nep-ifn New Economics Papers
on International Finance
Issue of 2023‒07‒24
four papers chosen by
Jiachen Zhan
University of California,Irvine

  1. The Impacts of Global Risk and US Monetary Policy on US Dollar Exchange Rates and Excess Currency Returns By Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
  2. The gravity of syndication ties in international equity underwriting By Milsom, Luke; Pažitka, Vladimír; Roland, Isabelle; Wójcik, Dariusz
  3. The Dominant Currency Financing Channel of External Adjustment By Camila Casas; Sergii Meleshchuk; Yannick Timmer
  4. The Increasing Impact of Spain on the Equity Markets of Brazil, Chile and Mexico By Andres Rivas; Rahul Verma; Antonio Rodriguez; Pedro H. Albuquerque

  1. By: Kerstin Bernoth; Helmut Herwartz; Lasse Trienens
    Abstract: We examine the causal relationship between US monetary policy shocks, exchange rates and currency excess returns for a sample of eight advanced countries over the period 1980M1 to 2022M11. We find that the dynamics of the US dollar exchange rate is the main driver of currency excess returns. The exchange rate is significantly affected by US monetary policy shocks, where the persistence of this shock is important, as well as by an external shock. This external shock is strongly related to global risk aversion and the convenience yield that investors are willing to pay for holding US Dollar assets. A significant part of the response of excess currency returns is also expected, suggesting a violation of the UIP. Focusing only on the post-crisis period, the impact of both the external shock and the inflation targeting shock on exchange rates and currency excess returns disappears in the cross-section.
    Keywords: Exchange rates, excess currency returns, uncovered interest parity, convenience yield, global financial cycle, global risk, monetary policy
    JEL: E52 C32 E43 F31 F41 G15
    Date: 2023
  2. By: Milsom, Luke (University of Oxford); Pažitka, Vladimír (University of Leeds); Roland, Isabelle (Bank of England); Wójcik, Dariusz (University of Oxford)
    Abstract: We examine how cross-border syndication ties reduce information frictions and positively impact exports of equity underwriting services. Using a panel data set from 2000–15, we develop a measure of information flows based on ‘core syndication ties’ where the lead underwriter is in either the importing or exporting country. We find that new core syndication ties have a significant and positive effect on exports. This finding is supported by evidence from ‘peripheral syndication ties’, which are associated with smaller information flows, and an instrumental variable approach which focuses on plausibly exogenous supply-side shocks. Furthermore, the effect of new core syndication ties is stronger when information frictions between trading partners are more severe and for more information-sensitive transactions like IPOs.
    Keywords: Gravity; international trade; international finance; equity securities underwriting; cross-border bank linkages; financial geography
    JEL: F14 F23 F36 F65 G15 G24
    Date: 2023–04–14
  3. By: Camila Casas; Sergii Meleshchuk; Yannick Timmer
    Abstract: We propose a new channel through which exchange rates affect trade. Exploiting the heterogeneity in firms’ foreign currency debt maturity structure around a large depreciation in Colombia, we show that debt revaluation compresses imports due to higher delinquencies and interest rates, while exports are unaffected. Natural and financial hedging successfully mute the import contraction. A costly state verification model with dominant currency financing (DCF) and exporting rationalizes these findings. Quantitatively, DCF explains a significant part of external adjustment in addition to the expenditure switching channel. Pricing exports in the dominant vs. producer currency mutes the effect of DCF on trade.
    Keywords: imports, exports, foreign currency exposure, capital structure, exchange rates, debt revaluation, hedging
    JEL: F31 F32 F41 G15 G21 G32
    Date: 2023
  4. By: Andres Rivas (Primerica); Rahul Verma (University of Houston); Antonio Rodriguez (Texas A&M International University [Laredo]); Pedro H. Albuquerque (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, ACCELERATION & ADAPTATION)
    Abstract: The article examines stock index price responses in Brazil, Chile and Mexico to those in the US, Spain and four European countries during three sub-periods surrounding the neoliberal reforms of the 1990s: 1988 to 1994, 1995 to 1998, and 1999 to 2004, using VAR modeling. It finds that equity markets became more interconnected as countries opened to international trade and capital flows, and that there was an increasing impact of Spain on Latin American equity markets. Stronger economic linkages (more trade and foreign direct investment) between Spain and these countries, specially in Brazil, seem to explain increased equity markets interconnectedness.
    Keywords: Emerging markets, Latin America, Spain, Stock markets interdependence, VAR modeling
    Date: 2023–04

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