bis-貨幣和財政政策-維護穩(wěn)定和信任

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Monetaryandfiscalpolicy:safeguardingstabilityandtrust

SpeechbyClaudioBorio

HeadoftheMonetaryandEconomicDepartment,BankforInternationalSettlements

ontheoccasionoftheBank’sAnnualGeneralMeeting

inBaselon25June2023

Somethingsneverchange.Oneofthemismonetaryandfiscalpolicy’sperennialsearchforcoherenceandstability.Thetwopoliciesaresimplytoocloselyintertwined.Andtheirinfluenceontheeconomytoopowerful.

Overthepastyear,wehaveseenthelatestexampleoftensions.Monetarypolicyhasbeenrestrainingaggregatedemandtoquenchinflation;fiscalpolicyhasbeenboostingittoshieldactivityfromhighercommodityprices.Andhigherinterestrateshavewidenedfiscaldeficits.

Butthechallengesgowaybeyondtheshort-termpolicymix.Theyhavetodowithlong-termtrajectoriesandtheircumulativeimpact.Thisisthefocusofthisyear’sAnnualEconomicReport.

Toshedlightonthosechallenges,weputforwardthenotionoftheregionofstability.Theregionmapsconstellationsofthetwopoliciesthatfostersustainablemacroeconomicandfinancialstability,andthatkeeptensionsbetweenthepoliciesmanageable.

Wereachthreeconclusions.

First,evenbeforetheCovidcrisisstruck,thetwopolicieshadbeenapproachingtheboundariesoftheregion.Hencetherecentuniquecombinationofhighinflationandwidespreadfinancialvulnerabilities.

Second,lookingahead,longer-termgovernmentdebttrajectoriesposethebiggestthreat.Theyhavebeenrelentlesslynarrowingtheregionofstabilityandwillcontinuetodoso.

Finally,operatingfirmlywithintheregioncallsforadjustmentstostrategies,institutionsand,aboveall,mindsets.Theobjectiveistodispelakindof“growthillusion”–adefactoexcessiverelianceonmonetaryandfiscalpolicytodrivegrowth.

Letmesayafewwordsaboutthenexusbetweenmonetaryandfiscalpolicyaswellastheregionofstability,thejourneytotheboundaries,therisksaheadandthepolicyimplications.

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Regionof

stability

Thepolicynexusandtheregionofstability

Monetaryandfiscalpolicyareinevitablytiedcloselytogether.Theygivethestateprivilegedaccesstoresources,throughtheissuanceofmoneyandthepowertotax,respectively.Theybackeachotherup:monetarypolicycanavoidthegovernment’stechnicaldefault;thepowertotaxultimatelybacksthevalueofmoney.Theyoperatethroughintertwinedbalancesheets–thoseofthecentralbankandthegovernment.Theirtransmissionmechanismsoverlap,notablythroughfinancialconditions.Andtheyhaveamajorimpactontheeconomy.

Withthisgreatpowercomesgreatresponsibility.Theregionofstability,illustratedinGraph1,delineatestherangeofpolicysettingsthatareconsistentwiththeproperexerciseofthatpower.Driftingoutsidetheregiongenerateslargeeconomiccosts,intheformofslumps,highinflationandfinancialinstability.

Regionof

stability

Graph1

Features

Fiscalpolicystance

Source:BIS.

Monetary

policy

stance

Determinants

Long-term

Otherpolicies

Non-economicevents

economic

forces

Stateof

the

economy

Stateof

the

Regionof

stability

economy

Past

monetary

&fiscalpolicytrajectories

Theregion’slocation,sizeandshapedependonthestateoftheeconomy,notleastthatofthefinancialsector.Inturn,thestateoftheeconomydependsontwosetsoffactors.Oneincludesfactorsotherthanmonetaryandfiscalpolicy.Think,forinstance,ofnon-economicevents,egapandemicorawar,ofpowerfullong-termeconomictectonicforces,egglobalisationandfinancialliberalisation,orofotherpolicies,notably,prudentialpolicy.Theothersetcomprisesmonetaryandfiscalpoliciesthemselves–inparticular,theirpasttrajectoryandtheircumulativeimpactonthecurrentstateoftheeconomy.Think,forinstance,oftheimpactofpastdeficitsongovernmentdebtoroflongperiodsofverylowinterestratesonfinancialvulnerabilities.

