This paper attempts to discern the macroeconomic policy options open to China after its stock market crash in August 2015. While several facts and figures on different facets of the Chinese economy keep pouring in – high levels household savings, rising indebtedness of private sector, slowing GDP growth rates, contracting current account surplus, and many more – it is difficult to get a holistic picture of the Chinese macroeconomy and the policy options that it has in wake of the significant changes taking place. The Sectoral Financial Balances (SFB) model, which has its basis in a simple accounting identity, provides a simple, consistent and logical framework that can help us work through the fog and put these facts and figures in perspective. At the same it allows us to trace the movement of the economy through time and draw insights into the possible trajectory of the economy given trends in various macroeconomic parameters. From our analysis, can we say that China is heading towards a major crisis? And what could be the possible policy response of the Chinese government in averting such a crisis? These are important questions that need urgent answers.
Iran is facing a severe macroeconomics crisis after the US (re)imposed sanctions on its oil and gas exports in May 2018, followed by additional sanctions on metal exports in 2019. Its exports have collapsed triggering a contraction of the economy along with accelerating inflation and depreciating currency. Using the sectoral financial balances (SFB) model, we study the interrelationship between several macroeconomic parameters maintaining stock-flow consistency across time and sectors of the economy. Fiscal and monetary policy cannot reverse the consequences of the sanctions although fiscal deficits as a percentage of GDP will see a rise to accommodate the domestic private sector’s desire to accumulate financial asset accumulation. The lack of a strong monetary policy mechanism in Iran may, however, be unable to quell the impact of expansionary fiscal policy on inflation and depreciating rial. Given the limited macroeconomic policy options open to Iran in dealing with the crisis Iran, the only option may be political – a return to the negotiating table with the US.
Sashi Sivramkrishna, Soyra Gune, Kasturi Kandalam and Advait Moharir
While the origin of shadow banks may be traced to the 1970s, developing countries have witnessed a massive growth of shadow banks in more recent decades. India too has seen a similar growth in shadow banks; however, the recent 2018 collapse of IL&FS Group, a major shadow bank, disrupted the credit cycle, stalled investment and even affected overall GDP growth. With experts warning that shadow banks are susceptible to systemic risks and crisis, it becomes imperative to understand the shadow banking system better. In this paper, we use exploratory data analysis – both quantitative and qualitative – to draw attention to the need for definitional clarity in the concept of shadow banks and how they operate. Trends in Indian shadow banking are discussed using data drawn from secondary sources. Systemic risks in India’s shadow banking sector are identified and policy interventions are discussed. The study is imperative for highlighting the importance of shadow banking in India, its growth and the evolving policy interventions regulating this important component of the financial system.