nep-ifn New Economics Papers
on International Finance
Issue of 2015‒03‒22
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Global Banks' Dynamics and the International Transmission of Shocks By Stefania Garetto; Martin Goetz; Jose Fillat
  2. Estimating Capital Flows to Emerging Market Economies with Heterogeneous Panels By Hernandez Vega Marco A
  3. Capital Flows and Domestic and International Order: Trilemmas from Macroeconomics to Political Economy and International Relations By Michael Bordo; Harold James
  4. Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model By Juliane M. Begenau

  1. By: Stefania Garetto (Boston University); Martin Goetz (Goethe University, Frankfurt am Main); Jose Fillat (Federal Reserve Bank of Boston)
    Abstract: 15% of the loans in the US are held by foreign banking institutions, headquartered in more than 50 countries. Using bank-level data, we present novel stylized facts describing characteristics of foreign institutions and compare them to the incumbent set of banks, distinguishing foreign banks by their mode of entry. We incorporate these facts into a structural model of entry in the banking sector where profit maximizing foreign banks decide whether and how to enter a foreign market. The model sheds light on the relationship between market access, capital flows, regulation, and entry, and has implications for the risk exposure that different organizational forms entail.
    Date: 2014
  2. By: Hernandez Vega Marco A
    Abstract: Current data provide macroeconomic information for a large number of countries and for a long period of time (macro panels). This causes that in these panels slope heterogeneity and cross-section dependence (CSD) are a rule rather than the exception, leading to fixed effects slope estimators to be biased and inconsistent. This paper analyzes gross capital flows to emerging economies employing the Augmented Mean Group (AMG) model to account for slope heterogeneity and CSD. The results suggest that the AMG performs better than the fixed effects model. In addition, this work also suggests that not only the heterogeneity across countries is important to analyze capital inflows to emerging economies, but also the different responses of the different types of capital inflows to movements in macroeconomic variables.
    Keywords: Capital Flows;Push and Pull Factors;Slope Heterogeneity;Common Factors;Cross-Section Dependence.
    JEL: C33 F3 F21 G15
    Date: 2015–02
  3. By: Michael Bordo; Harold James
    Abstract: This paper explains the problem of adjustment to the challenges of globalization in terms of the logic underpinning four distinct policy constraints or trilemmas, and their interrelationship, and in particular the disturbances that arise from capital flows. The analysis of a policy trilemma was developed first as a diagnosis of exchange rate problems (the incompatibility of free capital flows with monetary policy autonomy and a fixed exchange rate regime); but the approach can be extended. The second trilemma we describe is the incompatibility between financial stability, capital mobility and fixed exchange rates. The third example extends the analysis to politics, and looks at the strains in reconciling democratic politics with monetary autonomy and capital movements. Finally we examine the security aspect and look at the interactions of democracy with capital flows and international order. The trilemmas in short depict the way that domestic monetary, financial, economic and political systems are interconnected with the international. They can be described as the impossible policy choices at the heart of globalization. Frequently, the trilemmas conjure up countervailing anti-globalization tendencies and trends.
    JEL: E4 E6 N1
    Date: 2015–03
  4. By: Juliane M. Begenau (Harvard Business School, Finance Unit)
    Abstract: This paper develops a quantitative dynamic general equilibrium model in which households' preferences for safe and liquid assets constitute a violation of Modigliani and Miller. I show that the scarcity of these coveted assets created by increased bank capital requirements can reduce overall bank funding costs and increase bank lending. I quantify this mechanism in a two-sector business cycle model featuring a banking sector that provides liquidity and has excessive risk-taking incentives. Under reasonable parametrizations, the marginal benefit of higher capital requirements related to this channel significantly exceeds the marginal cost, indicating that US capital requirements have been sub-optimally low.
    Keywords: Capital Requirements, Bank Lending, Safe Assets, Macro-Finance
    JEL: E32 E41 E51 G21 G28
    Date: 2015–03

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