nep-ifn New Economics Papers
on International Finance
Issue of 2013‒08‒05
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Quantitative Easing and Related Capital Flows into Brazil: measuring its effects and transmission channels through a rigorous counterfactual evaluation By João Barata R. B. Barroso; Luiz A. Pereira da Silva; Adriana Soares Sales
  2. Official Interventions through Derivatives: affecting the demand for foreign exchange By Emanuel Kohlscheen; Sandro C. Andrade
  3. Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks By Steven Ongena; Jose Luis Peydro; Neeltje van Horen
  4. Implicit Asymmetric Exchange Rate Peg under Inflation Targeting Regimes: The Case of Turkey By Ahmet Benlialper; Hasan Cömert

  1. By: João Barata R. B. Barroso; Luiz A. Pereira da Silva; Adriana Soares Sales
    Abstract: This paper investigates whether quantitative easing policies produces spillover effects from advanced economies into emerging markets affecting prices and asset markets, and, if so, how much of these effects is attributed to “excessive” capital inflows. We focus on the Brazilian economy and on quantitative easing (QE) policies adopted by the Federal Reserve. Our evaluation methodology is an extension of Pesaran and Smith (2012) and estimates ex-ante and ex-post policy effects over a grid of counterfactuals. We also provide a decomposition of the transmission channels of the policy effects, and test for their statistical significance. The decomposition method is novel and stems from a vector autoregressive model of the endogenous variables where the different channels are represented. Our results are consistent with the view that QE policies had a positive effect on growth but also had other significant spillover effects on the Brazilian economy. These effects were mostly transmitted through “excessive” capital inflows that led to exchange rate appreciation, stock market price increases and a credit boom. The effect on inflation was less robust, mitigated by currency appreciation and dependent on whether global activity reacts more strongly to quantitative easing.
    Date: 2013–07
  2. By: Emanuel Kohlscheen; Sandro C. Andrade
    Abstract: We use high-frequency data to study the effects of currency swaps auctions by the Brazilian Central Bank on the BRL/USD spot exchange rate. We find that official currency swap auctions impact the level of the exchange rate, even though they do not directly alter the supply of foreign currency in the market. The maximum impact occurs 60 to 70 minutes after the initial official announcement of an auction, and typically shortly after the results of the auctions are made public. The official supply of currency swaps to the market provides an alternative for traders that demand foreign currency for financial (speculative or hedging) rather than transactional reasons, and thus affects the demand for foreign currency and its price. This mechanism is likely to be particularly relevant when forecasters extrapolate exchange rate trends at short-term horizons.
    Date: 2013–07
  3. By: Steven Ongena; Jose Luis Peydro; Neeltje van Horen
    Abstract: We study the international transmission of shocks from the banking to the real sector during the global financial crisis. For identification, we use matched bank-firm level data, including many small and medium-sized firms, in Eastern Europe and Central Asia. We find that internationally-borrowing domestic and foreign-owned banks contract their credit more during the crisis than domestic banks that are funded only locally. Firms that are dependent on credit and at the same time have a relationship with an internationally-borrowing domestic or a foreign bank (as compared to a locally-funded domestic bank) suffer more in their financing and real performance. Single-bank-relationship firms, small firms and firms with intangible assets suffer most. For credit-independent firms, there are no differential effects. Our findings suggest that financial globalization has intensified the international transmission of financial shocks with substantial real consequences
    Keywords: international transmission; firm real effects; foreign banks; international wholesale funding; credit shock
    JEL: G01 G21 F23 F36
    Date: 2013–07
  4. By: Ahmet Benlialper (Department of Economics, METU); Hasan Cömert (Department of Economics, METU)
    Abstract: Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this paper analyzes the Turkish experience with the inflation targeting regime between 2002 and 2008. There are two main findings of this paper. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period under investigation whereas depreciation was responded aggressively by the Bank. We call this policy stance under the inflation targeting regimes as “implicit asymmetric exchange rate peg”. The Turkish experience indicates that, as opposed to rhetoric of central banks in developing countries, inflation targeting developing countries may have an asymeyric stance toward exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding to over-appreciation of currencies in developing countries.
    Keywords: Inflation Targeting, Central Banking, Developing Countries, Exchange Rates
    JEL: E52 E58 E31 F31
    Date: 2013–07

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