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This blog post shares the story behind our recent working paper on how Colombia’s unique Gross Leverage Position in foreign exchange derivatives helped prevent a housing bubble from bursting and what emerging economies can learn from it.
Housing prices are among the most crucial determinants of a country’s financial and macroeconomic stability. As a key macroeconomic indicator, they significantly influence both consumption and investment, shaping economic and financial cycles. Given that housing represents a substantial share of household wealth, price fluctuations have far-reaching effects on consumption, savings, and labor market decisions.
In the first quarter of 2025, economic conditions in the United States reflect a labor market showing mixed signals, alongside persistent inflationary pressures. This context may limit the Federal Reserve’s (Fed) room to cut its policy rate, suggesting a scenario of higher international interest rates for a prolonged period.
The global economy is undergoing a reconfiguration process that is characterized by growing geoeconomic fragmentation, which is defined as the tendency for trade, investment, and global value chains to divide into geopolitically aligned blocs.
We examine the relationship between a country’s level of investment in research and development (R&D) and financial stability. Our findings emphasize the importance of a balanced fiscal strategy that reconciles the urgency of short-term fiscal consolidation with the pursuit of long-term economic growth and productivity.
Fiscal policy can significantly impact the rate of inflation in Latin American countries. Governments in the region have historically implemented procyclical fiscal policies, increasing spending and borrowing during periods of economic growth and tightening policies during recessions.
In recent years, fiscal matters have taken center stage in both academic research and economic policy debates. This heightened focus is largely a consequence of the significant rise in public debt levels observed across advanced and emerging economies in the aftermath of the COVID-19 pandemic. At the same time, the sharp increase in inflation experienced in many countries led central banks to implement substantial hikes in policy interest rates.
Latin America faced a mixed economic outlook in 2024 amid a slight global economic slowdown driven by geopolitical tensions and uneven performance among major global economies. The region’s economic growth outpaced initial projections (2.3% compared to 1.8% forecasted), supported by resilient external capital flows, robust financial systems, and monetary policies that helped bring inflation closer to target levels.
The financial landscape in Latin America is undergoing a transformative shift with the growing adoption of Fast Payment Systems (FPS). These systems, which facilitate real-time or near-real-time financial transactions 24/7, offer numerous advantages over traditional payment methods, such as cash and cards. With features like low transaction costs, accessibility, and immediate availability of funds, FPS is poised to revolutionize how payments are conducted.
Throughout the year, the global economy has experienced a slight deceleration in growth compared to 2023, accompanied by inflation rates aligning more closely with target levels. This trend has enabled central banks in the Eurozone and the United States to initiate reductions in interest rates. For Latin America, this development has led to a decline in the prices of most commodities—although they remain elevated—while external financing costs have gradually decreased, particularly in the second half of the year.
FLAR contributes to the well-being of Latin America and the Caribbean by promoting macroeconomic and financial stability in the region.