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on International Finance |
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Issue of 2010‒08‒14
twelve papers chosen by Ajay Shah National Institute of Public Finance and Policy |
| By: | Dr Stanley Fischer |
| Abstract: | This lecture series begins with a discussion of the reforms that have undertaken in the IMF since the mid-1990s, and particularly since the start of the Asian economic crisis. It concludes with a discussion of the potential future roles of IMF in Asia, and of Asian countries in the IMF, particularly in the light of the emerging regional financial arrangements. |
| Keywords: | reforms, IMF, Asian, economic, financial arrangements |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2736&r=ifn |
| By: | Kawai, Masahiro (Asian Development Bank Institute); Petri, Peter (Asian Development Bank Institute) |
| Abstract: | The global economic and financial landscape has been transformed over the past decade by the growing economic size and financial power of emerging economies. The new G20 summit process, which includes the largest emerging economies, has established high-level international policy cooperation in this new setting. This paper argues that effective global economic governance will also require changes in key global organizations—such as the International Monetary Fund, World Bank, World Trade Organization, and the Financial Stability Board—and closer collaboration between global and regional organizations. We suggest that federalism be introduced on a global scale by creating hierarchies of global and regional organizations with overlapping ownership structures in various functional areas (as is already the case with the World Bank and regional development banks in the area of development finance). Asia could contribute to this transformation by building effective institutions to promote macroeconomic and financial stability and deepen regional trade and investment integration. |
| Keywords: | saving investment balance; basic determinants export; american economy postcrisis |
| JEL: | F32 F41 F42 |
| Date: | 2010–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0235&r=ifn |
| By: | Tobias Adrian; Erkko Etula; Jan J. J. Groen |
| Abstract: | Theories of systemic risk suggest that financial intermediaries’ balance-sheet constraints amplify fundamental shocks. We provide supporting evidence for such theories by decomposing the U.S. dollar risk premium into components associated with macroeconomic fundamentals and a component associated with financial intermediaries’ balance sheets. Relative to the benchmark model with only macroeconomic state variables, balance sheets amplify the U.S. dollar risk premium. We discuss applications to systemic risk monitoring. |
| Keywords: | Systemic risk ; Intermediation (Finance) ; Foreign exchange ; Assets (Accounting) |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:461&r=ifn |
| By: | Rasmus Fatum (School of Business, University of Alberta) |
| Abstract: | The Japanese zero-interest rate period provides a “natural experiment” for investigating the effectiveness and transmission channels of sterilized intervention when traditional monetary policy options are constrained. This paper takes advantage of the fact that all interventions in the JPY/USD market during the zero-interest rate period are sterilized sales of JPY and, therefore, none of these interventions can signal a future interest rate decrease. In order to further assess through which transmission channel these interventions work, the analysis integrates official daily Japanese intervention data with a comprehensive set of rumors data that capture interventions of which the market is aware. Market awareness is a necessary condition for intervention to disseminate information and work through channels other than the portfolio balance channel. The results of the time series analysis show that intervention, on average, induces a statistically and economically significant same-day depreciation of the JPY. Market awareness is shown to be unimportant. Consequently, the effects of Japanese interventions during the zero-interest rate period are consistent only with the portfolio balance channel. This is a remarkable finding, demonstrating that sterilized intervention is, in principle, an independent policy instrument. |
| Keywords: | exchange rates; foreign exchange market intervention; channels of transmission |
| JEL: | E52 F31 G14 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:10-07&r=ifn |
| By: | Martin Schmitz (Institute for International Integration Studies, Trinity College Dublin); |
| Abstract: | This paper shows that, controlling for standard determinants of net external positions, financially-remote countries exhibit more positive net external positions. This finding is found to be stronger for less advanced countries, hinting at external funding problems for more remote countries. Being located near financially very open countries, being in currency unions with creditor countries, or being highly integrated through financial and trade linkages with a ‘core’ country facilitates net external borrowing. Consequently, evidence is found for an important role of geographic and bilateral factors for a country’s net external wealth. |
| Keywords: | net foreign assets, cross-border investment, distance, proximity |
| JEL: | F21 F34 F41 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp332&r=ifn |
| By: | John D. Burger; Francis E. Warnock; Veronica Cacdac Warnock |
| Abstract: | We assess the extent to which emerging economies have been able to attract global investors to their local currency bond markets. To do so, we first provide a sense of the playing field by examining the surge in the development of local currency bond markets over the past decade, as well as the historical returns characteristics faced by global investors. We then present a model in which investors care about barriers to investment as well as the mean, variance, and skewness of expected returns. Empirical tests suggest that the dominant factor is a new measure of investability; cross-border participation in local currency bonds is highest in countries in which investor-friendly institutions and policies have been established. Finally, we discuss the link between our findings and global financial stability. In particular, both increased bond market development and greater foreign participation are paths toward ameliorating imbalances associated with 1990s and more recent financial crises. |
| JEL: | F3 G11 G15 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16249&r=ifn |
| By: | Pels (Institute for International Integration Studies, Trinity College Dublin); |
