nep-ifn New Economics Papers
on International Finance
Issue of 2017‒03‒12
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Central Bank Transparency and Cross-Border Banking By Littke, Helge C. N.; Eichler, Stefan; Tonzer, Lena
  2. Monetary Policy and the Predictability of Nominal Exchange Rates By Eichenbaum, Martin; Johannsen, Benjamin; Rebelo, Sérgio

  1. By: Littke, Helge C. N.; Eichler, Stefan; Tonzer, Lena
    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 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 as complements by banks investing abroad.
    JEL: E58 F30 G15
    Date: 2016
  2. By: Eichenbaum, Martin; Johannsen, Benjamin; Rebelo, Sérgio
    Abstract: This paper documents two facts about the behavior of floating exchange rates in countries where monetary policy follows a Taylor-type rule. First, the current real exchange rate is highly negatively correlated with future changes in the nominal exchange rate at horizons greater than two years. This negative correlation is stronger the longer is the horizon. Second, for most countries, the real exchange rate is virtually uncorrelated with future inflation rates both in the short and in the long run. We develop a class of models that can account for these and other key observations about real and nominal exchange rates.
    Keywords: currency forecasting; Taylor rule
    JEL: E52 F31 F41
    Date: 2017–02

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