Twoimportantfeaturesstandout.

First,thetwo-wayfeedbackbetweenthestateoftheeconomy,ontheonehand,andmonetaryandfiscalpolicy,ontheother,opensthedoortointertemporaltrade-offs.Policysettingsthatmayappearreasonable,indeedcompelling,intheneartermmaycauseproblemsdowntheroad.

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Second,thecontoursoftheregionarefluidandcanbehardtodiscerninrealtime.Theymaybecomeclearlyvisibleonlyexpost.Andinstabilitymayemergeabruptly,asconfidenceevaporates.

Thejourneysofar

Thesetwofeaturesfigureprominentlyinthejourneythathastakenthetwopoliciestotheboundariesmostrecently.

EvenbeforetheCovidcrisis,thetwopolicieswereapproachingtheboundaries(Graph2).Globally,afteralongstringofdeficits,governmentdebtinrelationtoGDPhadclimbedtohistoricalpeaks(left-handpanel).Interestratesinnominaltermshadfallentohistoricaltroughs,while,ininflation-adjusted(real)terms,theyhadbeennegativeinthewakeoftheGreatFinancialCrisis(GFC).Andcentralbankbalancesheetshadreachedwartimepeaks.Ostensibly,policybuffersandsafetymarginshadbecomeuncomfortablysmall,leavingtheeconomyhighlyexposedandvulnerable.

PoliciesdidmanagetoeaseaggressivelyonceagainastheCovidcrisisstruck,butatthecostoffurtherflirtingwiththeboundariesandlayingthegroundfortherecenteconomicdislocations.

Monetaryandfiscalpolicyinhistoricalperspective1Graph2

Fiscaldeficitsandgovernmentdebt2

%ofGDP

20

80

15

60

10

40

5

20

0

0

–5

–10

1900192019401960198020002020

Median:Fiscalbalance(lhs)Governmentdebt(rhs)

%ofGDP

Policyratesandcentralbankbalancesheets3

%ofGDP%

1900192019401960198020002020

Totalcentralbankassets(median,lhs)

40

10

20

5

0

0

–5

–10

Policyrates(median,rhs):NominalReal

1Statisticsarecomputedusingasmallersetofcountrieswhendataarenotavailable.2General(ifnotavailable,central)governmentcore(ifnotavailable,total)debtatnominal(ifnotavailable,market)value.ThesamplecoversAR,AT,AU,BE,BR,CA,CH,CL,DE,DK,ES,FR,GB,GR,IN,IT,JP,NL,NO,NZ,PT,RU,SEandUS.3ThesamplecoversAR,AU,BE,BR,CA,CH,CL,CN,DE,ES,FI,FR,GB,HK,ID,IE,IN,IT,JP,KR,MX,MY,NL,NO,PE,PH,SE,SG,THandUS.

Sources:SAbbas,NBelhocine,AEl-GanainyandMHorton,“Ahistoricalpublicdebtdatabase”,IMFWorkingPapers,no245,2010;òJordà,MSchularickandATaylor,“Macrofinancialhistoryandthenewbusinesscyclefacts”,inMEichenbaumandJParker(eds),NBERMacroeconomicsAnnual,vol31,UniversityofChicagoPress,2016;EuropeanCommission;IMF;OECD;Datastream;GlobalFinancialData;OxfordEconomics;nationaldata;BIS.

