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on International Finance |
| By: | Richard Schmidt; Pinar Yesin |
| Abstract: | In this paper, we first document the growing importance of foreign-domiciled investment funds in countries' portfolio liabilities over time and then show empirical evidence that cross-border fund flows are coincident with asset price movements. To measure the external liabilities of countries to foreign-domiciled funds, we complement conventional balance of payments and international investment position data with granular and real-time fund flows data. We find that the external exposure of countries to investment funds has been steadily increasing both for advanced and emerging market economies. Furthermore, we find that this increased external exposure is coincident with higher exchange rate fluctuations, lower bond yields and higher stock returns. Because sustainability-themed investment funds are growing faster than conventional investment funds, we also focus on Environmental, Social and Governance (ESG) funds and construct an index of sustainable finance that can distinguish between its domestic and cross-border components. Our index reveals that ESG funds domiciled in European countries tend to invest predominantly in domestic markets, whereas ESG investment in emerging market economies to a large extent originates from foreign-domiciled investment funds. |
| Keywords: | Investment funds, portfolio investment, fund flows, ESG funds, financial markets |
| JEL: | F32 G15 G23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2022-13&r=ifn |
| By: | Nissinen, Juuso; Sihvonen, Markus |
| Abstract: | A convenience yield represents a difference between yield on a safe bond and yield on a synthetic safe bond, constructed by combining a risky bond with a CDS contract. We explain the shapes of eurozone sovereign convenience curves using a model in which arbitrageurs face higher funding costs on bonds with credit risk and bond demand shocks induce funding risk. We provide novel causal evidence for our mechanism using variation in funding costs generated through exogenous haircut category changes. Changes in convenience yields represent a key transmission channel of unconventional monetary policy to bond yields. |
| Keywords: | Sovereign bond convenience yields,money markets,asset pricing with frictions,monetary policy |
| JEL: | G12 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:112022&r=ifn |
| By: | Ahnert, Toni; Anand, Kartik; König, Philipp Johann |
| Abstract: | How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank’s optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of borrowing, both of which influence bank fragility in opposite directions. Thus, the marginal impact of changes to the interest rate on bank fragility depends on the level of the interest rate. Finally, we derive testable implications that may guide future empirical work. JEL Classification: G01, G21, G28 |
| Keywords: | bank borrowing, fragility, funding liquidity risk channel, global games, real interest rates, rollover risk |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222755&r=ifn |
| By: | Francisco Amaral (Macro Finance Lab, University of Bonn); Martin Dohmen (Macro Finance Lab, University of Bonn); Sebastian Kohl (Free University Berlin); Moritz Schularick (University of Bonn and Sciences Po Paris) |
| Abstract: | Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level. |
| Keywords: | House prices, regional housing markets, spatial polarization |
| JEL: | G10 G12 G15 R30 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:212&r=ifn |
| By: | Stefan Nagel; Zhen Yan |
| Abstract: | Households participating in financial markets pay attention to inflation news when making their investment decisions, even in an environment of mostly low and stable inflation. ETFs and open-ended mutual funds holding Treasury Inflation-Protected Securities (TIPS) receive inflows from retail investors, and nominal Treasury ETF experience outflows, when long-horizon market-based inflation expectations measures increase. Changes in household survey expectations or in measures of inflation uncertainty do not contribute much in explaining retail TIPS fund flows. Retail flows into TIPS funds are asymmetric, with strong reactions only to positive inflation news, and sticky, with flow responses to news gradually playing out over several months. Retail investors appear to pay some attention to regular Federal Reserve announcements, but major events such as the ``taper tantrum'' in May 2013, the presidential election in November 2016, and the COVID-19 crisis in March 2020 are associated with particularly large retail TIPS fund flows. |
| JEL: | E31 G23 G5 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30692&r=ifn |
| By: | Alessandro Maravalle; Alberto González Pandiella |
| Abstract: | This paper estimates the pass-through of monetary policy rates into five lending rates in Mexico using auto regressive distributed lags models (ARDLs) and taking into account several financial market characteristics. Results show that the pass-through of monetary policy into the average short-term lending rate is full and fast, as it takes around 3 months to be fully transmitted. However, the pass-through is heterogeneous across credit markets, being especially weak in the mortgage and automotive credit markets. A higher market concentration in the credit sector is associated with a higher level of the corresponding lending rate. Other financial market characteristics, such as the measure of bank profitability and the ratio of capital to bank assets, are also found to affect the long-run level of one or more lending rates. Higher competition in credit markets and reducing asymmetric information would improve the transmission of monetary policy and contribute to reduce the level of lending rates. |
| Keywords: | bank lending rates, interest rate pass-through, monetary policy, transmission mechanism |
| JEL: | E4 E52 G21 |
| Date: | 2022–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1734-en&r=ifn |