nep-ifn New Economics Papers
on International Finance
Issue of 2012‒07‒14
six papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. Does Foreign Exchange Intervention Volume Matter? By Rasmus Fatum; Yohei Yamamoto
  2. The effectiveness of forex interventions in four latin american countries By Carmen Broto
  3. Capital Inflow Surges in Emerging Economies: How Worried Should LAC Be? By Andrew Powell; Pilar Tavella
  4. Foreign Investors Under Stress: Evidence from India. By Patnaik, Ila; Shah, Ajay; Singh, Nirvikar
  5. Emerging multinationals, international knowledge flows and economic geography: a research agenda By Dirk Christian Dohse, Robert Hassink, Claudia Klaerding
  6. China's Outward Direct Investment: Evidence from a New Micro Dataset By Wei Liao; Kevin K. Tsui

  1. By: Rasmus Fatum (School of Business, University of Alberta); Yohei Yamamoto (Department of Economics, Hitotsubashi University)
    Abstract: We investigate whether foreign exchange intervention volume matters for the exchange rate effects of intervention. Our investigation employs daily data on Japanese interventions from April 1991 to April 2012 and time-series estimations, non-temporal threshold analysis, as well as binary choice models. We find that intervention volume matters for the effects of intervention, but only to the extent that the exchange rate effect per intervention unit is magnified in a linear sense by the larger intervention amount. This is a policy-relevant finding that also adds to our understanding of how intervention works.
    Keywords: Foreign Exchange Market Intervention; Intervention Volume
    JEL: E52 F31 G14
    Date: 2012–05
  2. By: Carmen Broto (Banco de España)
    Abstract: Many central banks actively intervene in the foreign exchange (forex) market, although there is no consensus on its impact on the exchange rate level and volatility. We analyze the effects of daily forex interventions in four Latin American countries with inflation targets — namely, Chile, Colombia, Mexico and Peru — by fi tting GARCH-type models. These countries represent a broad span of intervention strategies in terms of size and frequency, ranging from pure discretionality to intervention rules. We also provide new evidence on the presence of asymmetries, which arise if foreign currency purchases and sales have different effects on the exchange rate. We find that first interventions, either isolated or initial in a rule, reduce exchange rate volatility, although their size plays a minor role. Our results support the signaling effect of interventions under inflation targeting regimes
    Keywords: Exchange rate volatility; Foreign exchange interventions; GARCH
    JEL: F31 G15 C54
    Date: 2012–07
  3. By: Andrew Powell; Pilar Tavella
    Abstract: This paper analyzes capital inflow surges in emerging economies from 1980 to 2005. Estimated probit models are used, which discriminate well between surges associated with banking crises or recessions, and those surges that end without such events. The results indicate that the composition of inflows and the extent of financial reform are significant determinants of outcomes. Estimated models are applied to the Latin American post-2005 inflow surge and find relatively high estimated probabilities for banking crises and recessions. This suggests that recent inflow surges characterized by high portfolio and banking inflows are a potential cause for concern and that the results constitute a prima facie case for macro prudential interventions.
    JEL: C25 E44 F34 G01
    Date: 2012–06
  4. By: Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy); Singh, Nirvikar (University of California, Santa Cruz)
    Abstract: Emerging market policy makers have been concerned about the financial stability implications of financial globalisation. These concerns are focused on behaviour under stressed conditions. Do tail events in the home country trigger off extreme responses by foreign investors - are foreign investors `fair weather friends'? In this, is there asymmetry between the response of foreign investors to very good versus very bad days? Do foreign investors have a major impact on domestic markets through large inflows or outflows are they `big fish in a small pond'? Do extreme events in world markets induce extreme behaviour by foreign investors, thus making them vectors of crisis transmission? We propose a modified event study methodology focused on tail events, which yields evidence on these questions. The results, for India, do not support the skeptical perspective on financial globalisation.
    Date: 2012–06
  5. By: Dirk Christian Dohse, Robert Hassink, Claudia Klaerding
    Abstract: One of the most significant changes in the global economy today is the strong increase in outgoing foreign direct investment (OFDI) from emerging economies to industrialised countries. Whereas investment in less developed countries is often motivated by the sourcing of natural resources and cheap labour, knowledge and technology-seeking is an increasingly important motive for emerging multinationals investing in developed economies. The current paper is focussed on the role of emerging multinationals as knowledge-transfer agents and pursues three aims: First, to unravel the distinguishing features of emerging multinationals (as compared to ‘traditional’ multinationals), secondly, to critically discuss the usefulness of conventional theoretical concepts in explaining this new phenomenon and thirdly, to launch a research agenda for near-future research on emerging multinationals, with a particular focus on the economic geography of international knowledge flows
    Keywords: emerging multinationals, international knowledge flows, economic geography
    JEL: F21 F23 M16 O33
    Date: 2012–06
  6. By: Wei Liao (Hong Kong Institute for Monetary Research); Kevin K. Tsui (Clemson University and Hong Kong Institute for Monetary Research)
    Abstract: More than seventy percent of China's outward direct investment (ODI), according to the Ministry of Commerce statistics, is invested in Hong Kong, the British Virgin Islands, and the Cayman Islands. Using a unique micro-level dataset collected by the Heritage Foundation that documents individual ODI transactions, we first show that the official statistics and the Heritage Foundation measure of China¡¦s ODI are correlated only in the sample of non-haven economies, because the official statistics treat tax havens as final destinations rather than transit points. On average, a dollar increase in the Heritage Foundation measure of ODI is associated with less than a fifteen cent increase in the official ODI among the non-haven economies, and the downward bias is even larger for investment in energy. We also document that the sharp increase in the official ODI to Hong Kong coincides with the rise in the Heritage Foundation measure of ODI to OECD countries since 2007. Finally, we show that some of the well-documented stylized facts about the pattern of China's ODI are artifacts of the mismeasurement of the official data. For instance, contrary to previous findings, we find no evidence that China's ODI is attracted to host countries with poor governance, and that neither cultural proximity nor geographical distance is a major determinant of China's ODI. Furthermore, the Heritage Foundation data suggest that the resource seeking motive of China's ODI is at least as strong as the market seeking motive.
    Keywords: Chinese Economy, Foreign Direct Investment, Tax Haven, Resource Seeking
    JEL: F21 F36 O53
    Date: 2012–06

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