nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2024‒01‒15
25 papers chosen by
Georg Man,

  1. Macro-Financial Impacts of Foreign Digital Money By Anh Le; Alexander Copestake; Brandon Tan; Mr. Shanaka J Peiris; Umang Rawat
  2. The Dark Side of the Moon? Fintech and Financial Stability By Mr. Serhan Cevik
  3. Innovation Booms, Easy Financing, and Human Capital Accumulation By Johan Hombert; Adrien Matray
  4. R&D, Innovation, and the Stock Market By Amit Goyal; Sunil Wahal
  5. Commodity Prices, Financial Frictions, and Macroprudential Policies By Shigeto Kitano; Kenya Takaku
  6. Global Financial Cycle, Commodity Terms of Trade and Financial Spreads in Emerging Markets and Developing Economies By Carrera Jorge; Montes Rojas Gabriel; Solla Mariquena; Toledo Fernando
  7. Commodity derivatives markets and financial stability By Sam Schulhofer-Wohl
  8. The effectiveness of macroprudential policies in managing extreme capital flow episodes By David de Villiers; Hylton Hollander; Dawie van Lill
  9. Bank Runs and Inequality By Monroy-Taborda Sebastián
  10. Financial contagion within the interbank network By Mikropoulou, Christina D.; Vouldis, Angelos T.
  11. Contagion of bank failures through the interbank network in Argentina By Carlevaro Emiliano A.
  12. Bayesian Nonlinear Regression using Sums of Simple Functions By Florian Huber
  13. Monetary Tightening, Commercial Real Estate Distress, and US Bank Fragility By Erica Xuewei Jiang; Gregor Matvos; Tomasz Piskorski; Amit Seru
  14. The International Spillovers of Synchronous Monetary Tightening By Dario Caldara; Francesco Ferrante; Matteo Iacoviello; Andrea Prestipino; Albert Queraltó
  15. Impacts of FDI Presence and Product Sophistication on the Demand for Skilled and Unskilled Labour: Evidence from SMEs in Viet Nam By Quang Hoan Truong; Van Chung Dong
  16. China's development co-operation By Rolf Schwartz
  17. La función de la banca de desarrollo desde la óptica de la evaluación socioeconómica de proyectos By Pollini Adriana; Botteon Claudia
  18. Local Currency Loans in the Global Development Finance Architecture By Schclarek Curutchet Alfredo; Jiajun Xu
  19. Infrastructure Investment and Finance in the Global South: The Public-Private Paradox By Weiping Wu
  20. Credit Allocation and Public Credit Guarantee Schemes for Small Businesses: Evidence from Japan By TSURUTA Daisuke
  21. Finance and green growth: A comment on De Haas and Popov (2023) By Listo, Ariel; Saberian, Soodeh; Thivierge, Vincent
  22. Strategic Trading with Wealth Effects By Sergei Glebkin; Semyon Malamud; Alberto Teguia
  23. Consumption, Wealth, and Income Inequality: A Tale of Tails By Gaillard, Alexandre; Hellwig, Christian; Wangner, Philipp; Werquin, Nicolas
  24. The structural improvement for Korea's foreign exchange market and its implications on Korean economy By Kim, Hyo Sang; An, Sungbae; Jeong, Young Sik
  25. The Low Frequency Effect of Macroeconomic News on Colombian Government Bond Yields By Andrey Duván Rincón-Torres; Luisa María de la Hortúa-Pulido; Kimberly Rojas-Silva; Juan Manuel Julio-Román

  1. By: Anh Le; Alexander Copestake; Brandon Tan; Mr. Shanaka J Peiris; Umang Rawat
    Abstract: We develop a two-country New Keynesian model with endogenous currency substitution and financial frictions to examine the impact on a small developing economy of a stablecoin issued in a large foreign economy. The stablecoin provides households in the domestic economy with liquidity services and an additional hedge against domestic inflation. Its introduction amplifies currency substitution, reducing bank intermediation and weakening monetary policy transmission, worsening the impacts of recessionary shocks and increasing banking sector stress. Capital controls raise stablecoin adoption as a means of circumvention, increasing exposure to spillovers from foreign shocks. Unlike a domestic CBDC, a ban on stablecoin payments can alleviate these effects.
