Monday, September 30, 2013

What we already knew about the global ecoomy - it was correlated during the crisis



Latest IMF research shows the strong correlation across all economies during the financial crisis or Great Recession. Those correlations have come down as we have moved to a more normal environment, but it clearly shows that there is no diversity gain in a crisis.


The IMF research goes on to show that if you peg yourself to the dollar, you are asking for trouble if there is a monetary policy shock. There is no shock insulation when there is no float in the exchange rate. If you want to protect against a Fed taper shock, allow for the exchange rate to adjust on its own.

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