nep-ifn New Economics Papers
on International Finance
Issue of 2024‒02‒19
ten papers chosen by
Jiachen Zhan, University of California,Irvine

  1. Assessing the Effects of the Global Financial Cycle on Eurozone’s Financial Stress: Does the Quantitative Easing Matter? By Costas Karfakis; Ioannis Karfakis
  2. 2021 RIETI Survey on Currency Risk Management and Invoice Currency Choice of Japanese Listed Manufacturing Firms (Japanese) By ITO Takatoshi; KOIBUCHI Satoshi; SATO Kiyotaka; SHIMIZU Junko; YOSHIMI Taiyo
  3. Impact of the central bank's communication on macro financial outcomes By Tetiana Yukhymenko; Oleh Sorochan
  4. Privilege Lost? The Rise and Fall of a Dominant Global Currency By Kai Arvai; Nuno Coimbra
  5. U.S. Monetary Policy Spillovers to Middle East and Central Asia: Shocks, Fundamentals, and Propagations By Giovanni Ugazio; Weining Xin
  6. The role of uncertainty and sentiment for intraday volatility connectedness between oil and financial markets By Karol Szafranek; Michał Rubaszek; Gazi Salah Uddin
  7. Interest Rate Sensitivity of Irish Bond Funds By Gianstefani, Ilaria; Metadjer, Naoise; Moloney, Kitty
  8. Choice of Invoice Currency and Exchange Rate Risk Management: FY2022 questionnaire survey with Japanese overseas subsidiaries (Japanese) By SATO Kiyotaka; KOIBUCHI Satoshi; ITO Takatoshi; SHIMIZU Junko; YOSHIMI Taiyo
  9. Loan pricing and biodiversity exposure: Nature-related spillovers to the financial sector By Becker, Annette; Di Girolamo, Francesca; Rho, Caterina
  10. Monetary Policy Pass-Through to Interest Rates: Stylized Facts from 30 European Countries By Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski

  1. By: Costas Karfakis (Department of Economics, University of Macedonia); Ioannis Karfakis (Business Discipline, London School of Science and Technology, Memo House, London, England, W3 0XA, UK)
    Abstract: This paper examines whether the expanded Quantitative Easing policies of the European Central Bank during the period 2015-2022 have influenced the impact of the Global Financial Cycle (GFC) on the Eurozone’s financial stress. The threshold regression reveals that these policies implementation has reduced the impact of GFC on financial stress in the post-2015 period, and thus contributed to lower systemic risk. The impulse responses of the quantile regression show that a global risk aversion shock does not have persistent effects on the financial stress distribution, and thus the GFC would not “set the tone†of Eurozone’s financial conditions.
    Keywords: Quantitative easing; financial stress, global financial cycle, systemic risk; balance sheet; threshold regression; quantile regression analysis
    JEL: E52 E58 G15
    Date: 2024–01
  2. By: ITO Takatoshi; KOIBUCHI Satoshi; SATO Kiyotaka; SHIMIZU Junko; YOSHIMI Taiyo
    Abstract: This paper reports the main results of the RIETI survey conducted in FY2021 regarding the choice of invoice currency and currency risk management efforts of Japanese exporters. We sent the questionnaire items to the 929 manufacturing companies that are engaged in overseas operations and listed on the Tokyo Stock Exchange (TSE). Based on the survey results, we report various aspects of respondent firms regarding the choice of invoice currency, currency risk management, and price revisions under exchange rate fluctuations. The main results are as follows. First, in terms of exports from Japan to the world, the share of the US dollar in exports by Japanese exporters remains around 50 percent while the share of the Japanese yen marginally increased to 41 percent; second, the share of other currencies, which mainly includes Asian currencies, reached 6 percent, and surpassed the share of the euro for the first time in our surveys; third, regarding currency risk management, the percentage of firms using currency risk hedging through the market, including currency forward contracts and currency options, significantly declined to 80 percent from above 90 percent in previous surveys; fourth, the survey confirms that firms are more reluctant to change their price when anticipating yen depreciation than when anticipating yen appreciation; and fifth, by using the data of invoice currency choice by destination, we observe a steep increase in the usage of Asian currencies in exports and imports, especially the Chinese yuan, Thai baht and Indian rupee.