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Lookingatthelongerjourney,backtothe1970s,thiswasnotthefirsttimethattheboundariesweretestedorbreached.Allsuchepisodessharedonefeature:policiesunderestimatedtheconstraintsoneconomicexpansions.

Thatsaid,thesymptomsevolvedovertime,alongwiththechangingnatureofthebusinesscycleandthesignalsofimpendingrecessions(Graph3).Untilthemid-1980s(redlines),atleastinadvancedeconomies(AEs),thesignalwasrisinginflation(firstpanel).ThinkoftheGreatInflationofthe1970s.Thereafter,untiltheCovidcrisis,itwasthebuild-upoffinancialimbalances(secondpanel,blueline),heredenotedbythedeviationofthecredit-to-GDPratiofromaslow-movingtrend.ThinkoftheGFCasthemostspectacularexample.

Symptomsoftesting/breachingtheboundaries1

Graph3

Inflation

yoy,%

Quartersaroundrecessions

12

9

6

3

0

–15–5515

–20–1001020

Credit-to-GDPgap

%pts

6

3

0

–3

–6

–15–5515

–20–1001020

Quartersaroundrecessions

Short-termnominal

interestrate

%

12

8

4

0

–15–5515

–20–1001020

Quartersaroundrecessions

Cumulativechangein

governmentdebt

%ofGDP

15

10

5

0

–5

–4–2024

–5–3–1135

Yearsaroundrecessions

1970–841985–2019

1Thehorizontalaxisdenotesquarters/yearsaroundrecessionsinthebusinesscycles,withthepeakdatesetatzero(verticallines).Linesshowthemeanevolutionofthetimeseriesacross16AEsandeventsfrom1970to2019,upondataavailability.BusinesscycledatesarefromNationalBureauofEconomicResearchforUS;EconomicCycleResearchInstituteforAU,CA,CH,DE,ES,FR,GB,IT,JPandSE.ForBE,FI,IE,NLandNObusinesscyclesaredatedwithabusinesscycle-datingalgorithm.Episodesforwhichdataforthepreviousandnext20quartersareavailableareusedincomputingthemedians.

Sources:IMF;OECD;Datastream;EconomicCycleResearchInstitute;NationalBureauofEconomicResearch;nationaldata;BIS.

Thishelpsexplainthegraduallossinpolicybuffersfollowingthemid-1980s:policiesbecamelesssystematicallycountercyclical.Monetarypolicy(thirdpanel,blueline)hadlittlereasontotightenduringexpansions,asinflationremainedsubdued,therebyaccommodatingthebuild-upoffinancialimbalances;butiteasedstronglyandpersistentlytofighttherecessions,nowattimesexacerbatedbybankingcrises.Thesefinancialrecessions,inturn,drovelargeholesinthefiscalaccounts(fourthpanel,blueline),thatwerenotreplenishedduringsubsequentupswings.

Inthebackground,powerfullong-termtectonicforceswerealsoshapingthejourney.Financialliberalisationamplifiedfinancialcycles.Andtheglobalisationoftherealeconomyhelpedcentralbankshardwirelowinflation.

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Inanutshell,afterthemid-1980s,lowandstableinflationmaskedtheconstraintsoneconomicexpansions,encouragingpolicymakerstotestthem.Partlyasaresult,growthbecameincreasinglyreliantondebtaccumulation,bothpublicandprivate(Graph4).

Greaterrelianceondebt-fuelledgrowth1

Graph4

Ratio

3

2

1

0

1960s1970s1980s1990s2000sSince2010

Decadalchangeindebt-to-GDPratio:PublicPrivate

1Decadalchangeoftotalnominalvaluesacrosseconomies.ThesamplecoversAR,AU,BE,BR,CA,CH,CL,CN,CO,DE,DK,ES,FR,GB,HK,ID,IN,IT,JP,KR,MX,MY,NL,NO,NZ,SE,SG,THandUSupondataavailability.

Sources:IMF;nationaldata;BIS.

