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on International Finance |
| By: | Joshua Aizenman; Hiro Ito |
| Abstract: | This paper assesses the East Asian Economies’ openness to cross-border capital flows and exchange rate arrangements in the past decades, with the main focus on emerging market economies. Using Mundell’s trilemma indexes, we note that the convergence of the three policy goals in East Asia toward a “middle ground” pre-dates the convergence of these indices in other regions. Another more recent development involves the high level of international reserve (IR) holdings–a feature that is known as the most distinct characteristic of Asian EMEs. Financial globalization made asset prices and interest rates in Asian EMEs more vulnerable to global movements of capital, and to the monetary policy of the center country, the United-States. The U.S. presence in trade ties with Asian economies has been declining over the last two decades, whereas China’s has been on a rising trend. Yet, the share of trade among Asian economies with the dollar zone economies has been quite stable. China has been recently making efforts to “internationalize” its currency, the yuan (RMB). Hence, if China succeeds in its internationalization efforts and creates the RMB zone, the dynamics between the U.S. and Asia will most likely change. Recently, Chinese authorities have become more interventionist because of the slowdown of the economy and financial markets. For now, the Asian region’s international finance continues to be dollar-centric. |
| JEL: | F31 F36 F41 O24 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22268&r=ifn |
| By: | Ivan Petzev; Andreas Schrimpf; Alexander F. Wagner |
| Abstract: | We show that in recent years global factor models have been catching up significantly with their local counterparts in terms of explanatory power (R2) for international stock returns. This catch-up is driven by a rise in global factor betas, not a rise in factor volatilities, suggesting that the effect is likely to be permanent. Yet, there is no conclusive evidence for a global factor model catch-up in terms of pricing errors (alpha) or a convergence in country-specific factor premia. These findings suggest that global financial markets have progressed surprisingly little towards fully integrated pricing, different from what should be expected under financial market integration. We discuss alternative explanations for these patterns and assess implications for practice. |
| Keywords: | International asset pricing, size, value, momentum, financial integration, factor models |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:560&r=ifn |
| By: | Stefan Eichler; Helge Littke; Lena Tonzer |
| Abstract: | We analyze the effect of central bank transparency on cross-border bank activities. Based on a panel gravity model for cross-border bank claims for 21 home and 47 destination countries from 1998 to 2010, we find strong empirical evidence that a rise in central bank transparency in the destination country, on average, increases cross-border claims. Using interaction models, we find that the positive effect of central bank transparency on cross-border claims is only significant if the central bank is politically independent. Central bank transparency and credibility are thus considered complements by banks investing abroad. |
| Keywords: | central bank transparency, cross-border banking, gravity model |
| JEL: | E58 F30 G15 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:16-16&r=ifn |
| By: | Gustavo Adler; Ruy Lama; Juan Pablo Medina Guzman |
| Abstract: | We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization. |
| Keywords: | Foreign exchange;Central banks and their policies;Foreign Exchange Intervention, Monetary Policy, Learning, inflation, central bank, exchange, currency, Open Economy Macroeconomics, |
| Date: | 2016–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/67&r=ifn |