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on International Finance |
| By: | Hyeyoon Jung |
| Abstract: | Foreign exchange derivatives (FXD) are a key tool for firms to hedge FX risk and are particularly important for exporting or importing firms in emerging markets. This is because FX volatility can be quite high—up to 120 percent per annum for some emerging market currencies during stress episodes—yet the vast majority of international trades, almost 90 percent, are invoiced in U.S. dollars (USD) or euros (EUR). When such hedging instruments are in short supply, what happens to firms’ real economic activities? In this post, based on my related Staff Report, I use hand-collected FXD contract-level data and exploit a quasi-natural experiment in South Korea to measure the real effects of hedging using FXD. |
| Keywords: | real effects; macroprudential policy; international finance; derivatives hedging; FX risk management |
| JEL: | E2 G2 G3 F00 |
| Date: | 2023–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:95968&r=ifn |
| By: | Sergi Basco; Giulia Felice; Bruno Merlevede; Martí Mestieri |
| Abstract: | This paper empirically examines the effects of financial crises on the organization of production of multinational enterprises. We construct a panel of European multinational networks from 2003 through 2015. We use as a financial shock the increase in risk premia between August 2007 and July 2012 and build a multinational-specific shock based on the network structure before the shock. Multinationals facing a larger financial shock perform worse in terms of revenue, employment, and growth in the number of affiliates. Lower growth in the number of affiliates operates through a negative effect on domestic and foreign affiliates, and is concentrated in affiliates in a vertical relationship with the parent. These effects built up slowly over time. Negative effects are driven by multinationals with initially more leveraged parents, who reduce relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity. |
| JEL: | F14 F23 F44 L22 L23 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31216&r=ifn |
| By: | Dimitris Korobilis (University of Glasgow, UK; Rimini Centre for Economic Analysis); Maximilian Schröder (BI Norwegian Business School, Norway; Norges Bank, Norway) |
| Abstract: | We propose a multicountry quantile factor augmented vector autoregression (QFAVAR) to model heterogeneities both across countries and across characteristics of the distributions of macroeconomic time series. The presence of quantile factors allows for summarizing these two heterogeneities in a parsimonious way. We develop two algorithms for posterior inference that feature varying level of trade-off between estimation precision and computational speed. Using monthly data for the euro area, we establish the good empirical properties of the QFAVAR as a tool for assessing the effects of global shocks on country-level macroeconomic risks. In particular, QFAVAR short-run tail forecasts are more accurate compared to a FAVAR with symmetric Gaussian errors, as well as univariate quantile autoregressions that ignore comovements among quantiles of macroeconomic variables. We also illustrate how quantile impulse response functions and quantile connectedness measures, resulting from the new model, can be used to implement joint risk scenario analysis. |
| Keywords: | quantile VAR, MCMC, variational Bayes, dynamic factor model |
| JEL: | C11 C32 E31 E32 E37 E66 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:23-06&r=ifn |
| By: | C\'elestin Coquid\'e; Jos\'e Lages; Dima L. Shepelyansky |
| Abstract: | During his state visit to China in April 2023, Brazilian President Lula proposed the creation of a trade currency supported by the BRICS countries. Using the United Nations Comtrade database, providing the frame of the world trade network associated to 194 UN countries during the decade 2010 - 2020, we study a mathematical model of influence battle of three currencies, namely, the US dollar, the euro, and such a hypothetical BRICS currency. In this model, a country trade preference for one of the three currencies is determined by a multiplicative factor based on trade flows between countries and their relative weights in the global international trade. The three currency seed groups are formed by 9 eurozone countries for the euro, 5 Anglo-Saxon countries for the US dollar and the 5 BRICS countries for the new proposed currency. The countries belonging to these 3 currency seed groups trade only with their own associated currency whereas the other countries choose their preferred trade currency as a function of the trade relations with their commercial partners. The trade currency preferences of countries are determined on the basis of a Monte Carlo modeling of Ising type interactions in magnetic spin systems commonly used to model opinion formation in social networks. We adapt here these models to the world trade network analysis. The results obtained from our mathematical modeling of the structure of the global trade network show that as early as 2012 about 58 percent of countries would have preferred to trade with the BRICS currency, 23 percent with the euro and 19 percent with the US dollar. Our results announce favorable prospects for a dominance of the BRICS currency in international trade, if only trade relations are taken into account, whereas political and other aspects are neglected. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.00585&r=ifn |