nep-ifn New Economics Papers
on International Finance
Issue of 2012‒11‒03
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Was unofficial dollarisation/euroisation an amplifier of the 'Great Recession' of 2007-09 in emerging economies By Livia Chiţu
  2. What Drives India’s Outward FDI? By Peter Nunnenkamp; Maximiliano Sosa Andrés; Krishna Chaitanya Vadlamannati; Andreas Waldkirch
  3. Dynamic provisioning: a buffer rather than a countercyclical tool? By Santiago Fernandez de Lis; Alicia Garcia-Herrero

  1. By: Livia Chiţu (European Central Bank)
    Abstract: This paper investigates whether, and if so why, the recent ‘Great Recession’ was more severe in unofficially dollarised/euroised economies than in other economies. To that end, the paper builds on a novel dataset on unofficial dollarisation/euroisation to test whether the latter was a determinant of the extent of the growth collapse in 2007-09 in a cross-section of around 60 emerging market economies. Both OLS and Bayesian model averaging estimates suggest that unofficial dollarisation/euroisation was an important contributor to the severity of the crisis, once other of its well-established determinants are taken into account, including fast pre-crisis credit growth, current account deficits, trade and financial openness, market regulation, international openness of the banking sector and GDP per capita. Moreover, the adverse impact of unofficial dollarisation/euroisation is found to have been transmitted through the main channels traditionally highlighted in the literature, i.e. currency mismatches, reduced monetary policy autonomy and limited lender of last resort ability, all of which became more binding constraints in the midst of the crisis. The results help to shed light on the long-standing debate regarding the conduct of monetary policy in unofficially dollarised/euroised economies in crisis times. JEL Classification: F30, G01, G21
    Keywords: Unofficial dollarisation/euroisation, foreign currency lending, Great Recession, emerging economies, Bayesian model averaging
    Date: 2012–09
  2. By: Peter Nunnenkamp; Maximiliano Sosa Andrés; Krishna Chaitanya Vadlamannati; Andreas Waldkirch
    Abstract: We empirically assess the determinants of India’s FDI outflows across a large sample of host countries in the 1996-2009 period. Based on gravity model specifications, we employ Poisson pseudo maximum likelihood (PPML) estimators. Major findings include: India’s outward FDI is hardly affected by motives to access raw materials or superior technologies. Market-related factors appear to have dominated the location choices of Indian direct investors. A larger Indian diaspora in the host countries attracts more FDI. Finally, it seems that Indian direct investors are relatively resilient to weak institutions and economic instability in the host countries. However, we do not find robust evidence that India provides an alternative source of FDI for countries that traditional investors tend to avoid
    Keywords: FDI outflows, gravity model, PPML, India
    JEL: F21
    Date: 2012–10
  3. By: Santiago Fernandez de Lis; Alicia Garcia-Herrero
    Abstract: This paper analyzes whether dynamic provisioning systems act as a dampener -as intended- or as a buffer. After briefly reviewing the literature, we explain the rationale for dynamic provisions and analyze the experience of three of the few countries that adopted them: Spain, Colombia and Peru. We conclude that in the case of Spain, which is the only one where dynamic provisions worked over a complete cycle, the fact that market discipline only operated in the downturn implied that the system acted more as a buffer than as a dampener. We also observe that even rule-based systems tend to be applied in a discretionary way, since they require a very reliable calibration of the cycle "ex ante", an assumption that has proven unrealistic. The comparison of the Spanish system versus the Peruvian and Colombian raises interesting policy conclusions on whether dynamic provisioning should be applied differently to industrial versus emerging countries.
    Keywords: Financial Stability, Macroprudential, Anticyclical
    JEL: E52 E58
    Date: 2012–10

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