nep-ifn New Economics Papers
on International Finance
Issue of 2018‒09‒24
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The Double-Edged Sword of Global Integration: Robustness, Fragility \& Contagion in the International Firm Network By Everett Grant
  2. Inflation Targeting Consequences for Exchange Rates By Paul Beaudry; Amartya Lahiri

  1. By: Everett Grant (Federal Reserve Bank of Dallas)
    Abstract: We use daily equity returns to estimate global inter-firm networks across all major industries from 1981-2016 and test whether the network is robust or fragile, relating multinational firms' overall health with global integration. More connected firms are less likely to be in distress and have higher profit growth and equity returns, but are also more exposed to direct contagion from distressed neighboring firms and network level crises. Our machine learning analysis reveals the centrality of finance in the international firm network and increased globalization over time, with greater potential for crises to spread globally when they do occur.
    Date: 2018
  2. By: Paul Beaudry (University of British Columbia); Amartya Lahiri (University of British Columbia)
    Abstract: We uncover a curious data fact. Countries which have switched to inflation targeting have seen their currencies turn into oil currencies with rising oil prices inducing a currency appreciation while in the pre-inflation targeting regime there was no such relationship. Importantly, this data fact holds independent of whether the country is a net oil exporter or importer. We show that one possible explanation for this is that inflation targeting in open economies renders the equilibrium dynamics indeterminate when uncovered interest parity (UIP) does not hold. In such situations, oil prices may well act as a focal point for currency pricing decisions.
    Date: 2018

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