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Updated currency valuations incorporate the large exchange rate, current account and activity changes surrounding the 2018 emerging market selloff. In the February 2019 estimates, the Argentine peso and Turkish lira remained only mildly expensive, while India, Indonesia and South Africa showed greater overvaluation. Emerging Asia, including China, remained substantially undervalued under the framework.
Read the workThe Federal Reserve’s early 2019 shift away from tightening could revive capital inflows to emerging markets even though investors had already priced in a pause. High frequency flow data were showing a sharp increase as the search for yield resumed. The analysis identifies South Africa as the most crowded positioning case, with Brazil and Russia the least heavily positioned among the markets assessed.
Read the workConcern about global growth weakened emerging market portfolio investment at the end of 2018. Jonathan Fortun and Tariq Khan report December inflows of $3.1 billion, comprising $2.9 billion in equities and just $0.2 billion in debt. Their broader net capital flow measure remained negative in November, a separate observation from the December securities figures.
Read the workDigital platforms and potential central bank digital currencies could change how stable retail deposits are as a source of bank funding. Brad Carr and Jonathan Fortun explored scenarios in which innovation affects bank balance sheets unevenly, despite banks having shifted toward more stable funding after the financial crisis. The December 2018 analysis treated these developments as emerging possibilities, with implications for liquidity management and the regulatory treatment of deposits.
Read the workAfter the 2018 emerging market selloff, improving sentiment raised a question: how much exposure had investors actually shed? Jonathan Fortun, Robin Brooks and Tariq Khan combine capital flow data with changes in asset valuations to measure positioning. Their framework distinguishes money moving across borders from changes in the value of existing holdings, which historically accounted for most shifts in positioning.
Read the workA large euro area current account surplus need not imply an undervalued currency. Jonathan Fortun and Robin Brooks argue that persistent economic slack can suppress imports and inflate the headline external balance. Their November 2018 calculation turns the surplus into a deficit after adjusting for the economic cycle, pointing to possible euro overvaluation rather than an automatic case for appreciation.
Read the workStudies how different OTC derivative instruments and counterparties interact with OECD economic activity, using a vector error-correction model.
Read the workWriting in April 2017, Jonathan Fortun explains how reducing the Federal Reserve’s balance sheet could tighten financial conditions alongside interest rate increases. The assessment anticipated asset runoff later that year and removed one rate increase from its 2018 forecast to account for that additional restraint. It also identified changes in the Fed’s Board as a risk to consistent policy communication.
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