nep-ifn New Economics Papers
on International Finance
Issue of 2018‒05‒07
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The International Transmission of Monetary Policy By Claudia M. Buch; Matthieu Bussiere; Linda Goldberg; Robert Hills
  2. Global liquidity and exchange market pressure in emerging market economies By Hossfeld, Oliver; Pramor, Marcus
  3. Corporate foreign bond issuance and interfirm loans in China By Huang, Yi; Panizza, Ugo; Portes, Richard
  4. Investor Sophistication and Capital Income Inequality By Kacperczyk, Marcin; Nosal, Jaromir; Stevens, Luminita

  1. By: Claudia M. Buch; Matthieu Bussiere; Linda Goldberg; Robert Hills
    Abstract: This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the U.S., euro area, Japan, and United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for U.S. policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.
    JEL: E4 E5 F30 F4 G15 G21
    Date: 2018–03
  2. By: Hossfeld, Oliver; Pramor, Marcus
    Abstract: We analyse the relationship between global liquidity and exchange market pressure in 32 emerging market economies. Exchange market pressure is a measure of excess currency demand that is applicable across different exchange rate regimes as it accounts for changes in exchange rates, foreign exchange reserves and, optionally, interest rates. Surges in monetary liquidity, credit provision, and short-term funding in advanced economies are shown to be robustly associated with appreciation pressure on emerging market currencies. The underlying transmission mechanism, however, only operates under regular financial market conditions: ample liquidity provision in advanced economies contributes to the build-up of financial stability risks in emerging market economies in tranquil times, but further liquidity injections do not avert the pronounced depreciation pressure on emerging market currencies in times of high market volatility.
    Keywords: global liquidity,emerging markets,exchange market pressure,search for yield,global financial cycle
    JEL: F31 E51 E58 C23
    Date: 2018
  3. By: Huang, Yi; Panizza, Ugo; Portes, Richard
    Abstract: This paper uses firm-level data to document and analyse international bond issuance by Chinese non-financial corporations and the use of the proceeds of issuance. We find that dollar issuance is positively correlated with the differential between domestic and foreign interest rates. This interest rate differential increases the likelihood of dollar bond issuance by risky firms and decreases the likelihood of dollar bond issuance of exporters and profitable firms. Moreover, and most strikingly, we find that risky firms do more inter-firm lending than non-risky firms and that this lending rose significantly after the regulatory shock of 2008-09, when the authorities sought to restrict the financial activities of risky firms. Risky firms try to boost profitability by engaging in speculative activities that mimic the behaviour of financial institutions while escaping prudential regulation that limits risk-taking by financial firms.
    Keywords: bond markets in emerging market countries; carry trade; China; shadow banking
    JEL: F32 F34 G15 G30
    Date: 2018–04
  4. By: Kacperczyk, Marcin; Nosal, Jaromir; Stevens, Luminita
    Abstract: Capital income inequality is large and growing fast, accounting for a significant portion of total income inequality. We study its determinants in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness. The model implies capital income inequality that grows with aggregate information technology. Investors differentially adjust both the size and composition of their portfolios, as unsophisticated investors retrench from trading risky securities and shift their portfolios toward safer assets. Technological progress also reduces aggregate returns and increases the volume of transactions, features that are consistent with recent U.S. data.
    Date: 2018–04

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