nep-ifn New Economics Papers
on International Finance
Issue of 2010‒12‒04
six papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. Crisis and Recovery: Role of the Exchange Rate Regime in Emerging Market Countries By Charalambos G. Tsangarides
  2. Why a Diversified Portfolio Should Include African Assets By Paul Alagidede; Theodore Panagiotidis; Xu Zhang
  3. A New Index of Currency Mismatch and Systemic Risk By Romain Ranciere; Aaron Tornell; Athanasios Vamvakidis
  4. Bilateral Financial Linkages and Global Imbalances: a View on The Eve of the Financial Crisis By Francesco Strobbe; Gian Maria Milesi-Ferretti; Natalia T. Tamirisa
  5. The international monetary system, 1844-1870: Arbitrage, efficiency, liquidity By Stefano Ugolini
  6. Financial Contagion through Bank Deleveraging: Stylized Facts and Simulations Applied to the Financial Crisis By Thierry Tressel

  1. By: Charalambos G. Tsangarides
    Abstract: This paper examines the role of the exchange rate regime in explaining how emerging market economies fared in the recent global financial crisis, particularly in terms of output losses and growth resilience. After controlling for regime switches during the crisis, using alternative definitions for pegs, and taking account of other likely determinants, we find that the growth performance for pegs was not different from that of floats during the crisis. For the recovery period 2010-11, pegs appear to be faring worse, with growth recovering more slowly than floats. These results suggest an asymmetric effect of the regime during and recovering from the crisis. We also find that proxies of the trade and financial channels are important determinants of growth performance during the crisis, while only the trade channel appears important for the recovery thus far.
    Keywords: Currency pegs , Economic growth , Economic recovery , Emerging markets , Exchange rate regimes , Financial crisis , Floating exchange rates , Global Financial Crisis 2008-2009 ,
    Date: 2010–10–26
  2. By: Paul Alagidede (University of Stirling); Theodore Panagiotidis (University Of Macedonia); Xu Zhang (Economic Research Institute, Guosen Research Institute, China)
    Abstract: We employ parametric and non-parametric cointegration to investigate the extent of integration between African stock markets and the rest of the world. Long-run correlation estimates imply very low association between the two. The two distinct cointegration approaches confirm the latter through recursive estimation. The implication is that global market movements may have little impact on Africa. However,we argue that including African assets in a mean variance portfolio could be beneficial to international investors.
    Keywords: Correlation, Long-run correlation, Cointegration, Non-parametric cointegration, African Stock Markets
    JEL: C22 C52 G10
    Date: 2010–11
  3. By: Romain Ranciere; Aaron Tornell; Athanasios Vamvakidis
    Abstract: This paper constructs a new measure of currency mismatch in the banking sector that controls for bank lending to unhedged borrowers. This measure explicitly takes into account the indirect exchange rate risk that banks undertake when they lend to borrowers that will not be able to repay in the event of a sharp depreciation. Such systemic risk taking is not captured by indicators that are based only on banks’ balance sheet data. The new measure is constructed for 10 emerging European economies and for a broader sample that includes 19 additional emerging economies, for the period 1998 - 2008. Comparisons with previous currency mismatch measures that do not adjust for unhedged foreign currency borrowing illustrate the advantages of the new approach. In particular, the new measure flagged the indirect currency mismatch vulnerabilities that were building up in a number of emerging economies before the recent global crisis. Measuring currency mismatch more accurately can help country authorities in their efforts to address vulnerabilities at the right time, avoiding hurting growth prospects.
    Keywords: Banking sector , Cross country analysis , Currencies , Economic models , Emerging markets , Europe , External borrowing , Financial crisis , Fiscal risk , Loans , Sovereign debt , Time series ,
    Date: 2010–11–17
  4. By: Francesco Strobbe; Gian Maria Milesi-Ferretti; Natalia T. Tamirisa
    Abstract: We present a novel and comprehensive dataset of bilateral gross and net external positions in various financial instruments for the main advanced and emerging economies and regions, designed to improve our understanding of cross-border financial linkages. The data show no strong correspondence between country or region pairs with the largest gross versus net external positions, and the importance of international financial centers, including offshore centers, in intermediating financial flows. We also highlight some important data gaps in completing a network of cross-border holdings, related to the limited available information on the size and geographical pattern of external claims and liabilities of offshore centers, oil exporters, and other mostly emerging markets.
    Keywords: Balance of trade , Cross country analysis , Developed countries , Economic integration , Emerging markets , Globalization , Public debt , Public investment ,
    Date: 2010–11–12
  5. By: Stefano Ugolini (Graduate Institute of International and Development Studies (Geneva))
    Abstract: This paper analyses the architecture of the international monetary system which preceded the international gold standard (1844-1870). It builds on a newly-created database made up of more than 100,000 weekly observations on exchange rates, interest rates, and bullion prices in the world’s six most important financial centers of the time. Market integration, substitutability of money market instruments, choice of the correct monetary standard reference, and currency liquidity are tested; moreover, an historical analysis is run, with special reference to financial crises. Contrary to received wisdom, the results point to a trend towards increasing multipolarism in the international monetary system before 1870.
    Keywords: International monetary system, financial integration, money markets, bimetallism
    JEL: E42 F31 N20
    Date: 2010–11–23
  6. By: Thierry Tressel
    Abstract: The financial crisis has highlighted the importance of various channels of financial contagion across countries. This paper first presents stylized facts of international banking activities during the crisis. It then describes a simple model of financial contagion based on bank balance sheet identities and behavioral assumptions of deleveraging. Cascade effects can be triggered by bank losses or contractions of interbank lending activities. As a result of shocks on assets or on liabilities of banks, a global deleveraging of international banking activities can occur. Simple simulations are presented to illustrate the use of the model and the relative importance of contagion channels, relying on bank losses of advanced countries’ banking systems during the financial crisis to calibrate the shock. The outcome of the simulations is compared with the deleveraging observed during the crisis suggesting that leverage is a major determinant of financial contagion.
    Keywords: Banks , Cross country analysis , Economic models , External shocks , Global Financial Crisis 2008-2009 , Globalization , International banking ,
    Date: 2010–10–19

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