Global Financial Stability Report, April 2019: Vulnerabilities in a Maturing Credit Cycle

April 10, 2019

Preview Citation

Format: Chicago

Global Financial Stability Report, April 2019: Vulnerabilities in a Maturing Credit Cycle, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Summary

The April 2019 Global Financial Stability Report (GFSR) finds that despite significant variability over the past two quarters, financial conditions remain accommodative. As a result, financial vulnerabilities have continued to build in the sovereign, corporate, and nonbank financial sectors in several systemically important countries, leading to elevated medium-term risks. The report attempts to provide a comprehensive assessment of these vulnerabilities while focusing specifically on corporate sector debt in advanced economies, the sovereign–financial sector nexus in the euro area, China’s financial imbalances, volatile portfolio flows to emerging markets, and downside risks to the housing market. These vulnerabilities require action by policymakers, including through the clear communication of any changes in their monetary policy outlook, the deployment and expansion of macroprudential tools, the stepping up of measures to repair public and private sector balance sheets, and the strengthening of emerging market resilience to foreign portfolio outflows. This GFSR also takes an in depth look at house prices at risk, a measure of downside risks to future house price growth—using theory, insights from past analyses, and new statistical techniques applied to 32 advanced and emerging market economies and major cities. The chapter finds that lower house price momentum, overvaluation, excessive credit growth, and tighter financial conditions predict heightened downside risks to house prices up to three years ahead. The measure of house prices at risk helps forecast downside risks to GDP growth and adds to early-warning models for financial crises. Policymakers can use estimates of house prices at risk to complement other surveillance indicators of housing market vulnerabilities and guide macroprudential policy actions aimed at building buffers and reducing vulnerabilities. Downside risks to house prices could also be relevant for monetary policymakers when forming their views on the downside risks to the economic and inflation outlook. Authorities considering measures to manage capital flows might also find such information useful when a surge in capital inflows increases downside risks to house prices and when other policy options are limited.

Subject: Banking, Credit, Emerging and frontier financial markets, Financial institutions, Financial markets, Housing prices, Loans, Money, Prices, Sovereign bonds

Keywords: Baseline model, Capitalization rate, Commodity exporter, Credit, Debt transparency, Downside risk, Earnings per share, Economy, Emerging and frontier financial markets, Emerging market, Europe, Financial condition, GFSR, Global, House price, House price downside risk, House price imbalance, House price misalignment, House price momentum, House price overvaluation, House price valuation, House price vulnerability, Housing prices, Inflation expectation, Investment vehicle, Leveraged loan market, Loans, Long-term debt, Market value, Overvaluation metrics, Overvalued house price, Price, Price downside risk, Price dynamics, Price-to-book ratio, Share price, Short-term debt, Sovereign bonds

Publication Details

Pages:

106
Volume:

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DOI:

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Issue:

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Series:

Global Financial Stability Report No 2019/001
Stock No:

GFSREA2019001
ISBN:

9781498302104
ISSN:

1729-701X

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