nep-ifn New Economics Papers
on International Finance
Issue of 2019‒07‒22
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects By Bernardo Morais; José-Luis Peydró; Jessica Roldán-Peña; Claudia Ruiz-Ortega
  2. Exchange Rate Reconnect By Andrew Lilley; Matteo Maggiori; Brent Neiman; Jesse Schreger
  3. Measures of Global Uncertainty and Carry-Trade Excess Returns By Kimberly A. Berg; Nelson Mark
  4. Funding Shocks through Cross-border Banking in Asia A Network-based Approach By Estelle Xue Liu; Zijun Liu

  1. By: Bernardo Morais; José-Luis Peydró; Jessica Roldán-Peña; Claudia Ruiz-Ortega
    Abstract: We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm-level real effects. Results support an international risk-taking channel and spill overs of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk-taking by foreign banks) and in the tightening part (with negative local firm-level real effects).
    Keywords: monetary policy, financial globalization, quantitative easing (QE), credit supply, risk-taking, foreign banks
    JEL: E52 E58 G01 G21 G28
    Date: 2018–10
  2. By: Andrew Lilley; Matteo Maggiori; Brent Neiman; Jesse Schreger
    Abstract: The failure to find fundamentals that co-move with exchange rates or forecasting models with even mild predictive power – facts broadly referred to as “exchange rate disconnect” – stands among the most disappointing, but robust, facts in all of international macroeconomics. In this paper, we demonstrate that U.S. purchases of foreign bonds, which did not co-move with exchange rates prior to 2007, have provided significant in-sample, and even some out-of-sample, explanatory power for currencies since then. We show that several proxies for global risk factors also start to co-move strongly with the dollar and with U.S. purchases of foreign bonds around 2007, suggesting that risk plays a key role in this finding. We use security-level data on U.S. portfolios to demonstrate that the reconnect of U.S. foreign bond purchases to exchange rates is largely driven by investment in dollar-denominated assets rather than by foreign currency exposure alone. Our results support the narrative emerging from an active recent literature that the US dollar’s role as an international and safe-haven currency has surged since the global financial crisis.
    JEL: E44 E47 F31 F32 F37 G11 G15 G23
    Date: 2019–07
  3. By: Kimberly A. Berg (Miami University); Nelson Mark (University of Notre Dame and NBER)
    Abstract: Asset market participants generally do not like uncertainty. In studying the cross-section of carry- trade-generated currency excess returns and their exposure to macroeconomic uncertainty, we find it also to be true for those participating in this market. A global, news-based measure of macroeconomic uncertainty is negatively and robustly priced into these excess returns, which is consistent with the existence of a global uncertainty factor.
    Keywords: Currency excess returns, global uncertainty, beta-risk, carry trade
    JEL: E21 E43 F31 G12
  4. By: Estelle Xue Liu (IMF); Zijun Liu (HKMA)
    Abstract: In recognition of the potential risk arising from the rapidly increasing cross-border interbank funding in Asia, we examine the contagion of funding shocks through the regional interbank network. We find that the breadth and the final impact of the shock crucially hinge on the magnitude of the shock, initial liquidity buffers and the structure of the interbank network. Liquidity hoarding during financial distress aggravates the severity of the shock, while the interconnectedness of the interbank network may either aggravate or mitigate the shock depending on the size of the shock.
    Keywords: funding runs, interbank, network analysis, financial crisis, liquidity ratio, Asia
    JEL: G18 G21 L14

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