nep-ifn New Economics Papers
on International Finance
Issue of 2014‒11‒12
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The effects of intraday foreign exchange market operations in Latin America: results for Chile, Colombia, Mexico and Peru By Miguel Fuentes; Pablo Pincheira; Juan Manuel Julio; Hernán Rincón; Santiago García-Verdú; Miguel Zerecero; Marco Vega; Erick Lahura; Ramon Moreno
  2. Financial globalization or great financial expansion? The impact of capital flows on credit and banking crises By Jon Frost; Ruben van Tilburg
  3. Capital flows and capital account management in selected Asian economies By Abhijit SenGupta; Rajeswari Sengupta

  1. By: Miguel Fuentes; Pablo Pincheira; Juan Manuel Julio; Hernán Rincón; Santiago García-Verdú; Miguel Zerecero; Marco Vega; Erick Lahura; Ramon Moreno
    Abstract: This paper analyses the effects of sterilised, intraday foreign exchange market operations (non-discretionary and discretionary) on foreign exchange returns and volatility in four inflation targeting economies in Latin America. The distribution of exchange rates during intervention and non-intervention days are first compared, and then event study regressions are used to estimate the impact of intervention (and macro surprises) on exchange rate returns and exchange rate volatility as well as on foreign exchange market turnover (in Colombia). In general, the results suggest that the impact of both non-discretionary and discretionary operations is at times significant but transitory. However, an analysis of Chile’s experience suggests that the announcement effects of even non-discretionary programmes may be significant and persistent. Classification JEL: E58, F31, G14.
    Date: 2014–10
  2. By: Jon Frost; Ruben van Tilburg
    Abstract: This paper empirically examines the impact of capital flows on credit growth, credit excesses and banking crises using quarterly panel data from 43 advanced (AEs) and emerging market economies (EMEs). Regressions show that gross capital inflows precede credit growth and credit excesses. Both gross inflows and high private domestic credit precede banking crises. Formalized hypotheses allow us to study whether domestic or international drivers more frequently precede banking crises, and thus to evaluate "financial globalization" and the "great financial expansion" as explanations for country vulnerability to banking crises. Our evidence provides support for both narratives as drivers of country vulnerability; financial globalization seems to matter particularly for EMEs. We also provide some ground for caution on the effectiveness of capital controls and the desirability of very high levels of private credit to GDP.
    Keywords: Gross capital flows; credit bubbles; financial globalization; banking crises
    JEL: E51 F32 G01 G15
    Date: 2014–10
  3. By: Abhijit SenGupta (Asian Development Bank); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: Gross capital in ows and out ows to and from emerging market economies (EMEs) have witnessed a signilcant increase since early 2000s. This rapid increase in the volume of ows accompanied by sharp swings in volatility has ampliled the complexity of macroeconomic management in EMEs. While capital in ows provide additional financing for productive investment and oker avenues for risk diversication, unbridled ows could also exacerbate lnancial instability. In this paper we focus on the evolution of capital ows in a few select emerging Asian economies, and analyze surge and stop episodes a well as changes in the composition of ows across these episodes. We also provide a comprehensive description of the capital account management policies adopted by the host countries and evaluate the efcacy of these measures by analyzing whether they achieved the desired goals.This kind of an analysis is highly relevant especially a time when EMEs around the world are about to face the repercussions of a potential Quantitative Easing (QE) tapering by the US or launch of fresh QE measures by the Euro-zone, either of which could once again heighten the volatility of cross-border capital ows thereby posing renewed macroeconomic challenges for major EMEs.
    Keywords: Capital ows, Exchange market pressure, Impossible Trinity, Sterilized intervention, Capital controls, Global lnancial crisis
    JEL: F32 F41
    Date: 2014–09

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