The presentation was delivered during a seminar co-organized on September 29th, 2014 by CASE and IMF by dr. Emil Stavrev, a Deputy Division Chief at the Multilateral Surveillance Division of the IMF Research Department, which led the work on the 2014 Spillover Report. See more on our webiste: http://www.case-research.eu/en/node/58689

1. 2014 IMF Spillover Report
Emil Stavrev
Research Department
Warsaw, CASE
September 29, 2014
International Monetary Fund

2. 1
1. Changing Growth Patterns are Leading Source of Spillovers at this Point.
2. Recovery and Normalization in Key AEs will Have Global Spillovers.
 Nature of spillovers depends on underlying drivers of higher interest rates at source.
 For recipients, spillover effects differentiate depending on their fundamentals.
3. EM Slowdown has Global Spillovers, Substantial Local Spillovers.
4. Spillover Risks Remain Relevant Going Forward and Can Interact.
Stronger Action at National Level Aligns with Better Global Outcomes.
Main Messages

3. EM Growth
(percent change year-over-year; period averages)
AE Yield Projections 1/
(10-year; percent)
Sources: IMF, World Economic Outlook; and Consensus Economics.
1/ Rates for United States and United Kingdom. Range based on WEO forecasts from October 2009 used to measure +/-1 standard deviation.
Changing Tides and Global Spillovers
2
0
1
2
3
4
5
6
10 11 12 13 14 15 16 17 18
Forecast Range April 2014 WEO
3
4
5
6
7
8
2003-08 2010-13 2014-18
Pre-Crisis
Post-Crisis
Medium-term

4. 40
60
80
100
120
5
6
7
8
9
10
11
12
13
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14
EM foreign exchange volatility
U.S. interest rate volatility, Move index (basis points; RHS)
9/17
3
Sources: Bloomberg, L.P.; and IMF staff calculations.
Emerging Market Assets
(index; January 1, 2013=100)
Implied Volatility
(percent)
90
100
110
120
130
140
150
80
85
90
95
100
105
110
115
120
Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14
Equities - MSCI EMBI (RHS)
9/17
Taper talk Non-
Taper
Are Market Risks Rebuilding?
Taper talk Non-
Taper
TaperTaper

5. Spillovers from
Monetary Normalization
International Monetary Fund

6. 5
EM Response in Purchasing Episode 1/
(percent change)
EM Response in Taper Episode 1/
(percent change)
Source: IMF staff calculations.
1/ Average responses during 2-day window around U.S. monetary events. Increase in exchange rate denotes EM currency appreciation.
-2
-1
0
1
2
3
Equity Bond yield Exchange rate
UMP Purchase UMP QE1
-2
-1
0
1
2
3
Equity Bond yield Exchange rate
UMP Taper UMP Taper Talk
Taper Shock Generated Large EM Spillovers

7. 0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
5/22/13 6/21/13 7/21/13 8/20/13 9/19/13 10/19/13 11/18/13 12/18/13 1/17/14 2/16/14 3/18/14 4/17/14 5/17/14
Money Real
Real versus Money Shocks 1/
(percentage points; change in 10-year Treasury bond yield since May 21, 2013)
June 19
FOMC
Statement
Sources: Haver Analytics; and IMF staff calculations.
1/ Historical shock decomposition since May 21, 2013 based on a two-variable VAR estimated on daily data (2003-13). The variables are (log) S&P 500
and the 10-year Treasury bond yield. The VAR is identified with sign restrictions.
Sept. 18
FOMC Statement
“no taper surprise”
Dec. 18
FOMC Statement
“taper announcement”
Jan. 22, 2014
FOMC Statement
6
Drivers of U.S. Yields Evolved during Taper Episode

8. NEER
(percent change; + = appreciation)
Bond Yield
(basis points)
Source: IMF staff calculations.
1/ G-4 comprises of United States, United Kingdom, Euro area and Japan.
0
10
20
30
40
50
60
Money Real
-4
-2
0
2
4
6
Money Real
-0.2
-0.1
0.0
0.1
0.2
Money Real
Industrial Production
(percent change)
Capital Flows
(percent)
7
EM Response to G-4 Shocks 1/
(scaled to a max. response of 100bps in U.S. 10 year yield)
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Money Real
Different Drivers of Yields Have Different Spillovers

9. EM Bond Yields and Fundamentals 1/
(2-day change; percentage points)
-3
-2
-1
0
1
Reserves
/GDP
Inflation Current account
/GDP
Market capitalization
/GDP
GDP growth 1-year ahead
consensus
8
Sources: IMF staff calculations; and Mishra et al (forthcoming).
1/ Change in yields shown as differences from the mean for one standard deviation change in fundamentals from cross-section averages.
Spillover Effects Differentiate Depending on Fundamentals

10. International Monetary Fund
Reversal of Fortunes:
Spillovers from Emerging Market

11. 0
10
20
30
40
50
60
70
80
90
100
90 92 94 96 98 00 02 04 06 08 10 12 14
10
Emerging Markets: Evolution of Growth
(percent change year-over-year)
Sources: April 2014 World Economic Outlook; Consensus Economics; and staff calculations.
1/ Central and Eastern Europe; consisting of Czech Republic, Hungary, Poland, Russia, and Turkey.
2/ Red bars denote more than 70 percent of sample countries. For years 1990-2002, below the average of 1994-1996 real GDP growth, thereafter below the
2003-2007 average.
0
1
2
3
4
5
6
7
8
9
All Asia Latin America CEE 1/
2003-08 2010-13 2014-18 1993-2013
Synchronized EM Slowdown
(percent of EM countries with growth slowdowns) 2/
Gradual and Synchronized Slowdown in EM Growth

