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on International Finance |
| By: | Rui Mano; Silvia Sgherri |
| Abstract: | Policymakers have relied on a wide range of policy tools to cope with capital flow shocks. And yet, the effects and interaction of these policies remain under debate, as does the motivation for using them. In this paper, quantile local projections are used to estimate the entire distribution of future policy responses to portfolio flow shocks for 20 emerging markets and understand the variety of policy choices across the sample. To assuage endogeneity concerns, estimates rely on the fact that global capital flows are exogenous from the viewpoint of any one of these countries. The paper finds that: (i) policy responses to capital flow shocks are heterogeneous across countries, fat-tailed—“extreme” responses tend to be more elastic than “typical” responses—and asymmetric—“extreme” responses tend to be more elastic with respect to outflows than to inflows; (ii) country characteristics are linked to policy choices—with cross-country differences in forex intervention relating to the size of balance sheet vulnerabilities and the depth of the forex market; (iii) the use of targeted macroprudential policy and capital flows management measures can help “free the hands” of monetary policy by allowing it to focus more squarely on domestic cyclical developments. |
| Keywords: | Exchange rate policy;International investment position;Foreign exchange reserves;Foreign exchange intervention;Central banks;Capital flows,emerging markets,macroprudential policies,capital flows management.,WP,policy response,policy tool,flow pressure,forex,policy action |
| Date: | 2020–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/10&r=all |
| By: | David J Hofman; Marcos d Chamon; Pragyan Deb; Thomas Harjes; Umang Rawat; Itaru Yamamoto |
| Abstract: | We investigate the motives inflation-targeting central banks in emerging markets may have for intervening in foreign exchange markets and evaluate the case for such interventions based on the existing literature. Our findings suggest that the rationale for interventions depends on initial conditions and country-specific circumstances. The case is strongest in the presence of large currency mismatches or underdeveloped markets. While interventions can have benefits in the short-term, sustained over time they could entrench unfavorable initial conditions, though more work is needed to establish this empirically. A first effort to measure the cost of interventions to the credibility of policy frameworks suggests that the negative impact may be smaller than often assumed—at least for the set of more sophisticated inflation-targeting emerging-market central banks considered here. |
| Keywords: | Central banks;Exchange rate policy;Central bank policy;Exchange markets;Central banking and monetary issues;emerging markets,monetary and exchange rate policies,inflation targeting,foreign exchange intervention,capital flows,WP,EME,inflation target,policy instrument,exchange rate,targeter |
| Date: | 2020–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/9&r=all |
| By: | Demirguc-Kunt,Asli; Horvath,Balint Laszlo; Huizinga,Harry P. |
| Abstract: | This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks'choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks'preferences to operate in countries with varying regulations and institutions. The results indicate that international banks have a tendency to switch loan origination toward countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement. |
| Date: | 2019–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9037&r=all |
| By: | Murillo Campello; Gustavo S. Cortes; Fabricio d'Almeida; Gaurav Kankanhalli |
| Abstract: | We show that the 2016 Brexit Referendum led American corporations to cut jobs and investment within US borders. Using establishment-level data, we document that these effects were modulated by the degree of reversibility of capital and labor. American job losses were particularly pronounced in industries with less skilled and more unionized workers. UK-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near-universe of US establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation. |
| JEL: | F23 G15 G31 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26714&r=all |
| By: | Jongrim Ha; M. Ayhan Kose; Christopher Otrok; Eswar S. Prasad |
| Abstract: | We develop a new dynamic factor model that allows us to jointly characterize global macroeconomic and financial cycles and the spillovers between them. The model decomposes macroeconomic cycles into the part driven by global and country-specific macro factors and the part driven by spillovers from financial variables. We consider cycles in macroeconomic aggregates (output, consumption, and investment) and financial variables (equity and house prices, and interest rates). We find that the global macro factor plays a major role in explaining G-7 business cycles, but there are also spillovers from equity and house price shocks onto macroeconomic aggregates. These spillovers operate mainly through the global macro factor rather than the country-specific macro factors (i.e., these spillovers affect business cycles in all G-7 economies) and are stronger in the period leading up to and following the global financial crisis. We find little evidence of spillovers from macroeconomic cycles to financial cycles. |
| Keywords: | Global business cycles, global financial cycles, common shocks, international spillovers, dynamic factor models |
| JEL: | E32 F4 C32 C1 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-12&r=all |