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on International Finance |
| By: | Asli Demirguc-Kunt; Balint Horvath; Harry Huizinga |
| 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: | Cross-border lending, monetary transmission, banking FDI, bank regulation, capital controls. |
| JEL: | E44 E52 F34 F38 F42 G15 G20 |
| Date: | 2017–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:bri:accfin:17/6&r=ifn |
| By: | Janus, Thorsten (University of Wyoming); Riera-Crichton, Daniel (Bates College) |
| Abstract: | In this paper, we study the relationship between banking crises, external financial crises and gross international capital flows. First, we confirm that banking and external crises are correlated. Then, as we explore the role of gross capital flows, we find that declines of external liabilities in the balance of payments – a proxy for foreign capital repatriation we call gross foreign investment reversals (GIR) – predict banking as well as external crises. Finally, we estimate the effects of GIR-associated banking crises on the risk of currency and sudden stop crises in an instrumental-variables specification. In developing countries, GIR-associated banking crises increase the onset risk for currency and sudden stop crises by 39-50 and 28-30 percentage points per year respectively. For OECD countries, we show an increase in the currency crisis risk by 33-45 percentage points. |
| JEL: | F32 G01 G15 G21 |
| Date: | 2016–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:273&r=ifn |
| By: | Stephen Morris; Ilhyock Shim; Hyun Song Shin |
| Abstract: | Open-end mutual funds face redemptions by investors, but the sale of the underlying assets depends on the portfolio decision of asset managers. If asset managers use their cash holding as a buffer to meet redemptions, they can mitigate fire sales of the underlying asset. If they hoard cash in anticipation of redemptions, they will amplify fire sales. We present a global game model of investor runs and identify conditions under which asset managers hoard cash. In an empirical investigation of global bond mutual funds, we find that cash hoarding is the rule rather than the exception, and that less liquid bond funds display a greater tendency toward cash hoarding. |
| Keywords: | asset manager, bond market liquidity, cash hoarding, global game, investor redemption, strategic complementarity |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:608&r=ifn |
| By: | Karen K. Lewis; Edith X. Liu |
| Abstract: | Recent studies have shown that disaster risk can generate asset return moments similar to those observed in the U.S. data. However, these studies have ignored the cross-country asset pricing implications of the disaster risk model. This paper shows that standard U.S.-based disaster risk model assumptions found in the literature lead to counterfactual international asset pricing implications. Given consumption pricing moments, disaster risk cannot explain the range of equity premia and government bill rates nor the high degree of equity return correlation found in the data. Moreover, the independence of disasters presumed in some studies generates counterfactually low cross-country correlations in equity markets. Alternatively, if disasters are all shared, the model generates correlations that are excessively high. We show that common and idiosyncratic components of disaster risk are needed to explain the pattern in consumption and equity co-movements. |
| JEL: | F3 F4 G1 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23065&r=ifn |