nep-ifn New Economics Papers
on International Finance
Issue of 2021‒04‒05
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Facing the Global Financial Cycle: What Role for Policy By Nicoletta Batini; Luigi Durand
  2. A global database on central banks' monetary responses to Covid-19 By Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
  3. Global Risk and Portfolio Flows to Emerging Markets: Evidence from Irish-Resident Investment Funds By Bianchi, Benedetta; Galstyan, Vahagn; Herzberg, Valerie

  1. By: Nicoletta Batini; Luigi Durand
    Abstract: Abstract In this paper we ask whether countries can influence their exposure to changes in global financial conditions. Specifically, we show that even though we can model cross-country capital flows via a global factor that closely tracks changes in global financial conditions, there is a large degree of heterogeneity in the sensitivity of each country to this same global factor. We then evaluate whether this cross-country heterogeneity can be attributed to different policy choices, including measures of capital flow management, such as capital controls and macroprudential policies. In our main results, we show that higher levels of capital controls and macroprudential policies both dampen the sensitivity to the global factor. Furthermore, we show that countries’ monetary and exchange rate policies can also be successfully deployed. Overall, our results have implications that extend beyond the surge that preceded the 2008 global financial crisis, and that closely resonate in light of the financial disruptions that followed the COVID-19 pandemic.
    Keywords: Capital flows;Capital inflows;Capital controls;Capital flow surges;Exchange rates;Global Financial Cycle,Macroprudential Policy,IMF Institutional View.,WP,GFCy spillover,surge episode,capital flow data,capital flow episode happening,capital flow surge episode,capital flows shock
    Date: 2021–02–12
  2. By: Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
    Abstract: The Covid-19 pandemic has been a global shock of unprecedented size that has hit most countries around the world. Central banks have responded quickly, on a massive scale. We present a novel database that provides information on central banks' responses to Covid-19 in 39 economies, including both advanced and emerging market economies. Monetary policy announcements are listed and classified under five types of tools: interest rate measures, reserve policies, lending operations, asset purchase programmes and foreign exchange operations. Within each category, the database provides additional information such as maturity, eligible counterparties, types of assets and the availability of fiscal backup. It also indicates whether the policy tool was newly introduced or had been previously deployed. The database has a companion dashboard to visualise the data graphically.
    Keywords: Covid-19 crisis, monetary policy, lending operations, asset purchase programmes, FX policy, reserve policy
    JEL: E43 E44 E52 E58 G01
    Date: 2021–03
  3. By: Bianchi, Benedetta (Central Bank of Ireland); Galstyan, Vahagn (Central Bank of Ireland); Herzberg, Valerie (Central Bank of Ireland)
    Abstract: In this paper we analyse the behaviour of investment fund flows to emerging markets after the Global Financial Crisis (GFC). Our data points towards a structural growth in investment funds that purchase debt rather than equity securities. Empirically, we find that debt flows have higher sensitivity to global risk than equity flows, suggesting an increasing policy focus primarily on debt funds. We also show that Irish-resident funds’ sensitivity to changes in global risk sentiment co-varies negatively with a measure of sovereign credit rating of the receiving emerging market economy, a finding consistent with a notion that good fundamentals in host countries can mitigate outflows arising from swings in external funding conditions. Finally, we show that funds whose equity structure is tilted towards investors residing further away tend to invest less in countries than funds whose investors are closer to the same countries. This is noteworthy, given these results refer to Irish-resident investment funds that intermediate global financial flows.
    Keywords: Investment Funds, Financial Flows, Emerging Markets, VIX.
    JEL: F20 F32
    Date: 2020–12

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