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on International Finance |
| By: | Jordi Galí |
| Abstract: | I analyze the effectiveness of forward guidance policies in open economies, focusing on the role played by the exchange rate in their transmission. An open economy version of the "forward guidance puzzle" is shown to emerge. In partial equilibrium, the effect on the current exchange rate of an anticipated change in the interest rate does not decline with the horizon of implementation. In general equilibrium, the size of the effect is larger the longer is that horizon. Empirical evidence using U.S. and euro area data euro-dollar points to the presence of a forward guidance exchange rate puzzle: expectations of interest rate differentials in the near (distant) future have much larger (smaller) effects on the euro-dollar exchange rate than is implied by the theory. |
| Keywords: | forward guidance puzzle, uncovered interest rate parity, unconventional monetary policies, open economy New Keynesian model |
| JEL: | E43 E58 F41 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1021&r=ifn |
| By: | Itai Agur; Melissa Chan; Mangal Goswami; Sunil Sharma |
| Abstract: | The paper investigates the international integration of EM sovereign dollar-denominated and local-currency bond markets. Factor analysis is used to examine movements in sovereign bond yields and common sources of yield variation. The results suggest that EM dollar-denominated sovereign debt markets are highly integrated; a single common factor that is highly correlated with US and EU interest rates explains, on average, about 80 percent of the total variability in yields. EM sovereign local currency bond markets are not as internationally integrated, and three common factors explain about 74 percent of the total variability. But a factor highly correlated with US and EU interest rates still explains 63 percent of the yield variation accounted for by common factors. That said, there is some diversity among EM countries in the importance of common factors in affecting sovereign debt yields. |
| Keywords: | Emerging markets;International financial markets;Bond markets;Capital flows;Financial Globalization, Safe Assets, Debt Denomination, Factor Analysis, F21, F65, G15, H63, O16, Globalization: Finance |
| Date: | 2018–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/18&r=ifn |
| By: | Adrian, Tobias (International Monetary Fund); Borowiecki, Karol Jan (Department of Business and Economics); Tepper, Alexander (Columbia University) |
| Abstract: | The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system's potential for financial crises can be measured by the stability ratio, the fraction of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis. |
| Keywords: | Leverage; financial crisis; financial stability; minimum market size for stability; MinMaSS; stability ratio; Long-Term Capital Management; LTCM |
| JEL: | G01 G10 G20 G21 |
| Date: | 2018–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2018_001&r=ifn |