| Abstract: | According to neoclassical economic theory capital scarce countries with an open capital account will attract foreign capital because the rate of return in these countries is high. Capital inflows will be channelled towards investment projects in order to reap the benefits of the higher rate of return, and this will lead to economic growth. Empirically it is not clear that this mechanism is at work. This paper extends the current literature by combining the insight that domestic finance matters for growth into the empirical literature on the effects of capital inflows. A panel of 39 countries between 1976 and 2003 is used to estimate the effects of capital inflows on fixed investment. I use panel data on 39 developing countries between 1976 and 2003 to show that the effect of capital inflows on physical investment depends on the type of flow and on the level of domestic financial development. It is shown that the effect of capital inflows on physical investment depends on the type of flow and on the level of domestic financial development. The effects of aggregate capital inflows on investment are positive, small and increasing with the level of domestic financial development. Only for debt inflows there is an indication that a higher level of financial development increases the effect the inflows have on investment. |
| Keywords: | capital inflows, domestic investment, financial integration |
| JEL: | F21 F30 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp330&r=ifn |
| By: | Pels (Institute for International Integration Studies, Trinity College Dublin); |
| Abstract: | The establishment of a monetary union in Europe in 1999 has eliminated exchange rate risk within the euro area and has led to a more unified financial framework. It has been established in the literature that the euro has led to a disproportional increase in bilateral asset holdings within the euro area. This paper builds on this evidence and answers the question whether this has been a one-off effect, or whether the euro effect in intra-euro area bilateral asset holdings has changed over time. We show, using a gravity framework, that the proportional increase in bilateral asset holdings took place in the early years of the European monetary union and was a unique event. The data used are bilateral data on equity and bond holdings, provided by the Coordinated Portfolio Investment Survey of the IMF for the years 1997, and 2001 until 2006. |
| Keywords: | international asset trade; gravity equation; euro |
| JEL: | F30 F36 F41 G11 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp331&r=ifn |
| By: | Korap, Levent |
| Abstract: | In this paper, the determinants of the portfolio based capital flows are examined for the Turkish economy. Following the structural vector autoregression methodology, the estimation results reveal that the ‘push’ factors based on the external developments for the Turkish economy have a dominant role in explaining the behavior of the portfolio flows. Further, the domestic real interest rate as one of the main ‘pull’ factors has been found in a negative dynamic relationship with the portfolio flows. This result is attributed to that the dynamic course of the portfolio flows should not be related to the excess return possibilities of the real interest structure of the Turkish economy. |
| Keywords: | Portfolio Flows; SVAR Analysis; Turkish Economy; |
| JEL: | C32 G11 F32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24275&r=ifn |
| By: | Evzen Kocenda; Jan Hanousek |
| Abstract: | We analyze foreign news and spillovers in the emerging EU stock markets (the Czech Republic, Hungary, and Poland). We employ high-frequency five-minute intraday data on stock market index returns and four classes of EU and U.S. macroeconomic announcements during 2004–2007. We account for the difference of each announcement from its market expectation and we jointly model the volatility of the returns accounting for intraday movements and day-of-the-week effects. Our findings show that intraday interactions on the new EU markets are strongly determined by mature stock markets as well as the macroeconomic news originating thereby. We show that strong contemporaneous links across markets are present even after controlling for macroeconomic announcements. Finally, in terms of specific announcements, we are able to show the exact sources of macro news spillovers from the developed foreign markets to the three new EU markets under research. |
| Keywords: | finance, intra-day data, macroeconomic news, European emerging stock markets,volatility |
| JEL: | C52 F36 G15 P59 |
| Date: | 2010–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-983&r=ifn |
| By: | Rebeca Jimenez-Rodriguez; Amalia Morales-Zumaquero; Balazs Egert |
| Abstract: | This paper investigates the impact of international shocks – interest rate, commodity price and industrial production shocks – on key macroeconomic variables in ten Central and Eastern European (CEE) countries by using near-VAR models and monthly data from the early 1990s to 2009. In contrast to previous work, the empirical analysis takes explicit account of the possibility of (multiple) structural breaks in the underlying time series. We establish strong evidence of structural breaks, particularly along the years 2007 and 2008, suggesting the very relevant impact of the recent global crisis on CEE economies. Moreover, our results suggest that the way how countries react to world commodity price shocks is related to the underlying economic structure and the credibility of the monetary policy. We also find that some countries like Slovakia and Slovenia – already euro area members – react stronger to foreign industrial production shocks than other countries and that the responses to such shocks are strongly correlated for selected CEE countries. Nevertheless, our results also shed light on substantial differences in responses to foreign interest rate shocks that originate from the US or the euro area. |
| Keywords: | monetary policy; foreign shocks; multiple structural breaks; near-VAR model; CEE economies. |
| JEL: | E43 E50 E52 C22 O52 |
| Date: | 2010–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-989&r=ifn |
| By: | Priit Vahter |
| Abstract: | Does FDI affect productivity growth, innovation, and knowledge sourcing activities of domestic firms? This study employs detailed firm-level panel-data from Estonia’s manufacturing sector to investigate different channels through which FDI can affect domestic firms. I use instrumental variables approach to identify the effects. I find no evidence of an effect of FDI entry on local incumbents’ TFP and labour productivityg rowth in the short term. The effect on productivity does not depend on the local firms’ distance to the productivity frontier. However, there are positive spillovers on process innovation. The results show significant positive correlation between the entry of FDI in a sector and the more direct measures of spillovers in subsequent periods. This is consistent with the view that FDI inflow to a sector intensifies knowledge flows to domestic firms. |
| Keywords: | foreign direct investment, productivity, innovation, learning |
| JEL: | F21 F23 O31 O33 |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-986&r=ifn |