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on International Finance |
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Issue of 2012‒02‒01
six papers chosen by Vimal Balasubramaniam National Institute of Public Finance and Policy |
| By: | Marcel Fratzscher |
| Abstract: | The empirical analysis in the paper suggests that an FX policy objective and concerns about an overheating of the domestic economy have been the two main motives for the (re-)introduction and persistence of capital controls over the past decade. Capital controls are strongly associated with countries having significantly undervalued currencies. Capital controls also appear to be less motivated by worries about financial market volatility or fickle capital flows per se, but rather by concerns about capital inflows triggering an overheating of the economy – in the form of high credit growth, rising inflation and increased output volatility. Moreover, countries with a high level of capital controls, and those actively implementing controls, tend to be those that have fixed exchange rate regimes, a non-IT monetary policy framework and shallow financial markets. This evidence is consistent with capital controls being used, at least in part, to compensate for the absence of autonomous macroeconomic and prudential policies and effective adjustment mechanisms for dealing with capital flows. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:652&r=ifn |
| By: | Brian Burgoon; Panicos O. Demetriades; Geoffrey R.D. Underhill |
| Abstract: | This article seeks to clarify how we understand domestic and international sources of globalization and specifically how we explain financial liberalization across countries. The article also develops our understanding of the underlying legitimacy of financial liberalization. We debate e.g. Abiad and Mody (2005) and others who have found political factors to have little impact on financial openness. Using the same data undergirding such conclusions we argue, in contrast, that even a slight broadening of the political variables employed in the model and much closer attention to “input” and “output” aspects of the political legitimacy of financial liberalization over time reveal a more central role for politics in shaping liberalization. Input legitimacy involves the representation of stakeholders in initial and ongoing decisions to liberalize, while “output” legitimacy concerns liberalization’s distributional consequences and management thereof over time. Several empirical measures of domestic-national and international political factors plausibly influence such aspects of legitimacy and are found to play a significant role in shaping liberalization, suggesting legitimation politics to be more important to financial openness than existing studies have typically acknowledged. |
| Keywords: | financial openness; liberalization dynamics; financial regulation; political legitimacy; political variables; financial reform |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:11/45&r=ifn |
| By: | Filippo Brutti (University of Zurich); Philip Sauré (Swiss National Bank) |
| Abstract: | We assess the role of financial linkages for the transmission of sovereign risk in the Euro Crisis. Building on the narrative approach by Romer and Romer (1989), we use financial news to identify structural shocks in a VAR model of daily sovereign CDS for eleven European countries. To estimate how these shocks transmit across borders, we use data on cross-country bank exposures to sovereign debt. Our results indicate that exposure to Greek sovereign debt and debt of Greek banks constitute important transmission channels. Overall, financial linkages explain up to two thirds of transmission of sovereign debt in the Euro Crisis. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:szg:worpap:1201&r=ifn |
| By: | Meltem Gulenay Chadwick; Fatih Fazilet; Necati Tekatli |
| Abstract: | The aim of this study is to show that there exists a common movement among the currencies of emerging market economies that implemented the exible exchange rate regime after 2000. Also, we examine if this common movement is closely related to financial markets and some macroeconomic fundamentals commonly referred to as possible driving forces of exchange rates in economics literature. This common movement, which has been derived using a dynamic factor model, is introduced as a composite index of these currencies. Our findings suggest that the currencies of the emerging market economies have a common movement which can be explained to a great extent with the help of financial variables. On the other hand, macroeconomic fundamentals have limited explanatory power for apprehending the common dynamics of currencies. Also, both financial variables and macroeconomic fundamentals are analyzed together, within a nonlinear estimation framework, to see if the explanatory power of macroeconomic fundamentals improves. However, we could not observe a significant improvement. Specifically, the results underline the importance of bond market variables, stock market variables and risk indices in understanding the (common) dynamics of the emerging market currencies after 2000. |
| Keywords: | exchange rate analysis, emerging market economies, dynamic factor model, financial analysis, exchange rate models, nonlinear models |
| JEL: | C32 F31 G15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1207&r=ifn |
| By: | Jenny E. Ligthart (CentER and Department of Economics, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands.); Sebastian E. V. Werner (Tilburg University, Warandelaan 2, 5037 AB Tilburg, The Netherlands.) |
| Abstract: | We present a new approach to study empirically the effect of the introduction of the euro on the pattern of currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice is explained by both currency-specific and country-specific determinants. We use unique quarterly panel data on the invoicing of Norwegian imports from OECD countries for the 1996-2006 period. We find that eurozone countries have substantially increased their share of home currency invoicing after the introduction of the euro, whereas the home currency share of non-eurozone countries fell slightly. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The substantial rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility and can only to a small extent be explained by an unobserved euro effect. JEL Classification: F33, F41, F42, E31, C25. |
| Keywords: | Euro, invoicing currency, exchange rate risk, inflation volatility, vehicle currencies, compositional multinomial logit. |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111414&r=ifn |
| By: | Juan Carlos Gozzi; Ross Levine; Maria Soledad Martinez Peria; Sergio L. Schmukler |
| Abstract: | This paper provides the first comprehensive documentation of the main features of corporate bond issues in domestic and international markets and analyzes how firms use these markets after they internationalize. We find that debt issues in domestic and international bond markets have different characteristics, not explained by differences across firms or their country of origin. International issues tend to be larger, of shorter maturity, denominated in foreign currency, and include a higher fraction of fixed rate contracts. Moreover, a large proportion of firms remain active in domestic bond markets after accessing international markets, and many of these firms use both markets for different types of issues. This evidence suggests that domestic and international bond markets provide different financial services and are not substitutes, but rather complements. |
| JEL: | F36 G12 G15 G32 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17763&r=ifn |