    Keywords: Cryptocurrency; Open Economy; Financial Frictions; Optimal Policy
    Date: 2023–12–06
  2. By: Mr. Serhan Cevik
    Abstract: Rapid advances in digital technology are revolutionizing the financial landscape. The rise of fintech has the potential to make financial systems more efficient and competitive and broaden financial inclusion. With greater technological complexity, however, fintech also poses potential systemic risks. In this paper, I use a novel dataset to trace the development of fintech (excluding cryptocurrencies) and empirically assess its impact on financial stability in a panel of 198 countries over the period 2012–2020. The analysis provides interesting insights into how fintech correlates with financial stability: (i) the impact magnitude and statistical significance of fintech depend on the type of instrument (digital lending vs. digital capital raising); (ii) the overall effect of all fintech instruments together turns out to be negative because of the overwhelming share of digital lending in total, albeit statistically insignificant; and (iii) while digital capital raising is estimated to have a positive effect on financial stability in advanced economies, its effect is negative in developing countries. Fintech is still small compared to traditional institutions, but rapidly expanding in riskier segments of the financial sector and creating new challenges for policymakers.
    Keywords: Fintech; financial innovation; financial stability
    Date: 2023–12–08
  3. By: Johan Hombert; Adrien Matray
    Abstract: Innovation booms are often fueled by easy financing that allows new technology firms to pay high wages that attracts skilled labor. Using the late 1990s Information and Communication Technology (ICT) boom as a laboratory, we show that skilled labor joining this new sector experienced sizeable long-term earnings losses. We show these earnings patterns are explained by faster skill obsolescence rather than either worker selection or the overall bust in the ICT sector. During the boom, financing flowed more to firms whose workers would experience the largest productivity declines, amplifying the negative effect of labor reallocation on aggregate human capital accumulation.
    JEL: E23 J24 O33
    Date: 2023–12
  4. By: Amit Goyal (University of Lausanne; Swiss Finance Institute); Sunil Wahal (Arizona State University)
    Abstract: We investigate the relation between inventive input (R&D), inventive output (the economic value of patents, EVP), firm-level profitability and asset growth, and stock returns. Current R&D and EVP forecast future profitability. Neither forecast future asset growth. Factor models motivated by q-theory and the dividend discount model fail to price R&D and EVP correctly, leaving large alphas on the table. But model failure is due to design specifics, not economic underpinnings: using cash-based operating profitability to measure expected profitability resurrects both models. The stock market does not appear to misprice inventive input or output.
    Keywords: Research & Development, Patents, Innovation, Intangibles, Profitability, Asset Pricing, Expected Returns, Accruals
    JEL: G11 G12 G13
    Date: 2023–11
  5. By: Shigeto Kitano (Research Institute for Economics and Business Administration (RIEB), Kobe University, JAPAN); Kenya Takaku (Faculty of International Studies, Hiroshima City University, JAPAN)
    Abstract: Fluctuations in commodity prices have significant effects on output and financial stability in emerging countries. We examine the effect of macroprudential policies on commodity-exporting countries, which consist of two sectors---the commodity-producing sector and final goods sector. When a commodity-exporting country suffers from volatile fluctuations in commodity prices, we find that macroprudential policy in each sector is welfare-enhancing and that it is optimal to impose macroprudential policies in both sectors. We also show that macroprudential policies are more effective in improving welfare for commodity-exporting economies suffering from a stronger link between commodity prices and interest rate spreads, higher sensitivity of interest spreads to debt, and larger commodity price shocks.
