nep-ifn New Economics Papers
on International Finance
Issue of 2011‒10‒15
five papers chosen by
Ajay Shah
National Institute of Public Finance and Policy

  1. Gross Capital Flows: Dynamics and Crises By Broner, Fernando A; Didier, Tatiana; Erce, Aitor; Schmukler, Sergio
  2. Spatial Spillovers in Emerging Market Spreads By Tigran Poghosyan; Salvatore Dell'Erba; Emanuele Baldacci
  3. Currency crises By Reuven Glick; Michael Hutchison
  4. Order Flows, Fundamentals and Exchange Rates By Kentaro Iwatsubo; Ian W. Marsh
  5. Did the Euro Crisis Affect Non-financial Firm Stock Prices through a Financial or Trade Channel? By Stijn Claessens; Hui Tong; Igor Zuccardi

  1. By: Broner, Fernando A; Didier, Tatiana; Erce, Aitor; Schmukler, Sergio
    Abstract: This paper analyzes the joint behavior of international capital flows by foreign and domestic agents--gross capital flows--over the business cycle and during financial crises. We show that gross capital flows are very large and volatile, especially relative to net capital flows. When foreigners invest in a country, domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical, with foreigners investing more in the country and domestic agents investing more abroad during expansions. During crises, especially during severe ones, there is retrenchment, that is, a reduction in both capital inflows by foreigners and capital outflows by domestic agents. This evidence sheds light on the nature of shocks driving capital flows and helps discriminate among existing theories. Our findings seem consistent with shocks that affect foreign and domestic agents asymmetrically, such as sovereign risk and asymmetric information.
    Keywords: crises; domestic investors; foreign investors; gross capital flows; net capital flows
    JEL: F21 F30 F32
    Date: 2011–10
  2. By: Tigran Poghosyan; Salvatore Dell'Erba; Emanuele Baldacci
    Abstract: We use novel spatial econometrics techniques to explore spillovers in the sovereign bond market for 24 emerging economies during 1995-2010. The paper extends the previous literature focusing on spillover effects from advanced to emerging economies by analyzing transmission of shocks across emerging markets. After controlling for the impact of global factors, we find strong evidence of spillovers from both sovereign spreads and macroeconomic fundamentals in neighboring emerging economies. In addition to the geographical proximity, the channels of spatial transmission include trade and financial linkages. The results of the paper highlight the importance of accounting not only for spillovers from advanced economies to emerging markets, but also across emerging markets when analyzing sovereign spreads.
    Keywords: Bond markets , Bonds , Developed countries , Economic models , Emerging markets , External debt , Financial crisis , Global Financial Crisis 2008-2009 , Sovereign debt , Spillovers ,
    Date: 2011–09–23
  3. By: Reuven Glick; Michael Hutchison
    Abstract: A currency crisis is a speculative attack on the foreign exchange value of a currency, resulting in a sharp depreciation or forcing the authorities to sell foreign exchange reserves and raise domestic interest rates to defend the currency. This article discusses analytical models of the causes of currency and associated crises, presents basic measures of the incidence of crises, evaluates the accuracy of empirical models in predicting crises, and reviews work measuring the consequences of crises on the real economy. Currency crises have large measurable costs on the economy, but our ability to predict the timing and magnitude of crises is limited by our theoretical understanding of the complex interactions between macroeconomic fundamentals, investor expectations and government policy.
    Keywords: Capital movements ; Foreign exchange
    Date: 2011
  4. By: Kentaro Iwatsubo (Graduate School of Economics, Kobe University); Ian W. Marsh (Cass Business School)
    Abstract: We examine the links between end-user order flows as seen by a major European commercial bank and macroeconomic fundamentals. We show that both exchange rate changes and flows are only weakly related to macroeconomic news announcements and hypothesise that gthe cat is already out of the bagh by the time the news is announced. Instead, order flows of financial and corporate customers reflect in real time the evolution of macroeconomies. The actions of the banks receiving the order flows in turn reveal the information to the market as a whole which prices the exchange rate accordingly. By the time the news is announced, the exchange rate already contains the majority of the information.
    Keywords: Order flows, Fundamentals, Exchange rates, News, Microstructure
    JEL: F31
    Date: 2011–09
  5. By: Stijn Claessens; Hui Tong; Igor Zuccardi
    Abstract: This paper analyzes through what channels the euro crisis has affected firm valuations globally. It examines stock price responses over the past year for 3045 non-financial firms in 16 countries to three key crisis events. Using pre-crisis benchmarks, it separates effects arising from changes in external financing and trade conditions and examines how bank and trade linkages propagated effects across borders. It finds that policy measures announced impacted financially-constrained firms more, particularly in creditor countries with greater bank exposure to peripheral euro countries. Trade linkages with peripheral countries also played a role, with euro exchange rate movements causing differential effects.
    Keywords: Capital markets , Corporate sector , Euro Area , Europe , Financial crisis , Sovereign debt , Spillovers , Stock prices , Trade ,
    Date: 2011–09–29

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