nep-ifn New Economics Papers
on International Finance
Issue of 2012‒10‒20
eight papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. How Should We Bank With Foreigners?—An Empirical Assessment of Lending Behavior of International Banks to Six East Asian Economies By Pontines, Victor; Siregar, Reza Y.
  2. Competition for internal funds within multinational banks: Foreign affiliate lending in the crisis By Düwel, Cornelia; Frey, Rainer
  3. Financial Reforms and Capital Flows: Insights from General Equilibrium By Alberto Martin; Jaume Ventura
  4. Global excess liquidity and asset prices in emerging countries: a pvar approach By Sophie Brana; Marie-Louise Djibenou; Stéphanie Prat
  5. Capital Mobility—a resource curse or blessing? How, when, and for whom? By OGAWA Hikaru; OSHIRO Jun; SATO Yasuhiro
  6. The financing of young firms. How persistent are borrowing constraints? By Erik Fjærli and Diana Iancu
  7. Credit Shocks Harm the Unprepared - Financing Constraints and the Financial Crisis By Hetland, Ove Rein; Mjøs, Aksel
  8. Assets matter: New and old views of monetary policy By Stan du Plessis

  1. By: Pontines, Victor (Asian Development Bank Institute); Siregar, Reza Y. (Asian Development Bank Institute)
    Abstract: The authors construct macro-and micro-panel data on international bank lending to six Asian economies—Indonesia, the Republic of Korea, Malaysia, Philippines, Singapore, and Thailand—to analyze a number of objectives. The paper first examines the influence of critical determinants not only to overall international bank lending but also to cross-border bank lending, and next examines the differences between subsidiaries and branches of international banks in terms of their ability to shield themselves from the financial difficulties of their global parent banks and thus their ability to continue lending in destination markets.
    Keywords: international bank lending; cross-border lending; international bank exposure; asian economies
    JEL: C23 F34 F36 G15 N25
    Date: 2012–10–09
  2. By: Düwel, Cornelia; Frey, Rainer
    Abstract: We investigate how the lending activities of a multinational bank's affiliates located abroad are affected by funding difficulties in view of the financial crisis. For this, we consider transaction-induced changes in long-term lending to the private sector of 40 countries by the affiliates of the 68 largest German banks. We find that affiliates' local deposits and profitability have been stabilizing loan supply. By contrast, relying on short-term wholesale funding has increasingly proven to be a disadvantage in the crisis, as inter-bank and capital markets froze. Besides, the more an affiliate abroad takes recourse to intra-bank funding in the crisis, the more it becomes dependent on a stable deposit and long-term wholesale funding position of its parent bank. We furthermore detect competition for intra-bank funding across the affiliates abroad as well as an increasing focus on the parent bank's home market activities. --
    Keywords: funding structure,multinational banks,internal capital market,intra-bank lending,wholesale funding,financial crisis
    JEL: G21 F23 F34 E44
    Date: 2012
  3. By: Alberto Martin; Jaume Ventura
    Abstract: As a result of debt enforcement problems, many high-productivity firms in emerging economies are unable to pledge enough future profits to their creditors and this constrains the financing they can raise. Many have argued that, by relaxing these credit constraints, reforms that strengthen enforcement institutions would increase capital flows to emerging economies. This argument is based on a partial equilibrium intuition though, which does not take into account the origin of any additional resources that flow to high-productivity firms after the reforms. We show that some of these resources do not come from abroad, but instead from domestic low-productivity firms that are driven out of business as a result of the reforms. Indeed, the resources released by these low-productivity firms could exceed those absorbed by high-productivity ones so that capital flows to emerging economies might actually decrease following successful reforms. This result provides a new perspective on some recent patterns of capital flows in industrial and emerging economies.
