nep-ifn New Economics Papers
on International Finance
Issue of 2021‒03‒22
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Gross Capital Flows by Banks, Corporates and Sovereigns By Stefan Avdjiev; Bryan Hardy; Sebnem Kalemli-Özcan; Luis Servén
  2. Global uncertainty By Giovanni Caggiano; Efrem Castelnuovo
  3. International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending By Sangyup Choi; Davide Furceri; Chansik Yoon

  1. By: Stefan Avdjiev (Bank for International Settlements); Bryan Hardy (Bank for International Settlements); Sebnem Kalemli-Özcan (University of Maryland); Luis Servén (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We construct a new quarterly data set of international capital flows broken down by sector: banks, corporates and sovereigns. Using our novel data set, we establish severalkey facts that demonstrate the importance of distinguishing in- and outflows by the domestic sectoral identity. We find that public sector flows may serve as a countervailing force to private sector flows, especially in emerging markets (EMs), as these flows respond differently not only to country-specific fundamentals but also to global shocks. The high inflow-outflow correlation observed in total capital flow data is driven by within-sector flows, especially those of AE banks. In general, inflows and outflows of AEs and inflows to EMs are primarily AE banks’ transactions, and, as a consequence, respond similarly to capital flow drivers. By contrast, EM outflows respond differently to global shocks and changes in fundamentals, leading to lower inflow-outflows correlations for EMs.
    Keywords: Quarterly capital flows, external corporate and bank debt, systemic risk.
    JEL: F21 F41 O1
    Date: 2020–09
  2. By: Giovanni Caggiano; Efrem Castelnuovo
    Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.
    Keywords: Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier.
    JEL: C32 E32
    Date: 2021–02
  3. By: Sangyup Choi (Yonsei University); Davide Furceri (IMF); Chansik Yoon (Princeton University)
    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 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 and the size of the effect is comparable to an exogenous decline in the federal funds rate by about 25bp (50bp) for spending (revenue) shocks. The fiscal-financial spillovers we find are independent of changes in monetary policy or financial conditions measured by the VIX. The effects also depend on the sign of the fiscal shocks and the underlying economic conditions of a source country. While capital controls seem to play some moderating role, we do not find systematic and statistically significant differences in the spillover effects across recipient countries, depending on their exchange rate regime. The extension of the analysis to fiscal shocks for a panel of 16 small open economies largely confirms the U.S. economy’s findings.
    Keywords: Fiscal-financial spillovers; Cross-border banking flows; Local projections; Nonlinear effects; Trilemma
    JEL: E62 F21 F32 F42
    Date: 2020–10–20

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