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on International Finance |
| By: | Buch, Claudia (Deutsche Bundesbank); Bussiere, Matthieu (Banque de France); Goldberg, Linda (Federal Reserve Bank of New York); Hills, Robert (Bank of England) |
| 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 17 countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the US, 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 US 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 non-bank lending generally are not large. |
| Keywords: | Monetary policy; international spillovers; cross-border transmission; global bank; global financial cycle |
| JEL: | E52 G15 G21 |
| Date: | 2018–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0731&r=ifn |
| By: | Krogstrup, Signe; Tille, Cédric |
| Abstract: | The literature on drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries' funding flows in different currencies. A portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary's pre-existing currency exposure. Analysis of data on European banks' aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area. |
| Keywords: | currency mismatch,capital flows,push factors,spillovers,cross-border transmission of shocks,European bank balance sheets |
| JEL: | F32 F34 F36 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2104&r=ifn |
| By: | Maggiori, Matteo; Neiman, Brent; Schreger, Jesse |
| 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 debt securities denominated in their own currency, even those issued by foreign borrowers in developed countries. 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 broadly across countries with the exception of countries, like the United States, that issue an international currency. The global willingness to hold the US dollar 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 starting with the 2008 financial crisis, further cementing the dollar's international role and potentially amplifying the benefit that its status brings to the US. |
| Keywords: | Capital Flows; Exorbitant Privilege; Home Bias; reserve currencies |
| JEL: | E42 E44 F3 F55 G11 G15 G23 G28 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12973&r=ifn |
| By: | Krishnamurthy, Arvind (Stanford University); Muir, Tyler (University of California, Los Angeles) |
| Abstract: | We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities suggests that credit supply expansions are a precursor to crises. The 2008 financial crisis cycle is in keeping with these historical patterns surrounding financial crises. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:repec:ecl:stabus:3579&r=ifn |
| By: | Langlois, Hugues; Chaieb, Ines; Scaillet, O. |
| Abstract: | We estimate international factor models with time-varying factor exposures and risk premia at the individual stock level using a large unbalanced panel of 58,674 stocks in 46 countries over the 1985-2017 period. We consider market, size, value, momentum, profitability, and investment factors aggregated at the country, regional, and world level. The country market in excess of the world or regional market is required in addition to world or regional factors to capture the factor structure for both developed and emerging markets. We do not reject mixed CAPM models with regional and excess country market factors for 76% of the countries. We do not reject mixed multi-factor models in 80% to 94% of countries. Value and momentum premia show more variability over time and across countries than profitability and investment premia. The excess country market premium is statistically significant in many developed and emerging markets but economically larger in emerging markets. |
| Keywords: | large panel; approximate factor model; risk premium; international asset pricing; market integration |
| JEL: | C12 C13 C23 C51 C52 G12 G15 |
| Date: | 2019–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1250&r=ifn |