|
on International Finance |
| By: | Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto |
| Abstract: | Non-US firms have massively borrowed dollars (foreign currency, FX), which may lead to booms and crises. We show the real effects of capital controls, including prudential benefits, through a firm-debt mechanism. Our identification exploits the introduction of a tax on FX-debt inflows in Colombia before the global financial crisis (GFC), and administrative, proprietary datasets, including loan-level credit register data and firm-level information on FX-debt inflows and imports/exports. Our results show that capital controls substantially reduce FX-debt inflows, particularly for firms with larger ex-ante FX-debt exposure. Moreover, firms with weaker local banking relationships cannot substitute FX-debt with domestic-debt and experience a reduction in total debt and imports upon implementation of the policy. However, our results suggest that, by preemptively reducing pre-crisis firm-level debt, capital controls boost exports during the subsequent GFC, especially among financially-constrained firms. |
| Keywords: | Capital controls; corporate FX-debt; real effects; macroprudential; capital inflows |
| JEL: | F3 F38 F4 F6 G01 G15 G21 G28 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1833&r= |
| By: | Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Giannetti, Mariassunta; Schumacher, Julian |
| Abstract: | Exploiting the introduction of the ECB’s tiering system for remunerating excess reserve holdings, we document the importance of access to the money market for bank lending. We show that the two-tier system produced positive wealth effects for banks with excess reserves and encouraged a reallocation of liquidity toward banks with unused exemptions. This ultimately decreased the fragmentation in the money market and enhanced the monetary policy transmission mechanism. The increased access to money market by banks with unused allowances incentivizes them to extend more credit than other banks, including banks with excess liquidity whose valuations increase the most. JEL Classification: G2, E5 |
| Keywords: | bank lending, Money market, negative interest rate policy |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222649&r= |
| By: | Clayton, Christopher; Santos, Amanda Dos; Maggiori, Matteo; Schreger, Jesse |
| Abstract: | We empirically characterize how China is internationalizing the Renminbi by selectively opening up its domestic bond market and propose a dynamic reputation model to understand China's internationalization strategy. While previously closed to foreign investors, China has recently allowed major increases in foreign investment in its domestic bond market. China carefully controlled the entrance of foreign investors into its market, first allowing in relatively stable long-term investors like central banks before allowing in flightier investors like mutual funds. Foreign investors increasingly treat Renminbi denominated assets as a substitute for safe developed-market government bonds. Our framework explains these patterns as the result of a government strategy to build its reputation as an international currency issuer while minimizing the cost of potential capital flight as it gains credibility. We analyze optimal two-way liberalization: gradually letting more domestic capital flow abroad as foreigners increase their participation in domestic markets. |
| Date: | 2022–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:r2msa&r= |
| By: | Joshua AIZENMAN; Menzie CHINN; ITO Hiroyuki |
| Abstract: | Over the years, policymakers have explored various combinations of varying degrees of monetary policy independence, exchange rate stability, and financial openness, while recognizing that not all three policies can be achieved to the fullest extent – this is known as the "monetary trilemma" hypothesis. In recent years, holding international reserves (IR) has become an important policy instrument as a buffer or insurance against liquidity shortages. Significant and fundamental economic events such as currency crises have often changed the policy mix. In this paper, we find that countries' policy mixes have been diverse and have varied over time from the perspective of both the monetary trilemma and IR holdings. We then illustrate how the combination of the three trilemma policies and IR holding drastically changed before and after the Asian Financial Crisis (AFC). However, the Global Financial Crisis (GFC) did not lead to a drastic change in the policy arrangements. We find that countries that faced large terms of trade shocks or negative economic growth during the crisis increase IR holding in the post-AFC. Countries that had negative growth during the crisis also tend to pursue more exchange rate flexibility and more open financial markets. This characteristic is true for commodity exporters, but not for manufacturing exporters. Countries with large current account deficits (i.e., "large capital borrowers") tended to be more sensitive to economic growth at the time of the AFC. Countries that are under IMF stabilization programs or those with sovereign wealth funds tend to hold more IR. These characteristics were not found in the aftermath of the GFC. In general, countries increased their IR holdings after the GFC, but did not respond to the during-crisis economic and institutional conditions. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:22029&r= |
| By: | Ignacio Lago; Santiago Lago-Peñas |
| Abstract: | Relying on global data from democratic elections in 80 countries from 1800 to 2016, we examine whether the general process of nationalization of voting behavior is driven by country size. We argue that in the early stages of democracies in the nineteenth century, local concerns were more diverse and prominent for voters as countries became larger. As a result, national integration should have a stronger effect on the nationalization of electoral politics in large countries. The results from a longitudinal analysis confirm that the process of nationalization is a large-country phenomenon that took place mainly until World War I. |
| Keywords: | country size; democracy; elections; nationalization. |
| JEL: | H72 H74 H77 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:gov:wpaper:2202&r= |