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on International Finance |
| By: | Boris Hofmann; Ilhyock Shim; Hyun Song Shin |
| Abstract: | In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is the bilateral US dollar exchange rate, not the trade-weighted exchange rate. Our findings highlight endogenous co-movement of bond risk premia and exchange rates through the portfolio choice of global investors who evaluate returns in dollar terms. |
| Keywords: | bond spread, capital flow, credit risk, emerging market, exchange rate |
| JEL: | G12 G15 G23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:775&r=all |
| By: | Alcaraz, Carlo; Claessens, Stijn; Cuadra, Gabriel; Marqués-Ibáñez, David; Sapriza, Horacio |
| Abstract: | We assess how a major, unconventional central bank intervention, Draghi’s “whatever it takes” speech, affected lending conditions. Similar to other large interventions, it responded to adverse financial and macroeconomic developments that also influenced the supply and demand for credit. We avoid such endogeneity concerns by focusing on a third country and comparing lending conditions by euro area and other banks to the same borrower. We show that the intervention reversed prior risk-taking – in volume, price, and loan credit ratings – by subsidiaries of euro area banks relative to local and other foreign banks. Our results document a new effect of large central banks’ interventions and are robust along many dimensions. JEL Classification: E51, G21, F34 |
| Keywords: | credit conditions, spillovers, unconventional monetary policy |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192249&r=all |
| By: | Bryan Hardy; Felipe Saffie |
| Abstract: | We use unique firm level data from Mexico to document that non-financial corporations engage in carry trades by borrowing in foreign currency and lending in domestic currency, largely to related partners (trade credit), accumulating currency risk in the process. The interest rate differential between local and foreign currency borrowing largely drives this behavior at a quarterly frequency, inducing an expansion in gross trade credit and sales. Firms that were active in carry-trade have decreased investment following a large depreciation, independent of currency exposure levels and export status, but maintain their supply of trade credit. |
| Keywords: | emerging market corporate debt, currency mismatch, liability dollarization, carry trades, trade credit |
| JEL: | E44 G15 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:773&r=all |