The Paris-based Organisation for Economic Cooperation and Development (OECD) sets policy standards with the intention of upgrading the social and economic well-being of its member countries.
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What is the stated goal of the OECD?
The stated goal of the OECD is to shape policies that foster prosperity, equality, opportunity and well-being for all. The organisation approaches this ambitious goal using a combination of research, inter-state consultation and publications.
The OECD is supported by contributions from member states and offers policy-making advice at the civil society and state levels. The institution’s policies aim to:
- improve the environment,
- fight corruption,
- accelerate development,
- enhance educational systems,
- combat tax avoidance,
- push forward economic reforms
- and promote health and safety.
Like the World Bank, the International Monetary Fund or the World Trade Organisation, the OECD is one of a handful of institutions which study the big picture by providing insights into the macro-economic movements flowing through the world’s developed economies.
How does the OECD work?
The organisation draws on 60 years of experience in policy making and research while carrying out peer reviews of its member countries in order to find ways to improve their economic and social infrastructures.
OECD member countries
There were 38 member states at the time of writing, including the largest economy in the world – the US, and the world’s richest economy by GDP per capita - Luxembourg.
The members are mostly developed economies like the UK, Japan, Germany, Australia and France. Member states include Costa Rica and Columbia that have recently joined the ranks of developed economies with the support of the OECD’s expertise in public policy making.
Globalisation and the OECD
As economies become increasingly dependent on each other for growth, the OECD uses a system of indicators to measure globalisation. It tracks different trends including global value chains and global innovation networks.
On top of that, the OECD is involved in developing policies to reduce tax avoidance in the global economic system.
OECD influence on the markets
The OECD publishes influential studies and analyses of the international financial markets with the aim of promoting transparency, economic growth and stability.
The Committee on Financial Markets (CFM) assesses international market dynamics and risks in addition to monitoring alternative finance markets like cryptocurrency. The committee studies global bonds and commodity prices, inflation, equities, corporate and sovereign credit and debt conditions, fiscal conditions, interest rate trends, energy prices, and monetary policy.
When the OECD releases a macro-economic study, it can be widely reported in the media and potentially influence investment strategies.
Examples of OECD financial markets research
If the CFM publishes a report saying there are problems in sovereign debt and fiscal stability, investors may decide to hedge, diversify or even sell their bond holdings.
In its October 2021 report, the CFM’s research suggested that crypto-assets are seen more as a high-yielding investment as opposed to a market hedging investment like gold. In the same report, the CFM’s research also pointed out that higher equity prices may suffer when interest rates rise. Higher energy prices are driving inflation upwards, meaning that monetary policy could tighten further, according to the OECD’s research.
Well-sourced and expert information like this could influence investors’ decisions and sentiment towards the markets.
Investors can benefit from keeping up with the OECD’s macro-economic research because the organisation has so much experience and access to its member states’ economic data. Economic conditions can impact on assets like equities, sovereign bonds, currencies and real estate, meaning that the OECD’s research may connect to investment decisions in these markets.
The CFM’s reports can certainly provide solid fundamental analysis of the macro-economic climate and even steer the opinions of analysts and the media in the banking and other financial sectors.
The OECD publishes indicators on the green economy in its member states, including CO2 emissions data and related information. Its Innovation in Environment-related Technologies research reveals the advances each member state has made in renewable energy production. Another interesting benchmark is the Environmental Policy Stringency benchmark which aggregates various initiatives to reduce global warming, such as taxes on CO2, diesel fuel and public investment in R&D.
OECD economic forecasts
The OECD’s economic forecasts are closely followed by economists and financial analysts who are interested in developments and investment opportunities in the global economy. The forecasts cover topics such as inflation trends, supply-chain trends, monetary policy, commodity price trends, employment, GDP and other economic indicators.
The OECD’s forecasts are useful to get a snapshot of the health of the global economy for the next two years in addition to overall GDP growth expectations. Those looking for country-by-country economic analysis will find it alongside the aggregated data.
Lastly, the OECD has a number of publications in its research library which can be reference material for economists, financial analysts, environmentalists, policy makers and investors. The library includes publications on tax policies and the environment along with other topics covered by the institution.
How is the OECD useful for investors?
The OECD is useful for investors interested in gauging macro-economic trends and staying informed about what matters at the policy-making level. New laws in taxation and other areas are crafted using OECD recommendations. These laws have an impact on the financial sectors and investment decisions in the world’s most advanced economies, meaning that the OECD’s influence is hardwired into the structure of the global markets.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.