nep-ifn New Economics Papers
on International Finance
Issue of 2012‒05‒15
four papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. Order Flow and the Real: Indirect Evidence of the Effectiveness of Sterilized Interventions By Emanuel Kohlscheen
  2. Developing countries’ financial vulnerability to the euro crisis: An event study of equity and bond markets By Joshua Aizenman; Yothin Jinjarak; Minsoo Lee; Donghyun Park
  3. International Capital Flows to Emerging and Developing Countries: National and Global Determinants By Byrne, Joseph P.; Fiess, Norbert
  4. Monetary Policy Flixibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares By Troeger, Vera

  1. By: Emanuel Kohlscheen
    Abstract: This study presents indirect evidence of the effectiveness of sterilized interventions in Brazil based on the complete records of daily customer order flow data reported by Brazilian dealers as well as foreign exchange intervention data over a time span of 10 years (2002-2011). We find that the effect of USD sales by end-users on the BRL/USD was much stronger on days in which the BCB did not intervene in the spot foreign exchange market. The regressions suggest that a 1% appreciation of the Real would have required the sale of 2.0 bn USD by final customers on days in which the Central Bank refrained from intervening. This compares to required sales of 5.5 bn USD on days in which the Central Bank was present in the market. This large effect, in spite of the fact that the median intervention amounted to only 140 mn USD, can be interpreted as evidence for the indirect damping channel. Furthermore, we find that order flows coming from outside of the financial sector have a (considerably) stronger effect on the BRL/USD exchange rate than those coming from financial customers. We argue that some studies may have failed to find significant effects of BCB interventions due to a problem of reverse causality, as in a regime of discretionary interventions the decision to intervene is often taken during trading hours.
    Date: 2012–04
  2. By: Joshua Aizenman; Yothin Jinjarak; Minsoo Lee; Donghyun Park
    Abstract: The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis news and euro crisis news. Overall, we find that whereas global crisis news had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of euro crisis news was more mixed and limited.
    JEL: F30 F32 G15
    Date: 2012–05
  3. By: Byrne, Joseph P.; Fiess, Norbert
    Abstract: This paper examines international capital flows to emerging and developing countries. We assess whether commonalities exist, the permanence of shocks to commonalities and their determinants. Also, we consider individual country coherence with global capital flows and we measure the extent of co-movements in the volatility of capital flows. Our results suggest there are commonalities in capital inflows, although aggregate or disaggregate capital flows respond differently to shocks. We find that the US long run real interest rate is an important determinant of global capital flows, and real commodity prices are relevant but to a lesser extent. We also find a role for human capital in explaining why some countries can successfully ride the wave of financial globalisation.
    Keywords: Capital Flows, Emerging Markets, Developing Countries, Global Factors,
    Date: 2011
  4. By: Troeger, Vera (University of Warwick)
    Abstract: This paper argues that the degree of monetary flexibility a government enjoys does not only depend on the implemented monetary institutions such as exchange rate arrangements and central bank independence but also on the economic and financial relationships with key currency areas. I develop a formal theoretical framework explaining the degree of monetary independence in open economies under flexible exchange rate regimes by trading relations and financial integration. The model suggests that a) higher import shares from the key currency area increase the imported inflation when monetary authorities try to offset an exogenous shock by cutting back the interest rate while the base country does not encounter a similar shock, and b) the more cross border assets of a country are denominated in the base currency the higher the exchange rate effects of interest rate differences to the interest rate of the key currency area. The presented empirical evidence largely supports the theoretical predictions.
    Date: 2012

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