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on International Finance |
| By: | Kim, Jinhwan (Stanford Graduate School of Business); Olbert, Marcel (London Business School) |
| Abstract: | We investigate the relationship between private firms’ disclosures and the demand for the equity of their publicly traded peers. Using data on the global movement of public equity, we find that a one standard deviation increase in private firm disclosure transparency – proxied by the number of disclosed private firms’ financial statement line items — reduces global investors’ demand for public equity by 13% to 16% or by $206 million to $253 million in dollar terms. These findings are consistent with private firm disclosures generating negative pecuniary externalities – global investors reallocate their capital away from public firms to more transparent private firms — and less consistent with these disclosures creating positive information externalities that would benefit public firms. Consistent with this interpretation, we find that the reduction in demand for public equity is offset by a comparable increase in capital allocation to more transparent private firms. Using staggered openings of the Bureau van Dijk database offices in each investee country as a plausibly exogenous shock to private firm disclosures, we conclude that the negative relationship between private firm disclosures and public equity demand is likely causal. |
| JEL: | F21 F30 G15 G30 M16 M40 M41 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3957&r= |
| By: | Juan Yepez |
| Abstract: | Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency. This paper documents that this syndrome has been witnessed by many emerging markets and developing economies (EMDEs) as a result of surges in capital inflows driven by accommodative U. S. monetary policy. In a sample of 25 EMDEs from 2000-17, U. S. monetary policy shocks coincided with episodes of currency appreciation and a contraction in tradable output in these economies. The paper also shows empirically that the use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks. Against this background, the paper presents a two sector small open economy augmented with a learning-by-doing (LBD) mechanism in the tradable sector to rationalize these empirical findings. A welfare analysis provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality of costly resource misallocation as a result of greater capital inflows. However, the adequate calibration of CFMs and the quantification of the LBD externality represent important implementation challenges. |
| Keywords: | monetary policy shock; LBD externality; Dutch disease effect; emerging markets and developing economies; EMDEs monetary policy framework; Dutch disease; Capital inflows; Exchange rates; Exchange rate arrangements; Global |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/209&r= |
| By: | Greenwald, Daniel L. (MIT Sloan); Leombroni, Matteo (Stanford); Lustig, Hanno (Stanford GSB and NBER); Van Nieuwerburgh, Stijn (Columbia GSB and NBER) |
| Abstract: | Financial wealth inequality and long-term real interest rates track each other closely over the post-war period. Faced with lower returns on financial wealth, households with high levels of financial wealth must increase savings to afford the consumption that they planned before the decline in rates. Lower rates beget higher financial wealth inequality. Inequality in total wealth, the sum of financial and human wealth and the relevant concept for household welfare, rises much less than financial wealth inequality and even declines at the top of the wealth distribution. A standard Bewley model produces the observed increase in financial wealth inequality in response to a decline in real interest rates, when high financial-wealth households have a financial portfolio with high duration. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3948&r= |