Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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When meetings matter—The World Bank and IMF Convene

by Robert Kahn

There are many reasons cited for this week’s market turndown and risk pullback, including concerns about global growth, Ebola, turmoil in the Middle East, and excessive investor comfort from easy money. What has been less commented on is the role played by last weekend’s IMF and World Bank Annual Meetings. Sometimes these meetings pass uneventfully, but sometimes bringing so many people together—policymakers and market people—creates a conversation that moves the consensus and as a result moves markets. It seems this year’s was one of those occasions. As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers—particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with it.

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The Geopolitical Paradox: Dangerous World, Resilient Markets

by Robert Kahn

Should we be worried by how well global markets are performing despite rising geopolitical volatility? I think so. In my September monthly, I look at the main arguments explaining the disconnect, and argue Europe is the region we should be most worried about a disruptive correction. Here are a few excerpts.

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China Chooses Growth Over Reform

by Robert Kahn

The Wall Street Journal piece on rapid credit growth in China yesterday describes the sharp tradeoff for the Chinese government: achieving growth targets in the near term comes at the expense of reform delays and further rapid debt accumulation. With growth likely to decelerate in 2015 without additional stimulus, the prospects for meaningful economic reform are receding. I’ve explored this tradeoff in my July Global Economics Monthly (here). Imposing hard budget constraints, tightening credit, recognizing losses, and addressing massive excess capacity in real estate, raw materials and other sectors is disruptive in the short term, and as long as growth is falling short of government targets the hard decisions are likely to be deferred. If it takes a crisis to force change, I argue in the GEM that the smooth rebalancing scenarios that China optimists predict will be at risk.

BRICS and Mortals

by Robert Kahn

Leaders of the BRICS–Brazil, Russia, India, China, and South Africa–meet in Rio today to swap World Cup stories and launch a long-discussed “BRICS Bank.” The bank creates two funds–a development lending facility (New Development Bank or NDB) backed by $50 billion in capital ($10 billion from each of the BRICs), and a $100 billion rescue fund (Contingent Reserve Arrangement, CRA) for countries suffering from exogenous shocks.

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Russian Contagion, Geopolitical Risk, and Markets

by Robert Kahn

Yesterday, I published my Global Economics Monthly. I argue that further economic sanctions against Russia would have significant global economic effects because of the Russia’s connectedness to energy and financial markets. Why then, are markets apparently so sanguine? Is it because investors, by and large, expect de-escalation? Is it a view that Russia does not matter for the global economy? Could it be a search for yield? Or is it the inherent difficultly that markets face in pricing in hard-to-quantify, large geopolitical dislocations? Probably a little bit of all of the above.

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Ukraine and IMF: Step Forward Now

by Robert Kahn

The IMF announced today that it has reached an agreement in principle on a two-year program (stand-by arrangement) with Ukraine. The headline numbers are $14-18 billion of IMF money and overall financing of $27 billion, which is lower than some had hoped, but don’t be fooled. This is a three-to-six month program, designed to meet Ukraine’s critical near-term financing needs and to get reforms going. Both are essential tasks, and rightfully the focus. The program will be revised (and likely boosted) after elections. It will be at that point that thorny issues like debt restructuring will be addressed.

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Ukraine: Economy Matters

by Robert Kahn
Value of the Ukrainian hryvnia against the dollar—closely watched by Ukrainians as an economic signal—has sharply depreciated due to recent turmoil in Kiev. (Source: Oanda.com) Value of the Ukrainian hryvnia against the dollar—closely watched by Ukrainians as an economic signal—has sharply depreciated due to recent turmoil in Kiev. (Source: Oanda.com)

A deal that would end the violence in Ukraine appears to be holding. It would produce early elections, a return to the 2004 constitution, and a national unity government. It would also set the stage for an urgent western effort to provide financing supported by an IMF program. Good news on the politics, though, does not equate to good news on the economy.

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