    JEL: F34 F36 G15 O19 O43
    Date: 2012–10
  4. By: Sophie Brana (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954); Marie-Louise Djibenou (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954); Stéphanie Prat (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)
    Abstract: The overly accommodating monetary policy is often accused of creating surplus liquidity and bubbles on the asset markets. In particular, it could have contributed to strong capital inflows in emerging countries, which may have had a significant impact on financial stability in these countries, affecting domestic financing conditions and creating a risk of upward pressures on asset prices. We focus in this paper on the impact of global excess liquidity on good and asset prices for a set of emerging market countries by estimating a panel VAR model. We define first global liquidity and highlight situations of excess liquidity. We then find that excess liquidity at the global level has spillover effects on output and price level in emerging countries. The impact on real estate and commodity prices in emerging countries is less clear.
    Keywords: Global liquidity, excess liquidity indicators, crises indicators, emerging countries, financial crisis
    Date: 2012–03–01
  5. By: OGAWA Hikaru; OSHIRO Jun; SATO Yasuhiro
    Abstract: This paper investigates which of the two types of countries—resource-rich or resource-poor—gains from capital market integration and capital tax competition. We develop a framework involving vertical linkages through resource-based inputs as well as international fiscal linkages between resource-rich and resource-poor countries. Our analysis shows that capital market integration causes capital flows from the latter to the former and thus improves production efficiency and global welfare. However, such gains accrue only to resource-poor countries, and capital mobility might even negatively affect resource-rich countries. In response to capital flows, the governments of both types of countries have an incentive to tax capital. We thus conclude that such taxation enables resource-rich countries to exploit their efficiency gains through capital market integration and become winners in the tax game.
    Date: 2012–10
  6. By: Erik Fjærli and Diana Iancu (Statistics Norway)
    Abstract: Are investments by new firms constrained by access to financing? If so, are the constraints persistent or do firms overcome their financing problems during the first years of operation? We examine the role of capital constraints by estimating the relation between founders’ initial wealth and firm size during the first years of operation. Similar to previous studies, we find a positive impact of entrepreneurs’ wealth prior to start-up on the start-up size of entrepreneurial firms, but this effect decreases during the first five years of operation. We also document a high degree of economic mobility among entrepreneurial firms during the first years of operation. This is primarily driven by a disproportional increase in debt financing among the smallest firms, indicating that capital constraints for entrepreneurs are transitory.
    Keywords: Entrepreneurship; borrowing constraints; growth
    JEL: L11
    Date: 2012–10
  7. By: Hetland, Ove Rein (Ernst & Young Transaction Advisory Services, Stavanger, and Institute for Research in Economics and Business Administration (SNF)); Mjøs, Aksel (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: We show that the investments of ex ante financially unconstrained firms are more profoundly affected by changes in credit supply than the investments of financially constrained firms. We employ a survey of Norwegian private firms concerning the impact of the financial crisis of 2008-9, linked to firm-level financial and bank accounts. Adverse changes in credit availability reduce investments after controlling for output demand, and this effect is largest for the least financially constrained firms. This is consistent with a model where financially constrained firms hedge against cash flow shortfalls whilst ex ante unconstrained firms rely on access to external funds.
    Keywords: Credit Shocks; Financing Constraints; Financial Crisis
    JEL: G00
    Date: 2012–09–28
  8. By: Stan du Plessis (Department of Economics, University of Stellenbosch)
    Abstract: An extraordinary consensus on the goals and conduct of monetary has been undermined by the international financial crisis and the faltering recovery in many economies. There is an evident need to pay closer attention to developments of asset markets and in the financial sector, which has opened a discussion on the appropriate goals for monetary policy. Meanwhile central banks have employed controversial balance sheet operations to restore market stability and encourage economic recovery. This paper argues that both these developments reflect earlier concerns in monetary policy: prior to the modern consensus both balance sheet policies and an emphasis on financial stability were central concerns of monetary authorities and the future of monetary policy is likely to rhyme with its past.
    Keywords: monetary policy, interest rate policy, balance sheet operations, financial stability
    JEL: E51 E52 E58
    Date: 2012

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