nep-ifn New Economics Papers
on International Finance
Issue of 2023‒11‒06
twelve papers chosen by
Jiachen Zhan, University of California,Irvine

  1. Can Central Banks Be Heard Over the Sound of Gunfire? By Ge Gao; Alex Nikolsko-Rzhevskyy; Oleksandr Talavera
  2. Negative Externalities of Financial Dollarization By Valida Pantsulaia; Ana Jangveladze; Shalva Mkhatrishvili
  3. Monetary policy spillovers and the role of prudential policies in the European Union By Coman, Andra
  4. Regulation and information costs of sovereign distress: Evidence from corporate lending markets By Iftekhar Hasan; Suk-Joong Kim; Panagiotis N. Politsidis; Eliza Wu
  5. Corporate FX hedging: An introduction for the corporate treasury By Heidorn, Thomas; Pavicic, Tim; Sieber, Antje
  6. Bridging the Gap: Mobilization of Multilateral Development Banks in Infrastructure By Avellán, Leopoldo; Galindo, Arturo; Lotti, Giulia; Rodríguez Bonilla, Juan Pablo
  7. Long-Term Nexus of Macroeconomic and Financial Fundamentals with Cryptocurrencies By Pourpourides, Panayiotis
  8. Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies By Josh Davis; Cristian Fuenzalida; Leon Huetsch; Benjamin Mills; Alan M. Taylor
  9. Risk Spillovers between Global Corporations and Latin American Sovereigns: Global Factors Matter By Gomez-Gonzalez, Jose E.; Uribe, Jorge M.; Valencia, Oscar
  10. Firm-Level Consequences of Export Demand Shocks: Swedish and Finnish Exporters By El-Sahli, Zouheir; Maczulskij, Terhi; Nilsson Hakkala, Katariina
  11. Inflation Targeting and Private Domestic Investment in Developing Countries By Bao-We-Wal Bambe
  12. Positioning in Global Value Chains: World Map and Indicators. A new dataset available for GVC analyses By Michele Mancini; Pierluigi Montalbano; Silvia Nenci; Davide Vurchio

  1. By: Ge Gao (Beijing Sport University); Alex Nikolsko-Rzhevskyy (Lehigh University); Oleksandr Talavera (University of Birmingham)
    Abstract: In this study, we examined the effectiveness of central bank communications during times of significant adverse shocks. Specifically, we examined how the National Bank of Ukraine (NBU) regulated foreign exchange (FX) markets during the Russo-Ukrainian War in 2022. Data collected from both the black and authorized FX markets suggested that the content of the NBU’s announcements significantly impacted FX market agents. Announcements aimed at maintaining a fixed (floating) FX rate prompted an increase (decrease) in the black market premium in cash transactions. Moreover, the NBU's announcements influenced the sale side of foreign currency more than any other aspect, an area where the black market FX traders held near monopolistic power.
    Keywords: Russia-Ukraine war, central bank communications, black market premium, forex, ChatGPT
    JEL: D83 E44 E58 F31
    Date: 2023–10
  2. By: Valida Pantsulaia (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Ana Jangveladze (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia)
    Abstract: Dollarization (usage of a foreign currency in place of a domestic one) is a widely observed phenomenon that historically emerged as a result of extended macro-financial instability and extreme price and nominal exchange rate fluctuations. Complete loss of public confidence in a local currency pushed lenders and borrowers to seek more stable foreign currencies like the US dollar and euro. What is more puzzling though is that in many countries dollarization remained at an elevated level even after taking care of its root cause (i.e. after achieving price stability). There have been several explanations of this phenomenon (the so-called dollarization hysteresis). In this short paper, we propose additional explanations in the form of several dollarization-induced negative externalities, including an amplification of credit procyclicality and exchange rate pass-through or a worsening of credit ratings of dollarized economies. We also offer some back-of-the-envelope calculations showing that these externalities could be economically significant (about 1 pp impact on real GDP growth per year) for a small and highly dollarized country like Georgia. This type of market failures underline the importance of prudential policies that internalize negative externalities and, hence, level the playing field for the local currency.
