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on International Finance |
| By: | Markus K. Brunnermeier (Princeton University); Sebastian Merkel (Princeton University); Yuliy Sannikov (Stanford University) |
| Abstract: | Borrowing from Brunnermeier and Sannikov (2016, 2019) this policy paper sketches a policy framework for emerging market economies by mapping out the roles and interactions of monetary policy, macroprudential policies, foreign exchange interventions, and capital controls. Safe assets are central in a world in which financial frictions, distribution of risk, and risk premia are important elements. The paper also proposes a global safe asset for a more self-stabilizing global financial architecture. |
| Keywords: | Safe asset, bubbles, international capital flows, capital controls, monetary policy, macroprudential policy, FX interventions |
| JEL: | E52 F38 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2020-58&r= |
| By: | Andrew Atkeson; Jonathan Heathcote; Fabrizio Perri |
| Abstract: | The US net foreign asset position has deteriorated sharply in the years following the Global Financial Crisis and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and argue that the rise in equity prices in the United States likely reflects rising profitability of domestic firms rather than a substantial accumulation of unmeasured capital by those firms. Under that interpretation, the revaluation effects that have driven down the US net foreign asset position are associated with large unanticipated transfers of US output to foreign investors. |
| JEL: | F30 F40 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29771&r= |
| By: | Giraldo, Iader; Turner, Philip |
| Abstract: | A decade of low interest rates in the major currencies and failings in the regulatory oversight of international bond markets have led investors to take more and more risk in their search for higher yields. Non-financial corporations (NFC's) in Latin America have taken full advantage, and their dollar indebtedness is now heavier than for corporations in most other emerging market regions. This paper documents the many warning signs of macroeconomic and financial instability in the region from such indebtedness. Macroeconomic data show that the NFC sector has become much more leveraged and faces increased currency mismatches. Microeconomic data drawn from a sample of more than 160 companies confirm that several balance sheet indicators have deteriorated for firms in both the tradable and the non-tradable sectors. As dollar debts were rising, profits were declining, capital expenditures falling and solvency risk rising. This situation warrants careful and continuous monitoring by the authorities in the region. Macroprudential policies in Latin America need to address with urgency the vulnerabilities created by international market-based finance and ensure that local banks remain resilient to external financial shocks. Interest rates will rise and, given the recent warnings of the Bank for International Settlements (BIS) and the Financial Stability Board (FSB), some regulatory tightening affecting bond markets is likely. |
| Keywords: | Non-financial corporate debt, Latin America, currency mismatches, global liquidity, corporate balance sheets, FSB, IMF, BIS |
| JEL: | D25 E44 F30 F34 F65 G15 G18 G28 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:534&r= |
| By: | Hites Ahir; Nicholas Bloom; Davide Furceri |
| Abstract: | We construct the World Uncertainty Index (WUI) for an unbalanced panel of 143 individual countries on a quarterly basis from 1952. This is the frequency of the word “uncertainty” in the quarterly Economist Intelligence Unit country reports. Globally, the Index spikes around major events like the Gulf War, the Euro debt crisis, the Brexit vote and the COVID pandemic. The level of uncertainty is higher in developing countries but is more synchronized across advanced economies with their tighter trade and financial linkages. In a panel vector autoregressive setting we find that innovations in the WUI foreshadow significant declines in output. This effect is larger and more persistent in countries with lower institutional quality, and in sectors with greater financial constraints. |
| JEL: | E0 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29763&r= |