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on International Finance |
| By: | Feldkircher, Martin; Lukmanova, Elizaveta; Tondl, Gabriele |
| Abstract: | In this paper, we examine international linkages in inflation and short-term interest rates using a global sample of OECD and emerging economies. Using a Bayesian global vector autoregression (GVAR) model, we show that for short-term interest rates both movements in inflation and output play an important role. In advanced countries, however, international factors such as foreign interest rates appear as an important driver of local interest rates. For inflation, we also find evidence for the importance of global factors, such as price developments in other countries, oil prices and the exchange rate. Again, this impact of global factors appears predominately in advanced countries. |
| Keywords: | Monetary policy, Inflation, Global VAR |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:7090&r=all |
| By: | Silvia Albrizio (Bank of Spain); Sangyup Choi (Yonsei University); Davide Furceri (IMF); Chansik Yoon (Princeton University) |
| Abstract: | How does domestic monetary policy in systemic countries spillover to the rest of the world? This paper examines the transmission channel of domestic monetary policy in the cross-border context. We use exogenous shocks to monetary policy in systemically important economies, including the U.S., and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross-border bank lending. We find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross-border bank lending. The effect is weakened during periods of high uncertainty. In contrast, the effect is found to not vary according to the degree of borrower country riskiness, further weakening support for the international portfolio rebalancing channel. |
| Keywords: | Monetary policy spillovers; International bank lending channel; Cross-border banking flows; Global financial cycles; Local projections |
| JEL: | E52 F21 F32 F42 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2019rwp-145&r=all |
| By: | Előd Takáts; Judit Temesvary |
| Abstract: | We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant. |
| Keywords: | Cross-Border Claims ; Diff-In-Diff Analysis ; Macroprudential Policy ; Monetary Policy |
| JEL: | F34 F42 G38 G21 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-45&r=all |
| By: | Daniel Kohler; Benjamin Müller |
| Abstract: | Deviations from the covered interest rate parity (CIP) are considerably smaller or even zero when calculated based on a particular set of repo rates, so-called cross-currency repo rates, instead of standard interest rates, such as overnight indexed swap or Interbank Offered rates. We attribute this (partial) solution of the CIP puzzle to the nearly identical risk characteristics of foreign exchange swaps and cross-currency repos: both are virtually devoid of counterparty credit risk but incorporate a relative funding liquidity premium. In practice, CIP deviations can thus be exploited on a truly riskless basis using cross-currency repo transactions, which is not the case for other interest rates. |
| Keywords: | Covered interest rate parity, FX swap market, cross-currency repos, funding |
| JEL: | E43 F31 G12 G14 G15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2019-05&r=all |