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on International Finance |
| By: | Pinar Yesin |
| Abstract: | The Swiss franc is known to appreciate strongly during financial market turmoil, demonstrating its status as a typical safe haven currency. One possible mechanism behind this appreciation during times of global turmoil is assumed to be higher capital inflows to Switzerland. This paper attempts to find some empirical evidence for this presumption. The analysis reveals that capital flow variables are not necessarily coincident with the movements of the Swiss franc. Interest rate differentials, a traditional determinant of exchange rates, co-move only weakly with Swiss franc movements. However, a robust and stronger link between variables that capture global or regional market uncertainty and movements of the Swiss franc is observed. Specifically, the information channel rather than new cross-border investment is found to be coincident with the Swiss franc. The weak link between capital flows and the exchange rate is confirmed to some extent for some other countries. |
| Keywords: | Exchange rate, safe haven currency, gross capital flows, net flows, private flows |
| JEL: | F21 F31 F32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2016-08&r=ifn |
| By: | Kristin Forbes; Dennis Reinhardt; Tomasz Wieladek |
| Abstract: | Have bank regulatory policies and unconventional monetary policies—and any possible interactions—been a factor behind the recent “deglobalisation” in cross-border bank lending? To test this hypothesis, we use bank-level data from the UK—a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the UK’s Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on cross-border lending. Quantitative easing did not appear to have a similar effect. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the global contraction in cross-border lending. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending. |
| JEL: | G21 G28 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22307&r=ifn |
| By: | Matteo Maggiori; Xavier Gabaix |
| Abstract: | We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such alterations to their balance sheets cause financiers to change their required compensation for holding currency risk, thus impacting both the level and volatility of exchange rates. Our theory of exchange rate determination in imperfect financial markets not only helps rationalize the empirical disconnect between exchange rates and traditional macroeconomic fundamentals, but also has real consequences for output and risk sharing. Exchange rates are sensitive to imbalances in financial markets and seldom perform the shock absorption role that is central to traditional theoretical macroeconomic analysis. Our framework is flexible; it accommodates a number of important modeling features within an imperfect financial market model, such as non-tradables, production, money, sticky prices or wages, various forms of international pricing-to-market, and unemployment. |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:181761&r=ifn |