nep-ifn New Economics Papers
on International Finance
Issue of 2015‒04‒19
six papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Control Measures: A New Dataset By Andrés Fernández Martín; Michael W. Klein; Alessandro Rebucci; Martin Schindler; Martin Uribe
  2. Global Liquidity, House Prices and the Macroeconomy: Evidence from Advanced and Emerging Economies By Ambrogio Cesa-Bianchi; Luis Felipe Céspedes; Alessandro Rebucci
  3. Fire Sales and Information Advantage: When Informed Investor Helps By Massa, Massimo; Zhang, Lei
  4. Fed Policy Expectations and Portfolio Flows to Emerging Markets By Koepke, Robin
  5. International Financial Shocks in Emerging Markets By Michael Brei; Almira Buzaushina
  6. The Use and Effectiveness of Macroprudential Policies: New Evidence By Eugenio Cerutti; Stijn Claessens; Luc Laeven

  1. By: Andrés Fernández Martín; Michael W. Klein; Alessandro Rebucci; Martin Schindler; Martin Uribe
    Abstract: This paper presents and describes a new dataset of capital control restrictions on both inflows and outflows of 10 categories of assets for 100 countries over the period 1995 to 2013. Building on the data first presented in Schindler (2009) and other datasets based on the analysis of the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), this dataset includes additional asset categories, more countries, and a longer time period. The paper discusses the manner in which information in the AREAER is translated into a usable dataset. The paper additionally characterizes the data with respect to the prevalence of controls across asset categories, the correlation of controls across asset categories and between controls on inflows and controls on outflows, the aggregation of the separate categories into broader indicators, and the comparison of this dataset with other indicators of capital controls.
    Keywords: Financial management, Capital flows, Financial integration, Capital flows, Financial integration, Capital control measures
    Date: 2015–02
  2. By: Ambrogio Cesa-Bianchi; Luis Felipe Céspedes; Alessandro Rebucci
    Abstract: This paper first compares house price cycles in advanced and emerging economies using a new quarterly house price dataset covering the period 1990- 2012. It is found that that house prices in emerging economies grow faster, are more volatile, less persistent and less synchronized across countries than in advanced economies. They also correlate more closely with capital flows than in advanced economies. The analysis is then conditioned on an exogenous change to global liquidity, broadly understood as a proxy for the international supply of credit. It is found that in emerging markets a global liquidity shock has a much stronger impact on house prices and consumption than in advanced economies. Finally, holding house prices constant in response to this shock tends to dampen its effects on consumption in both advanced and emerging economies, but possibly through different channels: in advanced economies by boosting the value of housing collateral and hence supporting domestic borrowing, and in emerging markets by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.
    Keywords: Capital flows, Housing finance, Exchange rates, Monetary Policy, Capital flows, Emerging markets, Global liquidity, House prices, External instrumental variables
    Date: 2015–03
  3. By: Massa, Massimo; Zhang, Lei
    Abstract: We study the relation between information and fire sales during a crisis. We argue that the reinforcing effect of funding liquidity on market liquidity is weaker when investors have more information about the assets facing sudden price drops (Brunnermeier and Pedersen, 2009). We focus on the affiliation of international asset managers with banking conglomerates. We document that bank affiliation provides an informational advantage. We show that (informed) bank-affiliated foreign ownership before the crisis predicts higher stock liquidity, lower extreme negative return realizations, lower short-selling demand, lower comovement (R2) with the market and higher price informativeness during the crisis.
    Keywords: bank-affiliation; fire sales; global asset managers; international crisis; international liquidity.; transmission
    JEL: G10 G15 G21
    Date: 2015–04
  4. By: Koepke, Robin
    Abstract: The empirical literature has long established that U.S. interest rates are an important driver of international portfolio flows, with lower rates “pushing” capital to emerging markets. On the basis of this literature, it is often argued that the Federal Reserve’s imminent policy tightening cycle is likely to weigh on portfolio flows to emerging markets in coming years. The analysis presented in this paper offers a different interpretation of the literature, suggesting that it is the surprise element of monetary policy that affects EM portfolio inflows. A shift in market expectations towards easier future U.S. monetary policy leads to greater foreign portfolio inflows and vice versa. Given current market expectations of sustained increases in the federal funds rate in coming years, EM portfolio flows could be boosted by a slower pace of Fed tightening than currently expected or could be reduced by a faster pace of Fed tightening.
    Keywords: Capital Flows, Portfolio Flows, Emerging Markets, Monetary Policy, Market Expectations, Fed Funds Futures, Push and Pull
    JEL: E43 F32 F4 G11
    Date: 2014–05–25
  5. By: Michael Brei; Almira Buzaushina
    Abstract: The present paper investigates how an emerging market economy is affected when it suddenly faces a higher risk premium on international capital markets. We study this question empirically for five Latin American economies over the period 1994-2007 within a structural panel vector autoregression and analyze theoretically the transmission mechanism using a dynamic stochastic general equilibrium model (DSGE) of a small open economy. The financial shock is modeled by an unexpected increase in the risk premium of firms’ foreign-currency debt. In response, the adverse shock is amplified by a feedback mechanism between currency depreciation, adverse balance sheet and risk premium effects. The theoretical model is used to study different monetary policy responses. We find that an exchange rate targeting rule that strikes a balance between exchange rate and inflation targeting allows the monetary authority to stabilize inflation and output more effectively than under a pure inflation targeting rule.
    Keywords: CGEM, EPA, Gender inequalities, Trade opening, SenEmerging Markets, Financial Crises, International Capital Markets.
    JEL: F34 F36 G21
    Date: 2015
  6. By: Eugenio Cerutti; Stijn Claessens; Luc Laeven
    Abstract: Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.
    Keywords: Macroprudential Policy;Emerging markets;Developed countries;Procyclicality of financial system;Cross country analysis;Time series;Macroprudential policies, Effectiveness, Procyclicality, Financial cycles
    Date: 2015–03–17

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