers to the housing cycle. Our findings suggest that the share of short-term investors grew substantially in the run-up to the global financial crisis  (GFC), which amplified the boom-bust cycle, while out-of-state buyers propped up prices in some areas during the recession. An instrumental variable approach is employed to establish a causal relationship between housing investors and prices. Finally, we show that the recent rise of shadow bank lending in the residential market is associated with riskier mortgages, and explore its implications for non-traditional buyers and its effects on house prices and rents.

Abstract: This paper introduces a new comprehensive database of macroprudential policies, which combines information from various sources and covers 134 countries from January 1990 to December 2016. Using these data, we first confirm that loan-targeted instruments have a significant impact on household credit, and a milder, dampening effect on consumption. Next, we exploit novel numerical information on loan-to-value (LTV) limits using a propensity-score-based method to address endogeneity concerns. The results point to economically significant and nonlinear effects, with a declining impact for larger tightening measures. Moreover, the initial LTV level appears to matter; when LTV limits are already tight, the effects of additional tightening on credit is dampened while those on consumption are strengthened. 

Abstract: To identify and quantify downside risks to housing markets, we apply the house price-at-risk methodology to a sample of 37 cities across the United States and Canada using quarterly data from 1983 to 2018. This paper finds that downside risks to housing markets in the United States have seemingly fallen over the past decade, while having increased in Canada. Supply-side drivers, valuation, household debt, and financial conditions jointly play a key role in forecasting house price risks. In addition, capital flows are found to be significantly associated with future downside risks to major housing markets, with the net effect depending on the type of flows and varies across cities and forecast horizons. Using micro-level data, we identify households vulnerable to potential housing shocks and assess the level of household debt.

Abstract: The growth-at-risk (GaR) framework links current macrofinancial conditions to the distribution of future growth. Its main strength is its ability to assess the entire distribution of future GDP growth (in contrast to point forecasts), quantify macrofinancial risks in terms of growth, and monitor the evolution of risks to economic activity over time. By using GaR analysis, policymakers can quantify the likelihood of risk scenarios, which would serve as a basis for preemptive action. This paper offers practical guidance on how to conduct GaR analysis and draws lessons from country case studies. It also discusses an Excel-based GaR tool developed to support the IMF’s bilateral surveillance efforts.

Abstract: We examine the relationship between house price synchronicity and global financial conditions across 40 countries and about 70 cities over the past three decades. The role played by cross-border banking flows in residential property markets is examined as well. Looser global financial conditions are associated with greater house price synchronicity, even after controlling for bilateral financial integration. Moreover, we find that synchronicity across major cities may differ from that of their respective countries’, perhaps due to the influence of global investors on local house price dynamics. Policy choices such as macroprudential tools and exchange rate flexibility appear to be relevant for mitigating the sensitivity of domestic housing markets to the rest of the world. 

Abstract: This paper examines financial inclusion and development in the CEMAC. We explore the level of financial inclusion in the CEMAC through a benchmarking exercise.We construct a measure of financial development gap and analyze its determinants. Using panel data regressions, we find that inflation, income, and natural resources explain most of the financial development level but that better financial sector governance and stronger economic governance are positively associated with financial sector development. Richer and poorer countries can be equally far from their expected financial development levels. Finally, we use a benchmarking exercise to identify countries that have successfully reduced the financial development gap and propose policy measures that CEMAC countries could use to boost financial inclusion.