    Date: 2024–01
  3. By: Tetiana Yukhymenko (National Bank of Ukraine); Oleh Sorochan (National Bank of Ukraine)
    Abstract: The study explores the impact of central bank communications on a range of macro-financial indicators. Specifically, we examine whether information posted on the National Bank of Ukraine (NBU) website influences foreign exchange (FX) markets and the inflation expectations of experts. Our main results suggest that the NBU's statements and press releases on monetary policy issues matter. For instance, we find that exchange rate movements and volatility are negatively correlated with the volumes of publications of the NBU on its official website. However, this effect is noticeably bigger for volatility than for exchange rate changes. The impact of communication on FX developments is the strongest a week after the news release, and it persists further. Furthermore, inflation expectations of financial experts, though indifferent to all NBU updates, turn out to be sensitive to monetary policy announcements. The letter reduces the level of expectations and interest rates.
    Keywords: central bank communications ; monetary policy ; FX market ; text analysis
    JEL: E58 E71 C55
    Date: 2024–02–05
  4. By: Kai Arvai; Nuno Coimbra
    Abstract: How does a country obtain the status of a safe haven with a dominant global currency? This paper argues that size matters: as a country becomes larger and more diversified, the underlying shock process of the economy becomes less variable. Shocks that can drive a government to default become less likely, implying lower default probability, lower interest rates and higher debt-to-GDP. Furthermore, the larger a country’s share in the supply of global safe assets, the more liquid and attractive its bonds are for investors. If the dominant currency country grows less than the rest of the world, its status as a safe haven erodes and interest rate differentials decline. This could explain the recent evidence of shrinking US return differentials on its cross-border bond portfolios.
    Keywords: Dominant Currency, Safe Assets, US Dollar, Default
    JEL: E42 F02 F33 N10
    Date: 2023
  5. By: Giovanni Ugazio; Weining Xin
    Abstract: We empirically examine U.S. monetary policy spillovers to the Middle East and Central Asia (ME & CA) region by decomposing U.S. interest rates changes into two orthogonal shocks: the pure monetary policy shock and the information news shock. Using a sample of 16 ME & CA countries, we find that when interest rates increase, the two shocks have opposite spillovers on the region. Tightening driven by contractionary monetary policy shocks hinders growth, while tightening driven by positive information news shocks boosts growth despite higher interest rates. Countries with weaker fundamentals face more negative spillovers from contractionary monetary policy shocks but may sometimes benefit more from positive information news shocks. Moreover, high oil prices mitigate both spillovers for oil exporters while global risk appetite amplifies both spillovers. Finally, we estimate a large degree of heterogeneity in the impact of the 2022 U.S. tightening cycle on ME & CA countries, with oil exporters with stronger fundamentals withstanding well the shock and oil importers with weaker fundamentals being hit the most.
    Keywords: U.S. monetary policy; spillovers; fundamentals; oil prices
    Date: 2024–01–19
  6. By: Karol Szafranek; Michał Rubaszek; Gazi Salah Uddin
    Abstract: We quantify intraday volatility connectedness between oil and key financial assets and assess how it is related to uncertainty and sentiment measures. For that purpose, we integrate the well-known spillover methodology with a TVP VAR model estimated on a unique, vast dataset of roughly 300 thousand 5 minute quotations for crude oil, the US dollar, S&P 500 index, gold and US treasury prices. This distinguishes our investigation from previous studies, which usually employ relatively short samples of daily or weekly data and focus on connectedness between two asset classes. We contribute to the literature across three margins. First, we document that market connectedness at intraday frequency presents new picture on markets co-movement compared to the estimates obtained using daily data. Second, we show that at 5 minute frequency volatility is mostly transmitted from the stock market and absorbed by the bond and dollar markets, with oil and gold markets being occasionally important for volatility transmission. Third, we present evidence that daily averages of intraday connectedness measures respond to changes in sentiment and market-specific uncertainty. Interestingly, our results contrast with earlier findings, as they show that connectedness among markets decreases in periods of high volatility owing to market-specific factors. Our study points to the importance of using high-frequency data in order to better understand market dynamics.
