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on International Finance |
| By: | Davis, J. Scott (Federal Reserve Bank of Dallas); Valente, Giorgio (Hong Kong Institute of Monetary Research); Van Wincoop, Eric (University of Virginia and NBER) |
| Abstract: | While prior to the global financial crisis, the empirical international capital flow literature has focused on net capital flows (the current account), since the crisis there has been an increased focus on gross flows. In this paper we jointly analyze global drivers of gross flows (outflows plus inflows) and net flows (outflows minus inflows) by estimating a latent factor model. We find evidence of two global factors, which we call the GFC (global financial cycle) factor and a commodity price factor as they closely track respectively the Miranda-Agrippino and Rey asset price factor and an average of oil and gas prices. These factors together account for half the variance of gross flows in advanced countries and forty percent of the variance of gross flows in emerging markets. But remarkably, they also account for forty percent of the variance of net capital flows in both groups of countries. We also analyze the heterogeneity across countries in the impact of the two factors. One of the key findings is that the impact of the GFC factor on both gross and net capital flows is stronger in countries that have larger net debt liabilities. Other asset classes (FDI and portfolio equity) do not significantly impact the exposure to the GFC factor. |
| Keywords: | capital inflows and outflows; gross and net capital flows; financial globalization; global financial cycle; global capital flows cycle |
| JEL: | F3 F4 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:357&r=all |
| By: | Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo |
| Abstract: | We show that local central bank policies attenuate global financial cycle (GFC)’s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (with strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, Brazilian FX large intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local policies confirm the results. |
| Keywords: | foreign exchange, monetary policy, central bank, bank credit, hedging |
| JEL: | E5 F3 G01 G21 G28 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1648&r=all |
| By: | Bauer, Michael D. (Federal Reserve Bank of San Francisco); Lakdawala, Aeimit K. (University of California, San Diego); Mueller, Philippe (Warwick Business School) |
| Abstract: | This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the transmission of monetary policy to financial markets. First, changes in uncertainty have substantial effects on a variety of asset prices that are distinct from the effects of the conventional policy surprise measure. For example, the Fed's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path. Second, at high levels of uncertainty a monetary policy surprise has only modest effects on assets, whereas with low uncertainty the impact is significantly more pronounced. |
| JEL: | E43 E44 E47 |
| Date: | 2019–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-12&r=all |