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on International Finance |
| By: | Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja |
| Abstract: | This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment. |
| Keywords: | Monetary Policy,LTRO,Bank Lending,Credit Risk-Taking,Real Effects,TFP Growth |
| JEL: | E44 E52 G21 O40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:362020&r=all |
| By: | William Chen (Williams College); Gregory Phelan (Williams College) |
| Abstract: | Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets. Both countries have incentives to stabilize their economy by using prudential limits, but the emerging economy depends on the advanced economy to bear global risk. Financially developed economies are unwilling to intermediate global risk, which means bearing systemic risk, preferring financial stability over credit flows. Advanced economies prefer tighter prudential limits than would occur with coordination, giving them greater bargaining power when negotiating international agreements. |
| Keywords: | International Capital Flows, Capital Controls, Macroeconomic Instability, Macroprudential Regulation, Policy Coordination, Spillovers, Financial Crises. |
| JEL: | E44 F36 F38 F42 G15 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2020-05&r=all |
| By: | Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig |
| Abstract: | We build a model of the global financial cycle with one key ingredient: the demand for safe dollar assets. The model matches patterns of dollar borrowing and currency mismatch, the U.S. external balance sheet, low U.S. interest rates and exorbitant privilege, spillovers of the U.S. monetary policy to the rest of the world, and the dollar as a global risk factor. In doing so, we lay out a novel transmission mechanism through which the U.S. monetary policy affects the currency market and the global economy. |
| JEL: | E4 F3 G15 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27682&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 subsequent response of U.S. GSIBs to recent policy interventions by the Federal Reserve. |
| JEL: | E4 F3 G2 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27491&r=all |
| By: | Evans, Martin |
| Abstract: | I use Forex trading data to study how risks associated with the lack of liquidity contribute to the dynamics of 17 spot exchange rates through their time-varying contributions to risk premia. I find that liquidity risk matters. All the foreign exchange risk premia compensate investors for exposure to liquidity risk; and, for many currencies, exposure to liquidity risk appears to be more important than exposure to the traditional carry and momentum risk factors. I also find that variations in the price of liquidity risk make economically important contributions to the behavior of individual foreign currency returns: they account for approximately 34 percent, on average, of the variability in currency returns compared to the contribution of approximately 8 percent from the prices of carry and momentum risk. |
| Keywords: | Foreign Currency Trading, Liquidity, Returns, Risk Premia, and Risk Factors |
| JEL: | F3 F4 G1 |
| Date: | 2020–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102702&r=all |