    Keywords: Financial dollarization; Negative externality
    JEL: E44 E58 F34
    Date: 2023–04
  3. By: Coman, Andra
    Abstract: This paper empirically examines the extent to which prudential policies can help to reduce the macro-financial spillover effects of foreign monetary policy for all 28 EU countries. Using local projection methods, I show that EU countries with tighter prudential policies face significantly smaller, and less negative spillovers to bank credit and house prices from US, UK and EA monetary policy tightening shocks. Measures of a macroprudential policy nature such as capital buffers, lending standards restrictions and limits to credit growth appear to be particularly effective at mitigating the spillover effects of US monetary policy, while measures of a microprudential nature as minimum capital requirements, risk weights and limits on large exposures prove effective in mitigating spillovers effects of UK monetary policy. Results indicate that domestic prudential policies can dampen EU countries’ exposure to foreign monetary policy and may be a useful tool in the face of spillovers coming from centre countries and within the EU. JEL Classification: E52, E58, E61, F42, F45
    Keywords: international spillovers, local projections, monetary policy, policy interactions, prudential policy
    Date: 2023–10
  4. By: Iftekhar Hasan (Fordham University [New York]); Suk-Joong Kim (The University of Sydney); Panagiotis N. Politsidis (Audencia Business School); Eliza Wu (The University of Sydney)
    Abstract: We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
    Keywords: "Credit ratings" "Sovereign ceiling" "Syndicated loan pricing" "Rating-based regulation" "Firm credit constraints" "Bank dependency" "Bargaining power"
    Date: 2023–10
  5. By: Heidorn, Thomas; Pavicic, Tim; Sieber, Antje
    Abstract: FX rates are increasingly volatile in recent macroeconomic and geopolitical times of uncertainty. FX risk if not dealt with properly can pose existential threads to companies. Especially fast-growing companies, that have previously not hedged FX risks due to insignificance, need to build up a proper FX risk management. This working paper delivers a comprehensive guide on FX hedging for small and medium enterprises. It should help a treasurer to setup and/or improve their FX hedging approach. The goal of this paper is to provide a treasurer with the necessary tools and knowledge to manage and hedge his company's FX exposure. The paper provides insights on the practical implementation, regulatory framework, and accounting perspective of an FX risk management.
    Keywords: Corporate Treasury, Risk management, Corporate hedging, FX hedging, Foreign currency risk
    JEL: G11 G24 G32 Q56
    Date: 2022
  6. By: Avellán, Leopoldo; Galindo, Arturo; Lotti, Giulia; Rodríguez Bonilla, Juan Pablo
    Abstract: We explore how Multilateral Development Banks (MDBs) can help to fill a large infrastructure financing gap in developing countries by indirectly mobilizing resources from other entities. The analysis focuses on more than 6, 500 transactions in 2005-2020 to developing and emerging markets from the Infrastructure Journal database. Using granular data, we analyze the dynamics of flows from different actors to infrastructure at the country-subsector level, and control for a wide range of fixed effects. MDB lending significantly increases the inflows from other sources. Cross-border and domestic resources are mobilized from both the public and the private sectors. Effects exhibit country heterogeneity. Mobilization occurs in countries of all income levels, though it is stronger in low and lower-middle income countries. In countries that use capital controls frequently mobilization effects are undermined. When the global financial crisis of 2008 hit, no difference in mobilization effects was found, unlike the COVID-19 pandemic when mobilization effects were weakened. The findings survive a long battery of robustness checks, and no evidence of anticipation effects is found.
    Keywords: Catalytic finance;Infrastructure
    JEL: F21 F34 G15 H81 O19
    Date: 2022–02
  7. By: Pourpourides, Panayiotis (Cardiff Business School)
    Abstract: In this empirical study I examine the influence of macroeconomic and financial fundamentals on cryptocurrency metrics over the long term. Through both parametric and non-parametric estimation methods, I establish that the relative value of the US dollar and the price of gold consistently exert significant impact on cryptocurrency metrics. Analyzing daily and monthly data reveals a robust statistical correlation, resulting in adverse effects on cryptocurrency prices, market capitalizations, and Bitcoin’s hash rate. These findings along with distinct features of Bitcoin resonate with the concept of Bitcoin as a digital asset analogous to physical gold, assuming a role similar to a substitute for the latter. Comparatively, Bitcoin’s hash rate demonstrates heightened market exposure when contrasted with its price counterpart. While the value of the US dollar exerts negative effects on both gold and Bitcoin, the latter’s response is notably greater. Moreover, the relationships of gold and Bitcoin with indicators such as the federal funds rate and the S&P 500 exhibit divergent patterns. While the US dollar primarily exerts downward pressure on Bitcoin’s price and the gold price primarily influences the hash rate, over time the significance of both factors, though dominant, gradually diminishes.
    Keywords: Bitcoin; Cryptocurrencies; Blockchain; Macroeconomic and Financial Fundamentals.
    JEL: E44 G10 G12 G19
    Date: 2023–09
  8. By: Josh Davis; Cristian Fuenzalida; Leon Huetsch; Benjamin Mills; Alan M. Taylor
    Abstract: Benchmark finance and macroeconomic models appear to deliver conflicting estimates of the natural rate and bond risk premia. This natural rate puzzle applies not only in the U.S. but across many advanced economies. We use a unified no-arbitrage macro- finance model with two trend factors to estimate the natural rate r* for 10 advanced economies. We cover a longer and wider sample than previous studies and draw on new sources to construct yield curves and excess returns. The two-trend model improves the explanatory power of yield regressions and return forecasts. Most variation in yields is due to the macro trends r* and π*, and not bond risk premia. Global components of unexpected bond returns are influential, while the local components of natural rates are large. Our r* estimates covary with growth and demographic variables in a manner consistent with theory and previous findings.