12. 11
Source: IMF staff estimates.
Note: Results are significant at 10 percent. The method of estimation is Global VAR using exports plus import value added weights. Generalized Impulse
response are used for structural decomposition.
Cumulative Effect of a One-Percentage-Point
Decline in EM Growth
(percentage points)
-0.4
-0.3
-0.2
-0.1
0.0
AE United
States
Euro Area Japan United
Kingdom
Cumulative Effect of a One-Percentage-Point
Decline in China Growth
(percentage points)
-0.4
-0.3
-0.2
-0.1
0.0
AE United
States
Euro
Area
Japan United
Kingdom
Other EM
Significant Spillovers Through Trade

13. -7
-6
-5
-4
-3
-2
-1
0
AE EM
12
Sources: IMF, Primary Commodity Price System; and IMF staff estimates.
Note: Results are significant at 10 percent. The method of estimation is VAR using Cholesky with AE entering first in the ordering. The IMF commodity
price index includes energy, metal and food price inflation deflated by US CPI and weighted by their respective shares in global trade.
Cumulative Effect of a One-Percentage-Point GDP Growth Decline on Commodity Prices
(percentage points)
Commodity Prices are Heavily Influenced by EM Growth

14. 13
Sources: IMF staff calculations based on BIS; Central Banks; Bankscope; and IMF, International Financial Statistics.
Total AE Bank Capital Losses
(percent of GDP)
0.0
0.5
1.0
1.5
Structural EM slowdown Cyclical EM slowdown Funding stress
EM Losses
AE Losses
Risk of Bank Losses through EM Exposures

15. 14
Exposure to Brazil, 2010 – 2012
(exports to Brazil)
0
2
4
6
8
10
12
14
0
5
10
15
20
25
30
35
40 ECU
VEN
COL
PER
CHL
URY
ARG
BOL
PRY
percent of total exports
percent of GDP (RHS)
Sources: Country authorities; IMF, Direction of Trade Statistics; PDVSA; World Bank, Migration and Remittances database; and IMF staff calculations.
Local EM Spillovers Can Be Large
CEE + CIS: Regional Remittances
(percent of total remittances to the
region; 2012)
0
5
10
15
20
25
30
35
40
45
Bysource
Tajikistan
Kyrgyz
Republic
Armenia
Ukraine
Azerbaijan
Other
CEE+CIS
Russia
Russia’s largest remittance
recipients
(percent of country’s GDP)

16. International Monetary Fund
Spillover Risks and Global Policies

17. 16
2. Further slowdown in emerging economies
 Unanticipated slowdown that is perceived to be cyclical, eventually seen as structural
 (Autonomous) slowdown of ½ percentage point for growth per annum for 3 years
Elements of Global Downside Scenario
1. Sharper tightening in global financial conditions
 Sooner-than-expected tightening in key advanced economies (money shock)
 Long-term interests rates rise by 100 basis points in first year before easing gradually,
short-term interest rates rise briefly then ease within the year (up 25 bps)
3. Additional financial market stress
 Higher risk premia in vulnerable emerging markets (50 basis points)—G20MOD
 Calibrated asset price declines and exchange rate movements based on event studies
of past EM-led sell-offs—G40 Model

18. -1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
2013 2014 2015 2016 2017 2018 2019
Money Shock in U.S. and U.K EM structural slowdown Additional tightening in EM
Recipient AEs: Euro Area and JapanSource of AEs: U.S. and U.K.
Sources: IMF staff estimates; and G20MOD.
-4
-3
-2
-1
0
2013 2014 2015 2016 2017 2018 2019
-4
-3
-2
-1
0
2013 2014 2015 2016 2017 2018 2019
Vulnerable EMs Other EMs
Global Downside Scenario
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
2013 2014 2015 2016 2017 2018 2019
(percent; deviation from baseline)
17

19. Sources: IMF staff calculations; and G40 model.
Simulated Output Effect in 2015
(percent deviation from baseline)
18
Between 3.75 and 2.5
Between 2.5 and 1.5
Losses greater than 3.75
Between 1.5 and .75
Between .75 and .25
Losses less than 0.25
Global Downside Scenario
Asynchronous Normalization

20. Between 3.75 and 2.5
Between 2.5 and 1.5
Losses greater than 3.75
Between 1.5 and .75
Between .75 and .25
Losses less than 0.25
19
Simulated Output Effect in 2015
(percent deviation from baseline)
Sources: IMF staff calculations; and G40 model.
Asynchronous Normalization + EM Slowdown
Global Downside Scenario

21. Asynchronous Normalization + EM Slowdown + Financial Turmoil
20
Global Downside Scenario
Simulated Output Effect in 2015
(percent deviation from baseline)
Sources: IMF staff calculations; and G40 model.
Between 3.75 and 2.5
Between 2.5 and 1.5
Losses greater than 3.75
Between 1.5 and .75
Between .75 and .25
Losses less than 0.25

22. Spillover Effects on Output
(cumulative contribution to real GDP by 2016; percent deviation from baseline)
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
Source Advanced
(US, UK)
Recipient Advanced
(EA, JP)
Recipient Advanced
Other
Vulnerable
Emerging Markets
Remaining
Emerging Markets
Own Impact EM Spillovers ADV Spillovers
21
Source: IMF staff estimates.
Different Spillover Effects Across Countries

23. 22
1. Central banks need well-calibrated communications and policy actions.
2. Advanced economies vulnerable to adverse spillovers may need
further monetary accommodation.
3. In EMs, priorities depend on country circumstances and vulnerabilities.
 Strengthening fundamentals and policy frameworks where needed to reduce
vulnerabilities; Certain responses can help weather turbulence.
 Renewed attention on structural reform priorities for medium-term growth.
4. Scope for cooperation reflects tradeoffs and possibly modest
“spillbacks.”
Policy Implications