nep-ifn New Economics Papers
on International Finance
Issue of 2023‒01‒16
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. The global financial cycle and macroeconomic tail risks By Beutel, Johannes; Emter, Lorenz; Metiu, Norbert; Prieto, Esteban; Schüler, Yves
  2. The Effects of Foreign Investor Composition on Colombia’s Sovereign Debt Flows By Fredy Gamboa-Estrada; Andrés Sánchez-Jabba
  3. A look offshore: unpacking the routes of misinvoicing in international trade By Catalin Dragomirescu-Gaina; Leandro Elia
  4. International Liquidity Shock and Bank Resilience: Evidence from Matched Bank-Firm Data By Youngju Kim; Hyunjoon Lim; Youngjin Yun

  1. By: Beutel, Johannes; Emter, Lorenz; Metiu, Norbert; Prieto, Esteban; Schüler, Yves
    Abstract: We study the link between the global financial cycle and macroeconomic tail risks using quantile vector autoregressions. Contractionary shocks to financial conditions and monetary policy in the United States cause elevated downside risks to growth around the world. By tightening financial conditions globally, these shocks affect the left tail of the conditional output growth distribution more strongly than the center of the distribution. This effect is particularly pronounced for countries with less flexible exchange rate arrangements, higher foreign currency exposures, and higher levels of private sector leverage, suggesting that exchange rate policies and macroprudential policies can mitigate downside risks to growth.
    Keywords: Financial shocks,Monetary policy,Global financial cycle,Growth-at-Risk,International spillovers,Quantile VAR
    JEL: C32 E23 E32 E44 F44
    Date: 2022
  2. By: Fredy Gamboa-Estrada; Andrés Sánchez-Jabba
    Abstract: Assessing the composition of sovereign debt holders is important because investors’ behavior varies according to distinctive components, including shareholders’ preferences, regulatory constraints, and profitability mandates. To study this issue, we examine the determinants of offshore investments of mutual funds and pension funds, which concentrate Colombia’s outstanding sovereign debt. Our results indicate that mutual funds exhibit considerable sensitivity to shocks in global factors, such as the Federal Funds Rate, sovereign risk, and the composition of financial indices. This contrasts with findings among pension funds, for which we detected no statistically significant effects when examining these factors, underlining the differences in foreign investor behavior that could impact sovereign debt flows within emerging markets. **** RESUMEN: La composición de la base inversionista en el mercado de deuda soberana es importante porque el comportamiento de los inversionistas varía según distintos factores, como las preferencias de los accionistas, las restricciones regulatorias y los mandatos de rentabilidad, que pueden afectar los flujos en este mercado. Para evaluar lo anterior, examinamos los determinantes de las inversiones en deuda soberana de los fondos de inversión y los fondos de pensiones extranjeros en Colombia. Nuestros resultados indican que los fondos de inversión muestran alta sensibilidad a choques en factores globales, como la tasa de política de la Reserva Federal, el riesgo soberano y la composición de índices financieros. Ello contrasta con los hallazgos para los fondos de pensiones, que no presentan una respuesta estadísticamente significativa al examinar estos factores, aspectos que resaltan las diferencias en el comportamiento de los inversionistas extranjeros en mercados emergentes.
    Keywords: Foreign investors, sovereign debt flows, global shocks, generalized method of moments, inversionistas extranjeros, flujos de deuda soberana, choques globales, método generalizado de momentos
    JEL: C22 G11 G15 G23
    Date: 2022–12
  3. By: Catalin Dragomirescu-Gaina; Leandro Elia
    Abstract: We study whether misinvoicing in international trade is reflected in cross-border bank accounts as reported by offshore financial centres. We show that residents hold more offshore wealth when local misinvoicing practices thrive, especially for under-invoiced exports of natural resources. These results are driven by less-developed countries, autocracies, and resource-rich countries, which typically lack institutional capacity and/or political willingness to deter capital flight and misinvoicing practices.
    Keywords: Misinvoicing, Banking, Offshore financial centres, Natural resources, International trade, Rent-seeking, Elites, Capital flight
    Date: 2022
  4. By: Youngju Kim (Bank of Korea); Hyunjoon Lim (Bank of Korea); Youngjin Yun (Inha University)
    Abstract: Banks are the first line of defense against the propagation of adverse external shocks. This study examines the role of banks in the transmission of international liquidity shock using matched bank-firm data for Korea over the 2006-2015 period. We measure individual banks’ sensitivity to international shocks by analyzing their foreign exchange (FX) borrowing rates. The bank from which a firm borrows matters in times of FX liquidity shocks. We find that sensitive banks reduce FX credit supply to firms and that FX loan-reliant, highly productive firms subsequently reduce their investment. Foreign banks are affected less by the shocks, but they reduce credit supply more than domestic banks. Our findings emphasize the importance of bank resilience vis-Ã -vis external and domestic stability.
    Keywords: international liquidity shock, FX loan, credit register, real effect
    JEL: E22 F34 G15
    Date: 2022–12

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