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on International Finance |
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Issue of 2012‒01‒10
three papers chosen by Vimal Balasubramaniam National Institute of Public Finance and Policy |
| By: | Eden, Maya |
| Abstract: | Why are emerging economies excessively vulnerable to shocks to external funding? What was the role of financial flows from emerging to developed economies in setting the stage for the subprime crisis? This paper addresses these questions in a simple general equilibrium framework that emphasizes the aggregate implications of the misallocation of funds on the micro level. The analysis shows that the misallocation of funds amplifies volatility even in a closed economy. Financial integration between relatively distorted emerging economies and relatively undistorted developed economies leads to a further divergence in volatility, thereby providing a new and simple explanation for the divergent trends in output volatility up to the recent crisis. In the integrated environment, cheap funding leads to an endogenous deterioration of the financial system in developed economies. These predictions are consistent with a wide variety of microfoundations, in which distortions cause productive projects to be relatively more sensitive to aggregate shocks. The paper provides some empirical evidence for these microfoundations. |
| Keywords: | Banks&Banking Reform,Emerging Markets,Debt Markets,Economic Theory&Research,Markets and Market Access |
| Date: | 2012–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5929&r=ifn |
| By: | Lupo Pasini, Federico (Asian Development Bank Institute) |
| Abstract: | Capital controls and exchange restrictions are used to restrict international capital flows during economic crises. This paper looks at the legal implications of these restrictions and explores the current international regulatory framework applicable to international capital movements and current payments. It shows how international capital flows suffer from the lack of a comprehensive and coherent regulatory framework that would harmonize the patchwork of multilateral, regional, and bilateral treaties that currently regulate this issue. |
| Keywords: | capital controls; exchange restrictions; international capital flows; economic crises |
| JEL: | F13 F31 F32 F53 |
| Date: | 2012–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0338&r=ifn |
| By: | Lambert, F.; Ramos-Tallada, J.; Rebillard, C. |
| Abstract: | The surge in capital inflows towards emerging countries after 2009 has revived the debate about capital controls. This paper analyzes some of the international implications of restrictions on capital inflows. Focusing on a sample of Latin-American countries, we use detailed balance of payments data and higher frequency data on portfolio bond and equity flows to investigate the potential spillover effects that capital controls imposed in one country may have on neighboring economies. Using various econometric approaches, we find that a rise in the Brazilian tax on portfolio bond inflows has been affecting other Latin-American economies through significant surges in portfolio funds invested either in fixed income or equity securities. The effect is usually short lasting and followed by rapid reductions in those inflows. Yet it can be large. According to our estimates, the increase in the Brazilian tax on portfolio bond inflows may account for the entire surge in bond inflows to Mexico between September and October 2010. |
| Keywords: | capital flows, capital controls, spillovers, Latin America, VAR. |
| JEL: | F32 F33 F42 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:357&r=ifn |