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on International Finance |
| By: | Jan Babecký (Czech National Bank); Tomáš Havránek (Czech National Bank; Charles University, Institute of Economic Studies); Jakub Matějů (Czech National Bank; Center for Economic Research and Graduate Education - Economics Institue (CERGE-EI)); Marek Rusnák (Czech National Bank; Charles University, Institute of Economic Studies); Kateřina Šmídková (Czech National Bank; Charles University, Institute of Economic Studies); Bořek Vašíček (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. Banking turmoil was most frequent in developed economies. 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 crisis 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 increases the usefulness of the model when compared to using the best single indicator (domestic private credit). JEL Classification: C33, E44, E58, F47, G01 |
| Keywords: | Early warning indicators, Bayesian model averaging, macro-prudential policies |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121485&r=ifn |
| By: | Fratzscher, Marcel; Lo Duca, Marco; Straub, Roland |
| Abstract: | The paper analyses the global spillovers of the Federal Reserve’s unconventional monetary policy measures since 2007. First, we find that Fed measures in the early phase of the crisis (QE1), but not since 2010 (QE2), were highly effective in lowering sovereign yields and raising equity markets in the US and globally across 65 countries. Yet Fed policies functioned in a pro-cyclical manner for capital flows to EMEs and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of emerging markets (EMEs) into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US monetary policy since 2007 has contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets. |
| Keywords: | capital flows; emerging markets; Federal Reserve; monetary policy; panel data; portfolio choice; quantitative easing; spillovers; United States |
| JEL: | E52 E58 F32 F34 G11 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9195&r=ifn |
| By: | John Beirne (European Central Bank); Jana Gieck (International Monetary Fund) |
| Abstract: | This paper provides an empirical assessment of interdependence and contagion across three asset classes (bonds, stocks, and currencies) for over 60 economies over the period 1998 to 2011. Using a global VAR, we test for changes in the transmission mechanism – both within and cross-market changes - during periods of turbulence in financial markets. Our results suggest that within-market effects over the sample period for each asset market are highly significant for advanced economies. For emerging economies, these within-market effects mostly apply to the equity market. Contagion effects within-market are most notable in Latin America and Emerging Asia for equities. Cross-market contagion is identified from global bonds to local stocks in Central and Eastern Europe, but from global stocks to domestic bonds in the case of advanced economies. Impulse responses indicate that in crisis times, the origin of the shock plays an important role on the nature of the global transmission. The evidence suggests that in times of financial crisis, shocks that emanate in the US, particularly equity shocks, lead to risk aversion by investors in equities and currencies globally and in some emerging market bonds. Euro area shocks tend to have the most significant effect within the bond market. Our results have implications for policymakers in terms of understanding financial exposures and vulnerabilities and for investors in relation to portfolio rebalancing and the construction of portfolio diversification strategies across asset classes in crisis and non-crisis times. JEL Classification: F30, G15 |
| Keywords: | Asset markets, contagion, global VAR |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121480&r=ifn |
| By: | Böninghausen, Benjamin; Köhler, Matthias |
| Abstract: | This paper examines the international credit portfolios of German banks. We construct a bank-country panel from a unique dataset for a representative set of countries and ask why banks leave diversification opportunities unexploited in some countries. Controlling for bank heterogeneity, we analyse the deviations of actual portfolios from a mean-variance based benchmark and their country-level determinants. Our results show that banking regulations are important determinants of the credit allocation of German banks. We present robust evidence that countries with stricter capital adequacy and entry requirements tend to be overweighted, primarily due to excess profits resulting from a lower level of banking market competition. German banks also overweight countries with larger and more developed banking markets. Moreover, we find support that German banks follow their domestic customers abroad to maintain existing lending relationships. Geographical factors, in contrast, do not seem to matter. Our findings suggest that changes in and convergence of banking regulations as well as financial deepening of banking sectors around the world may, in the long term, result in banks holding more diversified international credit portfolios. -- |
| Keywords: | international banking,international financial integration,portfolio choice |
| JEL: | G21 G11 F36 F21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:282012&r=ifn |