“Covid Impact and Asian Macroeconomic Policy”

This is the title of the presentation at the ASSA conference (the YouTube video of the presentation is here) in the ACAES panel “The Epidemic and Recovery in Asia” (see below). Call Wiemer, I discussed it.

You can also see her gist here, tracking the evolution of macro aggregates and policy responses, with implications for fiscal space and monetary policy.

In my talk, I pointed out two issues to focus on (and of course there are more). First, current account balances could surge as some countries tighten their finances, which could exacerbate pressure on the global balance of payments. The second is that some countries will be more vulnerable than others as Fed rate hikes get closer.

Regarding the first point:

figure 1: Changes in the current account-to-GDP ratio and changes in primary net primary government primary lending to GDP. The red line is a binary OLS regression with a slope of 0.66. Singapore and Taiwan are net government borrowers. Source: WEO (October 2021) and author’s calculations.

On the second point, I note that we are on the cusp of a crunch, and the last time it happened, certain countries were hit hard.

figure 2: US Treasury 3-Month Yield (blue), Professional Forecaster Survey Q3 forecast (red+), Q3 2021 forecast (green+). Source: Federal Reserve and Philadelphia Fed.

Green+ is from mid-November (survey conducted in late October). Expected to take off sooner.

image 3: US Treasury 10-year yield (blue) and 3-month yield (red). Source: Federal Reserve.

Emerging market interest rates will then be pulled higher and foreign exchange market pressures will increase, at least for some countries (see this postal, Paper).

Here is the entire panel, as follows:

COVID-19 and recovery in Asia (O5, P5)