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on International Finance |
| By: | Yi Huang (IHEID, Graduate Institute of International and Development Studies); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva and CEPR); Richard Varghese (IHEID, Graduate Institute of International and Development Studies) |
| Abstract: | Using data for advanced and emerging economies, we show that there is a negative correlation between public debt and corporate investment. Industry-level regressions show that high levels of government debt are particularly damaging for industries that need more external ?financial resources. Firm-level regressions show that government debt increases the sensitivity of corporate investment to cash ?flow. These results indicate that the relationship between public debt and investment is likely to be causal and that public debt crowds out corporate investment by tightening credit constraints. |
| Keywords: | Investment, Public Debt, Crowding Out, Credit Constraints |
| JEL: | E22 E62 H63 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp08-2018&r=ifn |
| By: | Barthélémy Bonadio; Andreas M. Fischer; Philip Sauré |
| Abstract: | On January 15, 2015, the Swiss National Bank discontinued its minimum exchange rate policy of one euro against 1.2 Swiss francs. This policy shift resulted in a sharp, unanticipated and permanent appreciation of the Swiss franc by more than 11% against the euro. We analyze the pass-through of this unusually clean exchange rate shock into import unit values at the daily frequency using Swiss transaction-level trade data. Our key findings are twofold. First, for goods invoiced in euros, the pass-through is immediate and complete. Second, for goods invoiced in Swiss francs, the pass-through is partial and exceptionally fast, beginning on the second working day after the exchange rate shock and reaching the medium-run pass-through after twelve working days on average. |
| Keywords: | Daily exchange rate pass-through, speed, large exchange rate shock |
| JEL: | F14 F31 F41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2018-05&r=ifn |
| By: | Ashantha Ranasinghe; Diego Restuccia |
| Abstract: | Using cross-country micro establishment-level data we document that crime and lack of access to finance are two major obstacles to business operation in poor and developing countries. Using an otherwise standard model of production heterogeneity that integrates institutional differences in the degree of financial development and the rule of law, we quantify the effects of these institutions on aggregate outcomes and economic development. The model accounts for the patterns across establishments in access to finance and crime as obstacles to their operation. Weaker financial development and rule of law have substantial negative effects on aggregate output, reducing output per capita by 50 percent. Weak rule-of-law institutions substantially amplify the negative impact of financial frictions. While financial markets are crucial for development, an essential precondition to reap the gains from financial liberalization is that property rights are secure. |
| JEL: | O1 O11 O4 O43 O5 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24546&r=ifn |
| By: | Salomao, Juliana (University of Minnesota); Varela, Liliana (University of Warwick) |
| Abstract: | This paper develops a firm-dynamics model with endogenous currency debt composition to study financing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. There is cross-sectional heterogeneity in these decisions in two dimensions. First, there is selection into foreign currency borrowing, as only productive firms employ it. Second, there is heterogeneity in firms’ share of foreign currency loans, driven by their potential growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact. |
| Keywords: | firm dynamics, foreign currency debt, currency mismatch, uncovered interest rate parity. JEL Classification: F30, F34, F36 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:364&r=ifn |