nep-ifn New Economics Papers
on International Finance
Issue of 2017‒11‒05
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The Center and the Periphery: Two Hundred Years of International Borrowing Cycles By Kaminsky, Graciela
  2. International Financial Market Integration, Asset Compositions, and the Falling Exchange Rate Pass-Through By Almira Enders; Zeno Enders; Mathias Hoffmann
  3. Corporate Debt Maturity in Developing Countries: Sources of Long- and Short-Termism By Juan J. Cortina; Tatiana Didier; Sergio L. Schmukler

  1. By: Kaminsky, Graciela
    Abstract: A common belief in both academic and policy circles is that capital flows to the emerging periphery are excessive and ending in crises. One of the most frequently mentioned culprits is the cycles of monetary easing and tightening in the financial center. Also, many focus on the role of crises in the financial center, pointing to excess international borrowing predating crises in the financial center and global retrenchment in capital flows in its aftermath. I re-examine these views using a newly-constructed database on capital flows spanning two hundred years. Extending the study of capital flows to the first episode of financial globalization has two major advantages: During this episode, monetary policy in the financial center is constrained by the adherence to the Gold Standard, thus providing a benchmark for capital flow cycles in the absence of an active role of central banks in the financial centers. Second, panics in the financial center are rare disasters that need to be examined in a longer historical episode. I find that boom-bust capital flow cycles in the periphery are milder in the second episode of financial globalization when the financial center follows a cyclical monetary policy. Also, cyclical monetary policy in the financial center is far more pronounced in times of crises in the financial center, cutting short capital flow bonanzas in the periphery and injecting liquidity in the aftermath of the crisis.
    Keywords: International borrowing cycles, systemic and idiosyncratic capital flow bonanzas
    JEL: F3 F30 F34
    Date: 2017–10–22
  2. By: Almira Enders; Zeno Enders; Mathias Hoffmann
    Abstract: This paper provides an explanation for the observed decline of the exchange rate pass-through into import prices by modeling the effects of financial market integration on the optimal choice of the pricing currency in the context of rigid nominal goods prices. Contrary to previous literature, we take the interdependence of this decision with the optimal portfolio choice of internationally traded financial assets explicitly into account. In particular, price setters move towards more local-currency pricing and portfolios include more foreign debt assets following increased financial integration. Both predictions are in line with novel empirical evidence.
    Keywords: exchange rate pass-through, financial integration, portfolio home bias, international price setting
    JEL: F41 F36 F31
    Date: 2017
  3. By: Juan J. Cortina (World Bank); Tatiana Didier (World Bank); Sergio L. Schmukler (World Bank)
    Abstract: This paper documents to what extent firms from developing countries borrow short versus long term, using data on corporate bond and syndicated loan markets. Contrary to claims in the literature based on firm balance sheets, firms from developing countries borrow through bonds and syndicated loans at maturities similar to those obtained by developed country firms. The composition and use of financing matters. Firms from developing countries borrow shorter term in domestic bond markets, but the differences in international issuances (accounting for most of the proceeds) are significantly smaller. Developing country firms borrow longer term in syndicated loan markets, which they partially use for infrastructure projects. However, only large firms from developing countries (similar in size to those from developed ones) issue bonds and syndicated loans. The short-termism in developing countries is partly explained by a lower proportion of firms using these markets, with more firms relying on other shorter-term instruments.
    Keywords: capital raising, corporate bonds, domestic and international debt markets, developing countries, firm financing, issuance maturity, long-term debt, short-term debt, syndicated loans
    JEL: F34 G0 G10 G15 G21 G32
    Date: 2017–10

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