nep-ifn New Economics Papers
on International Finance
Issue of 2023‒02‒06
five papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. Monetary policy and credit card spending By Francesco Grigoli; Damiano Sandri
  2. Foreign banks and the doom loop By Ugo Albertazzi; Jacopo Cimadomo; Nicolò Maffei-Faccioli
  3. Central Bank Communication of Uncertainty By Rayane Hanifi; Klodiana Istrefi; Adrian Penalver
  4. Franchise Value, Tobin’s Q, and Markups By Wan-Chien Chiu; Ravi Jagannathan; Kevin Tseng
  5. Understanding the Global Drivers of Inflation:How Important are Oil Prices? By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge; Hakan Yilmazkuday

  1. By: Francesco Grigoli; Damiano Sandri
    Abstract: We analyze the impact of monetary policy on consumer spending using confidential credit card data. Being available at daily frequency, these data improve the identification of the monetary transmission and allow for a more precise characterization of the transmission lags. We find that shocks to short-term interest rates affect spending much more rapidly than shocks to medium-term interest rates. We also document significant asymmetries in the effects of monetary policy. While interest rate hikes strongly curb spending-especially if coupled with reductions in stock prices reflecting pure monetary policy shocks-interest rate cuts appear unable to lift spending. Finally, we exploit the disaggregation of credit card data to examine the heterogeneous effects of monetary policy across spending categories and users' characteristics.
    Keywords: credit card spending, heterogeneity, monetary policy, transmission
    JEL: E21 E52
    Date: 2023–01
  2. By: Ugo Albertazzi; Jacopo Cimadomo; Nicolò Maffei-Faccioli
    Abstract: This paper explores whether foreign banks stabilise or destabilise lending to the real economy in the presence of sovereign stress in the domestic economy and abroad. In this context, the presence of foreign intermediaries poses a fundamental, yet unexplored, trade-off. On the one hand, domestic sovereign shocks are broadly inconsequential for the lending capacity of foreign banks, given that their funding conditions are not hampered by such shocks. On the other, these intermediaries may react more harshly than domestic banks to a deterioration in local loan risk and demand conditions, or import shocks from their own sovereign. We exploit granular and confidential data on euro area banks operating in different countries to assess this trade-off. Overall, it is found that, under certain conditions, the presence of foreign lenders stabilises lending, thus mitigating the doom loop.
    Keywords: Sovereign stress, International banks, Lending activity
    JEL: E5 G21
    Date: 2022–03
  3. By: Rayane Hanifi; Klodiana Istrefi; Adrian Penalver
    Abstract: In this paper, we examine how the monetary policy setting committees of the Federal Reserve, the Bank of England and the European Central Bank communicate their reaction to incoming data in their policy deliberation process by expressing confidence, surprise or uncertainty with respect to existing narratives. We use text analysis techniques to calculate forward and backward looking measures of relative surprise from the published Minutes of these decision-making bodies. We find many common patterns in this communication. Interestingly, policymakers tend to express more surprise and uncertainty with regard to developments in the real economy, whereas they are more likely to confirm their expectations with regard to inflation and monetary policy. When considering the monetary policy stance, we observe a tendency for policymakers to highlight surprise and uncertainty several meetings in advance of changes, particularly when easing monetary policy. Importantly, we document that a higher proportion of expressions of surprise and uncertainty increases the likelihood of an easier policy stance. By contrast, a higher proportion of expressions of confirmation tends to increase the likelihood of a tighter policy stance.
    Keywords: Central Banks, Monetary Policy, Communication, Minutes, Uncertainty
    JEL: E52 E58 C55
    Date: 2022
  4. By: Wan-Chien Chiu; Ravi Jagannathan; Kevin Tseng
    Abstract: We decompose the difference between a firm’s market value and book value into two components: reproducible intangible assets that can be created by competing firms through SG&A/R&D expenditures, and the residual denoted as franchise value which includes the value of transient-rents from capacity-adjustment-costs (Tobin’s Q), longer-lasting franchise rents, and potential market-price intrinsic-value differences. We estimate the parameters of the model for building reproducible intangible capital using 176, 005 firm-years of data for nonfinancial firms that are in COMPUSTAT and CRSP databases during the period 1976-2020. The estimated depreciation rates for intangible assets created by capitalizing R&D and SG&A expenditures respectively, and the portion of SG&A that contributes to organizational capital, while consistent with the parameters used in the empirical literature, vary significantly across industries. Ceteris paribus, firms with higher franchise values face fewer product market threats and have higher markups, whereas firms with higher reproducible intangible assets face higher threats. Higher franchise value reduces the sensitivity of a firm’s investments with respect to total Tobin Q. Firms facing fewer product market threats, a measure of competitive advantage, experienced a larger increase in their franchise values due to increased globalization following China’s entry into WTO in 2002 which is consistent with theory.
    JEL: G0 G00 G12
    Date: 2023–01
  5. By: Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge; Hakan Yilmazkuday
    Abstract: This paper examines the global drivers of inflation in 55 countries over the 1970–2022 period. We estimate a Factor-Augmented Vector Autoregression model for each country and assess the importance of several global (demand, supply, and oil price) and domestic shocks. We report three main results. First, global shocks have explained about 26 percent of inflation variation in a typical economy. Oil price shocks accounted for only about 4 percent of inflation variation, but they had a statistically significant impact on inflation in three quarters of countries. Second, global shocks have become more important in driving inflation variation over time. The share of inflation variance caused by oil price shocks increased from 4 percent prior to 2000 to roughly 9 percent over the 2001–2022 period. They also accounted for some of the steep runup in inflation between mid-2021 and mid-2022. Finally, oil price shocks tended to contribute significantly more to inflation variation in advanced economies; countries with stronger global trade and financial linkages; commodity importers; net energy importers; countries without inflation-targeting regimes; and countries with pegged exchange rate regimes. Our headline results are robust to a wide range of exercises—including alternative measures of global factors and oil prices—and aggregation of countries.
    Keywords: Inflation, oil prices, global shock, domestic shock, FAVAR, exchange rates
    JEL: E31 E32 Q43
    Date: 2023–01

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