nep-ifn New Economics Papers
on International Finance
Issue of 2019‒12‒02
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Flow Dynamics in Emerging Market Economies By Masahiro Enya; Akira Kohsaka; Kimiko Sugimoto
  2. Hedger of Last Resort: evidence from Brazilian FX interventions, local credit, and global financial cycles By Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo
  3. The Effect of U.S. Stress Tests on Monetary Policy Spillovers to Emerging Markets By Emily Liu; Friederike Niepmann; Tim Schmidt-Eisenlohr

  1. By: Masahiro Enya (Faculty of Economics and Management, Institute of Human and Social Sciences, Kanazawa University); Akira Kohsaka (Osaka School of International Public Policy, Osaka University); Kimiko Sugimoto (Hirao School of Management, Konan University)
    Abstract: This paper analyzes the dynamics of gross capital flows since the 1990s across three regions, i.e. East Asia, Europe and Latin America, and across types of capital flows, i.e. foreign direct investment, portfolio equity flows, portfolio debt flows and other investment. First, we demonstrate distinct features of gross capital inflows and outflows with selected EMs across the three regions by types of capital flows. Then, using panel data regression in the period of 2000-2015, we show how both domestic and global factors contribute to the dynamics of these gross capital flows. We confirm that both global factors such as expected growth and international investors’ risk perception in AEs, and domestic factors such as exchange rate regimes, and financial deepening in EMs, contribute to the dynamics. Furthermore, we detect significant regional diversities in relative importance and sensitivities in the roles of these factors.
    Keywords: Tenure; Managerial Skill; gross capital flows, emerging market economies (EMs), types of capital flows, Asian Financial Crisis, Global Financial Crisis
    JEL: F3 F4 F6
    Date: 2019–11
  2. 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 (followed by 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, a large FX intervention program supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local related policies confirm these results.
    Date: 2019–11
  3. By: Emily Liu; Friederike Niepmann; Tim Schmidt-Eisenlohr
    Abstract: This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks’ capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is larger when they have a bigger capital buffer. We conjecture that bank lending to emerging markets during the zero-lower bound period would have been even higher had the United States not introduced stress tests for their banks.
    Keywords: U.S. bank lending ; Stress tests ; Emerging markets ; Monetary policy spillovers
    JEL: E44 F31 G15 G21 G23
    Date: 2019–11–22

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