nep-ifn New Economics Papers
on International Finance
Issue of 2013‒07‒15
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Controls in Brazil – Stemming a Tide with a Signal? By Yothin Jinjarak; Ilan Noy; Huanhuan Zheng
  2. Why Do Emerging Markets Liberalize Capital Outflow Controls? Fiscal versus Net Capital Flow Concerns By Joshua Aizenman; Gurnain Pasricha
  3. Exchange market pressures during the financial crisis: A Bayesian model averaging evidence By Feldkircher, Martin; Horvath, Roman; Rusnak, Marek
  4. Impact of exchange rate movements on exports: An analysis of Indian non-financial sector firms By Cheung , Yin-Wong; Sengupta , Rajeswari

  1. By: Yothin Jinjarak; Ilan Noy; Huanhuan Zheng
    Abstract: Controls on capital inflows have been experiencing a renaissance since 2008, with several prominent emerging markets implementing them. We focus on Brazil, which instituted five changes in its capital account regime in 2008-2011. Using the synthetic control method, we construct counterfactuals (i.e., Brazil with no policy change) for each of these changes. We find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows, but we observe some modest and short-lived success in preventing further declines in inflows when the capital controls were relaxed. We hypothesize that price-based capital controls’ only perceptible effect is to be found in the content of the signal they broadcast regarding the government’s larger intentions and sensibilities. Brazil’s left-of-center government’s willingness to remove controls was perceived as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be.
    JEL: E60 F32 G23
    Date: 2013–07
  2. By: Joshua Aizenman; Gurnain Pasricha
    Abstract: In this paper, we provide empirical evidence on the factors that motivated emerging economies to change their capital outflow controls in recent decades. Liberalization of capital outflow controls can allow emerging-market economies (EMEs) to reduce net capital inflow (NKI) pressures, but may cost their governments the fiscal revenues that external financial repression generates. Our results indicate that external repression revenues in EMEs declined substantially in the 2000s compared with the 1980s. In line with this decline in external repression revenues and their growth accelerations in the 2000s, concerns related to net capital inflows took predominance over fiscal concerns in the decisions to liberalize capital outflow controls. Overheating and foreign exchange valuation concerns arising from NKI pressures were important, but so were financial stability concerns and concerns about macroeconomic volatility. Emerging markets facing high volatility in net capital inflows and higher short-term balance-sheet exposures liberalized outflows less. Countries eased outflows more in response to higher appreciation pressures in the exchange market, stock market appreciation, real exchange rate volatility, net capital inflows and accumulation of reserves.
    Keywords: Debt Management; Financial system regulation and policies; International topics; Recent economic and financial developments
    JEL: E43 E52 E58 C22
    Date: 2013
  3. By: Feldkircher, Martin (BOFIT); Horvath, Roman (BOFIT); Rusnak, Marek (BOFIT)
    Abstract: In this paper, we examine whether pre-crisis leading indicators help explain pressures on the exchange rate (and its volatility) during the global financial crisis. We use a unique data set that covers 149 countries and 58 indicators, and estimation techniques that are robust to model uncertainty. Our results are threefold: First and foremost, we find that price stability plays a pivotal role as a determinant of exchange rate pressures. More specifically, the currencies of countries that experienced higher inflation prior to the crisis tend to be more affected in times of stress. Second, we investigate potential effects that vary with the level of pre-crisis inflation. In this vein, our results reveal that domestic savings reduce the severity of pressures in countries that experienced a low-infation environment prior to the crisis. Finally, we find evidence of the mitigating effects of international reserves on the volatility of exchange rate pressures.
    Keywords: exchange market pressures; financial crisis
    JEL: F31 F37
    Date: 2013–05–29
  4. By: Cheung , Yin-Wong (BOFIT); Sengupta , Rajeswari (BOFIT)
    Abstract: We explore the real effective exchange rate (REER) effects on the share of exports of Indian non-financial sector firms for the period 2000 to 2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact from currency appreciation and currency volatility on market shares of India’s exporting firms. Labor costs are found to amplify the exchange- rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. A REER change effect, for example, is more likely to arise from a negative appreciation effect than a depreciation effect. Indian firms with smaller export shares tend to respond more strongly to both REER change and volatility than those with larger export shares. Services exporters are impacted more strongly by exchange rate fluctuations than firms exporting goods. The findings on asymmetric responses, in particular, have important policy implications.
    Keywords: exchange rate fluctuations; firm-level export shares; asymmetric effects; services exports
    JEL: F14 F47
    Date: 2013–05–20

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