BIS Quarterly Review, March 2013

Extensive policy support has infused financial markets with a renewed sense of optimism over the last few months. Continued weakness in economic fundamentals led to extended accommodation in the form of monetary easing and a moderation in the pace of near-term fiscal consolidation. The resulting fall in perceived downside risk buoyed financial markets and drove investors into riskier asset classes. Safe haven flows ebbed as funds poured into equity and higher-yielding debt instruments, including those in emerging markets and the euro area periphery. These developments supported a renewed sense of optimism in financial markets with which macroeconomic performance has yet to catch up. More...

The BIS, in cooperation with central banks and monetary authorities worldwide, compiles and disseminates several data sets on activity in international financial markets. This chapter summarises the latest data for the international banking markets, available up to the third quarter of 2012. The box analyses the structure of the market for bonds issued by corporates from emerging market economies. More...

This article analyses the effect of the asset purchase programmes implemented by the Federal Reserve and the Bank of England in the wake of the global financial crisis on market- and survey-based measures of inflation expectations. The analysis suggests that central bank asset purchases did have significant effects, but that their quantitative importance is uncertain. While short- and longer-term inflation expectation measures displayed sizeable upward movements towards pre-crisis levels during the implementation of asset purchase programmes, the reaction of inflation swap rates on the days of programme announcements suggests that central bank asset purchases were probably not the main driver of these shifts.

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How do conditions in the financial sector affect the macroeconomy? We summarise the common variation in a large array of financial variables into a small set of statistical factors and examine the information content of these factors when forecasting GDP and inflation in four economies. We find that financial factors contain information that is independent of and complementary to that in real variables. This information accounts for a larger proportion of the movement in real and nominal GDP, but a smaller proportion of the variability of inflation.

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Prior to the onset of the 2008 financial crisis, domestic FX derivatives markets in Chile had gained depth and liquidity, boosted by the growing hedging needs of private pension funds. During the crisis, Chile suffered significantly less stress than other EMEs, within Latin America and outside. We present evidence suggesting that this was related to the liquidity and resilience of its FX derivatives markets.

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Despite their importance, data capturing total credit to the private non-financial sector are scarce. This article introduces a new BIS database that provides this information for 40 economies with, on average, more than 45 years of quarterly data, reaching back to the 1940s and 1950s in some cases. It explains the key concepts underlying the compilation of the new series, including a description of the high-level statistical criteria applied, the characteristics of the underlying series used and the statistical techniques employed. For illustration purposes, some facets of the historical evolution of total credit are explored, revealing interesting similarities and differences across countries.

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