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on International Finance |
| By: | Martin D.D. Evans (Georgetown University and NBER); Dagfinn Rime (Norges Bank (Central Bank of Norway) and BI Norwegian Business School) |
| Abstract: | We empirically examine how the global carry trade affects the dynamics of spot exchange rates and interest rates across 13 countries from 2000, through the world financial crisis, until the end of 2011. Our model identifies the weekly carry trade position in each currency by matching data on forex trading flows with the predictions of a dynamic portfolio allocation problem that exploits the predictability in excess currency returns (deviations from uncovered interest parity). Using these carry positions produce two surprising results: First, in nine countries carry trades are an economically significant driver of interest rate differentials (vs. U.S. rates). Second, the carry trade only affects the dynamics of spot exchange rates insofar as it is contributes to total forex order flow; (i.e., flows generated by the carry trade and all other trading motives). These findings contradict the conventional view that sudden large movements in exchange rates are attributable to the carry trade. They suggest, instead, that the effects of the global carry trade are primarily concentrated in bond markets. |
| Keywords: | Exchange Rate Dynamics, Microstructure, Order Flow |
| JEL: | F3 F4 G1 |
| Date: | 2017–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2017_14&r=ifn |
| By: | Gropp, Reint E.; Radev, Deyan |
| Abstract: | We investigate how solvency and wholesale funding shocks to 84 OECD parent banks affect the lending of 375 foreign subsidiaries. We find that parent solvency shocks are more important than wholesale funding shocks for subsidiary lending. Furthermore, we find that parent undercapitalisation does not affect the transmission of shocks, while wholesale shocks transmit to foreign subsidiaries of parents that rely primarily on wholesale funding. We also find that transmission is affected by the strategic role of the subsidiary for the parent and follows a locational, rather than an organisational pecking order. Surprisingly, liquidity regulation exacerbates the transmission of adverse wholesale shocks. We further document that parent banks tend to use their own capital and liquidity buffers first, before transmitting. Finally, we show that solvency shocks have higher impact on large subsidiary banks with low growth opportunities in mature markets. |
| Keywords: | commercial banks,global banks,wholesale shocks,solvency shocks,transmission,internal capital markets |
| JEL: | G01 G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:192017&r=ifn |
| By: | Morais Bernardo; Peydró José-Luis; Roldán-Peña Jessica; Ruiz Claudia |
| Abstract: | We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico matched with firm and bank data, and by exploiting foreign monetary policy shocks in a country with a large presence of European and U.S. banks. The robust results show that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock mainly affects supply via their respective banks, in turn implying strong real effects, with lower elasticities from QE. The impact of low foreign monetary policy rates and expansive QE is stronger on local borrowers with higher ex-ante loan rates -reach-for-yield- and with higher ex-post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest spillovers of core-countries´ monetary policies on emerging markets, both in the foreign monetary softening and tightening part. |
| Keywords: | Monetary policy;financial globalization;quantitative easing (QE);credit supply;risk-taking;foreign banks |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2017-15&r=ifn |
| By: | Cécile Couharde; Anne-Laure Delatte; Carl Grekou; Valérie Mignon; Florian Morvillier |
| Abstract: | The aim of this paper is to present EQCHANGE, the new database developed by the CEPII on effective exchange rates. EQCHANGE includes two sub-databases containing data on (i) nominal and real effective exchange rates, and (ii) equilibrium real effective exchange rates and corresponding currency misalignments for advanced, emerging and developing countries. More specifically, the first sub-database delivers effective exchange rates for 187 countries that are computed under three different weighting schemes and two panels of trading partners (186 and top 30) over the 1973-2016 period. The second sub-database provides behavioral equilibrium exchange rate (BEER) estimates and corresponding currency misalignments for 182 economies over the 1973-2016 period. We describe the construction of the two datasets and illustrate some possible uses by presenting results concerning the evolution and main characteristics of currency misalignments in the world from 2015 to 2016. By providing publicly available indicators of equilibrium exchange rates, EQCHANGE aims to contribute to key debates in international macroeconomics. |
| Keywords: | Exchange rates; Equilibrium exchange rates; Currency misalignments. |
| JEL: | F31 C23 C82 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2017-39&r=ifn |