nep-ifn New Economics Papers
on International Finance
Issue of 2023‒03‒13
six papers chosen by
Jiachen Zhan
University of California,Irvine

  1. Currency Compositions of International Reserves and the Euro Crisis By Laser, Falk Hendrik; Weidner, Jan
  2. Negative rates, monetary policy transmission and cross-border lending via international financial centres By Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid
  3. How Much Can the Fed’s Tightening Contract Global Economic Activity? By Julian di Giovanni; Neel Lahiri
  4. International Commodity Prices Transmission to Consumer Prices in Africa By Thibault Lemaire; Paul Vertier
  5. Constrained liquidity provision in currency markets By Wenqian Huang; Angelo Ranaldo; Andreas Schrimpf; Fabricius Somogyi
  6. Tax Avoidance and the Complexity of Multinational Enterprises By Manon Francois; Vincent Vicard

  1. By: Laser, Falk Hendrik; Weidner, Jan
    Abstract: During recent years, central banks have increased the levels of their international reserves at an unprecedented pace. In this paper, we introduce new country-specific reserve data and examine determinants of the composition of international reserves. Using a dataset of 36 countries (and the euro area) for the years from 1996 to 2016, we identify currency pegs and trade patterns as determinants of currency compositions. Our results emphasize the importance of transaction motives for the composition of currency reserves. The euro crisis appears to have been a setback for the euro, which temporarily seemed to challenge the US dollar as the most important international reserve currency and potentially impacted the determination of international reserve compositions.
    Date: 2022
  2. By: Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid
    Abstract: We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP. JEL Classification: E52, F34, F36, F42, G21
    Keywords: bank lending, cross-border lending, International financial centres, monetary policy, negative interest rates, risk-taking
    Date: 2023–02
  3. By: Julian di Giovanni; Neel Lahiri
    Abstract: What types of foreign firms are most affected when the Federal Reserve raises its policy rate? Recent empirical research used cross-country firm level data and information on input-output linkages and finds that the impact on sales and investment spending is largest in sectors with exposure to trade in intermediate goods. The research also finds that financial factors drive differences, with U.S. monetary policy spillovers having a much smaller impact on firms that are less financially constrained.
    Keywords: U.S. monetary policy spillovers; Foreign firms; international production linkages; financial constraints
    JEL: E52 F0
    Date: 2023–02–13
  4. By: Thibault Lemaire; Paul Vertier
    Abstract: Global commodity prices spikes can have strong macroeconomic effects, particularly in developing countries. This paper estimates the global commodity prices pass-through to consumer price inflation in Africa. Our sample includes monthly data for 48 countries over the period 2002m02-2021m04. We consider 17 commodity prices separately to take into account both the heterogeneity in price variations and the cross-correlations between them, and to depart from aggregate indices that use weights unrepresentative of consumption in African countries. Using local projections in a panel dataset, we find a maximum pass-through of 24%, and a long-run (18 months) pass-through of about 20%, higher than usually found in the literature, which typically uses aggregate indices. We also consider country-specific regressions to test whether estimated pass-through are related to countries’ observable characteristics. We find evidence that the pass-through is negatively correlated with the GDP per capita and the quality of transport infrastructure, and positively correlated with the share of food and energy in the consumption basket and the share of taxes on goods and services in government revenue. Net oil exporters, countries with larger energy subsidies and with a more independent central bank tend to have a lower pass-through. We further show that commodity-specific pass-through are correlated with the share of corresponding goods in the consumer basket.
    Keywords: Commodity Prices, Food Prices, Energy Prices, Inflation, Pass-Through, Africa
    JEL: C23 E31 F44 O11 Q02
    Date: 2023
  5. By: Wenqian Huang; Angelo Ranaldo; Andreas Schrimpf; Fabricius Somogyi
    Abstract: We study dealers’ liquidity provision in the currency market. We show that at times when dealers’ intermediation capacity is constrained their cost of liquidity provision increases disproportionately relative to dealer-provided volume. As a result, the elasticity of dealers’ liquidity provision drops by at least 80% relative to periods when they are unconstrained. We identify constrained periods based on leverage ratios, Value-at-Risk measures, credit default spreads, and debt funding costs. We interpret our novel empirical findings within a parsimonious model that sheds light on the key mechanisms of how liquidity provision by dealers tends to weaken when intermediary constraints are tightening.
    Keywords: currency markets, dealer constraints, market liquidity, foreign exchange, liquidity provision
    JEL: F31 G12 G15
    Date: 2023–02
  6. By: Manon Francois; Vincent Vicard
    Abstract: Does the complexity of the ownership structure of multinational enterprises' (MNEs) serve tax avoidance? We use firm-level cross-country data to show that affiliates belonging to more complex MNEs are more likely to bunch around zero profit, which is consistent with complexity enabling tax avoidance by multinationals. Our results show that only the more complex MNEs shift profits away from their high-tax affiliates, while MNEs with flat ownership structures do not display such pattern.
    Keywords: Complexity;Firm organization;Multinational enterprises;Profit shifting;Tax avoidance
    JEL: F23 H2 L22
    Date: 2023–02

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