nep-ifn New Economics Papers
on International Finance
Issue of 2017‒01‒29
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market By Demirguc-Kunt, Asli; Horvath, Balint; Huizinga, Harry
  2. Sudden stops of capital flows: the role of outflows as a mechanism to offset sudden stops of inflows By Manuel R. Agosin; Juan Díaz-Maureira; Mohit Karnani
  3. Exchange rates and the yield curve By Stavrakeva, Vania; Tang, Jenny

  1. By: Demirguc-Kunt, Asli; Horvath, Balint; Huizinga, Harry
    Abstract: This paper uses loan-level data from 124 countries over 1995–2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. The results show that the expansion of monetary policy increases cross-border credit supply especially to weaker firms. However, greater foreign bank presence in the borrower country appears to reduce the potentially destabilizing impact of lower policy interest rates on cross-border lending, as it attenuates increases in loan volume and maturity while magnifying increases in collateralization and covenant use. The mitigating effect of foreign banking presence in the borrowing country on the transmission of monetary policy is robust to controlling for borrower-country economic and financial development, and a range of borrower and lender country policies and institutions, including the strength of bank regulation and supervision, exchange rate flexibility, and restrictions on capital flows. The findings qualify the characterization of international banks as sources of credit instability, and suggest that foreign bank entry can improve the stability of cross-border credit in the face of international monetary policy shocks.
    Keywords: Bank Regulation; Banking FDI; capital controls; Cross-border lending; Monetary Transmission
    JEL: E44 E52 F34 F38 F42 G15 G20
    Date: 2017–01
  2. By: Manuel R. Agosin; Juan Díaz-Maureira; Mohit Karnani
    Abstract: We study the determinants of sudden stops in capital fl ows to emerging markets. Using gross international asset and liability flows (from the point of view of domestic residents), we identify three types of situations: (1) countries that do not experience any type of sudden stops; (2) those who experience a sudden stop in infl ows (liabilities), but no sudden stop in their net financial account of the balance of pay- ments; and (3) countries who suffer a sudden stop in in flows and in their net financial account. With these three events and a series of control variables, we estimate a multinomial logit model. The most important results are two. In the first place, we find that developed countries have about the same probability of experiencing sudden stops in gross capital in flows as emerging economies. Secondly, the probability of experiencing a sudden stop in gross infl ows that winds up becoming a sudden stop in the financial account is affected by the behavior of a country's international assets: countries whose agents possess as- sets abroad tend to repatriate them during periods of sudden stops in in flows, while countries whose agents invest domestically are much more sensitive to the behavior of foreign investors and their humors. In particular, the novel explanatory variable we use is the correlation between changes in in flows and outfl ows, which can be interpreted as a proxy for financial development.
    Date: 2016–12
  3. By: Stavrakeva, Vania (London Business School); Tang, Jenny (Federal Reserve Bank of Boston)
    Abstract: In this paper, we confront the data with the financial markets folk wisdom that an increase in a yield or forward rate of country i relative to j is associated with a contemporaneous appreciation of currency i. We find that while the folk wisdom prior to 2009:Q1 holds fairly well for all maturities and three major currency bases, the “coefficient curve” twisted during the zero-lower-bound period so that the relationship became stronger at the short end but weaker and even of the opposite sign at the long end of the curve. We attribute the structural breaks at the short end of the curve to a change in the relationship between expected excess currency returns and changes in relative yields/forwards. The breaks at the long end of the curve can be explained by changing relationships between yields/forwards and the part of exchange rate fluctuations due to changes in expectations over future short-term rates and long-run relative price levels. Alternatively, the twist of the coefficient curve can be attributed to the changing relationship between the exchange rate and the expectation hypothesis component of yields/forwards at the short end and the term premium component at the long end.
    JEL: G15
    Date: 2016–04–14

This nep-ifn issue is ©2017 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.