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on International Finance |
| By: | Emine Boz; Gita Gopinath; Mikkel Plagborg-Møller |
| Abstract: | We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1 percent U.S. dollar appreciation against all other currencies in the world predicts a 0.6–0.8 percent decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. 4) Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the importing country’s share of imports invoiced in dollars explains 15 percent of the variance of dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms. |
| Date: | 2017–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/239&r=ifn |
| By: | Pietro Cova (Bank of Italy); Filippo Natoli (Bank of Italy) |
| Abstract: | During the 1990s, the increased propensity to save in emerging market economies triggered massive inflows towards safe assets in the United States; a few years later, rising dollar funding by global banks was concurrent to increasing inflows to private-label US securities. While it is well documented that foreign financial flows have eased financing conditions in the US through the compression of long-term yields, in this paper we also find significant effects on the credit spread and the VIX, suggesting a relevant risk appetite channel. Moreover, flows into the US corporate bond market, partly linked to the previous saving glut in emerging economies, also directly affected bank leverage, household indebtedness and the housing market. This evidence provides a new perspective on the global banking glut, complementary to the role of banks in the risk-taking channel of monetary policy. |
| Keywords: | saving glut, banking glut, capital flows, banking leverage, risk-taking channel |
| JEL: | F32 F33 F34 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1152_17&r=ifn |
| By: | Előd Takáts; Judit Temesvary |
| Abstract: | We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which a saw strong slowdown in cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN's macroprudential database. Our results suggest that macroprudential measures implemented in borrowers' host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending. |
| Keywords: | taper tantrum, cross-border claims, macroprudential policy, diff-in-diff analysis |
| JEL: | F34 F42 G21 G38 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:683&r=ifn |
| By: | Joshua Aizenman; Menzie D. Chinn; Hiro Ito |
| Abstract: | We investigate whether and to what extent macroprudential policies affect the financial link between the center economies (CEs, i.e., the U.S., Japan, and the Euro area), and the peripheral economies (PHs). We first estimate the correlation of the policy interest rates between the CEs and the PHs and use that as a measure of financial sensitivity. We then estimate the determinants of the estimated measure of financial sensitivity as a function of country-specific macroeconomic conditions and policies. The potential determinant of our focus is the extensity of macroprudential policies. From the estimation exercise, we find that a more extensive implementation of macroprudential policies would lead PHs to (re)gain monetary independence from the CEs when the CEs implement expansionary monetary policy; when PHs run current account deficit; when they hold lower levels of international reserves (IR); when their financial markets are relatively closed; when they are experiencing an increase in net portfolio flows; and when they are experiencing credit expansion. |
| JEL: | F4 F41 F42 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24105&r=ifn |