    Keywords: volatility connectedness, uncertainty and sentiment, oil market, intraday data, TVP-VAR model
    JEL: C32 C58 D80 Q31
    Date: 2023–11
  7. By: Gianstefani, Ilaria (Central Bank of Ireland); Metadjer, Naoise (Central Bank of Ireland); Moloney, Kitty (Central Bank of Ireland)
    Abstract: The significant growth in the investment fund sector coupled with recent increases in interest rates pose questions regarding the sector’s vulnerability to shocks and its potential for amplifying systemic risk. In this Note we assess the sensitivity of cohorts of bond funds to a large one-off increase in interest rates by developing a tool to measure the impact on funds’ net asset value (NAV). The results split by fund cohorts, show thatlosses increase with weighted average maturity of assets and with the proportion of fixed coupon bonds (Government and Emerging Market Bond Funds experiencing the largest losses). These losses have the potential to trigger larger than usual outflows, particularly for underperforming investment funds within cohorts. This Note highlights existing balance sheet and redemption vulnerabilities - such as relatively high leverage in Mixed Corporate Bond Funds – which may affect the resilience of cohorts beyond what is modelled in this Note. We also apply the ESMA stress test to assess the joint impact of an interest rate and a credit shock and find somewhat similar results. The tool developed here has been incorporated into our ongoing financial stability Risk Assessments, which inform both policy and supervision.
    Date: 2023–12
  8. By: SATO Kiyotaka; KOIBUCHI Satoshi; ITO Takatoshi; SHIMIZU Junko; YOSHIMI Taiyo
    Abstract: This study presents summary results from the FY2022 RIETI Questionnaire Survey where 22, 529 Japanese overseas subsidiaries were surveyed. Our main findings based on survey answers from 1, 390 respondent firms are as follows: First, in intra-firm trade between Japanese subsidiaries operating in Asia and Japanese head offices, the Asian currencies including renminbi (RMB) are often used as invoice currency, but the share of Asian currency-invoiced trade did not increase compared to the result of the FY2018 Survey. Second, RMB-invoiced transactions grow only in intra-firm trade with Japanese head offices. Intriguingly, RMB is not commonly used in intra-Asian trade: while other Asian currencies are more commonly used. Third, Japanese sales subsidiaries tend to have large currency mismatches between procurements of products invoiced in yen and the US dollar, and sales of products invoiced in local currencies, which calls for efficient foreign exchange risk management of Japanese subsidiaries.
    Date: 2024–01
  9. By: Becker, Annette (European Commission); Di Girolamo, Francesca (European Commission); Rho, Caterina (European Commission)
    Abstract: Biodiversity loss can have direct economic impacts, as it limits the availability of natural resources and increases costs across various industries. When firms face significant risks due to biodiversity loss, their creditworthiness may be compromised. This raises concerns for lending institutions that have provided credit to these companies, potentially leading to stricter lending conditions for borrowers. This paper analyzes how these risks spread from the real economy to the syndicated loans market in the European Union and United Kingdom. Firstly, we construct a country-level indicator of biodiversity exposure for EU lenders. Our findings show that the exposure of EU banks to biodiversity varies across countries, depending on the level of exposure of borrowing firms and the loan volumes. Secondly, using data on syndicated loans from 2017 to 2022, we observe a positive and significant correlation between loan pricing and the level of biodiversity exposure of the borrower. These findings suggest that creditors are increasingly incorporating nature-related investor information into their financing decisions, allowing them to diversify and pool risks. On the other hand, debtors cannot fully detach themselves from their dependence on natural capital and can only shift their business models in the long run.
    Keywords: Nature-related risk, Natural capital, Biodiversity, Financial sector, Banks, Debt financing, Syndi- cated loans, Loan pricing, Premium, International spillovers, Risk transmission, Borrower diversification, EU
    JEL: C55 G21 Q51 Q57
    Date: 2023–12
  10. By: Robert C. M. Beyer; Ms. Ruo Chen; Florian Misch; Claire Li; Ezgi O. Ozturk; Mr. Lev Ratnovski
    Abstract: The extent to which changes in monetary policy rates lead to changes in loan and deposit rates for households and firms, referred to as ‘pass-through’, is an important ingredient of monetary policy transmission to output and prices. Using data on seven different bank interest rates in 30 European countries, different approaches, and the full sample as well as a subsample of euro area countries, we show that a) the pass-through in the post-pandemic hiking cycle has been heterogenous across countries and types of interest rates; b) the pass-through has generally been weaker and slower, except for rates of non-financial corporation loans and time deposits in euro area countries; c) differences in pass-through over time and across countries for most deposit rates are correlated with financial sector concentration, liquidity, and loan opportunities, and d) the effects of pass-through to outstanding mortgage rates on monetary transmission on prices and output are heterogenous across countries.
    Keywords: Monetary Policy Transmission; Monetary Policy Pass-Through
    Date: 2024–01–12

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