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on International Finance |
| By: | Andreasen, Eugenia (University of Santiago of Chile); Schindler, Martin (Joint Vienna Institute); Valenzuela, Patricio (University of Chile) |
| Abstract: | Using a novel panel data set for international corporate bonds and capital account restrictions in advanced and emerging economies, we find that restrictions on capital inflows produce a substantial and economically meaningful increase in corporate bond spreads. By contrast, we find no robust significant effect of restrictions on outflows. The effect of capital account restrictions on inflows is particularly strong for bonds maturing in the short-term, issued by small firms and in countries with underdeveloped financial markets. Additionally, the paper shows that capital account restrictions on inflows have a greater effect during periods of financial distress than during periods of financial stability. These results are suggestive of a causal interpretation of the estimated effects and establish a novel channel through which capital controls affect economic outcomes. |
| JEL: | F30 F40 G10 G30 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:upafin:15-02&r=all |
| By: | Rajeswari Sengupta (Indira Gandhi Institute of Development Research); Abhijit Sen Gupta (Asian Development Bank) |
| Abstract: | In this paper we investigate the different nuances of India's capital account management through empirical analyses as well as descriptive discussions. In particular we study the evolution of the capital control regime in India since 1991, and explore the rationale behind liberalizing certain flows restricting others and the means employed to do so. Increased integration with global financial markets has amplified the complexity of macroeconomic management in India. We analyze the trade-offs faced by Indian policy makers between exchange rate stability, monetary autnomy and capital account opnenness, within the framework of the well-known Impossible Trinity or Trilemma and find that over time India has adopted an intermediate regime balancing the different policy objectives while at the same time accumulating massive international reserves. We also calculate the exchange market pressure (EMP) index in India, and track its evolution over the last couple of decades. We evaluate the extent to which the EMP index has been influenced by major macroeconomic factors and find that a deteriorating trade balance and decline in portfolio equity inflows are associated with a higher EMP while positive changes in stock market returns lower the EMP. |
| Keywords: | Capital controls, Macroeconomic trilemma, Financial integration, Foreign exchange intervention, Sterilization, Exchange market pressure, Reserve adequacy |
| JEL: | E4 E5 F3 F4 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2015-024&r=all |
| By: | Gopinath, Gita (Harvard University); Kalemli-Ozcan, Sebnem (University of Maryland); Karabarbounis, Loukas (Federal Reserve Bank of Minneapolis); Villegas-Sanchez, Carolina (ESADE - Universitat Ramon Llull) |
| Abstract: | Following the introduction of the euro in 1999, countries in the South experienced large capital inflows and low productivity. We use data for manufacturing firms in Spain to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor across firms, and a significant increase in productivity losses from misallocation over time. We develop a model of heterogeneous firms facing financial frictions and investment adjustment costs. The model generates cross-sectional and time-series patterns in size, productivity, capital returns, investment, and debt consistent with those observed in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive. We conclude by showing that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway. |
| Keywords: | Misallocation; Productivity; Dispersion; Capital flows; Europe |
| JEL: | D24 E22 F41 O16 O47 |
| Date: | 2015–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:728&r=all |