nep-ifn New Economics Papers
on International Finance
Issue of 2015‒02‒05
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Global Liquidity and Drivers of Cross-Border Bank Flows By Cerutti, Eugenio; Claessens, Stijn; Ratnovski, Lev
  2. International Currency Exposures, Valuation Effects and the Global Financial Crisis By Bénétrix, Agustín; Lane, Philip R.; Shambaugh, Jay C
  3. Monetary Policy Independence under Flexible Exchange Rates: An Illusion? By Sebastian Edwards

  1. By: Cerutti, Eugenio; Claessens, Stijn; Ratnovski, Lev
    Abstract: This paper studies the determinants of global liquidity using data on cross-border bank flows, with a longer time series and broader country sample than previous studies. We define global liquidity as non-price determinants of cross-border credit supply, consistent with its meaning as the “ease of financing” in international financial markets. We find that global liquidity is driven primarily by uncertainty (VIX), US monetary policy (term premia), and UK and Euro Area bank conditions (proxied by leverage and TED spreads). This expands on previous studies by highlighting non-US drivers of global liquidity, and is consistent with the dominant role of European banks in cross-border lending. We also show that borrowing countries can limit their exposures to global liquidity fluctuations through adapting their macro frameworks, capital flow management tools, and bank regulation.
    Keywords: Capital Flows; Global liquidity; International Banking
    JEL: F21 F34 G15 G18 G21 G28
    Date: 2014–12
  2. By: Bénétrix, Agustín; Lane, Philip R.; Shambaugh, Jay C
    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.
    Keywords: global financial crisis; international currency exposures; valuation effects
    JEL: F30 F31
    Date: 2015–01
  3. By: Sebastian Edwards
    Abstract: I analyze whether countries with flexible exchange rates are able to pursue an independent monetary policy, as suggested by traditional theory. I use data for three Latin American countries with flexible exchange rates, inflation targeting, and capital mobility – Chile, Colombia and Mexico – to investigate the extent to which Federal Reserve actions are translated into local central banks’ policy rates. The results indicate that there is significant “policy contagion,” and that these countries tend to “import” Fed policies. The degree of monetary policy independence is lower than what traditional models suggest.
    JEL: E5 E52 E58 F30 F31 F32
    Date: 2015–01

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