Thejourneyinemergingmarketeconomies(EMEs)wassimilarinsignificantrespects.Afterall,thesamelong-termforceswereatplay.Hence,thesimilarevolutionofkeyindicators(Graph5)–inflation,thepolicyrate,thefiscalbalanceandpublicdebt.

Monetaryandfiscalpolicyinadvancedandemergingmarketeconomies1Graph5

Inflation

yoy,%

20

15

10

5

0

1960198020002020

Policyrate

%

20

15

10

5

0

1960198020002020

Fiscalbalance

%ofGDP

0

–2

–4

–6

–8

–10

1960198020002020

Publicdebt

%ofGDP

80

60

40

20

0

1960198020002020

AEsEMEs

1MedianacrossAEs=AU,BE,CA,CH,DE,ES,FI,FR,GB,IE,IT,JP,NL,NO,SEandUS.EMEs=AR,BR,CL,CN,CO,HK,ID,IN,KR,MX,MY,PE,PH,SG,THandVN.Forfiscalbalanceandpublicdebt,IMFforecastsfor2023.

Sources:IMF;GlobalFinancialData;nationaldata;BIS.

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However,regionalandtimingdifferencesaside,thejourneydifferedinonecriticalrespect:thesecountrieshavebeenmuchmoresensitivetoglobalfinancialconditions,notablytomonetaryconditionsinAEs,especiallythoseinUSdollars–thedominantinternationalcurrency.Thus,theexchangeratehasalsoplayedamoresalientrole.

Thelongjourneyexplainswhy,today,weareseeingauniquecombinationofprevioussymptoms.InpartbecauseofthepolicyresponsetoCovid,inflationhassurged.Inpartbecauseofthelongphaseofverylowinterestrates,vulnerabilitieshavebuiltupandfinancialstresshasbrokenout.Thismakesthecurrentsituationparticularlychallenging.

Thejourneyahead

Whatabouttherisksalongthejourneyahead?

Asmonetarypolicynormalises,thebiggestriskistheunsustainabilityofgovernmentdebttrajectories–afactorwhichhasalreadystartedweighingoncreditratingsforbothAEsandEMEs(Graph6).

Sovereignratingsdeteriorate1

Graph6

Rating

AEs

EMEs

AA+

AA

AA–

A+

A

A

–

BBB+

BBB

2007

Latest

2007

Latest

1AveragesovereigndebtratingsfromFitch,Moody’sandS&P.Theseriesplottedrepresentcross-countrymedians,forasmallersamplewhendataarenotavailable.AEs=AT,AU,BE,CA,CH,CY,DE,DK,EE,ES,FI,FR,GB,GR,HR,IE,IT,JP,LT,LU,LV,MT,NL,NO,NZ,PT,SE,SI,SK

andUS.EMEs=BR,CL,CN,CO,CZ,HK,HU,ID,IL,IN,KR,MA,MX,MY,PE,PH,PL,RO,SG,TH,TR,VNandZA.

Sources:Fitch;Moody’s;S&PGlobal;BIS.

Letmestressthattherecentinflationflare-uphascutdebt-to-GDPratiosonlytemporarily.Historicalevidenceindicatesthat,inbothAEsandEMEs,higherinflationhas,ifanything,usheredinhigher,notlower,debt-to-GDPratiosinthefollowingyears(Graph7).Theimpactishardlydifferentfromzeroevenathighinflationrates(left-handdotandwhisker).

