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on International Finance |
| By: | Olena Rarytska (Cornell University); Viktor Tsyrennikov (IMF) |
| Abstract: | Addressing policy-makers concerns that the post-GFC international capital flows to merging economies were speculative, we build a model with information frictions and use it to analyze different forms of capital controls. We show theoretically that survival forces proliferate in multi-good economies and that limiting financial trades offers welfare gains despite inhibiting insurance possibilities. Capital controls tame speculation motives, limit movements of the net foreign asset positions, and thus reduce consumption volatility. Our numerical analysis indicates that A) welfare gains from imposing capital controls can be substantial, equivalent to a permanent consumption increase of up to 4%, or 80 times the cost of business cycles. B) Controls that activate only during large inflows or outflows are preferred to those constantly active, e.g. a transaction tax used by some emerging market economies. C) Despite improving macroeconomic stability capital controls may unintentionally lead to increased volatility in the domestic financial markets. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:371&r=ifn |
| By: | Eduardo Levy-Yeyati; Nathan Converse; Tomas Williams |
| Abstract: | Since the early 2000s exchange-traded funds (ETFs) have grown to become an important in- vestment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fund- level data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging mar- ket funds, we find that the sensitivity of investor flows to global risk factors for equity (bond) ETFs is 1.5 (1.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global risk factors. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the incidence of the global financial cycle in emerging markets. |
| Keywords: | exchange-traded funds; mutual funds; global financial cycle; global risk; push and pull factors; capital flows; emerging markets |
| JEL: | F32 G11 G15 G23 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpgobi:2017-12&r=ifn |
| By: | Baum, Christopher F. (Boston College); Pundit, Madhavi (Asian Development Bank); Ramayandi, Arief (Asian Development Bank) |
| Abstract: | There is mixed evidence for the impact of international capital flows on financial sector's stability. This paper investigates the relationship between components of gross capital flows and various financial stability indicators for 16 emerging and newly industrialized economies. Departing from panel data methods, for each financial stability proxy, we employ systems of seemingly unrelated regression estimators to allow variation in the estimated relationship across countries, while permitting crossequation restrictions to be imposed within a country. The findings suggest that, after controlling for macroeconomic factors, there are significant effects of different gross capital flow measures on the financial stability proxies. However, the effects are not homogeneous across our sample economies and across flows. Country-specific financial and macroeconomic characteristics help to explain some of these differences. |
| Keywords: | emerging economies; financial stability; international capital flows |
| JEL: | E44 F41 |
| Date: | 2017–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0522&r=ifn |
| By: | Patrick Bolton; Martin Oehmke |
| Abstract: | We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, is efficient but may not be implementable. First, when expected transfers across jurisdictions are too asymmetric, national regulators fail to set up SPOE resolution ex ante. Second, when required ex-post transfers are too large, national regulators ring-fence assets instead of cooperating in SPOE resolution. In this case, a multiple-point-of-entry (MPOE) resolution, where loss-absorbing capital is preassigned, is more robust. Our analysis highlights a fundamental link between efficient bank resolution and the operational structures and risks of global banks. |
| JEL: | G01 G18 G21 G33 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24737&r=ifn |
| By: | Stefan Avdjiev; Catherine Koch; Patrick McGuire; Goetz von Peter |
| Abstract: | This paper explores the basic question of whose monetary policy matters for banks' international lending. In the international context, monetary policies from several countries could come into play: the lender's, the borrower's, and that of a third country, the issuer of the currency in which cross-border lending is denominated. Using the rich dimensionality of the BIS international banking statistics, we find significant effects for all three policies. US monetary easing fuels cross-border lending in US dollars, as befits a global funding currency. At the same time, a tightening in the lender or the borrower country reinforces international dollar lending as global banks turn to the greenback for cheaper funding and toward borrowers abroad. Our results also show that stronger capitalization and better access to funding sources mitigate the frictions underpinning the transmission channels. Analogous results for euro-denominated lending confirm that global funding currencies play a key role in international monetary policy transmission. |
| Keywords: | international banking, dollar lending, global funding currency, monetary policy transmission, international spillovers |
| JEL: | E59 F42 G21 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:737&r=ifn |
| By: | Jose Fillat (Federal Reserve Bank of Boston); Arthur Smith (Boston University); Stefania Garetto (Boston University) |
| Abstract: | This paper starts by establishing a set of stylized facts about global banks with operations in the United States. First, we show evidence of selection into foreign markets: the parent banks of global conglomerates tend to be larger than national banks. Second, selection by size is related to the mode of foreign operations: foreign subsidiaries of global banks and their parents are systematically larger than foreign branches and their parents, in terms of deposits, loans, and overall assets. Third, the mode of foreign operations affects the response of global banks to shocks and how those shocks are transmitted across countries. To explain these facts, we develop a structural model global banking whose assumptions mimic the institutional details of the regulatory framework in the US. The model sheds light on the relationship between market access, regulation, and capital flows, and is used as a laboratory to perform counterfactual analysis on the effects of alternative regulatory policies. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1079&r=ifn |
| By: | Park, Cyn-Young (Asian Development Bank); Shin, Kwanho (Korea University) |
| Abstract: | Although the global financial crisis of 2008 took root in the advanced countries, its shocks spread through the emerging economies, reflecting the increasingly interconnected global financial system. This paper develops an empirical methodology to test the contagion effect at the country level using bilateral data on bank claims between countries. It measures the direct and indirect exposures of emerging economies to crisis countries and tests whether these matter for capital outflows from emerging economies. The paper measures these exposures to the crisis-affected countries by using bilateral foreign claims sourced from Bank for International Settlements (i) consolidated banking statistics foreign claims on immediate counterparty and ultimate risk bases and (ii) locational banking statistics cross-border total claims. Findings show that emerging market economies more exposed directly or indirectly to banks in the crisis-affected countries suffered more capital outflows during the global financial crisis. |
| Keywords: | capital outflows; contagion; direct/indirect exposures; global financial crisis; interconnectedness |
| JEL: | E44 F15 F21 F34 F42 |
| Date: | 2017–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0516&r=ifn |
| By: | Marcin Kacperczyk; Savitar Sundaresan; Tianyu Wang |
| Abstract: | We study the impact of foreign institutional investors on global capital allocation and welfare using novel firm-level international data. Using MSCI index inclusion as an exogenous shock to foreign ownership, we show that greater foreign ownership leads to more informative stock prices and this effect arises more from increased price efficiency than from improved firm governance. We further show that the impact of capital flows on price efficiency is due to real efficiency gains, as opposed to better information disclosure. Finally, we show that foreign ownership increases market liquidity, reduces firms' cost of equity, and leads to subsequent growth in their real investments, thus improving overall welfare. |
| JEL: | G11 G12 G14 G15 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24765&r=ifn |