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on International Finance |
| By: | Dedola, Luca; Rivolta, Giulia; Stracca, Livio |
| Abstract: | This paper studies the international spillovers of US monetary policy shocks on a number of macroeconomic and financial variables in 36 advanced and emerging economies. In most countries, a surprise US monetary tightening leads to depreciation against the dollar; industrial production and real GDP fall, unemployment rises. Inflation declines especially in advanced economies. At the same time, there is significant heterogeneity across countries in the response of asset prices, and portfolio and banking cross-border flows. However, no clear-cut systematic relation emerges between country responses and likely relevant country characteristics, such as their income level, dollar exchange rate flexibility, financial openness, trade openness vs. the US, dollar exposure in foreign assets and liabilities, and incidence of commodity exports. JEL Classification: F3, F4 |
| Keywords: | capital mobility, exchange rate regime, identification of monetary shocks, international transmission, trilemma |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172050&r=ifn |
| By: | Irene Sanchez Arjona; Ester Faia; Gianmarco Ottaviano |
| Abstract: | We exploit an original dataset on European G-SIBs to assess how expansion in foreign markets affects their riskiness. We find a robust negative correlation between foreign expansion and bank risk (proxied by various individual and systemic risk metrics). Given individual bank riskiness, banks' expansion reduces the average riskiness of the banks' pool (between effect). Moreover, foreign expansion of any given bank reduces its own risk (within effect). Diversification, competition and regulation channels are all important. Expansion in destination countries with different business cycle co-movement, stricter regulations and higher competition than the origin country decreases a bank's riskiness. |
| Keywords: | banks risk, systemic risk, global expansion, competition, diversification, regulation |
| JEL: | F32 G21 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1481&r=ifn |
| By: | Woo Jin Choi; Alan M. Taylor |
| Abstract: | We document a new international stylized fact describing the relationship between real exchange rates and external asset holdings. Economists have long argued that the real exchange rate is associated with the net international investment position, appreciating as external wealth increases. This mechanism has been seen as central for international payments equilibrium and relative price adjustments. However, we argue that the effect of external assets held by the public sector—reserve accumulation—on real exchange rates may be quite different from that of privately held external assets, and that capital controls are a critical factor behind this difference. For 1975–2007, controlling for GDP per capita and the terms of trade, we find that a one percentage point increase in external assets relative to GDP (net of reserves) is related to an 0.24 percent real exchange rate appreciation. On the contrary, a one percentage point increase in reserve accumulation relative to GDP has virtually no effect on the real exchange rate in financially open countries (low capital controls), and is related to a 1.65 percent real exchange rate depreciation in financially closed countries (high capital controls). Results are stronger in developing countries and in more recent periods. Gross rather than net positions matter and we present a new theoretical model to account for the stylized fact. The framework encompasses so-called precautionary and mercantilist motives for reserve accumulation, and also explains how the optimal capital account policy—the mix of reserve accumulation and capital controls—is determined. Further empirical support arises from evidence that reserve accumulation is associated with a trade surplus, along with higher GDP and TFP growth in countries with high capital controls, findings that are consistent with the mechanisms of our model. |
| JEL: | F31 F38 F41 F43 O24 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23341&r=ifn |