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on International Finance |
| By: | Menzie D Chinn |
| Abstract: | I discuss how the unconventional monetary policy measures implemented over the past several years – quantitative and credit easing, and forward guidance – can be analysed in the context of conventional models of asset prices, with particular reference to exchange rates. I then discuss alternative approaches to interpreting the effects of such policies, and review the empirical evidence. Finally, I examine the ramifications for thinking about the impact on exchange rates and asset prices of emerging market economies. I conclude that although the implementation of unconventional monetary policy measures may introduce more volatility into global markets, in general it will support global rebalancing by encouraging the revaluation of emerging market currencies. |
| Keywords: | Balance sheet, money supply, portfolio balance, forward guidance, yield curve, spreads, signaling, capital flows, rebalancing |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:436&r=ifn |
| By: | Erick Lahura; Marco Vega |
| Abstract: | Asymmetric effects of Central Bank foreign exchange (forex) intervention have not been extensively studied in the literature, even though in practice Central Bank's motives for purchasing and for selling foreign currency may differ. This paper studies asymmetric effects of Central Bank interventions under the premise that policy authorities view depreciations and appreciations as having asymmetric implications. Using undisclosed intraday data for Peru from 2009 to 2011, this paper shows that Central Bank interventions in the foreign exchange market have a signifcant and asymmetric effect on interbank exchange rates. Specifically, central bank intervention is more effective in reducing the interbank exchange rate than in raising it. |
| Keywords: | exchange rate, foreign exchange market, intervention |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:430&r=ifn |
| By: | Gary, Koop; Dimitris, Korobilis |
| Abstract: | We use factor augmented vector autoregressive models with time-varying coefficients to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables. |
| Keywords: | financial stress, dynamic model averaging, forecasting, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:475&r=ifn |
| By: | Kristin Forbes; Marcel Fratzscher; Roland Straub |
| Abstract: | Are capital controls and macroprudential measures successful in achieving their objectives? Assessing their effectiveness is complicated by selection bias and endogeneity; countries which change their capital-flow management measures (CFMs) often share specific characteristics and are responding to changes in variables that the CFMs are intended to influence. This paper addresses these challenges by using a propensity-score matching methodology. We also create a new database with detailed information on weekly changes in controls on capital inflows, capital outflows, and macroprudential measures from 2009 to 2011 for 60 countries. Results show that macroprudential measures can significantly reduce some measures of financial fragility. Most CFMs do not significantly affect other key targets, however, such as exchange rates, capital flows, interest-rate differentials, inflation, equity indices, and different volatilities. One exception is that removing controls on capital outflows may reduce real exchange rate appreciation. Therefore, certain CFMs can be effective in accomplishing specific goals-but most popular measures are not "good for" accomplishing their stated aims. |
| Keywords: | capital controls, macroprudential measures, propensity-score matching, selection bias, capital flows, emerging markets |
| JEL: | F3 F4 F5 G0 G1 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1343&r=ifn |