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Higherinflationdoesnotimprovegovernmentfinances1

Graph7

Coefficient

0.6

0.4

0.2

0.0

–0.2

Inflation<200%

Inflation<20%

Associationbetweena1%increaseininflationandthefive-year-aheadchangeindebt-to-GDPratio90%confidenceinterval

1Thesampleincludesannualdatabetween1970and2022forAE,AR,AT,AU,BE,BR,CA,CH,CL,CN,CO,CZ,DE,DK,DZ,ES,FI,FR,GB,GR,HK,HU,ID,IE,IL,IN,IT,JP,KR,MA,MX,MY,NL,NO,NZ,PE,PH,PL,PT,RO,RU,SA,SE,SG,TH,TR,USandZA.TheestimatedeffectsareobtainedfromregressingthechangeingeneralgovernmentdebtasapercentageofGDPbetweenyeartandt+5overinflationinyeartand

countryfixedeffects.Theregressionsampleexcludesperiodswhenadebtrestructuringtookplace.

Sources:IMF;nationaldata;BIS.

Stylisedprojectionsunderlinethelonger-termrisktogovernmentfinances(Graph8).Evenifinterestratesstaybelowgrowthrates,absentconsolidation,debt-to-GDPratiosaresettoclimbinthelongtermfromtheircurrenthistoricalpeaks.Theincreasewouldbesubstantiallylargerifonefactoredintheimpactofageingpopulationsaswellasthoseofthegreentransitionandhigherdefencespendinglinkedtopossiblegeopoliticaltensions.

Worryingpublicdebtprojections1

AsapercentageofGDP

Graph8

Advancedeconomies

250

200

150

100

50

0

197019801990200020102020203020402050

Emergingmarketeconomies

250

200

150

100

50

0

197019801990200020102020203020402050

Baseline(constantprimarydeficits)

Addingage-relatedspendingincreases

Additionalspendingincrease(2%ofGDP)

1Baselineprojectionsassumeaninterestrate-growthdifferentialequalto–1%andconstantprimarydeficitsinpercentofGDPasof2022.Age-relatedspendingarebasedonIMFprojectionsforpensionandhealthcarespendingfor2030and2050.Fortheadditionalspendingincreasescenarioitisassumedthattheprimarydeficitwillincreaseby2%ofGDPby2030andstayatthatlevelafterwards.Historicaldebtiscomputedusingasmallersetofcountrieswhendataarenotavailable.SimpleaverageacrossAEs=AT,BE,DE,ES,FI,FR,GB,IE,IT,JP,NL,PT

andUS.EMEs=AR,BR,CL,CN,CO,CZ,HU,ID,IL,IN,KR,MX,PLandZA.

Sources:IMF;OECD;BIS.

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Shouldinterestratesexceedgrowthratesagain,theself-reinforcingdynamicswouldbemuchstronger.Moreover,itisnotuncommonforthedifferentialtoswitchsign(Graph9,left-handpanel).Togetasenseofthepossibleimpactofhighdebt,iftoday’sinterestrateswereashighasthoseinthemid-1990s–atypicallevel–allelseequal,debtserviceburdenswouldovertimeexceedtheirhistoricalpeak.

Thisgrimoutlookforgovernmentdebtisquiteworryingsinceitraisesseriousrisksforpriceandfinancialstability.Let’sconsidereachinturn.

Theinterestrate-growthdifferentialandthedebtserviceburdenGraph9

Interest-growthdifferential1

%pts

10

0

–10

–20

–30

–40

192019401960198020002020

AEs(mean)

Debtservicecost2

%ofGDP

6

4

2

0

–2

19521962197219821992200220122022

MedianCounterfactual

1Computedastheeffectiveinterestrate(ratiooftheinterestexpensetodebt)lessinflationlessrealGDPgrowth.AEs=AU,BE,CA,DE,DK,ES,FR,GB,IT,JP,NL,NO,NZ,PT,SEandUS.2ThesamplecoversAR,AT,AU,BE,BR,CA,CH,CL,DE,DK,ES,FR,GB,GR,IN,IT,JP,NL,NO,NZ,PT,RU,SEandUS.Statisticsarecomputedusingasmallersetofcountrieswhendataarenotavailable.Governmentdebt-to-GDPmultipliedbythesimpleaverageofshort-termandlong-terminterestrates,wheregovernmentdebtisgeneral(ifnotavailable,central)governmentcore(ifnotavailable,total)debtatnominal(ifnotavailable,market)value.Thecounterfactualmediandebtservicecostisconstructedusingtheinterestratelevelsprevailingin1995.