    Keywords: Macroprudential policies; Commodity-exporting countries; DSGE model; Financial frictions; Emerging economies; Mongolia
    JEL: E32 E44 F32 O20 Q48
    Date: 2023–12
  6. By: Carrera Jorge; Montes Rojas Gabriel; Solla Mariquena; Toledo Fernando
    Abstract: We study the diffusion of shocks in the global financial cycle and global liquidity conditions to emerging and developing economies. We show that the classification according to their external trade patterns (as commodities’ net exporters or net importers) allows to evaluate the relative importance of international monetary spillovers and their impact on the domestic financial cycle volatility —i.e., the coefficient of variation of financial spreads and risks. Given the relative importance of commodity trade in the economic structure of these countries, our study reveals that the sign and size of the trade balance of commodity goods are key parameters to rationalize the impact of global financial and liquidity conditions. Hence, the sign and volume of commodity external trade will define the effect on countries’ financial spreads. We implement a two-equation dynamic panel data model for 33 countries during 1999:Q1-2020:Q4 that identifies the effect of global conditions on the countries’ commodities terms of trade and financial spreads, first in a direct way, and then by a feedback mechanism by which the terms of trade have an asymmetric additional influence on spreads.
    JEL: F41 Q02
    Date: 2022–11
  7. By: Sam Schulhofer-Wohl
    Abstract: Keynote remarks by Sam Schulhofer-Wohl at FIA Forum: Commodities 2023—Commodity Derivatives Markets in the Age of Uncertainty, Houston, Texas.
    Keywords: commodity markets; financial stability
    Date: 2023–09–13
  8. By: David de Villiers (Department of Economics, Stellenbosch University); Hylton Hollander (Department of Economics, Stellenbosch University); Dawie van Lill (Department of Economics, Stellenbosch University)
    Abstract: Against the backdrop of a proliferation of policy tools, ongoing policy uncertainty surrounds the suitability of capital flow management in mitigating systemic risk and financial disruptions. We study the effectiveness of macroprudential policies in managing extreme capital flow episodes (surges, stops, flight, and retrenchment), comparing them to capital controls and foreign exchange interventions. Using propensity score matching, based on a panel of 54 countries spanning 1990Q1 to 2020Q3, we find that macroprudential policy can reduce the likelihood of extreme capital flow episodes at least as effectively as capital controls or foreign exchange interventions. Their relative effectiveness, however, varies considerably across type of instrument, proliferation of tools, country income-development level, and type of extreme capital flow episode.
    Keywords: macroprudential policy, capital controls, foreign exchange interventions, extreme capital flows, financial stability
    JEL: E58 F3 F4 G01 G1
    Date: 2023
  9. By: Monroy-Taborda Sebastián
    Abstract: In this paper, I examine the relationship between income inequality and bank runs. Analyzing data for 17 countries between 1880 and 2013, I find a positive (and statistically significant) correlation between income inequality and the likelihood of bank runs. I propose a banking model to explore the mechanism underpinning this correlation. This model predicts that rising inequality increases the probability of a bank run. Furthermore, I find that income inequality increases consumption allocations in equilibrium, as they depend on the aggregate level of endowment, and the bank can redistribute between depositors, leading to a higher risk in the bank’s investment portfolio.
    JEL: G01 D31
    Date: 2023–11
  10. By: Mikropoulou, Christina D.; Vouldis, Angelos T.
    Abstract: The analysis of contagion in financial networks has primarily focused on transmission channels operating through direct linkages. This paper develops a model of financial contagion in the interbank market featuring both direct and indirect transmission mechanisms. The model is used to analyse how shocks originating from outside sectors impact the functioning of the interbank market and investigates the emergence of instability in this setting. We conduct simulations on actual interbank bilateral exposures, constructed manually from a supervisory dataset reported by the largest euro area banks. We find that while the impact of direct contagion increases gradually with the shock intensity, the effect of indirect contagion is subject to threshold effects and can increase abruptly when the threshold is exceeded. In addition, the risk posed by indirect contagion has a higher upper bound compared to direct contagion. Finally, we find that in terms of overall impact, the shocks to the value of sovereign debt and non-bank financial institutions represent the most significant risk to the functioning of the interbank market. JEL Classification: G01, G21, G23, D85
    Keywords: banking sector, contagion, funding concentration risk, network analysis
    Date: 2023–12
  11. By: Carlevaro Emiliano A.
    Abstract: Capital regulation on banks aims to reduce the probability of failures. In theory, the effect of capital buffers in preventing failures could depend on the linkages among financial institutions. These linkages are nevertheless usually omitted in empirical models. I study the effectiveness of capital regulation in preventing failures using a spatial autoregressive probit model, which accommodates links among banks and feedback effects. I study the Argentinian banking crisis of 2001 for which I build the complete interbank network. By allowing linkages between banks, estimates from the spatial model show that capital regulation is 50% less effective than estimates of a model in which banks are not interconnected.
