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on International Finance |
| By: | Kristin Forbes; Marcel Fratzscher; Roland Straub |
| Abstract: | Are capital controls and macroprudential measures related to international exposures successful in achieving their objectives? Assessing their effectiveness is complicated by selection bias; 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 related to international transactions from 2009 to 2011 for 60 countries. Results show that these 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 |
| JEL: | F3 F4 F5 G0 G1 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20860&r=ifn |
| By: | Gurnain Pasricha; Matteo Falagiarda; Martin Bijsterbosch; Joshua Aizenman |
| Abstract: | This paper assesses the effects of capital controls in emerging market economies (EMEs) during 2001-2011, focusing on cross-country spillovers of changes in these controls. We use a novel dataset on weighted changes in capital controls (and currency-based measures) in 18 major EMEs. We first use panel VARs to test for effectiveness of own capital controls which take into account the endogeneity of such controls. Next, using near-VARs, we provide new evidence of multilateral effects of capital controls of the BRICS. Our results suggest a limited domestic impact of capital controls. Outflow easing measures do not have a significant impact on any of the variables in the model. Inflow tightening measures increase monetary policy autonomy (measured by the covered interest differential), but at the cost of a more appreciated exchange rate. These measures are therefore not effective in allowing EMEs to choose a trilemma configuration with a de-facto closed capital account, larger monetary policy autonomy and a weaker exchange rate. We do not find a clear difference between countries with extensive and long-standing capital controls (India and China) and other countries. Capital control actions in BRICS (Brazil, Russia, India, China and South Africa) had significant spillovers to other EMEs during the 2000s in particular via exchange rates. Multilateral effects were more important among the BRICS than between the BRICS and other, smaller EMEs, particularly in the pre-global financial crisis period. They were more significant in the aftermath of the global financial crisis than before the crisis. This change stems in particular from the fact that spillovers from capital flow policies in BRICS countries to non-BRICS became more significant in the post-global financial crisis period. These results are robust to various specifications of our models. |
| JEL: | F32 F41 F42 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20822&r=ifn |
| By: | Simon Kwan (Federal Reserve Bank of San Francisco and Hong Kong Institute for Monetary Research); Eric T.C. Wong (Hong Kong Monetary Authority); Cho-hoi Hui (Hong Kong Monetary Authority) |
| Abstract: | The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank's foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which is more relevant to the host country policy makers. We find that global banks use their foreign branches in Hong Kong as a funding source during a liquidity crunch in the home country, suggesting that global banks manage their liquidity risk globally. After the central bank in the home country introduced a liquidity facility to relieve funding pressure, this effect disappeared. We also find strong evidence that foreign branches of banks in the crisis countries lend significantly less in Hong Kong relative to a control group, suggesting the presence of a lending channel in the transmission of shocks from the home country to the host country. |
| Keywords: | Shocks Transmission, Foreign Banks, Financial Crisis, Liquidity Management |
| JEL: | G01 G21 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:022015&r=ifn |
| By: | Agustín S. Bénétrix; Philip R. Lane; Jay C. Shambaugh |
| Abstract: | We examine the evolution of international currency exposures, with a particular focus on the 2002-12 period. During the run up to the global financial crisis, there was a widespread shift towards positive net foreign currency positions, such that relatively few countries exhibited the archetypal emerging-market \short foreign currency" position on the eve of the global financial crisis. During the crisis, the upheaval in currency markets generated substantial currency-generated valuation effects - much of which were not reversed. There is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre-crisis net foreign asset positions. |
| JEL: | F3 F31 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20820&r=ifn |
| By: | Pinar Yesin |
| Abstract: | This paper first shows that capital inflows to and outflows from financial centres were disproportionately affected by the global financial crisis. Switzerland was no exception. The paper then identifies waves of capital flows to and from Switzerland from 2000:Q1 to 2014:Q2 by using a simple statistical method. The analysis shows that private capital inflows to and outflows from Switzerland have become exceptionally muted and less volatile since the crisis. Further, strong and long-lasting 'home bias' behaviour can be observed for both Swiss and foreign investors. By contrast, net private capital flows have shown significantly higher volatility since the financial crisis, frequently registering extreme movements driven by extreme movements in bank lending flows. These findings suggest that the financial crisis generated a breaking point for capital flows to and from Switzerland. |
| Keywords: | private capital flows, inflows, outflows, surges, stops, retrenchment, flight |
| JEL: | F21 F31 F32 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2015-01&r=ifn |