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on International Finance |
| By: | Stefan Avdjiev; Bryan Hardy; Patrick McGuire; Goetz von Peter |
| Abstract: | Prudential regulation of banks is multi-layered: policy changes by home-country authorities affect banks' global operations across many jurisdictions; changes by host-country authorities shape banks' operations in the host jurisdiction regardless of the nationality of the parent bank. Which layer matters most? Do these policies create cross-border spillovers? And how does monetary policy alter these spillovers? This paper examines the effect that changes in home- and hostcountry prudential measures have on cross-border credit, and how these interact with monetary policy. We use a novel approach to decompose growth in cross-border bank lending into separate home, host and common components, and then match each with the home or host policies that affect this component. Our results suggest that prudential policies can have spillover effects, which depend on the instrument used and on whether a bank's home or host country implemented them. Home policies tend to have larger spillovers on cross-border US dollar lending than host policies, primarily through substitution effects. We also find that a tightening of US monetary policy can compound the spillovers of certain prudential measures. |
| Keywords: | international banking, prudential policy, international policy coordination and transmission, currencies, international spillovers |
| JEL: | F42 G21 L51 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:853&r=all |
| By: | Fabio Ghironi; Galip Kemal Ozhan |
| Abstract: | We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate passthrough. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary. |
| Keywords: | International financial markets; Monetary policy framework; Uncertainty and monetary policy |
| JEL: | E32 F32 F38 G15 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-13&r=all |
| By: | Maryam Farboodi; Adrien Matray; Laura Veldkamp; Venky Venkateswaran |
| Abstract: | As financial technology improves and data becomes more abundant, do market prices reflect this data growth? While recent studies documented rises in the information content of prices, we show that, across asset types, there is data divergence. Large, growth stock prices increasingly reflect information about future firm earnings. This is the rise reflected in the previous studies. But over the same time period, the information content of small and value firm prices was flat or declining. Our structural estimation allows us to disentangle these informational trends from changing asset characteristics. These facts pose a new puzzle: Amidst the explosion of data processing, why has this data informed only the prices of a subset of firms, instead of benefiting the market as a whole? Our structural model offers a potential answer: Large growth firms' data grew in value, as big firms got bigger and growth magnified the effect of these changes in size. |
| JEL: | G14 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26927&r=all |