    JEL: E44 C21
    Date: 2023–11
  12. By: Florian Huber
    Abstract: This paper proposes a new Bayesian machine learning model that can be applied to large datasets arising in macroeconomics. Our framework sums over many simple two-component location mixtures. The transition between components is determined by a logistic function that depends on a single threshold variable and two hyperparameters. Each of these individual models only accounts for a minor portion of the variation in the endogenous variables. But many of them are capable of capturing arbitrary nonlinear conditional mean relations. Conjugate priors enable fast and efficient inference. In simulations, we show that our approach produces accurate point and density forecasts. In a real-data exercise, we forecast US macroeconomic aggregates and consider the nonlinear effects of financial shocks in a large-scale nonlinear VAR.
    Date: 2023–12
  13. By: Erica Xuewei Jiang; Gregor Matvos; Tomasz Piskorski; Amit Seru
    Abstract: Building on the work of Jiang et al. (2023) we develop a framework to analyze the effects of credit risk on the solvency of U.S. banks in the rising interest rate environment. We focus on commercial real estate (CRE) loans that account for about quarter of assets for an average bank and about $2.7 trillion of bank assets in the aggregate. Using loan-level data we find that after recent declines in property values following higher interest rates and adoption of hybrid working patterns about 14% of all loans and 44% of office loans appear to be in a “negative equity” where their current property values are less than the outstanding loan balances. Additionally, around one-third of all loans and the majority of office loans may encounter substantial cash flow problems and refinancing challenges. A 10% (20%) default rate on CRE loans – a range close to what one saw in the Great Recession on the lower end -- would result in about $80 ($160) billion of additional bank losses. If CRE loan distress would manifest itself early in 2022 when interest rates were low, not a single bank would fail, even under our most pessimistic scenario. However, after more than $2 trillion decline in banks’ asset values following the monetary tightening of 2022, additional 231 (482) banks with aggregate assets of $1 trillion ($1.4 trillion) would have their marked to market value of assets below the face value of all their non-equity liabilities. To assess the risk of solvency bank runs induced by higher rates and credit losses, we expand the Uninsured Depositors Run Risk (UDRR) financial stability measure developed by Jiang et al. (2023) where we incorporate the impact of credit losses into the market-to-market asset calculation, along with the effects of higher interest rates. Our analysis, reflecting market conditions up to 2023:Q3, reveals that CRE distress can induce anywhere from dozens to over 300 mainly smaller regional banks joining the ranks of banks at risk of solvency runs. These findings carry significant implications for financial regulation, risk supervision, and the transmission of monetary policy.
    JEL: G2 L50
    Date: 2023–12
  14. By: Dario Caldara; Francesco Ferrante; Matteo Iacoviello; Andrea Prestipino; Albert Queraltó
    Abstract: We use historical data and a calibrated model of the world economy to study how a synchronous monetary tightening can amplify cross-border transmission of monetary policy. The empirical analysis shows that historical episodes of synchronous tightening are associated with tighter financial conditions and larger effects on economic activity than asynchronous ones. In the model, a sufficiently large synchronous tightening can disrupt intermediation of credit by global financial intermediaries causing large output losses and an increase in sacrifice ratios, that is, output lost for a given reduction in inflation. We use this framework to show that there are gains from coordination of international monetary policy.