Sources:SAbbas,NBelhocine,AEl-GanainyandMHorton,“Ahistoricalpublicdebtdatabase”,IMFWorkingPapers,no245,2010;òJordà,MSchularickandATaylor,“Macrofinancialhistoryandthenewbusinesscyclefacts”,inMEichenbaumandJParker(eds),NBERMacroeconomicsAnnual,vol31,UniversityofChicagoPress,2016;EuropeanCommission;IMF;OECD;Bloomberg;Datastream;GlobalFinancialData;OxfordEconomics;nationaldata;BIS.

Pricestability

Fiscalpolicycangreatlyconstrainmonetarypolicyinitsfightagainstinflation.

Withinacertainrange,theconstraintsaremanageable:expansionaryfiscalpolicyincreasestherequireddegreeofmonetarypolicytighteningonlytoalimitedextentandcentralbankindependenceprovidessufficientsafeguards.Butwhenthecredibilityoffiscalpolicyorthecreditworthinessofthesovereignarelost,monetarypolicycanbehamstrung:atighteningwouldonlyheightenthoseconcernsandfuelinflation,typicallythroughanuncontrolledexchangeratedepreciation–aformoffiscaldominance.

Stylisedempiricalevidenceisconsistentwiththeseconsiderations(Graph10).Theinflationaryimpactofafiscalexpansionisgreaterwhenthefiscalpolicyregimeislessconcernedwithfiscal

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sustainability–“spendthrift”ratherthan“prudent”.Moreover,extremesituationsaside,centralbankindependenceiskey:inflationislowerregardlessofthefiscalpolicyregime.

InflationaryeffectsoffiscalstimulusacrossfiscalandmonetaryregimesGraph10

%pts

0.5

0.4

0.3

0.2

0.1

0.0

HighMPindependenceLowMPindependence

Fiscalpolicy:PrudentSpendthrift

1ThesamplecoversAT,AU,BE,CA,CH,DE,DK,ES,FI,FR,GB,GR,IE,IT,JP,NL,NO,NZ,PT,SEandUS.FiscalregimesareclassifiedasprudentorspendthriftbasedonPMauro,RRomeu,ABinderandAZaman,“Amodernhistoryoffiscalprudenceandprofligacy”,JournalofMonetaryEconomics,vol76,2015,pp55–70.Monetarypolicy(MP)independenceisdefinedasbeinghighorlowbasedonlegallimitationsoncentralbanklendingtothepublicsectorinDRomelli,“Thepoliticaleconomyofreformsincentralbankdesign:evidencefromanewdataset“,EconomicPolicy,vol37,no112,2022,pp641–88.Estimationsamplefrom1972–2011upondataavailability.

Source:RBanerjee,VBoctor,AMehrotraandFZampolli,“Fiscaldeficitsandinflationrisks:theroleoffiscalandmonetaryregimes”,BISWorkingPapers,no1028,July2022.

Financialstability

Fiscalpolicycanalsoconstrainmonetarypolicybytriggeringoramplifyingfinancialinstability.

Two-waycausalitybetweenfiscalpolicyandfinancialinstabilityGraph11

SovereignandbankratingsAEs1

Rating

AAA

AA+

AA

AA–

A+

A

A

–

BBB+

20012004200720102013201620192022

Changeingovernmentdebtfiveyearsafterabankingcrisis2

pts

%

25

20

15

10

5

0

AEs

EMEs

SovereignBanks

1MedianratingsacrossAU,BE,CA,DE,ES,FI,FR,GB,GR,HR,IE,IT,JP,MT,NL,NO,NZ,PT,SE,SI,SKandUS.2SeeCBorio,MFaragandF

Zampolli,“Tacklingthefiscalpolicy-financialstabilitynexus”,BISWorkingPapers,no1090,April2023.

