“Covid Impact and Macroeconomic Policy in Asia”

That’s the title of a presentation at the ASSA meetings (YouTube video of the presentation is here) in the ACAES panel “Covid and Recovery in Asia” (see below). Call Wiemer presented, and I discussed.

You can also see her main points here, tracing out the evolution of macro aggregates and policy responses, and the implications for fiscal space and monetary policy.

In my presentation, I noted two issues to keep a watch on (certainly there are more). The first is that as certain countries retrench fiscally, then current account balances will likely surge, perhaps exacerbating pressures global balances. The second is that as Fed rate tightening gets closer and closer, certain countries will be more exposed than others.

On the first point:

Figure 1: Change in current account to GDP ratio versus Change in primary net government primary lending to GDP. Red line bivariate OLS regression, slope 0.66. Singapore and Taiwan are net government lending. Source: WEO (October 2021) and author’s calculations. 

On the second point, I noted that we are on the cusp of a tightening, and the last time a tightening occurred, certain countries were hit hard.

Figure 2: Treasury 3 month yields (blue), Survey of Professional Forecasters Q3 forecasts (red +), 2021Q3 forecast (green +). Source: Federal Reserve and Philadelphia Fed.

The green + are from mid-November (survey taken late October). Expectations are likely for a sooner takeoff.

Figure 3: Treasury 10 year yield (blue), and 3 month yield (red). Source: Federal Reserve.

At which point interest rates in emerging markets will be pulled up and exchange market pressure will rise, at least for some countries (See this post, paper).

Here’s the entire panel, below:

Covid and Recovery in Asia (O5, P5)

Paper Session

 Sunday, Jan. 9, 2022   3:45 PM – 5:45 PM (EST)

Hosted By: American Committee on Asian Economic Studies & American Economic Association

  • Chair: Michael G. Plummer, Johns Hopkins University

Shaianne Osterreich, Ithaca College
Ahmed Mushfiq Mobarak, Yale University
Isabella M. Weber, University of Massachusetts-Amherst
Menzie Chinn, University of Wisconsin-Madison