    Keywords: Monetary Policy; Inflation; International Spillovers; Financial Frictions; Open Economy Macroeconomics; Panel Data Estimation
    JEL: C33 E32 E44 F42
    Date: 2023–11–29
  15. By: Quang Hoan Truong (Institute for Southeast Asian Studies, Viet Nam Academy of Social Sciences (VASS)); Van Chung Dong (Viet Nam Academy of Social Sciences (VASS))
    Abstract: This study employs data from the Viet Nam Enterprise Survey (VES) for 2007 and 2011 to examine the effect of foreign direct investment (FDI) and product sophistication as well as the interaction between these two factors on the skilled and unskilled labour demand on Viet Nam's small and medium-sized enterprises (SMEs). It finds that the FDI presence in the same industry but different regions-and FDI in the same region but different industries - has a positive effect on the skilled labour demand and a negative impact on the unskilled labour demand. FDI in the same industry has a negative effect on the skilled labour demand and an advantageous impact on the unskilled labour demand. The product sophistication index is found to positively affect the skilled labour demand but decreases the demand for unskilled labour. When interacting with product sophistication, FDI presence in the same industry and region positively affects the skilled labour demand. The study also finds the opposite impacts of different types of FDI presence as well as the interaction between FDI presence and product sophistication on the demand for highly, medium-, and basic-skilled labour. Thus, it is important to consider the opposite effects of different types of FDI and the interaction between FDI presence and product sophistication on SME labour demand by skills level.
    Keywords: FDI presence; Product sophistication; SMEs; Skilled and unskilled labour demand; Viet Nam
    JEL: F15 F23 J23
    Date: 2023–02–02
  16. By: Rolf Schwartz
    Abstract: This paper traces the history of China’s development co-operation system and looks into its practices, touching upon implementation gaps with established international norms and practices.
    Keywords: asia, China, developing countries, development co-operation, development effectiveness, development finance, development planning, institutions, sdgs
    JEL: N2 N25 O1 O19 O2 O5 O53 G28
    Date: 2023–12–22
  17. By: Pollini Adriana; Botteon Claudia
    Abstract: De las diversas razones expuestas para justificar la existencia de la banca de desarrollo, una de las más comunes es la necesidad de incluir financieramente a algunos actores/áreas que la banca tradicional excluye, debido a las particularidades propias del sistema financiero. La exclusión puede ser parcial o total y viene dada por las condiciones exigentes en términos de garantías, documentación, tasas, plazos, etc., que hacen que al potencial tomador de créditos le resulten tan onerosos que revierte la bondad de la actividad a la que lo destinarían. Usualmente, son las pequeñas y medianas empresas, los proyectos con amplio periodo de maduración y las empresas innovadoras las que mayormente resultan afectadas por el racionamiento y el encarecimiento del crédito. Teniendo en cuenta esta problemática, cabe preguntarse cuándo se justifica la intervención de la banca de desarrollo y cuál es el resultado atribuible a la misma. Para dar respuesta al primer interrogante una forma de proceder es analizar bajo qué condiciones la ejecución de un proyecto socialmente rentable depende, sine qua non, de la intervención de la banca. La respuesta del segundo interrogante está directamente relacionada con la del primero. El resultado atribuible a la intervención de la banca de desarrollo está dado por el beneficio social neto de los proyectos que no se hubiesen llevado a cabo de no mediar intervención de la banca. La dificultad latente en esta segunda respuesta radica en la adecuada identificación, cuantificación y valoración de esos beneficios y costos sociales, lo cual, en la práctica, no es una tarea sencilla.
    JEL: D7 H4
    Date: 2022–11
  18. By: Schclarek Curutchet Alfredo; Jiajun Xu
    Abstract: We analyze how multilateral development banks (MDBs) can lend in local currency to investment projects that are “domestic-oriented” (DOIPs), i.e., which do not generate hard currency, without incurring in currency mismatches between their assets and liabilities, which would downgrade their credit ratings. Further, we compare two funding strategies for MDBs; one that involves buying local currency and one that involves issuing local currency bonds. The main policy conclusion is that there are tradeoffs between these two funding strategies and MDBs should consider the particular exchange rate risks and balance of payments crisis risks for the real investment projects that are financed and the host countries.
