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on International Finance |
| By: | Sangyup Choi; Davide Furceri; Chansik Yoon |
| Abstract: | This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards the 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending. The magnitude of the effect is also economically significant: the effect of 1 percent of GDP increase (decrease) in spending (revenue) is comparable to an exogenous decline in the federal funds rate. We also find that fiscal shocks tend to have larger effects during periods of recessions than expansions in the source country, and that the adverse effect of a fiscal consolidation is larger than the positive effect of the same size of a fiscal expansion. In contrast, we do not find systematic and statistically significant differences in the spillover effects across recipient countries depending on their exchange rate regime, although capital controls seem to play some moderating role. The extension of the analysis to a panel of 16 small open economies confirms the finding from the U.S. economy. |
| Keywords: | Cross-border banking;Bank credit;Fiscal stimulus;Expenditure;Spillovers;WP,bank lending,government spending,exchange rate,monetary policy |
| Date: | 2019–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/150&r=all |
| By: | Barry J. Eichengreen; Balazs Csonto; Asmaa A ElGanainy; Zsoka Koczan |
| Abstract: | We review the debate on the association of financial globalization with inequality. We show that the within-country distributional impact of capital account liberalization is context specific and that different types of flows have different distributional effects. Their overall impact depends on the composition of capital flows, their interaction, and on broader economic and institutional conditions. A comprehensive set of policies – macroeconomic, financial and labor- and product-market specific – is important for facilitating wider sharing of the benefits of financial globalization. |
| Date: | 2021–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/004&r=all |
| By: | Krishnamurthy, Arvind (Stanford U); Li, Wenhao (U of Southern California) |
| Abstract: | We develop a model of financial crises with both a financial amplification mecha- nism, via frictional intermediation, and a role for sentiment, via time-varying beliefs about an illiquidity state. We confront the model with data on credit spreads, equity prices, credit, and output across the financial crisis cycle. In particular, we ask the model to match data on the frothy pre-crisis behavior of asset markets and credit, the sharp transition to a crisis where asset values fall, disintermediation occurs and output falls, and the post-crisis period characterized by a slow recovery in output. A pure amplification mechanism quantitatively matches the crisis and aftermath period but fails to match the pre-crisis evidence. Mixing sentiment and amplification allows the model to additionally match the pre-crisis evidence. We consider two versions of sentiment, a Bayesian belief updating process and one that overweighs recent observations. Both models match the crisis patterns qualitatively, while the non-Bayesian model better matches the pre-crisis froth quantitatively. Finally, we show that a lean-against-the-wind policy has a quantitatively similar impact in both versions of the belief model, indicating that policy need not condition on true beliefs. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3874&r=all |