nep-ifn New Economics Papers
on International Finance
Issue of 2012‒09‒30
four papers chosen by
Vimal Balasubramaniam
National Institute of Public Finance and Policy

  1. Modelling the time varying determinants of portfolio flows to emerging markets By Marco Lo Duca
  2. Does the IMF´s official support affect sovereign bond maturities? By Aitor Erce
  3. The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS By Yuko Hashimoto; Konstantin M. Wacker
  4. The Few Leading The Many: Foreign Affiliates and Business Cycle Comovement By Kleinert, Jörn; Martin, Julien; Toubal, Farid

  1. By: Marco Lo Duca (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper studies how the drivers of portfolio flows change across periods with a model where regression coefficients endogenously change over time in a continuous fashion. The empirical analysis of daily equity portfolio flows to emerging markets shows that the regression coefficients display substantial time variation. Major changes in the importance of the drivers of the flows coincide with important market events/shocks. Overall, investors pay more attention to regional developments in emerging markets in periods when market tensions are elevated. However, extreme tensions generate panics, i.e. periods when changes in uncertainty and risk aversion drive flows, while regional developments play only a marginal role. JEL Classification: F32, F34, G01, G11
    Keywords: Capital flows, emerging markets, financial crisis, push factors, pull factors
    Date: 2012–09
  2. By: Aitor Erce (Banco de España)
    Abstract: This paper looks at whether the tendency of some governments to borrow short term is reinforced by financial support from the International Monetary Fund. I first present a model of sovereign debt issuance at various maturities featuring endogenous liquidity crises and maturity mismatches due to financial underdevelopment. I use the model to analyse the impact of IMF lending during debt crises on the sovereign’s optimal maturity structure. Within the model, although IMF assistance is able to catalyse private flows, this provides incentives for government to issue larger amounts of short-term debt, making the roll-over problem larger. I take the model to the data and find support for the hypothesis that IMF lending leads countries to increase their short-term borrowing. Additionally, I do not find any positive effect of IMF lending on countries’ ability to tap international capital markets. These results helps explain why a catalytic effect of IMF lending has proved empirically elusive
    Keywords: Sovereign debt, maturity, IMF, offi cial support
    JEL: F33 F34 C33
    Date: 2012–09
  3. By: Yuko Hashimoto (International Monetary Fund); Konstantin M. Wacker (Georg-August-University Göttingen)
    Abstract: In this paper, we investigate whether better information about the macroeconomic environment of an economy has a positive impact on its capital inflows, namely portfolio and foreign direct investment (FDI). The purpose of our study is to explicitly quantify information asymmetries by compliance with the IMF's Special Data Dissemination Standard (SDDS). For FDI, we find statistically signicant and robust support for this hypothesis: SDDS subscription increased inflows by an economically relevant magnitude of about 60 percent. We also find evidence of aversion against political and macroeconomic risk as determinants of portfolio and FDI flows and use a non-parametric test for spatial correlation in the residuals of capital flows.
    Keywords: determinants of capital flows; information; panel data; risk; SDDS; IMF; FDI; portfolio investment; spatial econometrics
    JEL: C33 F21 G14
    Date: 2012–09–12
  4. By: Kleinert, Jörn; Martin, Julien; Toubal, Farid
    Abstract: This paper uses micro-data on balance sheets, trade, and the nationality of ownership of firms in France to investigate the effect of foreign multinationals on business cycle comovement. We first show that foreign affiliates, which represent a tiny fraction of all firms, are responsible for a high share of employment, value added, and trade both at the national and at the regional levels. We also show that the distribution of foreign affiliates across French regions differs with the nationality of the parent. We then show that foreign affiliates increase the comovement of activities between their region of location and their country of ownership. We also find that intra-firm trade in intermediate inputs is a significant channel of influence of business cycle comovement. These findings suggest that the international transmission of shocks is partly due to linkages between affiliates and their foreign parents, and that a few multinational companies drive a non-negligible part of business cycle comovement.
    Keywords: business cycles; granularity; intra-firm trade; multinational firms
    JEL: F12 F23 F4 F41
    Date: 2012–09

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