nep-ifn New Economics Papers
on International Finance
Issue of 2010‒08‒21
ten papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. Exchange Rate Policy under Floating Regime in Bangladesh: An Assessment and Strategic Policy Options By Hossain, Monzur; Ahmed, Mansur
  2. Has the Euro Affected the Choice of Invoicing Currency? By Ligthart, J.E.; Werner, S.E.V.
  3. Aggregation, Heterogeneous Autoregression and Volatility of Daily International Tourist Arrivals and Exchange Rates By Chia-Lin Chang; Michael McAleer
  4. Chinese Mercantilism: Currency Wars and How the East was Lost By Surjit S. Bhalla
  5. Foreign bank participation in developing countries : what do we know about the drivers and consequences of this phenomenon? By Cull, Robert; Soledad Martinez Peria, Maria
  6. Emergence of Rating Agencies: Implications for Establishing a Regional Rating Agency in Asia By Tsai, Ying Yi; Liu, Li-Gang
  7. How Do Different Motives for R&D Investment in Foreign Locations Affect Domestic Firm Performance? An Analysis Based on Swiss Panel Micro Data By Spyros Arvanitis; Heinz Hollenstein
  8. Financial Globalization, Financial Frictions and Optimal Monetary Policy By Ester Faia; Eleni Iliopulos
  9. Exports and productivity selection effects for Dutch firms By Kox, Henk L.M.; Rojas Romasgosa, Hugo
  10. Wage Effects of Labor Migration with International Capital Mobility By Ruist, Joakim; Bigsten, Arne

  1. By: Hossain, Monzur; Ahmed, Mansur
    Abstract: This paper examines the exchange rate policy in Bangladesh for the period 2000-08. Regime classification of the paper suggests that Bangladesh maintained a de facto managed floating regime by intervening in the foreign exchange market on a regular basis. This is at odds with the Bangladesh Bank's claim of maintaining de jure floating regimesince end-May 2003. A high exchange rate pass-through is observed along with high market pressure during the period of expansionary monetary policy. Given the thin foreign exchange market and high pass-through effects, it appears difficult for Bangladesh to mainatin a freely floating regime. Although Bangladesh maintained average competitiveness, the currency remained somewhat overvalued. Based on the findings, some pragmatic policies in managing the exchange rate in Bnagladesh have been suggested.
    Keywords: Exchange Rate; Floating Regime; Bangladesh
    JEL: F31
    Date: 2009–10
  2. By: Ligthart, J.E.; Werner, S.E.V. (Tilburg University, Center for Economic Research)
    Abstract: We present a new approach to study empirically the effect of the introduction of the euro on currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice depends on the characteristics of both the currency and the country. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996{2006 period. One of the key findings is that the eurozone countries in trade with Norway have substantially increased their share of home currency invoicing after the introduction of the euro. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The econometric analysis shows a significant effect of euro introduction above and beyond the determinants of currency invoicing (i.e., ination rate, ination volatility, foreign exchange market size, and product composition). However, the rise in producer currency invoicing by eurozone countries is primarily caused by a drop in ination volatility.
    Keywords: euro;invoicing currency;exchange rate risk;ination;ination risk;vehicle currencies;compositional multinomial logit
    JEL: F14 F15 F31 F33 F36 E31 C25
    Date: 2010
  3. By: Chia-Lin Chang (Department of Applied Economics, National Chung Hsing University); Michael McAleer (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University)
    Abstract: TTourism is a major source of service receipts. The two leading tourism countries for Taiwan are Japan and USA. Daily data from 1/1/1990 to 31/12/2008 are used to model tourist arrivals from the world, USA and Japan to Taiwan, as well as their associated volatility. Inclusion of the exchange rate allows approximate daily price effects to be captured. The Heterogeneous Autoregressive (HAR) model is used to approximate long memory properties in daily exchange rates and international tourist arrivals, test whether alternative short and long run estimates of conditional volatility are sensitive to the approximate long memory in the conditional mean, examine asymmetry and leverage in volatility, and examine the effects of temporal and spatial aggregation. Asymmetry (though not leverage) is found for several alternative HAR models. For policy purposes, the empirical results suggest that an arbitrary choice of data frequency or spatial aggregation will not lead to robust findings.
    Keywords: International tourist arrivals, exchange rates, global financial crisis, GARCH, GJR, EGARCH, HAR, approximate long memory, temporal aggregation, spatial aggregation, daily effects, weekly effects, asymmetry, leverage.
    JEL: C22 F31 G18 G32
    Date: 2010–08
  4. By: Surjit S. Bhalla
    Abstract: The world changed on July 2, 1997 when Thailand floated the baht. Explanations abound on the origins of the crisis - indeed it is a growth industry. This study is part of that explosion. It has several objectives. Identification of the causes of the crisis is the most important goal. Why did it happen ? Why did the contagion happen ? What went wrong ? Was the East Asian miracle a mirage ? If causes are correctly identified, the correct policy response is expected to follow. If not, then developing countries may embark on another lost decade. A large part of the analysis centers around the proposition that the regime of fixed, quasi-fixed, managed exchange rates was at the core of the problem. In addition to managed exchange rates, the paper offers an additional contributory cause of the crisis - China’s mercantilist policy. [Working Paper No. 45]
    Keywords: Thailand, floated, crisis, important goal, East Asian
    Date: 2010
  5. By: Cull, Robert; Soledad Martinez Peria, Maria
    Abstract: Foreign bank participation has increased steadily across developing countries since the mid-1990s. This paper documents this trend and surveys the existing literature to explore the drivers and consequences of this phenomenon, paying particular attention to the differences observed across regions both in the degree of foreign bank participation and in the impact of this process. Local profit opportunities, the absence of barriers to entry, and the presence of mechanisms to mitigate information problems have been the main factors driving foreign bank entry across developing countries. In general, foreign bank participation has been shown to exert a positive influence on banking sector efficiency and competition. The weight of the evidence suggests that foreign bank presence does not endanger, but rather enhances banking sector stability. And although some case studies suggest that foreign bank entry limits access to finance, many cross-country studies offer evidence to the contrary.