    JEL: G01 E51
    Date: 2023–11
  19. By: Weiping Wu (Columbia University)
    Abstract: While the public sector is traditionally the sole provider for much of infrastructure, the pendulum is shifting in light of the enormous investment gap. Across the Global South, public utilities and planning agencies are engaging with the private sector to help bridge the gap. What are the key sources of infrastructure investment across countries in the Global South? Specifically, what is the magnitude of public sector financing in the context of rising private participation? What macro factors underscore the volume of investment from either sector? These are the research questions motivating this research, which focuses on the five infrastructure sectors in the Global South and its various regions. Following a historical synthesis of the changing balance of public and private provision, the paper first outlines recent patterns of private participation in infrastructure. A unique dataset on infrastructure investment in the transport sector draws from the World Bank PPI database and the International Transport Forum data. Using this dataset, a regression analysis includes key macro-level predictors for private sector financing and overall investment, to untangle the public-private paradox. Key results point to the importance of effective governance and controlling external debt.
    Date: 2023–12
  20. By: TSURUTA Daisuke
    Abstract: In this paper, we investigate the relationship between the use of a public credit guarantee scheme for small businesses and the efficiency of credit allocation using region- and industry-level data from Japan for the period from 1968 to 2005. Studies argue that credit constraints are more severe for small businesses than for large firms. Therefore, a public credit guarantee scheme that mitigates this constraint could enhance social welfare. If credit guaranteed loans were allocated to firms with high value added, the public credit guarantee scheme would enhance the efficiency of credit allocation. Conversely, however, public credit guarantee schemes can squeeze credit allocations for small businesses. When financial institutions offer loans through credit guarantee schemes, they can offer loans to small businesses at low risk to themselves, even though small businesses are high-risk borrowers, which may reduce the incentives of the financial institutions to monitor the activity of small business borrowers. In addition, because the public credit guarantee scheme in Japan is a component of a broader set of social policies aiming to eliminate inequality, credit guaranteed loans can be offered to economically distressed firms. We identify a negative relationship between the amount of credit guaranteed and the value added. Moreover, we find that the greater the amount of credit guaranteed loans offered to firms, the larger the default rate among small businesses. We show that the public credit guarantee scheme reduced the efficiency of credit allocations, which has implications for industry and regional growth.
    Date: 2023–12
  21. By: Listo, Ariel; Saberian, Soodeh; Thivierge, Vincent
    Abstract: De Haas and Popov (2023) estimate the effect of country-level financial sector size and structure on decarbonization to show that countries with relatively more equity versus debt financing have more emission-efficient economies. We uncover multiple coding errors that change the magnitude and the precision of the coefficients of interest. These coding errors include misreporting of standard errors, and misspecifying generalized method of moments (GMM) estimators. We further provide robustness tests of the results to (1) restricting the sample to consistent sets of countries across the country and country-byindustry samples, and (2) using a limited information maximum likelihood (LIML) estimator to address a weak-instrument problem. We find that the results from the robustness checks are qualitatively different from the original results but similar to the corrected results.
    Date: 2023
  22. By: Sergei Glebkin (INSEAD); Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Alberto Teguia (University of British Columbia)
    Abstract: We analyze asset prices and liquidity in an economy with large investors and many risky assets. The model allows for general investors' preferences and distributions of asset payoffs. We propose a constructive solution approach: solving for equilibrium reduces to solving nonlinear first-order ODE. We show that the equilibrium is unique under mild restrictions on payoffs and preferences. Liquidity risk is priced in equilibrium, leading to deviations from the consumption-CAPM. In stark contrast to a constant absolute risk aversion (CARA) benchmark, in a model with wealth effects, we obtain (1) illiquidity of risk-free assets (such as, e.g., Treasuries); (2) illiquidity contagion (a sell-off in one asset may have a price impact on assets with unrelated fundamentals) and asymmetry in cross-asset price impacts; (3) market liquidity may decrease in the number of traders and their wealth; and (4) in the presence of liquidity shortage, price impact may become negative giving rise to an illiquidity premium in asset prices; (5) safe assets are more illiquid because they have a larger price impact. In the presence of wealth heterogeneity, large traders trade more but also reduce their demands more. As a group, they account for a smaller fraction of orders compared to small investors. Fatter-tailed wealth distribution makes markets less liquid.
