nep-ifn New Economics Papers
on International Finance
Issue of 2012‒08‒23
seven papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. Debt- and Equity-Led Capital Flow Episodes By Kristin J. Forbes; Francis E. Warnock
  2. Central bank interventions and limit order behavior in the foreign exchange market By Masayuki Susai; Yushi Yoshida
  3. Capital Inflows and Booms in Assets Prices: Evidence From a Panel of Countries By Eduardo Olaberría
  4. The Global Financial Crisis and currency crises in Latin America By Kuper, Gerard H.; Jacobs, Jan P.A.M.; Boonman, Tjeerd M.
  5. Changing central bank transparency in Central and Eastern Europe during the financial crisis By Csávás, Csaba; Erhart, Szilárd; Naszódi, Anna; Pintér, Klára
  6. Exchange Rate Coordination in Asia : Evidence using the Asian Currency Unit By Abhijit Sen Gupta
  7. International Monetary Reform : A Critical Appraisal of Some Proposals By Yung Chul Park; Charles Wyplosz

  1. By: Kristin J. Forbes; Francis E. Warnock
    Abstract: Forbes and Warnock (2012) identify episodes of extreme capital flow movements—surges, stops, flight, and retrenchment—and find that global factors, especially global risk, are significantly associated with extreme capital flow episodes, whereas domestic macroeconomic characteristics and capital controls are less important. That analysis leads naturally to the question of which types of capital flows are driving the episodes and if debt- and equity-led episodes differ in material ways. After identifying debt- and equity-led episodes, we find that most episodes of extreme capital flow movements around the world are debt-led and the factors associated with debt-led episodes are similar to the factors behind episodes identified with aggregate capital flow data. In contrast, equity-led episodes are less frequent, more idiosyncratic, and differ in nature from other episodes.
    JEL: F30 G01
    Date: 2012–08
  2. By: Masayuki Susai (Nagasaki University); Yushi Yoshida (Faculty of Economics, Kyushu Sangyo University)
    Abstract: We investigate the intra-day effect of interventions in both the post- global crisis and pre-crisis periods by the Bank of Japan (BOJ) in foreign exchange markets using limit order data at intra-day high frequency. First, we find that the relationship between order flow and market return in dollar/yen exchange markets breaks down following unexpected and very high volumes of offer/sell orders by BOJ interventions. Then, a simple methodology of using large recursive residual is proposed to detect the exact timing of interventions. Second, the dataset allows measuring how long an individual limit order stays in the market. With the measured lifetime of limit orders, we find interventions, detected by the proposed methodology, significantly reduce the life-time of limit order in the market. By applying the same methodology on non-intervention days, we find no such evidence on the life-time of limit orders although large recursive residuals are also pervasive in non-intervention days.
    Keywords: the Bank of Japan; Central bank interventions; Foreign exchange market; Life time of limit order; Order flow.
    JEL: F31 G12 G14 G15 E58
    Date: 2012–07
  3. By: Eduardo Olaberría
    Abstract: Policymakers and academics often associate large capital inflows with booms in asset prices. To date, however, methodical evidence of this association is still limited. This paper provides a systematic empirical analysis of the link between capital inflows and booms in asset prices. Using a panel of 40 countries from 1990 to 2010 and controlling for other macroeconomic factors, the paper finds that the link varies across capital inflow categories and across countries. In particular, emerging countries are more likely to experience booms in asset prices during periods of large capital inflows. In line with leading theories of financial crises the paper finds that financial development, the quality of institutions and the exchange rate regime can potentially influence the association between capital inflows and booms in asset prices. In contrast, this paper does not find evidence to support the view that capital controls help reduce this association.
    Date: 2012–08
  4. By: Kuper, Gerard H.; Jacobs, Jan P.A.M.; Boonman, Tjeerd M. (Groningen University)
    Abstract: The Global Financial Crisis (GFC) has aected many regions including Latin America. This paper focuses on currency crises in Argentina, Brazil and Mexico. We estimate an Early Warning System, consisting of a dynamic factor model and an ordered logit model, with monthly data for 1990-2007. Ex ante forecasts for 2008-2009 do not produce currency crises in the fall of 2008, in sharp contrast with reality. Our model only predicts an increased probability of a currency crisis for Argentina in 2009.
    Date: 2012
  5. By: Csávás, Csaba; Erhart, Szilárd; Naszódi, Anna; Pintér, Klára
    Abstract: There is ample empirical evidence in the literature for the positive effect of central bank transparency on the economy. The main channel is that transparency reduces the uncertainty regarding future monetary policy and thereby it helps agents to make better investment, and saving decisions. In this paper, we document how the degree of transparency of central banks in Central and Eastern Europe has changed during periods of financial stress, and we argue that during the recent financial crisis central banks became less transparent. We investigate also how these changes affected the uncertainty in these economies, measured by the degree of disagreement across professional forecasters over the future short-term and long-term interest rates and also by their forecast accuracy.
    Keywords: central banking; transparency; financial crises; survey expectations; forecasting
    JEL: E58 E44 E47
    Date: 2012
  6. By: Abhijit Sen Gupta (Asian Development Bank Institute (ADBI))
    Abstract: This paper evaluates the extent of exchange rate coordination among Asian economies using a hypothetical Asian Currency Unit. Rising interdependence among Asian economies makes it vital for these economies to have a certain degree of exchange rate stability. However, the empirical evidence using an Asian Currency Unit suggests a widening deviation in exchange rate movements of the Asian currencies. The deviation has been driven by the adoption of different exchange rate regimes by the participating countries indicating diverse policy objectives. There are a number of institutions in the region that can assist exchange rate coordination and greater economic and financial integration. These institutions, including a multilateralized swap arrangement, a regional surveillance mechanism, and a bond fund; have to be significantly strengthened for them to play a role in fostering greater economic cooperation. The denomination of financial assets in the Asian Currency Unit in transactions involving these institutions would also enhance exchange rate cooperation.
    Keywords: Exchange rate coordination, Asia, Asian Currency Unit, exchange rate stability, financial cooperation
    JEL: F36 F55 F15
    Date: 2012–04
  7. By: Yung Chul Park (Asian Development Bank Institute (ADBI)); Charles Wyplosz
    Abstract: This paper reviews some of the current debates on the reform of the international monetary system. Despite its deficiencies, the United States (US) dollar will remain the dominant currency and Special Drawing Rights (SDR) cannot serve as either an international medium of exchange or a reserve currency. The International Monetary Fund (IMF) has changed its position to accept capital controls under certain circumstances. Refining control instruments better tuned to present day markets may bring about greater acceptance. The 2008–2009 global financial crisis has dimmed much of the earlier hope for the multilateralized Chiang Mai Initiative. The currency swap arrangements portend a new form of international cooperation. Finally, for the Group of Twenty (G20) to matter, the systemically important countries need to ensure the stability of their financial systems and economies.
    Keywords: International monetary reforms, International monetary system, IMF, SDR, capital control, currency swap, financial system
    JEL: F32 F33 F42
    Date: 2012–06

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