nep-ifn New Economics Papers
on International Finance
Issue of 2022‒01‒10
three papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Capital Controls and Foreign Reserves against External Shocks: Combined or Alone? By Rafael Cezar; Eric Monnet
  2. Global Financial Cycle, Commodity Terms of Trade and Financial Spreads in Emerging Markets and Developing Economies By Jorge Carrera; Gabriel Montes-Rojas; Fernando Toledo
  3. Do the Fed’s International Dollar Liquidity Facilities Affect Offshore Dollar Funding Markets and Credit? By Linda S. Goldberg; Fabiola Ravazzolo

  1. By: Rafael Cezar; Eric Monnet
    Abstract: Long considered suboptimal, capital controls and FX interventions are now recognized as prudential measures. Yet, whether they should be used in combination remains an open question. Thanks to a rich dataset from 1950, we investigate how the response of FX reserves to an exogenous US monetary shock depends on capital controls. The response is insignificant with a very close capital account. By contrast, for a significant number of countries, FX interventions and capital controls are combined to tame the effects of an international financial shock. Yet, as countries open up financially, FX interventions replace capital controls. There is no one-sizes-fits-all recipe.
    Keywords: Capital Controls ; Foreign Exchange Interventions ; Foreign Exchange Reserves ; GlobalvFinancial Cycle
    JEL: F31 F32 F38
    Date: 2021
  2. By: Jorge Carrera; Gabriel Montes-Rojas; Fernando Toledo
    Abstract: We study the diffusion of shocks in the global financial cycle and global liquidity conditions to emerging and developing economies. We show that the classification according to their external trade patterns (as commodities' net exporters or net importers) allows to evaluate the relative importance of international monetary spillovers and their impact on the domestic financial cycle volatility -i.e., the coefficient of variation of financial spreads and risks. Given the relative importance of commodity trade in the economic structure of these countries, our study reveals that the sign and size of the trade balance of commodity goods are key parameters to rationalize the impact of global financial and liquidity conditions. Hence, the sign and volume of commodity external trade will define the effect on countries' financial spreads. We implement a two-equation dynamic panel data model for 33 countries during 1999:Q1-2020:Q4 that identifies the effect of global conditions on the countries' commodities terms of trade and financial spreads, first in a direct way, and then by a feedback mechanism by which the terms of trade have an asymmetric additional influence on spreads.
    Date: 2021–12
  3. By: Linda S. Goldberg; Fabiola Ravazzolo
    Abstract: At the outbreak of the pandemic, in March 2020, the Federal Reserve implemented a suite of facilities, including two associated with international dollar liquidity—the central bank swap lines and the Foreign International Monetary Authorities (FIMA) repo facility—to provide dollar liquidity. This post discusses recent evidence showing the contributions of these facilities to financial and economic stability, highlighting evidence from recent research by Goldberg and Ravazzolo (December 2021).
    Keywords: dollar; facilities; swap lines; FEMA repo
    JEL: F3 G15
    Date: 2021–12–20

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