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on International Finance |
| By: | Emanuel Kohlscheen; Richhild Moessner; Daniel Rees |
| Abstract: | We test the international applicability of Friedman s famous plucking theory of the business cycle in 12 advanced economies between 1970 and 2021. We find that in countries where labour markets are flexible (Australia, Canada, United Kingdom and United States), unemployment rates typically return to pre-recession levels, in line with Friedman s theory. Elsewhere, unemployment rates are less cyclical. Output recoveries differ less across countries, but more across episodes: on average, half of the decline in GDP during a recession persists. In terms of sectors, declines in manufacturing are typically fully reversed. In contrast, construction-driven recessions, which are often associated with bursting property price bubbles, tend to be persistent. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2306.01552&r=ifn |
| By: | Carlos Casacuberta; Omar Licandro |
| Abstract: | In 2002 Uruguay faced a sudden stop of international capital flows, inducing a deep financial crisis and a large devaluation of the peso. The real exchange rate depreciated and exports expanded. Paradoxically, export shares and real exchange rates negatively correlate among Uruguayan exporters around 2002. To unravel this paradox, we develop a small open economy model of heterogeneous firms. Domestic firms are price takers in the international market, operate under monopolistic competition in the domestic market, and face financial constraints when exporting. Confronted to a large nominal devaluation, financial constraints deepen. Financially constrained exporters cannot optimally expand in the export market and react by passing-through the devaluation to the domestic price only partially, expanding domestic sales. As a consequence, the more financially constrained exporters are, the less their export shares expand and the more their firm specific real exchange rates depreciate. As a result, export shares and real exchange rates of exporters are negatively correlated as in the data. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10401&r=ifn |
| By: | Lavko, Matus; Klein, Tony; Walther, Thomas |
| Abstract: | We test the out-of-sample trading performance of model-free reinforcement learning (RL) agents and compare them with the performance of equally-weighted portfolios and traditional mean-variance (MV) optimization benchmarks. By dividing European and U.S. indices constituents into factor datasets, the RL-generated portfolios face different scenarios defined by these factor environments. The RL approach is empirically evaluated based on a selection of measures and probabilistic assessments. Training these models only on price data and features constructed from these prices, the performance of the RL approach yields better risk-adjusted returns as well as probabilistic Sharpe ratios compared to MV specifications. However, this performance varies across factor environments. RL models partially uncover the nonlinear structure of the stochastic discount factor. It is further demonstrated that RL models are successful at reducing left-tail risks in out-of-sample settings. These results indicate that these models are indeed useful in portfolio management applications. |
| Keywords: | Asset Allocation, Reinforcement Learning, Machine Learning, Portfolio Theory, Diversification |
| JEL: | G11 C44 C55 C58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qmsrps:202301&r=ifn |
| By: | Dekker, Lennart; Molestina Vivar, Luis; Wedow, Michael; Weistroffer, Christian |
| Abstract: | Using a sample of open-end corporate bond funds domiciled in the euro area, we exploit the COVID-19 market turmoil in March 2020 to examine two channels through which liquidity buffers can reduce procyclicality in the investment fund sector. First, we find that liquidity buffers reduced outflows during March 2020 only to a limited extent. Second, we find that funds entering the crisis with higher liquidity buffers were less likely to involve in cash hoarding and more likely to use cash buffers to meet outflows. Our results suggest that higher liquidity buffers can reduce procyclicality primarily through supporting the liquidity management strategies employed by fund managers. JEL Classification: G01, G11, G23 |
| Keywords: | corporate bond funds, COVID-19 pandemic, investor redemptions, liquidity management |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232825&r=ifn |