|
on International Finance |
| By: | Guillaume Plantin; Hyun Song Shin |
| Abstract: | We offer a model of currency carry trades in which carry traders earn positive excess returns if they successfully coordinate on supplying excessive capital to a target economy. The interest-rate differential between their funding currency and the target currency is their coordination device. We solve for a unique equilibrium that exhibits the classic pattern of the carry-trade recipient currency appreciating for extended periods, punctuated by sharp falls. |
| JEL: | F3 G3 |
| Date: | 2014–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:60959&r=ifn |
| By: | Ryan Niladri Banerjee; Michael B Devereux; Giovanni Lombardo |
| Abstract: | This paper explores the nature of macroeconomic spillovers from advanced economies to emerging market economies (EMEs) and the consequences for independent use of monetary policy in EMEs. We first empirically document the effects of US monetary policy shocks on a sample group of EMEs. A contractionary monetary shock leads a retrenchment in EME capital flows, a fall in EME GDP, and an exchange rate depreciation. We construct a theoretical model which can help to account for these findings. In the model, macroeconomic spillovers are exacerbated by financial frictions. We assess the extent to which domestic monetary policy can mitigate the negative spillovers from foreign shocks. Absent financial frictions, international spillovers are minor, and an inflation targeting rule represents an effective policy for the EME. With frictions in financial intermediation, however, spillovers are substantially magnified, and an inflation targeting rule has little advantage over an exchange rate peg. However, an optimal monetary policy markedly improves on the performance of naive inflation targeting or an exchange rate peg. Furthermore, optimal policies don't need to be coordinated across countries. Under the specific set of assumptions maintained in our model, a non-cooperative, self-oriented optimal policy gives results very similar to those of a global cooperative optimal policy. |
| Keywords: | International spillovers, Local Projections, Capital flows, Financial intermediaries, Monetary policy |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:540&r=ifn |
| By: | Banegas, Ayelen (Board of Governors of the Federal Reserve System (U.S.)); Judson, Ruth (Board of Governors of the Federal Reserve System (U.S.)); Sims, Charles (Federal Reserve Bank of New York); Stebunovs, Viktors (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, explain the flows markedly well. Further, precautionary demand for U.S. banknotes is not episodic. |
| Keywords: | capital flows; currency flows; U.S. banknotes; safe asset; emerging market economies; economic uncertainty; flight to quality; capital flight; money demand. |
| JEL: | E40 E50 F30 |
| Date: | 2015–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1144&r=ifn |
| By: | Agustín S. Bénétrix (Department of Economics, Trinity College Dublin); Philip R. Lane (Central Bank of Ireland, Trinity College Dublin and CEPR) |
| Abstract: | This paper first documents the foreign currency exposures of Switzerland in the 2002-2012 period. We find that the large scale of the Swiss international balance sheet means that movements in the Swiss Franc generate large cross-border valuation effects. Second, we examine the Swiss Franc holdings of the rest of the world and highlight differences in exposures between advanced and emerging economies. |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0116&r=ifn |