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on International Finance |
| 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: | 2019–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2019_017&r=all |
| By: | Pietro Cova (Bank of Italy); Filippo Natoli (Bank of Italy) |
| Abstract: | From the second half of the 1990s, the high saving propensity in emerging economies triggered massive inflows towards safe assets in the United States; then, from the early 2000s, global banks also increased investment in US markets targeting riskier securities. We investigate to what extent the global saving glut and the global banking glut have stimulated risk taking, and find significant effects on credit spreads, market volatility and bank leverage. In a VAR framework, we also detect linkages between foreign inflows, US household indebtedness and house prices, suggesting a substan- tial risk-taking channel. Our findings provide evidence of the autonomous role of foreign financial flows during the run-up to the global financial crisis. |
| Keywords: | saving glut, banking glut, capital flows, banking leverage, risk-taking channel |
| JEL: | F32 F33 F34 |
| Date: | 2019–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2019_015&r=all |
| By: | Pierpaolo Benigno; Linda M. Schilling; Harald Uhlig |
| Abstract: | We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable. |
| JEL: | D53 E4 F31 G12 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26214&r=all |
| By: | Fernando Chertman (University of California, Santa Cruz); Michael Hutchison (University of California, Santa Cruz); David Zink (University of California, Santa Cruz) |
| Abstract: | This paper investigates extended Taylor rules and foreign exchange intervention functions in large Emerging Markets (EM), measuring the extent to which policies are designed to stabilize output, inflation, exchange rates and accumulate international reserves. We focus on two large emerging markets--India and Brazil. We also consider the impact of greater capital account openness and which rules dominate when policy conflicts arise. We find that output stabilization is a dominant characteristic of interest rate policy in India, as is inflation targeting in Brazil. Both countries actively use intervention policy to achieve exchange rate stabilization and, at times, stabilizing reserves around a target level tied to observable economic fundamentals. Large unpredicted intervention purchases (sales) accommodate low (high) interest rates, suggesting that external operations are subordinate to domestic policy objectives. We extend the work to Chile and China for purposes of comparison. Chile’s policy functions are similar to Brazil, while China pursues policies that substantially diverge from other EMs. |
| Date: | 2019–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2019_016&r=all |