2018-06-17 10:35:00 Sun ET
federal reserve monetary policy treasury dollar employment inflation interest rate exchange rate macrofinance recession systemic risk economic growth central bank fomc greenback forward guidance euro capital global financial cycle credit cycle yield curve
In the past decades, capital market liberalization and globalization have combined to connect global financial markets to allow an ocean of money to flow through them. In emerging-economies, the gross foreign financial position can be as large as annual GDP. In rich economies, the ratio can rise even more. Given the sheer size of cross-border capital flows, these co-movements can have enormous effects on local economic conditions.
The capital flows across borders is good since financial openness allows investors in rich countries to seek out large returns in capital-scarce emerging-economies. Yet, capital flows may not always follow this peculiar pattern. Money can often flow in the other direction. Less mature emerging-economies often save to safeguard against fickle global financial markets and hence amass large quantities of foreign-exchange reserves. This global savings-glut suggests that an ocean of money can swamp individual economies. The U.S. Federal Reserve determines the turn of the tide. American monetary policy shapes the global appetite for risk because of the dollar's exorbitant privilege in global finance. When the Fed changes course, asset prices, returns, and market volatilities move in its wake, with all sorts of inadvertent consequences for other countries.
Most economies face a fundamental dilemma: these economies can choose open capital markets to attract the foreign investment that emerging markets need to reinvigorate their economic climate, but only if these economies can accept losing domestic control over the global business cycle. For many emerging-economies, this inexorable trade-off seems to be a fair price to pay in global finance. However, when the Fed eventually raises its interest rate, the trade-off will then tilt toward a capital exodus from emerging-economies back to America. When push comes to shove, the law of inadvertent consequences counsels caution.
If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.
2025-05-21 04:27:10 Wednesday ET

Carol Dweck describes, discusses, and delves into the scientific reasons why the growth mindset often helps motivate individuals, teams, and managers to acc
2019-03-01 13:36:00 Friday ET

Global economic uncertainty now lurks in a thick layer of mystery. This uncertainty arises from Sino-U.S. trade tension, Brexit fallout, monetary policy nor
2017-07-19 11:35:00 Wednesday ET

This brief article encapsulates the timeless wisdom of Warren Buffett's famous quotes on fundamental stock investment, fear and greed, patience, risk co
2018-12-13 08:30:00 Thursday ET

The recent arrest of HuaWei senior executive manager may upend the trade truce between America and China. At the request of several U.S. authorities, Canadi
2018-10-15 09:33:00 Monday ET

Several pharmaceutical companies now switch their primary focus from generic prescription drugs to medical specialties such as cardiovascular medications an
2022-03-15 10:32:00 Tuesday ET

Capital structure theory and practice The genesis of modern capital structure theory traces back to the seminal work of Modigliani and Miller (1958