nep-ifn New Economics Papers
on International Finance
Issue of 2015‒04‒02
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Financial crisis, US unconventional monetary policy and international spillovers By Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
  2. The Role of Regulatory Arbitrage in U.S. Banks’ International Lending Flows: Bank-Level Evidence By Judit Temesvary
  3. Testing the Global Banking Glut Hypothesis By Maria Teresa Punzi; Karlo Kauko
  4. Advanced-country policies and emerging-market currencies : the impact of U.S. tapering on India's Rupee By Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.

  1. By: Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
    Abstract: We study the impact of US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error correction model (GVECM). We focus on the effects of reductions in the US term and corporate spreads. The estimated effects of QE are sizeable and vary across economies. First, we find the QE impact from reducing the US corporate spread to be more important than that from lowering the US term spread, consistent with Blinder's (2012) argument. Second, counterfactual exercises suggest that US QE measures, especially the cumulative effects of successive QE measures starting with the sizeable impact of the early actions, countered forces that could have led to episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on emerging economies are diverse but generally larger than those found for the United States and other advanced economies. The estimates suggest that US monetary policy spillovers contributed to overheating in Brazil, China and some other emerging economies in 2010 and 2011, but supported their respective recoveries in 2009 and 2012. These heterogeneous effects point to unevenly distributed benefits and costs of monetary policy spillovers.
    Keywords: emerging economies; financial crisis; global VAR; international monetary policy spillovers; quantitative easing; unconventional monetary policy
    Date: 2015–03
  2. By: Judit Temesvary
    Abstract: This paper examines how cross-border differences in the stringency of bank regulations affect U.S. banks’ international activities. The analysis relies on a unique bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in 82 foreign countries in the 2003-2013 period. Results show that U.S. banks are significantly more likely to enter foreign markets with relatively laxer bank capital and disclosure requirements, and exit foreign markets with relatively stricter deposit insurance schemes and more restrictions on activities. Banks substitute away from foreign affiliate lending (via subsidiaries in the foreign country) towards cross-border lending (originating from the U.S.) in foreign countries with more powerful and independent bank regulators and limits on activities.
    Keywords: International bank lending, Cross-border regulatory arbitrage, Foreign market entry and exit, Balance sheet effects
    JEL: F3 F4 G2
    Date: 2015–03
  3. By: Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business); Karlo Kauko (Bank of Finland, PO Box 160, 00101 Helsinki, Finland)
    Abstract: This paper presents VAR results on the recent economic history of the U.S and focuses on the dependence of U.S. macrofinancial variables on international capital flows. Both gross and net flows are included in the analysis. The results indicate that cross-border funding has affected the build-up in the U.S. housing market irrespective of how these flows are defined and measured. Both the savings glut hypothesis and the banking glut hypothesis are supported by these findings. However, net banking flows appear to explain the higher volatility in the increase in house prices as well as the mortgage loan boom.
    Keywords: Global Banking Glut, Global Savings Glut, Cross-Border Banking Transactions, House Prices, Mortgage Loans, VAR model
    JEL: F32 F33 F34
  4. By: Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.
    Abstract: The global financial crisis and its aftermath have triggered extraordinary policy responses in advanced countries. The impacts of these policy responses?from asset price bubbles to currency depreciations?have often been felt in the developing world. As tapering talk evolves into actual withdrawal of quantitative easing in the United States, and as the Euro Zone launches its own quantitative easing program, there are good reasons to be concerned about the financial stability of emerging economies. India's experience with U.S. tapering offers insights into what to expect. This paper estimates the contribution of external and domestic factors to short-term fluctuations in the value of the Indian rupee between 2004 and 2014, using a rich dynamic model that controls for a large number of exchange rate determinants. The paper finds that a global surprise factor, more than domestic vulnerabilities, was the main driver of the large rupee depreciation in summer 2013. With the surprise factor gone, further normalization of U.S. monetary policy is unlikely to have significant effects on the rupee exchange rate.
    Keywords: Economic Theory&Research,Debt Markets,Currencies and Exchange Rates,Economic Stabilization,Emerging Markets
    Date: 2015–03–23

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