nep-ifn New Economics Papers
on International Finance
Issue of 2014‒12‒24
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Controls and Recovery from the Financial Crisis of the 1930s By Mitchener, Kris; Wandschneider, Kirsten
  2. Liberalised Capital Accounts and Volatility of Capital Flows and Foreign Exchange Rates By Bogdan Bogdanov
  3. Shocks Abroad, Pain at Home? Bank-firm Level Evidence on the International Transmission of Financial Shocks By Ongena, S.; Peydro, J.L.; van Horen, N.

  1. By: Mitchener, Kris; Wandschneider, Kirsten
    Abstract: We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find evidence that they stemmed gold outflows in the year following their imposition; however, time-shifted, difference-in-differences (DD) estimates of industrial production, prices, and exports suggest that exchange controls did not accelerate macroeconomic recovery relative to countries that went off gold and floated. Countries imposing capital controls also appear to perform similar to the gold bloc countries once the latter group of countries finally abandoned gold. Time series analysis suggests that countries imposing capital controls refrained from fully utilizing their newly acquired monetary policy autonomy.
    Keywords: capital controls; financial crises; Great Depression; interwar gold standard
    JEL: E44 E61 F32 F33 F41 G15 N1 N2
    Date: 2014–06
  2. By: Bogdan Bogdanov
    Abstract: Whether free movement of international capital induces greater risk of foreign exchange rate and balance-of-payments volatility, or not, is an important question in international finance and economic policy making. The paper employs propensity score matching methodologies to estimate the impact of maintaining open capital accounts on the volatility of international capital flows and foreign exchange rates using data for 69 countries, in the sample period 1980-2011. The findings of the study suggest that maintaining an open capital account could contribute to lower foreign exchange rate volatility. It also finds that capital flow management measures may not have an effect on the volatility of short- and long-term capital flows.
    JEL: C21 F30
    Date: 2014–07
  3. By: Ongena, S. (Tilburg University, Center For Economic Research); Peydro, J.L.; van Horen, N.
    Abstract: 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

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