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on International Finance |
| By: | Paulo Rodelio Halili; Rogelio Mercado, Jr. |
| Abstract: | This paper examines the importance of trade ties, macro-financial volatilities, and US dollar trade invoicing in explaining Asia’s international investment assets and liabilities denominated in world currencies, including the US dollar (USD), euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Chinese yuan (CNY). The results show heterogeneous patterns of relevant covariates across different currencies. More importantly, the estimates offer evidence that the region hedges its currency risk by investing in US dollar denominated assets as greater US dollar trade invoicing significantly covaries with greater debt asset holdings denominated in US dollar. |
| Keywords: | Currency composition, international investment assets and liabilities, trade invoicing, bilateral trade, macro-financial volatilities |
| JEL: | F31 F36 F41 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-06&r=ifn |
| By: | Kristin Forbes; Christian Friedrich; Dennis Reinhardt |
| Abstract: | This paper explores whether different funding structures—including the source, instrument, currency, and counterparty location of funding—affected the extent of financial stress experienced in various countries and sectors during the Covid-19 spread in early 2020. We measure financial stress using a new dataset on changes in credit default swap spreads for sovereigns, banks, and corporates. Then we use country-sector and country-sector-time panels to assess if these different funding structures mitigated—or amplified—the impact of this risk-off shock. A higher share of funding from non-bank financial institutions (NBFI) or in US dollars was correlated with significantly greater stress, while a higher share of funding in debt instruments (instead of loans) or cross-border (instead of domestic) did not significantly impact resilience. The results suggest that macroprudential regulations should broaden their current focus to take into account exposures to NBFI and dollar funding, giving less priority to regulations focused on residency (i.e., capital controls). After the sharp increase in financial stress in early 2020, policy responses targeting these structural vulnerabilities (i.e., US$ swap lines and policies focused on NBFIs) were more effective at mitigating stress related to these funding structures than policies supporting banks, even after controlling for macroeconomic policy responses. |
| Keywords: | Coronavirus disease (COVID-19); Exchange rates; Financial institutions; Financial stability; Financial system regulation and policies; International topics |
| JEL: | E44 E65 F31 F36 F42 G18 G23 G38 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-7&r=ifn |
| By: | Bassi, Claudio; Behn, Markus; Grill, Michael; Waibel, Martin |
| Abstract: | This paper investigates both the magnitude and the drivers of bank window dressing behaviour in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. We establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behaviour. Our findings suggest that regulatory action is warranted to limit banks’ ability to window dress. JEL Classification: C23, G14, G18, G21, G28 |
| Keywords: | banking regulation, G-SIBs, leverage ratio, repo markets, window dressing |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232771&r=ifn |
| By: | Matthew Knowles (University of Cologne) |
| Abstract: | In a panel of OECD and emerging economies, I find that recessions are associated with larger initial drops in investment and more persistent drops in output if they occur simultaneously with banking crises. Furthermore, the banking crises that are followed by more persistent output slumps are associated with particularly large initial drops in investment. I show that these patterns can arise in a model where a financial shock temporarily increases the costs of external finance for investing entrepreneurs. This leads to a drop in investment and a very persistent slump in output and employment, provided wages are sufficiently rigid. Critical to the model is the distinction between different types of capital with different depreciation rates. Intangible capital and equipment have high depreciation rates, leading these stocks to drop substantially when investment falls after a financial shock. I find that this mechanism can account for almost a third of the persistent drop in output and employment in the US Great Recession (2007-2014). |
| Keywords: | Financial Shocks, Great Recession, Persistent Slumps, Intangible Capital. |
| JEL: | E22 E32 E44 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:218&r=ifn |
| By: | Geoffrey R. Dunbar; Walter Steingress; Ben Tomlin |
| Abstract: | This paper quantifies the impact of hurricanes on seaborne international trade to the United States. Using geocoded hurricane data mapped to satellite tracking data for commercial ships, we identify hurricane intersections on sea-trade routes between U.S. and foreign ports. Matching the timing of hurricane–trade route intersections with monthly U.S. port-level trade data, we isolate the unanticipated effects of a hurricane hitting a trade route using two separate identification schemes: an event study and a local projection. Our estimates imply that a hurricane reduces route-specific monthly U.S. import flows by 5.4% to 16.0%, leading to an aggregate loss of 1.15% to 3.42% of annual U.S. west coast imports for an average storm season. We find no evidence of trade catching up in the months following a hurricane nor any evidence of rerouting to other ports or other transportation modes (e.g., air). Using our estimates in combination with climate scenarios from the Intergovernmental Panel on Climate Change, we quantify a range of costs of future hurricane disruptions that could occur if trade routes remain fixed. |
| Keywords: | Climate change; International topics |
| JEL: | C22 C5 F14 F18 Q54 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-8&r=ifn |
| By: | Ehrmann, Michael; Hubert, Paul |
| Abstract: | How do financial markets acquire information about upcoming monetary policy decisions, beyond their reaction to central bank signals? This paper hypothesises that sharing information among investors can improve expectations, especially in the presence of disagreement or uncertainty about the economy. To test this hypothesis, the paper studies monetary policy-related content on Twitter during the “quiet period” before European Central Bank announcements, when policymakers refrain from public statements related to monetary policy. Conditional on large disagreement about the economic outlook, higher Twitter traffic is associated with smaller monetary policy surprises, suggesting that exchanging private signals among investors can help improve expectations. JEL Classification: D83, E52, E58, G14 |
| Keywords: | Central bank communication, information processing, market expectations, quiet period, Twitter |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232770&r=ifn |