    Keywords: Market Liquidity, Funding Liquidity, Price Impact, Strategic Trading, Wealth Effects
    JEL: D21 G31 G32 G35 L11
    Date: 2023–11
  23. By: Gaillard, Alexandre; Hellwig, Christian; Wangner, Philipp; Werquin, Nicolas
    Abstract: We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and mag-nitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concen-tration puzzle. We match the cross-sectional data on these four Pareto tails by positing a combination of non-homothetic, wealth-dependent preferences and scale-dependent returns to capital. We underscore the importance of these results by showing that all four dimensions of top inequality jointly determine the long-run elasticity that governs the revenue-maximizing capital tax rate.
    Date: 2023–12
    Abstract: The Korean government recognizes the imperative to improve the structure of the foreign exchange market to align with global standards, aiming for increased openness and competitiveness. The plan involves a twofold approach. One is a comprehensive reform of foreign exchange laws and regulations, notably the Foreign Exchange Transaction Act enacted in 1999, to adapt to evolving economic environments. The other is the systematic improvement of the foreign exchange market infrastructure to make the market more accessible to foreign investors. Through this procedure, Korea desires to develop a deeper and more market-oriented foreign exchange market, thereby improving the convenience and efficiency of participants. Also, it helps to internationalize the Korean won in the longer term. Amidst Korea's export-led growth and aging population, improving the foreign exchange market becomes pivotal for supporting the positioning of the Korean financial market, fostering financial openness, and sustaining long-term economic growth.
    Keywords: Foreign exchange market; Structural reform
    Date: 2023–12–01
  25. By: Andrey Duván Rincón-Torres; Luisa María de la Hortúa-Pulido; Kimberly Rojas-Silva; Juan Manuel Julio-Román
    Abstract: We study the effect of macroeconomic announcements surprises on Colombian treasury bond spot rates in the medium term. For this, we employ a two-step regression approach proposed by Altavilla, Giannone and Modugno (2017), which takes into account the high frequency response to these surprises while filtering out the noise in the estimation of its medium to long term effect. We found that the share of variation of one day Colombian treasury bond spot rates changes explained by these surprises lies below 10%. Moreover, Colombian macroeconomic announcement surprises other than the nominal exchange rate depreciation do not seem to significantly affect spot rate changes, although important ones have big (but not significant) effect. Furthermore, the explanatory power of macroeconomic news surprises increases substantially at longer horizons, i.e. monthly and quarterly changes, reaching 34% for the latter. These results arise from the fact that spot rate changes show a delayed effect to shocks. This is mostly due to the features of the shocks contained in the error and the persistence of macroeconomic news surprises effect’s. Our results are robust to the appetite for risk of international investors measure employed in the model. **** RESUMEN: Estudiamos el efecto de mediano a largo plazo de las sorpresas en los anuncios de cifras macroeconómicas sobre las tasas cero cupón de los títulos denominados en pesos de la Tesorería Nacional, TES. Empleamos regresión en dos etapas propuesta por Altavilla, Giannone and Modugno (2017), la cual tiene en cuenta las respuestas de alta frecuencia a las sorpresas, que filtra el ruido en la estimación de los efectos en el mediano plazo. Encontramos que el porcentaje de las variaciones de los cambios de alta frecuencia de las tasas spot explicadas por las sorpresas es inferior al 10%. Adicionalmente, las sorpresas macroeconómicas colombianas, excepto la depreciación nominal, no afectan significativamente los cambios de las tasas cero cupón, aunque algunas sorpresas importantes tienen un efecto grande (pero no significativo). Además, el poder explicativo de las sorpresas se incrementa substancialmente para horizontes más largos, i.e. cambios mensuales y trimestrales, alcanzando un 34% para el último. Estos resultados reflejan el hecho de que las tasas spot responden con retraso a los choques, lo cual está asociado a las características de los choques en el error y la persistencia del efecto de las sorpresas. Nuestros resultados son robustos a la medida del apetito por riesgo de los inversionistas internacionales empleada en el modelo.
    Keywords: Macroeconomic announcements, News, Low frequency analysis, Treasury bonds spot rates, Anuncios de cifras macroeconómicas, Noticias, Análisis de baja frecuencia, Tasa de los bonos de tesorería
    JEL: E43 E44 E47 G14
    Date: 2023–12

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