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on International Finance |
| By: | Matteo Maggiori; Brent Neiman; Jesse Schreger |
| Abstract: | We establish that global portfolios are driven by an often neglected aspect: the currency of denomination of assets. Using a dataset of $27 trillion in security-level investment positions, we demonstrate that investor holdings are biased toward their own currencies to such an extent that each country holds the bulk of all foreign debt securities denominated in their own currency. Surprisingly, currency is such a strong predictor of the nationality of a security's holder that the nationality of the issuer - to date, the most powerful predictor in a voluminous literature on cross-border portfolios - adds very little explanatory power. While large firms issue bonds in foreign currency and borrow from foreigners, the vast majority of firms issue only in local currency and do not directly access foreign capital. These patterns hold across countries with the exception of the US, which issues an international currency. The global willingness to hold US dollars means that even smaller US firms that borrow exclusively in dollars have little difficulty borrowing from abroad. Global portfolios shifted sharply away from the euro and toward the dollar after the 2008 financial crisis, further cementing the dollar's international role and potentially amplifying the benefit its status brings to the US. |
| JEL: | E4 F3 F5 G1 G2 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24673&r=ifn |
| By: | Isabel Argimón (Banco de España); Clemens Bonner (De Nederlandsche Bank and Vu University Amsterdam); Ricardo Correa (Federal Reserve Board); Patty Duijm (De Nederlandsche Bank); Jon Frost (De Nederlandsche Bank, Vu University Amsterdam and Financial Stability Board); Jakob de Haan (De Nederlandsche Bank, University of Groningen and CESifo); Leo de Haan (De Nederlandsche Bank); Viktors Stebunovs (Federal Reserve Board) |
| Abstract: | Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit homecountry monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics. |
| Keywords: | monetary policy transmission, global financial institutions, bank lending channel, portfolio channel, business models. |
| JEL: | E5 F3 F4 G2 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1815&r=ifn |
| By: | Lustig, Hanno (Stanford University); Stathopoulos, Andreas (University of Washington); Verdelhan, Adrien (Massachusetts Institute of Technology) |
| Abstract: | Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases, because the local currency term premia offset the currency risk premia. The time series predictability of foreign bond returns in dollars similarly declines as the maturity of the bonds increases. Leading no-arbitrage models in international finance cannot match the downward term structure of currency carry trade risk premia. While currency risk premia on short-term bonds reflect differences in transitory and permanent risk, we show that the premia on long-term bonds only reflect differences in the risk of permanent shocks to investors' marginal utility. |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:repec:ecl:stabus:3411&r=ifn |
| By: | Ewa Karwowski; Engelbert Stockhammer |
| Abstract: | Financialisation research has originally focussed on the US experience, but the concept is now increasingly applied to emerging economies (EMEs). There is a rich literature stressing peculiarities of individual country experiences, but little systematic comparison across EMEs. This paper fills this gap, providing an overview of the debate and identifying six financialisation interpretations for EMEs. These different interpretations stress (1) financial deregulation (2) foreign financial inflows, (3) asset price volatility, (4) the shift from bank-based to market-based finance, (5) business debt, and (6) household indebtedness. We construct and compare measures of the six financialisation interpretations across a sample of 17 EMEs from Latin America, emerging Europe, Africa and Asia, contrasting them with the US and UK, two financialised economies. We find considerable variation in financialisation experiences of EMEs. Asset price volatility is found across continents. Asia has been more exposed to capital inflows, stock markets have gained importance and private sector debt risen. In emerging Europe financial deregulation has been more pronounced with lower levels but strong increases in household debt. The picture is similar in South Africa, the African EME in the sample, where household debt is comparatively high. Financialisation in Latin America is weaker according to our measures. |
| Keywords: | financialisation, emerging markets, financial instability, asset price volatility, heterodox economics |
| JEL: | B50 E30 F34 G01 G12 G15 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1616&r=ifn |
| By: | Luis M. Viceira; Zixuan (Kevin) Wang |
| Abstract: | This paper conducts a theoretical and empirical investigation of the risk of globally diversified portfolios of stocks and bonds and of optimal intertemporal global portfolio choice for long horizon investors in the presence of permanent cash flow shocks and transitory discount rate shocks to asset values. An increase in the cross-country correlations of cash flow shocks raises the risk of a globally diversified portfolio at all horizons. By contrast, an increase in the cross-country correlations of discount rate shocks has a much more muted effect on portfolio risk at long horizons, suggesting that the benefits of global portfolio diversification to long-term investors do not recede when the source of increased global return correlations is correlated discount rates. Empirically, we document a secular increase in the cross-country correlations of both stock returns and government bond returns since the late 1990's. We identify increased correlations of discount rate shocks resulting from financial globalization as the main driver of the upward shift in stock return correlations. We also identify increased correlations of inflation shocks as an equally important source of the upward shift in bond correlations. By contrast, we don't find evidence of a secular shift in the cross-country correlations of stock market volatility shocks, which have remained fairly low through time except during the financial crisis of 2009. |
| JEL: | F21 F3 G11 G12 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24646&r=ifn |