Sources:Fitch;BIS.

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Thedirectionofcausalitybetweenfiscalpolicyandfinancialinstabilitygoesbothways.Ontheonehand,highsovereignindebtednesscancausefinancialsystemstressbygeneratinglossesforfinancialinstitutions,eitherbecauseoftheirexposurestosovereigndebtorsimplybydestabilisingtheeconomy.Thisisakeyreasonwhygovernmentandbankcreditratingstendtoco-move(Graph11,left-handpanel).Ontheotherhand,financialsystemstress,regardlessofitsorigin,cancripplefiscalsoundness.Itcandosodirectly,asthesovereignmayneedtobackstopthefinancialsystem,and,mostimportantly,indirectly,astheeconomytanks.Thesurgeinpublicsectordebtfollowingbankingcrisesistypicallywellabove10percentagepointsofGDP(right-handpanel).Thistwo-waycausalitycangiverisetotheinfamoussovereign-bankdoomloop.

Post-GFCinparticular,assovereigndebthassoared,financialinstitutionshaveabsorbedgrowingamounts.ThecorrespondingincreaseinrelationtobankcapitalinbothAEsandEMEshasbeensizeable(Graph12,left-handpanel).Giventhelengtheningofmaturities,exposurestointerestrate(orduration)riskhavealsogrownsubstantially(right-handpanel),evenwherecentralbankshaveengagedinlarge-scaleassetpurchases.Thecorrespondingpotentiallossescanbequitelarge.

Thefiscalpolicy-financialinstabilitynexus

Graph12

Banks’sovereigndebtexposureasratiotocapital1

%

175

150

125

100

75

50

10121416182022

AEsEMEs

Averageremainingmaturityofgovernmentsecurities2

Years

9

8

7

6

5

4

199820012004200720102013201620192022

AEsEMEs

1ThesampleconsistsofAEs=AT,DK,ES,FR,IT,JP,LU,NL,PTandUS.EMEs=AR,BR,CL,CO,CZ,HU,ID,IN,KR,MX,MY,PE,PH,PL,SG,TH,TRandZA,wheredataareavailable.Otherdepositorycorporationsnetclaimsoncentralgovernmentandtheirclaimsonstateandlocalgovernmentbyresidence,aspercentageofbanks’Tier1capital.Thereportingdepositorycorporationscompriseallsoloentitiesresidentinthecountry,includingthosewhichareforeign?ownedsubsidiariesorbranchesofforeignentities.Branchesandsubsidiariesabroadofdomesticallyownedentitiesarenotincluded.Latestcorrespondstolatestavailablequarterlyfigurein2022.ForAT,datauptoQ32021;for

CL,datauptoQ42021;forSG,datauptoQ42019.2Simpleaveragematurityofcentralgovernmentdebtsecuritiesissuedacrosscountriesintheregionupondataavailability.AEs=AT,AU,BE,CA,DE,ES,FR,GB,GR,IT,JP,NLandUS.EMEs=AR,BR,CL,CO,CZ,HK,HU,ID,IN,KR,

MX,MY,PE,PH,PL,SA,SG,TH,TRandZA.

Sources:IMF;Bloomberg;Datastream;BIS.

Indeed,intheyearunderreview,wehavealreadyseenhowinterestrateriskalonecancausestressinthesystem.ThinkoftheturmoilinUKgiltsmarkets,orofthefailureofanumberofUSbanks.Thestresswouldbemuchmoresevereshouldthecreditworthinessofsomesovereignsbequestionedatsomepoint.

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Policy

Whataretheimplicationsofthisanalysisforpolicy?

Theoverridingpriorityisformonetaryandfiscalpolicytooperatefirmlywithintheregionofstability.Thisrequire