nep-ifn New Economics Papers
on International Finance
Issue of 2016‒11‒06
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital inflows — the good, the bad and the bubbly By Hoggarth, Glen; Jung, Carsten; Reinhardt, Dennis
  2. Is there really a Global Business Cycle? A Dynamic Factor Model with Stochastic Factor Selection By Tino Berger; Lorenzo Pozzi
  3. Emerging Market Capital Flows and U.S. Monetary Policy By John Clark; Nathan Converse; Brahima Coulibaly; Steven B. Kamin

  1. By: Hoggarth, Glen (Bank of England); Jung, Carsten (Bank of England); Reinhardt, Dennis (Bank of England)
    Abstract: Capital inflows come in all shapes and sizes. This paper highlights that equity flows, especially foreign direct investment, are the most stable forms of capital inflows. In contrast, debt inflows from banks particularly in foreign currency are most prone to booms and busts. These flows also seem most sensitive to external factors, especially changes in global risk, and also to changes in domestic credit growth. Although portfolio debt flows are somewhat more stable particularly to advanced countries, granular data highlight that (open-ended) emerging market mutual funds in foreign currency and aimed at retail investors are also prone to inflow ‘surges’ and ‘stops’. The share of external debt denominated in foreign currency is significantly higher in emerging market economies (EMEs) than in advanced countries. EMEs also usually have shallower and narrower financial markets. This suggests these countries are more prone to risks from capital inflow booms and busts.
    Keywords: capital flows; international monetary and financial system; macro-prudential policy; banking flows; portfolio flows; bank and non-bank creditors
    JEL: F21 F32 F34 G21 G28
    Date: 2016–10–26
  2. By: Tino Berger (University of Goettingen, Germany); Lorenzo Pozzi (Erasmus University Rotterdam, The Netherlands)
    Abstract: We investigate the presence of international business cycles in macroeconomic aggregates (output, consumption, investment) using a panel of 60 countries over the period 1961 - 2014. The paper presents a Bayesian stochastic factor selection approach for dynamic factor models with predetermined factors. The literature has so far ignored model uncertainty in these models as common factors (i.e., global, regional or otherwise) are typically imposed but not tested for. We focus in particular on the existence of a global business cycle as the literature has, in our opinion unjustifiably, taken for granted its existence. In contrast to the literature, we find no evidence to support its presence.
    Keywords: Global business cycle; dynamic factor model; Bayesian; model selection
    JEL: F44 C52 C32
    Date: 2016–10–20
  3. By: John Clark; Nathan Converse; Brahima Coulibaly; Steven B. Kamin
    Abstract: Accordingly, in this note we analyze the drivers of EME capital flows, focusing in particular on the role of U.S. monetary policy and other potential factors in the decline in capital flows to EMEs since 2010.
    Date: 2016–10–18

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