|
on International Finance |
| By: | Thiago Revil T. Ferreira; Samer Shousha |
| Abstract: | We quantitatively evaluate the role of supply and demand of safe assets in determining neutral interest rates. Using an empirical cross-country state-space model, we find that the net supply of sovereign safe assets available to the private sector in secondary markets is an important driver of neutral rates for 11 advanced economies in the period 1970–2018. We also find that the global accumulation of international reserves in sovereign safe assets since the 1990s (the global savings glut) lowered the net supply of these assets and, thus reduced neutral rates by up to 50 basis points in our sample. |
| Keywords: | Neutral interest rates; Scarcity of safe assets; International reserves; Global savings glut |
| JEL: | E21 E43 E52 |
| Date: | 2020–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1293&r=all |
| By: | Ricardo Correa; Wenxin Du; Gordon Y. Liao |
| Abstract: | We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of "reserve-draining" intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subseque nt response of U.S. GSIBs to recent policy interventions by the Federal Reserve. |
| Keywords: | Liquidity; Global banks; Repos; Reserves; Covered interest rate parity |
| JEL: | G20 F30 E40 |
| Date: | 2020–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1289&r=all |
| By: | Nie,Owen |
| Abstract: | Capital controls, policy measures used by governments to regulate cross-country financial flows, have become standard policy options in many emerging market economies. This paper will focus on what capital controls reveal about the state of the economy and the implications of such revelation for policy efficacy. Using a small open economy model with a collateral constraint and overborrowing relative to the social optimum, this paper incorporates a representative agent's Bayesian updating of information in response to change in policy and show that the efficacy of capital controls to contain financial crises and improve welfare could be undermined if the agent rationally learns from policy. Empirically, this paper finds that capital controls convey important information market participants use to improve their understanding of fundamentals. This paper highlights the need for policymakers to consider the unintended consequences of information revelation in the design of capital flow management policies. |
| Keywords: | Macroeconomic Management,Banks&Banking Reform,Fiscal&Monetary Policy,Consumption,International Trade and Trade Rules |
| Date: | 2020–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9343&r=all |