nep-ifn New Economics Papers
on International Finance
Issue of 2017‒11‒19
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Central bank transparency and the volatility of exchange rates By Eichler, Stefan; Littke, Helge C. N.
  2. Capital Flows and Sovereign Debt Markets: Evidence from Index Rebalancings By Lorenzo Pandolfi; Tomas Williams
  3. The Volatility of Capital Flows in Emerging Markets: Measures and Determinants By Maria Sole Pagliari; Swarnali Ahmed Hannan
  4. Euro Area Imbalances By Mark Mink; Jan Jacobs; Jakob de Haan

  1. By: Eichler, Stefan; Littke, Helge C. N.
    Abstract: We analyze the effect of monetary policy transparency on bilateral exchange rate volatility. We test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010. We find strong empirical evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility. Using interaction models, we find that this effect is more pronounced for countries with a lower flexibility of goods prices, a lower level of central bank conservatism, and a higher interest rate sensitivity of money demand.
    Keywords: central bank transparency,exchange rate volatility,panel model
    JEL: E58 F31
    Date: 2017
  2. By: Lorenzo Pandolfi (Università di Napoli Federico II and CSEF); Tomas Williams (George Washington University)
    Abstract: In this paper, we analyze how capital flows into the sovereign debt market affect government bond prices and liquidity. Additionally, we explore whether these flows spill over to the exchange rate. To address endogeneity concerns, we construct a measure of informationless capital Flows Implied by (mechanical) Rebalancings (FIR) in the largest local currency government debt index for emerging countries. We find that FIR is associated with higher returns on bonds and greater depth in the sovereign debt market after the rebalancings. These capital flows also impact the exchange rate market; larger inflows (outflows) are associated with greater currency appreciations (depreciations).
    Keywords: sovereign debt; international capital flows; index rebalancings; mutual funds; benchmark indexes; exchange rate.
    JEL: F32 G11 G12 G15 G23
    Date: 2017–11–12
  3. By: Maria Sole Pagliari (Rutgers University); Swarnali Ahmed Hannan (International Monetary Fund)
    Abstract: Capital flow volatility is a concern for macroeconomic and financial stability. Nonetheless, literature is scarce in this topic. Our paper sheds light on this issue in two dimensions. First, using quarterly data for 33 emerging markets and developing economies over the period 1970Q1-2016Q4, we construct three measures of volatility, for total capital flows and key instruments. Second, we perform panel regressions to understand the determinants of volatility. The measures show that, after a period of sharp rise during the Global Financial Crisis, the volatility of most instruments is back to pre-crisis levels but are prone to bouts, having increased significantly during global shocks like the taper tantrum episode. Capital flow volatility thus remains a challenge for policy makers. The regression results suggest that push (external) factors are generally more important than pull (domestic) factors in explaining the volatility of capital flows. However, certain pull factors have become relevant since the Global Financial Crisis.
    Keywords: Volatility Estimation, International Flows, Push vs Pull Factors
    JEL: C58 F32 F40
    Date: 2017–11–06
  4. By: Mark Mink; Jan Jacobs; Jakob de Haan
    Abstract: We argue that if currency union member states have different potential output per capita, output growth rates, or trade balances, the common monetary policy may not be optimal for all of them. Euro area imbalances for potential output and for trade balances are quite large, while output growth imbalances are more modest. Member states with larger imbalances of one type also have larger imbalances of both other types, but a decline of one imbalance need not coincide with a decline of the others. We also show that imbalances are fairly persistent, and are larger in poorer and smaller member states.
    Keywords: euro area macroeconomic imbalances, common monetary policy, economic convergence, business cycle synchronization, euro crisis
    JEL: E30 O47
    Date: 2016

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