    Keywords: Banks&Banking Reform,Debt Markets,Access to Finance,Emerging Markets,Foreign Direct Investment
    Date: 2010–08–01
  6. By: Tsai, Ying Yi (Asian Development Bank Institute); Liu, Li-Gang (Asian Development Bank Institute)
    Abstract: The present analysis sheds light on the setting up a regional rating agency in Asia in the wake of recent financial crisis. We investigate the policy facing a financial regulator while evaluating whether or not to admit new entrant into the credit rating market. In an incomplete contracting framework, we show that an impartial financial regulatory body (represented by a benevolent supranational organization) can facilitate credit ratings of high quality by allowing for the entry of new rating agencies on a non-single basis than it does for a mere single entry. This finding is caused by increased competition among the rating agencies, which induces higher quality of rating services even should rating agencies still exert below their maximum level of efforts.
    Keywords: credit rating agencies; moral hazard; incomplete contracting
    JEL: D43 D82 G24 L15
    Date: 2010–08–13
  7. By: Spyros Arvanitis; Heinz Hollenstein (WIFO)
    Abstract: The aim of this paper is to investigate the differences between specific motives of R&D investment in foreign locations with respect to the factors influencing the likelihood of foreign R&D and to the impact of foreign presence on the parent firms' innovativeness and productivity. An econometric analysis of Swiss firm panel data shows, firstly, that factors related to firm-specific knowledge-oriented advantages are more important for explaining the likelihood of foreign R&D activities than factors reflecting disadvantages related to home location. Secondly, knowledge-oriented motives of foreign R&D are positively correlated to innovation performance of domestic firms, whereas market-oriented and resource-oriented strategies correlate positively with productivity.
    Date: 2010–07–13
  8. By: Ester Faia; Eleni Iliopulos
    Abstract: How should monetary policy be optimally designed in an environment with high degrees of financial globalization? To answer this question we lay down an open economy model where net lending toward the rest of the world is constrained by a collateral constraint motivated by limited enforcement. Borrowing is secured by collateral in the form of durable goods whose accumulation is subject to adjustment costs. We demonstrate that, although this economy can generate persistent current account deficits, it can also deliver a stationary equilibrium. The comparison between different monetary policy regimes (floating versus pegged) shows that the impossible trinity is reversed: a higher degree of financial globalization, by inducing more persistent and volatile current account deficits, calls for exchange rate stabilization. Finally, we study the design of optimal (Ramsey) monetary policy. In this environment the policy maker faces the additional goal of stabilizing exchange rate movements, which exacerbate fluctuations in the wedges induced by the collateral constraint. In this context optimality requires deviations from price stability and calls for exchange rate stabilization
    Keywords: global imbalances, collateral constraints, monetary regimes
    JEL: E52 F1
    Date: 2010–07
  9. By: Kox, Henk L.M.; Rojas Romasgosa, Hugo
    Abstract: The paper investigates whether the self-selection hypothesis and other predictions from the heterogeneous-firms trade models can explain the export participation patterns for Dutch firms in manufacturing and services. The results provide strong support for the self-selection hypothesis, according to which firms need higher productivity performance to compensate for sunk entry costs in export markets. After controlling for many firm and market characteristics we robustly find higher productivity levels for exporters. The paper also tests for the reverse causality (learning-by-exporting), but finds no empirical support for it, not even after controlling for the firm's distance to a constructed international productivity frontier. This latter result may be important for the motivation of future export promotion policies. The empirical estimates are achieved by probit regressions at the plant level and at the firm level. As a robustness test we also applied the more standard OLS panel regression estimates, which provided similar results. The paper also tested whether the productivity-export link is conditional on the sectoral market structure and multinational affiliation. Services sectors with high competition and a lower degree of product differentiation have significantly higher export productivity premia than services firms in less competitive sectors. Such differences are not found in the manufacturing sector.
    Keywords: Export participation; productivity; self selection; market structure
    JEL: F23 F12 L1
    Date: 2010–07–01
  10. By: Ruist, Joakim (Department of Economics, School of Business, Economics and Law, Göteborg University); Bigsten, Arne (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Wage effects of immigration are investigated in a setting with international capital mobility, which eliminates two-thirds of the native wage-effects of immigration. Without international capital mobility, overall gains from migration in the immigration region are only a small fraction of total losses to native workers, but with perfect international capital adjustment, overall gains are larger than total losses to native workers. Two alternative tax policies to eliminate the negative wage-effects of immigration on low skilled native workers are evaluated.<p>
    Keywords: International labor migration; wage effects
    JEL: F21 J61
    Date: 2010–08–10

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