nep-ifn New Economics Papers
on International Finance
Issue of 2019‒10‒28
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Dollar exchange rate as a credit supply factor - evidence from firm-level exports By Valentina Bruno; Hyun Song Shin
  2. Credit Supply: Are there negative spillovers from banks’ proprietary trading? (RM/19/005-revised-) By Kurz, Michael; Kleimeier, Stefanie
  3. Predicting recessions: financial cycle versus term spread By Claudio Borio; Mathias Drehmann; Dora Xia Author-X-Name_First: Dora

  1. By: Valentina Bruno; Hyun Song Shin
    Abstract: The dollar exchange rate affects real outcomes not only through competitiveness, but also through fluctuations in credit supply. Using detailed export data at the firm-level, we find that the dollar exchange rate affects exports and, conditional on the firms' and banks' financing structure, operates in the opposite direction to the competitiveness channel. Other things equal, firms that are more reliant on banks with higher dollar funding suffer a larger negative effect on exports following an appreciation of the dollar. The effect is particularly pronounced for firms with long production chains. We identify a financial channel of the dollar exchange rate operating through bank credit supply to the exporting firm.
    Keywords: global factors, risk taking channel, non-core bank funding, working capital, global value chains
    JEL: F34 F42
    Date: 2019–10
  2. By: Kurz, Michael (Finance); Kleimeier, Stefanie (Finance)
    Abstract: Following the global financial crisis, policy makers considered regulations that restrict banks’ activities which were motivated by concerns that banks use central bank borrowing, government guarantees, or subsidies to fund securities trading instead of lending to the real economy. Using a global sample of 132 major banks from 2003 to 2016, we find that banks’ securities trading is indeed associated with decreased loan supply. Effects are stronger for domestic lending markets, during crisis periods, and in countries with deeper financial markets. However, corporate capital expenditures and employment growth are unaffected, suggesting that policy makers’ concerns are only partly justified.
    Keywords: credit supply, proprietary trading, international lending, banking, corporate loans
    JEL: G01 G21 G28
    Date: 2019–10–24
  3. By: Claudio Borio; Mathias Drehmann; Dora Xia Author-X-Name_First: Dora
    Abstract: Financial cycles can be important drivers of real activity, but there is scant evidence about how well they signal recession risks. We run a horse race between the term spread - the most widely used indicator in the literature - and a range of financial cycle measures. Unlike most papers, ours assesses forecasting performance not just for the United States but also for a panel of advanced and emerging market economies. We find that financial cycle measures have significant forecasting power both in and out of sample, even for a three-year horizon. Moreover, they outperform the term spread in nearly all specifications. These results are robust to different recession specifications.
    Keywords: financial cycle, term spread, recession risk, panel probit mode
    JEL: C33 E37 E44
    Date: 2019–10

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