nep-ifn New Economics Papers
on International Finance
Issue of 2023‒04‒03
five papers chosen by
Jiachen Zhan
University of California,Irvine

  1. US uncertainty shocks, credit, production, and prices: The case of fourteen Latin American countries By Iader Giraldo; Carlos Giraldo; José E. Gomez-Gonzalez; Jorge Mario Uribe
  2. Non-bank Financial Intermediation and Capital Flows: Evidence from Emerging Market Economies By Horacio Aguirre; Rodrigo Pérez Ártica
  3. The Global Financial Cycle and the Effects of Fed Unconventional Monetary Policies on Foreign Portfolio Flows in Colombia By Nathali Cardozo-Alvarado; David Castañeda-Arévalo; Fredy Gamboa-Estrada; Javier Miguelez-Márquez
  4. What happens to EMEs when US yields go up? By Julián Caballero; Christian Upper
  5. Commodity prices and the US Dollar By Daniel Rees

  1. By: Iader Giraldo; Carlos Giraldo; José E. Gomez-Gonzalez; Jorge Mario Uribe
    Abstract: The extant literature has examined the impact of United States’ uncertainty shocks on developed and large emerging market economies. However, this research has not accounted for global cycles in production, credit, and prices, which can influence the estimates of the effects of US uncertainty on the rest of the world. The effects of uncertainty in highly indebted emerging open economies, which depend heavily on US financial and real conditions, have not been studied. We analyze the effects of uncertainty shocks on 14 Latin American countries (LACs) of various sizes and various levels of dependence on US financial and real flows. Latin America is a highly indebted and heterogeneous region that is particularly sensitive to US economic and financial conditions, particularly uncertainty, in its various dimensions: real, financial, and policy related (including monetary policy). Our results show that the effects of real and financial uncertainty are more significant and long lasting than the effects of economic and monetary policy uncertainty, as measured by the use of uncertainty-related key words. All forms of uncertainty have a larger and more persistent impact on the gross domestic product of countries than the impact on credit and prices. In general, uncertainty in the US depresses economic activity in Latin America, although there is significant heterogeneity in the effects, which warrants detailed analysis of individual countries when considering policy implementation and portfolio diversification.
    Keywords: macroeconomic uncertainty, financial uncertainty, policy uncertainty; global business cycles; Latin America.
    JEL: D80 E44 F21 F44 G15 O54
    Date: 2023–02–01
  2. By: Horacio Aguirre; Rodrigo Pérez Ártica
    Abstract: We look at the interplay of non-bank financial intermediation (NBFI) and capital flows in emerging market economies (EMEs). We examine whether gross capital flows to twenty-four EMEs, including seven Latin American economies, are related to foreign bond holdings of non-bank financial intermediaries, over and above local and global factors. We estimate panel data models that account for cross-country correlation, using quarterly data from the dataset by Arslanalp and Tsuda (2014) in the 2004-2021 period. We discriminate flows by sectors (total, government, corporate and banking), include time and country fixed effects, and employ several definitions of our variable of interest: as a categorical variable, capturing countries with the largest share of foreign nonbank investors, or as a direct measure of their participation. We also carry out event studies around the occurrence of the global financial crisis and the covid-19 crisis. Preliminary results suggest that: NBFI are “pipe” factors driving flows (in addition to “push” and “pull” ones), whose impact changes over time and depending on the type of flow; in some cases, foreign NBFI magnifies the impact of global factors on capital inflows, while they weaken the pull of local factors; and NBFI amplified outflows in the market turmoil of 2020.
    JEL: C23 E44 F32 G23
    Date: 2022–11
  3. By: Nathali Cardozo-Alvarado; David Castañeda-Arévalo; Fredy Gamboa-Estrada; Javier Miguelez-Márquez
    Abstract: Assessing the effects of U.S. monetary policies on portfolio flows is important for policymakers as they could pose risks to the effectiveness of domestic monetary policy. This paper analyzes the effects of the Global Financial Cycle (GFC) and Federal Reserve (Fed) unconventional monetary policy announcements on foreign portfolio investment flows in Colombia between 2010 and 2018. Using an ordinary least squares model with corrected serial correlation, we find that Fed unconventional monetary policy announcements affected portfolio flows in Colombia, especially those related to Tapering, Operation Twist and Forward Guidance. These announcements reinforced the effects of the GFC during the period analyzed. The results by type of flow indicate that public bonds flows are more sensitive to Fed announcements than private bond and equity flows. **** RESUMEN: Evaluar los efectos de la política monetaria de EE. UU. en los flujos de portafolio es importante para los hacedores de política, ya que podría afectar la eficacia de la política monetaria local. Este artículo analiza los efectos del Ciclo Financiero Global (CFG) y los anuncios de política monetaria no convencional de la Reserva Federal (Fed) sobre los flujos de inversión extranjera de portafolio en Colombia entre 2010 y 2018. Usando un modelo de mínimos cuadrados ordinarios con correlación serial corregida, encontramos que los anuncios de política monetaria no convencional de la Fed afectaron los flujos de portafolio en Colombia, especialmente los relacionados con Tapering, Operación Twist y Forward Guidance. Estos anuncios reforzaron los efectos del CFG durante el período analizado. Los resultados por tipo de flujo indican que los flujos de deuda soberana son más sensibles a los anuncios de la Fed que los flujos de bonos y acciones privados.
    Keywords: Foreign investors, Federal Reserve, global financial cycle, unconventional monetary policies, Colombian portfolio flows, Inversionistas extranjeros, Reserva Federal, ciclo financiero global, política monetaria no convencional, flujos de portafolio en Colombia
    JEL: C22 E52 F3
    Date: 2023–03
  4. By: Julián Caballero; Christian Upper
    Abstract: This paper explores why some episodes of US yield increases result in investor retrenchment from emerging markets and others do not. To answer this, we identify episodes of sharp increases in US 10-year Treasury yields and explore under which conditions these are associated with negative outcomes in emerging markets. We focus on four outcome variables: local currency yields, exchange rates, equity prices, and portfolio fund flows. We find that increases in US yields are more likely to be associated with adverse outcomes in emerging markets when they reflect (i) a rise in the US term premium, (ii) coincide with dollar appreciation, and (iii) rising inflation expectations in the US and in EMEs. The effects of these variables are highly non-linear and economically significant as well as robust to a variety of sensitivity checks.
    Keywords: monetary policy, international spillovers, term premium, US dollar
    JEL: F30 F36 F42 F65
    Date: 2023–03
  5. By: Daniel Rees
    Abstract: In the aftermath of the Covid pandemic rising commodity prices went hand-in-hand with a strengthening US dollar. This was a sharp contrast to the usual relationship between commodity prices and the dollar. This paper presents evidence that post-Covid correlation patterns could become more common in the future. This conclusion rests on two observations. First, the US dollar exhibits a close and stable relationship with the US terms of trade. Second, the United States' shift from being a net oil importer to a net oil exporter means that higher commodity prices now tend to raise the US terms of trade, rather than lowering them. Changes in the relationship between commodity prices and the US dollar will have implications for commodity exporters and importers alike.
    Keywords: time series models, foreign exchange, open economy macroeconomics
    JEL: C22 F31 F41
    Date: 2023–03

This nep-ifn issue is ©2023 by Jiachen Zhan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.