nep-ifn New Economics Papers
on International Finance
Issue of 2011‒06‒11
eight papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. Determinants of the Dinar-Euro Nominal Exchange Rate By Milan Nedeljkovic; Branko Urosevic
  2. Domestic financial regulation and external borrowing By Lanau, Sergi
  3. Surviving the crisis: foreign multinationals vs domestic firms By Olivier N. Godart; Holger Görg; Aoife Hanley
  4. Estimates of Fundamental Equilibrium Exchange Rates, May 2011 By William R. Cline; John Williamson
  5. The Unemployment Effect of Exchange Rate Volatility in Industrial Countries By Feldmann, Horst
  6. Uncovered Interest Parity and the Risk Premium By Li, Dandan; Ghoshray, Atanu; Morley, Bruce
  7. Foreign Ownership, Listed Status and the Financial System in East Asia: Evidence from Thailand and Malaysia By Mieno, Fumiharu
  8. Does Financial Liberalization Decrease Capital Flight? A Panel Causality Analysis By A. Yasemin Yalta; A. Talha Yalta

  1. By: Milan Nedeljkovic (National Bank of Serbia); Branko Urosevic (National Bank of Serbia)
    Abstract: This paper studies drivers of daily dynamics of the nominal dinar-euro exchange rate from September 2006 to June 2010. Using a novel semiparametric approach we are able to incorporate the evidence of nonlinearities under very weak assumptions on the underlying data generating process. We identify several factors influencing daily exchange rate returns whose importance varies over time. In the period preceeding the financial crisis, information in past returns, changes in households’ foreign currency savings and banks' net purchases of foreign currency are the most significant factors. From September 2008 onwards other factors related to changes in country's risk and the information processing in the market gain importance. NBS interventions are found to be effective with a time delay.
    Keywords: Foreign exchange market, Partially linear model, Kernel estimation
    JEL: F31 C14 G18
    Date: 2011–05
  2. By: Lanau, Sergi (International Monetary Fund)
    Abstract: This paper studies the relationship between domestic financial regulation and the incentive of non-banks to borrow from banks abroad using BIS banking data in a gravity framework. Conditional on a large set of macroeconomic controls, we find that under tighter domestic financial regulation non-banks borrow more abroad. Non-banks in a country on the upper quartile of a financial deregulation index borrow 21%–28% more than non-banks in a country with minimum regulation. The finding also holds for more disaggregated regulation measures. Interest rate controls and entry barriers to the banking sector are the most relevant types of regulation. The results in this paper indicate that international borrowing and lending is a prominent element to be taken into account in designing financial stability tools.
    Keywords: Bank regulation; cross-border banking
    JEL: G15 G28
    Date: 2011–05–31
  3. By: Olivier N. Godart; Holger Görg; Aoife Hanley
    Abstract: Starting from the observation that all firms in Ireland (foreign and domestic in manufacturing and services industries) were hit by the crisis, the paper asks whether there is a difference in the behaviour of foreign and domestic firms. One hypothesis is that foreign multinationals are less linked into the Irish economy, so more likely to leave once the economy is hit by a negative shock. The paper discusses background hypotheses before giving empirical evidence from firstly aggregate data, and secondly firm-level observations. The analysis of the latter suggests that foreign firms are not more likely to leave during the crisis than Irish firms. Some policy conclusions are offered in the paper
    Keywords: firm survival, financial crisis, Ireland
    JEL: F23
    Date: 2011–05
  4. By: William R. Cline (Peterson Institute for International Economics); John Williamson (Peterson Institute for International Economics)
    Abstract: This policy brief updates Cline and Williamson's estimates of fundamental equilibrium exchange rates (FEERs) to April 2011. Most currencies appear to have been reasonably close to their FEERs in April 2011. The most important exceptions are China, on the weak side, and the United States, on the strong side. The countries that need to seek weaker effective rates are those with large current account deficits: Australia and New Zealand, South Africa, Turkey, (marginally) Poland and Hungary, and the United States and Brazil. These are countries with floating exchange rates that have been pushed to an overvalued level by (in most cases) capital mobility and the carry trade, reinforced in the case of the United States by the dollar's role as the currency to which many other countries peg combined with the decision of some other countries to peg their rates at an undervalued level. The countries that need to revalue their effective rates are primarily Asian: China and countries that make it a priority to avoid losing competitiveness versus China (Hong Kong, Malaysia, Singapore, and Taiwan). The authors' calculations show the need for a slightly larger effective revaluation of the Chinese currency, the renminbi, this year (17.6 percent) than last (15.3 percent) and a larger appreciation of the renminbi in terms of the dollar (28.5 percent rather than 24.2 percent).
    Date: 2011–05
  5. By: Feldmann, Horst
    Abstract: Using data on 17 industrial countries from 1982 to 2003 and controlling for a wide array of factors, this paper finds that higher exchange rate volatility increases the unemployment rate. The magnitude of the effect is small. The results are robust to variations in specification.
    Keywords: exchange rate volatility; unemployment
    Date: 2011
  6. By: Li, Dandan; Ghoshray, Atanu; Morley, Bruce
    Abstract: The aim of this study is to analyze the potential risk premium inherent in the uncovered interest parity (UIP) condition. In this approach the GARCH class models, including Component GARCH are used to measure the time-varying risk premium and the results show that it is significant in most countries studied in this analysis. This suggests that risk is an important part of modeling exchange rates and needs to be considered in both empirical and theoretical models. In general, the results suggest emerging countries work better in terms of UIP and the risk premium than developed countries.
    Date: 2011
  7. By: Mieno, Fumiharu
    Abstract: Existing studies on the financial system in East Asia have emphasized its excessive debt financing, the lack of a bond market and its limited function on corporate governance. Other apparent facts, such as the average low debt ratio, the existence of large but unlisted firms, and the significance of foreign firms in its economy are generally ignored. Based on a uniquely compiled database for the top 1000 firms in Thailand and Malaysia, we examined the distributional feature of listed status and foreign ownership, and then re-estimated the determinants of the capital structures. We confirmed basic facts, such as the fact that unlisted firms occupy a large portion in the distribution, and that the debt financing of major firms is relatively inactive. We also found the significance of foreign ownership and its negative relationship with debt financing and ‘going public’. Finally, we found that certain kinds of foreign firms tend to keep large retained earnings and non-bank debt, suggesting their deep reliance on self-financing and internal capital markets. The characteristics of corporate finance in East Asia can be explained in part by distributional features on listing status and foreign ownership. Our findings raised questions about the conventional view of the current policy framework which emphasized on the shift from financial intermediation to the capital and bond markets.
    Keywords: Financial System, Corporate Finance, East Asia, FDI
    JEL: G30 G32 O52
    Date: 2011–03
  8. By: A. Yasemin Yalta; A. Talha Yalta
    Date: 2011–06

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