nep-ifn New Economics Papers
on International Finance
Issue of 2020‒03‒02
two papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Dollar borrowing, firmcharacteristics, and FX-hedged funding opportunities By Leonardo Gambacorta; Sergio Mayordomo; Jose Maria Serena
  2. Capital inflows to emerging countries and their sensitivity to the global financial cycle By Ines Buono; Flavia Corneli; Enrica Di Stefano

  1. By: Leonardo Gambacorta; Sergio Mayordomo; Jose Maria Serena
    Abstract: We explore the link between firms’ dollar bond borrowing and their FX-hedged funding opportunities, as reflected in a positive corporate basis (the relative cost of local to synthetic currency borrowing). Consistent with previous research, we first document that firms substitute domestic for dollar borrowing when they have higher dollar revenues or long-term assets and when the corporate basis widens. Importantly, our novel firm-level dataset enables to show that when these funding opportunities appear, the currency substitution is stronger for high-grade firms, as they can offer to investors close substitutes for safe dollar assets. However, firms with higher dollar revenues or long-term assets do not react to changes in the corporate basis. Altogether, the composition of dollar borrowers shifts when the basis widens, as high-grade firms gain importance, relative to firms with operational needs.
    Keywords: covered interest rate parity, credit spread, debt issuance, dollar convenience yield, foreign exchange rate hedge, limits of arbitrage
    JEL: E44 F3 F55 G12 G15 G23 G28 G32
    Date: 2020–02
  2. By: Ines Buono (Bank of Italy); Flavia Corneli (Bank of Italy); Enrica Di Stefano (Bank of Italy)
    Abstract: We study how the effect of global and domestic factors on capital flows towards emerging economies has changed in the last 25 years. We find that both the global financial crisis and the so-called ‘taper tantrum’ event, when investors perceived the end of the US Federal Reserve’s unconventional monetary policy, triggered changes in the sensitivity of capital inflows to their main drivers. In particular, we provide evidence that during the period between the global financial crisis and the taper tantrum, international investors devoted less attention to domestic factors. Nevertheless, the taper tantrum marked the beginning of a new phase, characterized by increased sensitivity to both global factors and domestic vulnerabilities.
    Keywords: international capital movements, uncertainty, global financial cycle, VIX, non-linearities
    JEL: F21 F32 F42
    Date: 2020–02

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