nep-ifn New Economics Papers
on International Finance
Issue of 2012‒10‒06
six papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Controls and Exchange Rate Expectations in Emerging Markets By Gustavo Abarca; Claudia Ramírez; José Gonzalo Rangel
  2. How firms use domestic and international corporate bond markets By Gozzi, Juan Carlos; Levine, Ross; Peria, Maria Soledad Martinez; Schmukler, Sergio L.
  3. Choice and Coercion in East Asian Exchange Rate Regimes By C. Randall Henning
  4. Long-Run Implications of the Covered Interest Rate Parity Condition: Evidence during the Recent Crisis and Non-Crisis Periods By Nagayasu, Jun
  5. Banking, Debt, and Currency Crises: Early Warning Indicators for Developed Countries By Jan Babecký; Tomáš Havránek; Jakub Mateju; Marek Rusnák; Katerina Šmídková; Borek Vašícek
  6. Benchmarking financial systems around the world By Cihak, Martin; Demirguc-Kunt, Asli; Feyen, Erik; Levine, Ross

  1. By: Gustavo Abarca; Claudia Ramírez; José Gonzalo Rangel
    Abstract: This article examines changes in the exchange rate expectations associated with capital controls and banking regulations in a group of emerging countries that implemented these measures to control the adverse effects of sudden capital flows on their currencies. The evidence suggests that for most countries the effects of this type of policies are limited. Moreover, in some cases they appear to have an opposite effect from the one intended. In particular, for some currencies our results suggest there were changes in the extremes of their exchange rate distributions, which make their tails heavier and signal that the market allocates a greater probability to extreme movements. In the same way, evidence is found that this type of measures increases the levels of currency risk premium.
    Keywords: Capital controls, banking regulation, exchange rate expectations, emerging economies, generalized extreme value.
    JEL: C14 E44 E58 F31 G15
    Date: 2012–09
  2. By: Gozzi, Juan Carlos; Levine, Ross; Peria, Maria Soledad Martinez; Schmukler, Sergio L.
    Abstract: This paper provides the first comprehensive documentation of how firms use domestic and international corporate bond markets. Debt issues in domestic and international markets have different characteristics, not explained by differences across firms or countries. International issues tend to be larger, of shorter maturity, denominated in foreign currency, include more fixed rate contracts, and entail lower yields. These patterns remain when analyzing issues by firms from countries with more developed domestic markets and higher financial integration, and even when comparing issues conducted by the same firm in different markets. These findings are consistent with the views that (1) frictions limit the ability of investors and firms to enter into certain contracts in certain markets, (2) domestic and international markets provide distinct financial services and firms use them as complements, and (3) firms with access to domestic and international markets enjoy advantages relative to those that rely solely on domestic markets.
    Keywords: Debt Markets,Emerging Markets,Markets and Market Access,Microfinance,Currencies and Exchange Rates
    Date: 2012–09–01
  3. By: C. Randall Henning (Peterson Institute for International Economics)
    Abstract: This paper examines the exchange rate regimes of East Asian countries since the initial shift by China to a controlled appreciation in July 2005, testing econometrically the weights of key currencies in the implicit baskets that appear to be targeted by East Asian monetary authorities. It finds, first, that four of the larger economies of Southeast Asia have formed a loose but effective "renminbi bloc" with China, with two other countries participating tentatively since the global financial crisis. Second, the emergence of the renminbi bloc in terms of the exchange rate has been facilitated by the continued dominance of the US dollar as a trade, investment and reserve currency. Third, exchange rate stabilization is explained by the economic strategies of these countries, which rely heavily on export development and financial repression, and the economic rise of China. Fourth, analysts should specify the exchange rate preferences of these emerging market countries carefully before drawing inferences about Chinese influence within the region.
    Keywords: exchange rates, exchange rate regimes, East Asia, Chinese exchange rate policy, renminbi bloc, East Asian regionalism, dollar standard, monetary power
    JEL: F31 F33 F36 F4 F5
    Date: 2012–09
  4. By: Nagayasu, Jun
    Abstract: This paper analyzes the stationarity of forward premiums in foreign exchange markets. Considering a wide range of countries and contract periods and taking into account cross-sectional correlations and heterogeneities in nonstationary environments, we con…rmed mixed evidence of stationary forward premiums. Further analysis suggests that the nonstationary element has been attributable to regime shifts which are closely associated with the effects of the Lehman Shock and changing monetary policies. These effects can be captured by interest rates, leaving the covered interest parity condition as a valid economic concept at least in the long-run.
    Keywords: Panel unit root tests; structural shifts; forward premiums; Lehman shock
    JEL: C23 F31
    Date: 2012–09–01
  5. By: Jan Babecký (Czech National Bank); Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jakub Mateju (CERGE-EI); Marek Rusnák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Katerina Šmídková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Borek Vašícek (Czech National Bank)
    Abstract: We construct and explore a new quarterly dataset covering crisis episodes in 40 developed countries over 1970–2010. First, we examine stylized facts of banking, debt, and currency crises. Using panel vector autoregression, we confirm that currency and debt crises are typically preceded by banking crises, but not vice versa. Banking crises are also the most costly in terms of the overall output loss, and output takes about six years to recover. Second, we try to identify early warning indicators of crises specific to developed economies, accounting for model uncertainty by means of Bayesian model averaging. Our results suggest that onsets of banking and currency crises tend to be preceded by booms in economic activity. In particular, we find that growth of domestic private credit, increasing FDI inflows, rising money market rates as well as increasing world GDP and inflation were common leading indicators of banking crises. Currency crisis onsets were typically preceded by rising money market rates, but also by worsening government balances and falling central bank reserves. Early warning indicators of debt crises are difficult to uncover due to the low occurrence of such episodes in our dataset. Finally, employing a signaling approach we show that using a composite early warning index significantly increases the usefulness of the model when compared to using the best single indicator (domestic private credit).
    Keywords: Early warning indicators, Bayesian model averaging, macro-prudential policies
    JEL: C33 E44 E58 F47 G01
    Date: 2012–07
  6. By: Cihak, Martin; Demirguc-Kunt, Asli; Feyen, Erik; Levine, Ross
    Abstract: This paper introduces the Global Financial Development Database, an extensive dataset of financial system characteristics for 205 economies from 1960 to 2010. The database includes measures of (a) size of financial institutions and markets (financial depth), (b) degree to which individuals can and do use financial services (access), (c) efficiency of financial intermediaries and markets in intermediating resources and facilitating financial transactions (efficiency), and (d) stability of financial institutions and markets (stability). The authors document cross-country differences and time series trends.
    Keywords: Debt Markets,Emerging Markets,Access to Finance,Banks&Banking Reform,Economic Theory&Research
    Date: 2012–08–01

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