nep-ifn 2013-02-03 papers

on International Finance

Issue of 2013‒02‒03
two papers chosen by
Vimal Balasubramaniam
University of Oxford

Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets By McCauley, Robert N.
Understanding Financial Crises: Causes, Consequences, and Policy Responses By Stijn Claessens; M. Ayhan Kose; Luc Laeven; Fabián Valencia

Risk-On/Risk-Off, Capital Flows, Leverage, and Safe Assets

By:	McCauley, Robert N. (Asian Development Bank Institute)
Abstract:	This paper describes the international flow of funds associated with calm and volatile global equity markets. During calm periods, portfolio investment by real money and leveraged investors in advanced countries flows into emerging markets, leading to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks. In declining and volatile global equity markets, these flows reverse, and, contrary to some claims, emerging market central banks draw down reserves substantially. In effect emerging market central banks then release safe assets from their reserves, supplying safe havens to global investors.
Keywords:	capital flows; safe assets; international flow funds; vix; global liquidity
JEL:	E58 F30 G15
Date:	2013–01–27
URL:	http://d.repec.org/n?u=RePEc:ris:adbiwp:0405&r=ifn

Understanding Financial Crises: Causes, Consequences, and Policy Responses

By:	Stijn Claessens (International Monetary Fund); M. Ayhan Kose (International Monetary Fund); Luc Laeven (International Monetary Fund); Fabián Valencia (International Monetary Fund)
Abstract:	The global financial crisis of 2007-09 has led to an intensive research program analyzing a wide range of issues related to financial crises. This paper presents a summary of a forthcoming book, Financial Crises: Causes, Consequences, and Policy Responses, that includes 19 contributions examining these issues and distilling policy lessons. The book covers a wide range of crises, including banking, balance-of-payments, and sovereign debt crises. It reviews the typical patterns prior to crises, considers lessons on their antecedents, and analyzes their evolution and aftermath. It also provides valuable policy lessons on how to prevent, contain and manage financial crises.
Keywords:	global financial crisis, sudden stops, debt crises, banking crises, currency crises, defaults, restructuring, welfare cost, asset price busts, credit busts, prediction of crises.
JEL:	E32 F44 G01 E5 E6 H12
Date:	2013–01
URL:	http://d.repec.org/n?u=RePEc:koc:wpaper:1301&r=ifn

This nep-ifn issue is ©2013 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.

General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.

NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.