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on International Finance |
| By: | Mary Amiti; Oleg Itskhoki; Jozef Konings |
| Abstract: | There are around 180 currencies in the world, but only a very small number of them play an outsized role in international trade, finance, and central bank foreign exchange reserves. In the modern era, the U.S. dollar has a dominant international presence, followed to a lesser extent by the euro and a handful of other currencies. Although the use of specific currencies is remarkably stable over time, with the status of dominant currencies remaining unchanged over decades, there have been decisive shifts in the international monetary system over long horizons. For example, the British pound only lost its dominant currency status in the 1930s, well after Britain stopped being the leading world economy. In a new study, we show that the currency that is used in international trade transactions is an active firm-level decision rather than something that is just fixed. This finding raises the question of what factors could augment or reduce the U.S. dollar’s dominance in world trade. |
| Keywords: | currency invoicing; exporters; trade; US dollar |
| JEL: | E2 F0 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94360&r= |
| By: | Raphael Auer; Marc Farag; Ulf Lewrick; Lovrenc Orazem; Markus Zoss |
| Abstract: | The phenomenal growth of cryptocurrencies raises important questions about their footprint on the financial system. What role are traditional financial intermediaries playing in cryptocurrency markets and what drives their engagement? Are new nodes emerging? We help answer these questions by leveraging a novel global supervisory database of banks' cryptocurrency exposures and by synthesising a range of complementary data sources for other types of institutions. We find that major banks' exposures currently remain at very modest levels. Across countries, higher innovation capacity, more advanced economic development, and greater financial inclusion are associated with a higher likelihood of banks taking on cryptocurrency exposures. We show that substantial activity is concentrated in lightly regulated crypto exchanges. This "shadow crypto financial system" serves both retail and institutional clients, such as dedicated investment funds. An uneven regulatory treatment across banks and crypto exchanges and significant data gaps suggest that a proactive, holistic and forward-looking approach to regulating and overseeing cryptocurrency markets is needed. It should focus on ensuring a more level playing field with regard to financial services provided by established financial institutions and intermediaries in the emerging crypto shadow financial system by introducing more stringent regulatory and supervisory oversight for the latter. |
| Keywords: | cryptocurrencies, decentralised finance, digital currencies, financial regulation, financial supervision, exchange, stablecoin, Bitcoin, Ethereum |
| JEL: | E42 G12 G21 G23 G28 O33 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1013&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. |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1842&r= |
| By: | Hayley Pallan (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | This paper examines whether investors react to consumption taxes. Despite the near global adoption of VAT policies, relatively little is known regarding the investor response to VAT changes. In an event-study setup, using a new dataset of daily equity returns and precise dates of tax policy announcements across 20 countries between 1990 and 2014, I find heterogeneous responses: in advanced economies, equities react negatively to an announcement regarding a consumption tax increase, while in emerging markets, equities react positively to similar announcements. In emerging economies, the positive response to consumption tax increases is amplified in times of worsening macro-indicators, such as higher fiscal deficits and inflation. This result holds using both country-level index returns and firm-level equity returns. Furthermore, in emerging economies, the equity returns of high-debt firms respond more positively to VAT increases. Overall, the results suggest that investor sentiment in emerging economies is positive in response to VAT increases. This may be due to the expectation that fiscal prudence will prevent increases in interest rates, which would be particularly damaging for countries with deteriorating macro-conditions and firms with high levels of debt. |
| Keywords: | Fiscal Policies; Financial Markets; Macroeconomic Conditions; Corporate Debt |
| JEL: | H3 E6 G1 |
| Date: | 2022–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp14-2022&r= |
| By: | Hoffmann, Mathias; Pavlova, Lora; Mönch, Emanuel; Schultefrankenfeld, Guido |
| Abstract: | Yes, they would. In a randomized control trial, we provide groups of respondents from the Bundesbank Online Panel Households with information about a hypothetical alternative ECB monetary policy regime akin to the Federal Reserve's flexible average inflation targeting (AIT). Inflation expectations significantly increase for the treated individuals. When provided with additional information about near-term inflation, individuals update their expected inflation path in line with the central banks' intentions. This is particularly true for individuals with high trust in the ECB. We assess the economic significance of our findings by comparing two model economies under different monetary policy strategies, calibrated to match the difference in medium-term inflation expectations from our survey results. Under AIT, inflation is substantially less volatile and the frequency of hitting the lower bound on interest rates is considerably reduced. |
| Keywords: | Monetary Policy Strategy,Household Inflation Expectations,Randomized Control Trial,Survey Data |
| JEL: | F33 E31 E32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:172022&r= |
| By: | Yang Zhou (Graduate School of Economics, Kobe University and Junir Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN) |
| Abstract: | Policymakers increasingly use capital control policies (i.e., capital flow management) to manage capital flows. However, whether the implementation of such policies can effectively affect housing prices and to what extent is less discussed. In this paper, we study the effects of four types of granular capital control polices on housing prices using a large cross-country panel of 53 economies from 1995 to 2017. We find that the estimated effects of capital controls are distinct for different capital flow types and flow directions, but most capital control indices appear to reduce housing prices. Specifically, we find that capital controls have asymmetric effects on housing prices for advanced and emerging economies. The negative effects of capital controls on housing prices are mainly driven by pre-crisis subsample. This means that capital controls have been in effect several times before Global Financial Crisis. We also estimate the effects for boom and slump periods respectively and find that capital control policies are implemented in an acyclical way. Since there exists endogeneity for capital control on real estate transactions, we further use inverse probability weights to rebalance capital control actions and find that this method can weaken the negative effects on housing prices, and the attenuation effects can be attributed to endogenous factors. |
| Keywords: | Capital control policy; Housing price; Local projections; Inverse probability; Weighted regression adjusted estimator |
| JEL: | F21 F32 F38 F41 G28 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2022-29&r= |