nep-ifn New Economics Papers
on International Finance
Issue of 2014‒01‒24
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets By Eichengreen, Barry; Gupta, Poonam
  2. Changing forces of gravity: How the crisis affected international banking By Buch, Claudia M.; Neugebauer, Katja; Schröder, Christoph
  3. Uncertainty and Episodes of Extreme Capital Flows in the Euro Area By Torsten Schmidt; Lina Zwick

  1. By: Eichengreen, Barry; Gupta, Poonam
    Abstract: In May 2013, Federal Reserve officials first began to talk of the possibility of tapering their security purchases. This tapering talk had a sharp negative impact on emerging markets. Different countries, however, were affected differently. We use data for exchange rates, foreign reserves and equity prices between April and August 2013 to analyze who was hit and why. We find that emerging markets that allowed the real exchange rate to appreciate and the current account deficit to widen during the prior period of quantitative easing saw the sharpest impact. Better fundamentals did not provide insulation. An important determinant of the differential impact was the size of the country’s financial market: countries with larger markets experienced more pressure on the exchange rate, foreign reserves and equity prices. We interpret this as investors being able to better rebalance their portfolios when the target country has a relatively large and liquid financial market.
    Keywords: Emerging Markets, Tapering, Quantitative Easing
    JEL: F3 F32 F42
    Date: 2014–01–19
  2. By: Buch, Claudia M.; Neugebauer, Katja; Schröder, Christoph
    Abstract: The global financial crisis has brought to an end a rather unprecedented period of banks' international expansion. We analyze the effects of the crisis on international banking. Using a detailed dataset on the international assets of all German banks with foreign affiliates for the years 2002-2011, we study bank internationalization before and during the crisis. Our data allow analyzing not only the international assets of the banks' headquarters but also of their foreign affiliates. We show that banks have lowered their international assets, both along the extensive and the intensive margin. This withdrawal from foreign markets is the result of changing market conditions, of policy interventions, and of a weakly increasing sensitivity of banks to financial frictions. --
    Keywords: international banking,gravity model,financial frictions
    JEL: G01 F34 G21
    Date: 2014
  3. By: Torsten Schmidt; Lina Zwick
    Abstract: During the Euro Area crisis huge changes in international capital flows occurred associated with a high level of economic uncertainty. While it is evident that both factors are able to trigger or amplify economic shocks posing a threat for economic activity it is a natural question whether they are related. The aim of this paper is to analyse the link between different measures of uncertainty and episodes of extreme capital flows for the core Euro Area countries using gross capital flows. We find that country-specific risk factors seem to play a more important role than global risk factors. Moreover, country-specific uncertainty seems to be more relevant for foreign direct investors.
    Keywords: Capital flows; uncertainty; Euro Area crisis; sudden stops; retrenchment
    JEL: F32 F21 G01
    Date: 2013–12

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