    JEL: C13 C32 E43 E44 E47 G12
    Date: 2023–10
  9. By: Gomez-Gonzalez, Jose E.; Uribe, Jorge M.; Valencia, Oscar
    Abstract: This paper studies volatility spillovers in credit default swaps (CDS) between the corporate sectors and Latin American countries. Daily data from October 14, 2006, to August 23, 2021, are employed. Spillovers are computed both for the raw data and for filtered series which factor out the effect of global common factors on the various CDS series. Results indicate that most spillovers occur within groups that is, within the series of sovereign CDS contracts and the price contracts of CDS issued by global corporations. However, considerable spillovers are also registered between LAC sovereigns and corporations. Interesting differences are encountered between filtered and unfiltered data. Specifically, spillovers from countries to corporations are overestimated (by about 4.3 percentage points) and spillovers from corporations to sovereigns are underestimated (by about 5.8 percentage points) when unfiltered data are used. This result calls for a revision of results obtained from studies that do not consider the role played by global common factors in system spillovers. Like in most related studies, spillovers show considerable time variation, being larger during times of financial or economic distress. When looking at total system spillovers over time, those corresponding to unfiltered series are always larger than those corresponding to filtered series. The difference between the two time series is largest in times of distress, indicating that global factors play a major role in times of crisis. Similar conclusions are derived from network analysis.
    Keywords: corporate debt;factor models;filtered and unfiltered data;Latin American countries;volatility spillovers
    JEL: G01 G12 C22
    Date: 2022–05
  10. By: El-Sahli, Zouheir; Maczulskij, Terhi; Nilsson Hakkala, Katariina
    Abstract: Abstract This paper analyzes how firms with different financial strength levels respond to demand shocks in their export markets. We utilize unique administrative datasets of Swedish and Finnish firms matched with national customs data from 1999 to 2014, which allows us to analyze the effects of several macroeconomic shocks affecting the export product demand and performance of exporting firms. We find that financially stronger export firms are better positioned during both positive and negative demand shocks—suffering less from the negative shocks, benefiting more from the positive shocks. While our results suggest that Swedish and Finnish firms tend to respond similarly to different export demand shocks, there are some salient differences in their survival strategies. While the financially stronger Swedish firms expanded their product lines and market areas, the Finnish firms did not make such adjustments during the 2007–2014 period of negative export demand shocks. By analyzing the firm-level survival strategies on export markets, we provide new insights into the divergent export growth trends of the two countries.
    Keywords: Export competition, Financial strength, Firm-level, Trade flows
    JEL: F14 F61 L11 L25 D22
    Date: 2023–10–16
  11. By: Bao-We-Wal Bambe (LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne)
    Abstract: Does inflation targeting foster private domestic investment in developing countries? A few studies have attempted to examine this issue, with mixed results. Here we argue that by anchoring public expectations firmly, the inflation targeting framework should enhance monetary policy credibility and macroeconomic stability, thereby promoting investment incentives. Using data from 62 countries over the period 1990-2019 and applying propensity score matching methods, we find that inflation targeting significantly increases domestic investment. However, inflation deviations from the target reduce the favorable effect of inflation targeting on investment. Furthermore, the positive effect of inflation targeting on investment is amplified in emerging economies and in countries with sound fiscal discipline. Finally, we explore the underlying mechanisms and show that macroeconomic stability, i.e., the reduction in inflation and its volatility, interest rate, exchange rate, and output volatility, is the main channel through which the monetary framework promotes domestic investment.
    Keywords: Inflation targeting, Private domestic investment, Developing countries, Propensity score matching, Monetary policy credibility
    Date: 2023–08
  12. By: Michele Mancini (Bank of Italy); Pierluigi Montalbano (Department of Social Sciences and Economics, Sapienza University of Rome); Silvia Nenci (Department of Economics, Roma Tre University); Davide Vurchio (University of Bari)
    Abstract: Recently, a strand of the international trade literature has developed measures of the positioning of countries and industries in Global Value Chains (GVCs) using the global Input-Output tables. These measures allow scholars from different research fields to conduct qualitative and quantitative analyses on GVCs, at the aggregate and sectoral level, and inform policymaking. To compute these indicators, a common approach is to consider the extent to which a country-industry pair sells its output for final use to consumers worldwide or instead sells intermediate inputs to other producing sectors in the world. Following this approach, we compute and make available to scholars a new dataset of GVC positioning indicators at the country-industry level based on the most used global Input-Output tables (WIOD, OECD, EORA, ADB). Specifically, we compute two popular measures: i) a measure of distance or upstreamness of a production sector from final demand, which was developed by Fally (2012), Antràs et al. (2012), and Antràs and Chor (2013, 2019); and ii) a measure of distance or downstreamness of a given sector from the economy’s primary factors of production (or sources of value-added), originally proposed by Fally (2012). These indicators are “ready-to-use” and can be freely downloaded from here ( This work illustrates the indicators included in this new open access dataset and the methodologies applied, and provides an international comparison, by sectors and countries, of GVC positioning measures and their evolution over time. Lastly, we propose an empirical exercise to test the consistency of these measures with trade theory.
    Keywords: Global Value Chain, positioning indicators, upstreamness, downstreamness, international trade, country-sector analysis, data.
    JEL: D57 F14 O50
    Date: 2023–01

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