nep-ifn New Economics Papers
on International Finance
Issue of 2018‒02‒12
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Spillovers from U.S. Unconventional Monetary Policy and Its Normalization to Emerging Markets: A Capital Flow Perspective By Sangwon Suh; Byung-Soo Koo
  2. The dollar exchange rate as a global risk factor: evidence from investment By Stefan Avdjiev; Valentina Bruno; Catherine Koch
  3. Who Are the First Users of a Newly-Emerging International Currency? A Demand-Side Study of Chinese Renminbi Internationalization By Hyoung-kyu Chey; Geun-Young Kim; Dong Hyun Lee

  1. By: Sangwon Suh (School of Economics, Chung-Ang University); Byung-Soo Koo (Daegu-Gyeongbuk Branch, Bank of Korea)
    Abstract: Policy makers employed unconventional monetary policy (UMP) tools to respond to the recent global financial crisis in the U.S. and other advanced economies, and the UMP is about to be normalized. In this paper, we try to quantitiatively assess the effects of the UMP and its normalization on capital flows to emerging market economies. We find that the UMP significantly affected capital flows on average. The effects of the normalization are closely related with the effects of the UMP. Importantly, the larger the capital inflows due to the UMP, the larger the capital outflows due to the normalization. Moreover, policy makers need to be careful of a potential risk of unexpected capital outflows (exceeding the expected ones) during an uncertain period whose size tends to be proportional to the size of the previous capital inflows.
    Keywords: Capital flows, Unconventional monetary policy, Emerging markets, Cross-border borrowings
    JEL: F37 F42 G15 G18
    Date: 2016–03–23
  2. By: Stefan Avdjiev; Valentina Bruno; Catherine Koch
    Abstract: Exchange rate fluctuations influence economic activity not only via the standard trade channel, but also through a financial channel, which operates through the impact of exchange rate fluctuations on borrowers' balance sheets and lenders' risk-taking capacity. This paper explores the "triangular" relationship between (i) the strength of the US dollar, (ii) cross-border bank flows and (iii) real investment. We conduct two sets of empirical exercises - a macro (country-level) study and a micro (firm-level) study. We find that a stronger dollar is associated with lower growth in dollar-denominated cross-border bank flows and lower real investment in emerging market economies. An important policy implication of our findings is that a stronger dollar has real macroeconomic effects that go in the opposite direction to the standard trade channel.
    Keywords: financial channel, exchange rates, cross-border bank lending, real investment
    JEL: F31 F32 F34 F41
    Date: 2018–01
  3. By: Hyoung-kyu Chey (National Graduate Institute for Policy Studies (GRIPS)); Geun-Young Kim (Research Department, The Bank of Korea); Dong Hyun Lee (Economic Research Institute, The Bank of Korea)
    Abstract: Who are the first users of a newly-internationalizing currency? This issue, crucial to understanding the dynamics of the emergence of a new international monetary order, remains long underexplored in the existing literature, which tends to adopt a supply-side approach analyzing mainly the international currency issuers. Our study addresses this important question, with a focus on the case of the Chinese renminbi, by employing a demand-side approach examining the international currency users through generalized ordered logistic regression analysis. Our primary argument is that a state hosting a major global financial center—a condition largely independent of influence from countries issuing international currencies—is likely to be more interested in enhancing its use of the renminbi, implying thereby that global financial institutions and the related inter-state rivalries among international currency users may play crucial roles in the shaping of a new international monetary order. We in addition find significant impacts on a state's interest in renminbi use resulting from its institutional economic cooperation with China through a preferential trade agreement or a bilateral investment treaty, but that a country's mere trade and investment integration with China does not meaningfully affect its government's support for renminbi use.
    Keywords: Currency internationalization, International currency, Renminbi internationalization, Yuan internationalization
    JEL: F33 F50
    Date: 2016–12–23

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