nep-ifn New Economics Papers
on International Finance
Issue of 2020‒08‒17
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The Effect of U.S. Stress Tests on Monetary Policy Spillovers to Emerging Markets* By Liu, Emily; Niepmann, Friederike; Schmidt-Eisenlohr, Tim
  2. Matched trade at the firm level and the micro origins of international business-cycle comovement By Friberg, Richard; Sanctuary, Mark
  3. Coping with disasters: Two centuries of international official lending By Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
  4. Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data By Margherita Bottero; Camelia Minoiu; José-Luis Peydro; Andrea Polo; Andrea F Presbitero; Enrico Sette

  1. By: Liu, Emily; Niepmann, Friederike; Schmidt-Eisenlohr, Tim
    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: emerging markets; monetary policy spillovers; stress tests; U.S. bank lending
    JEL: E44 F31 G15 G21 G23
    Date: 2019–11
  2. By: Friberg, Richard; Sanctuary, Mark
    Abstract: This paper uses firm x national market export and import data for all Swedish private sector firms for 1997-2014 to examine the firm-level contribution of trade and foreign ownership to the correlation between Swedish value added growth and partner country GDP growth. Export and import links increase the firm-level correlation but net out for firms that both export to and import from the same market, evidence that this type of ``natural hedging'' can help reduce a firm's exposure to foreign economic shocks. We proceed to aggregate the firm-level results to the whole economy and find that severing firm-level ties with a foreign market is predicted to lower the correlation between Swedish value added growth and foreign GDP growth from 0.72 to 0.64 on average. Gabaix's ``granularity'' of trade is central to this result: if all firms are given equal weight overall correlations are essentially unaffected by severing firm level ties. While natural hedging is quantitatively important at the firm level, it has little effect on overall comovements.
    Keywords: Firm Heterogeneity; granular effects; natural hedging; rnational trade; Transmission of shocks
    Date: 2019–11
  3. By: Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
    Keywords: international capital flows,disaster response,global financial safety net,bail-outs
    JEL: E42 F33 F34 F35 F36 G01 G20 N1 N2
    Date: 2020
  4. By: Margherita Bottero; Camelia Minoiu; José-Luis Peydro; Andrea Polo; Andrea F Presbitero; Enrico Sette
    Abstract: We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.
    Keywords: Bank credit;Reserve requirements;Interest rates on loans;Central banks;Bank liquidity;Negative interest rates,portfolio rebalancing,bank lending channel,liquidity management,Eurozone crisis,interbank,credit supply,ex-ante,rebalance,negative rate
    Date: 2019–02–28

This nep-ifn issue is ©2020 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.