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on International Finance |
| By: | Camila Gutierrez; Javier Turen; Alejandro Vicondoa |
| Abstract: | We study the international spillover effects of a macroeconomic surprise in China. Using high-frequency data, we show that the surprise component of the release of macro data in China brings a sizeable and significant effect on asset prices and global risk, across different economies. We document that the dynamic effect of Chinese Macro surprises is both significant and persistent for a broad range of financial variables worldwide. When assessing the relative importance of Chinese surprises relative to other known drivers of the Global Financial Cycle, we show that while the Monetary Policy in the US still accounts for most of the reaction, our measure is equally relevant to account for the reaction of commodities and the EMBI. |
| Keywords: | Spillovers, Global Financial Cycle, China, High-frequency |
| JEL: | E44 F21 F40 G15 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:577&r=ifn |
| By: | Henrik Andersen; Ragnar E Juelsrud; Carola Müller |
| Abstract: | We use unique relationship-level data which includes banks' private risk assessments of corporate borrowers to quantify how competition among banks affects the risk sensitivity of interest rates in the corporate credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks' own assessment of borrower probability of default and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise values, outlining a novel channel of how the competition-fragility nexus can operate. |
| Keywords: | banking competition, relationship lending, credit markets, risk-based pricing, financial stability |
| JEL: | G21 G28 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1169&r=ifn |
| By: | Martha Elena Delgado; Juan Herreño; Marc Hofstetter; Mathieu Pedemonte |
| Abstract: | We estimate the causal effects of a shift in the expected future exchange rate of a local currency against the US dollar on a representative sample of firms in an open economy. We survey a nationally representative sample of firms and provide the one-year-ahead nominal exchange rate forecast published by the local central bank to a random sub-sample of firm managers. The treatment is effective in shifting exchange rate and inflation expectations and perceptions. These effects are persistent and larger for non-exporting firms. Linking survey responses with administrative census data, we find that the treatment affects the dynamics of export and import quantities and prices at the firm level, with differential effects for exports to destination countries that use the US dollar as their currency. We instrument exchange rate expectations with the variation induced by the treatment and estimate a positive elasticity of a future expected depreciation in import expenditures. |
| Keywords: | expectations; exchange rate; firms |
| JEL: | E31 E71 F31 G41 |
| Date: | 2024–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97957&r=ifn |
| By: | Hoste, J.; Verboven, F. |
| Abstract: | We develop a new approach to measure the sources of cross-border goods market segmentation. Our cost-of-living approach uncovers the relative importance of price and product availability differences, while accounting for taste differences. We implement our methodology on regionally disaggregated consumer goods data in the EU and US. The analysis reveals that price, and especially, product availability differences are much larger between than within European countries, and are only marginally larger between than within US states. Our findings imply that US states are geographically integrated, whereas EU countries remain segmented, due to trade frictions that mainly relate to fixed costs. |
| Keywords: | Geographic Market Integration, LOP Deviations, Product Availability Differences |
| JEL: | D12 F15 R32 |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2402&r=ifn |
| By: | Kazunobu Hayakawa (Institute of Developing Economies); Nuttawut LAKSANAPANYAKUL (Thailand Development Research Institute); Toshiyuki Matsuura (Keio Economic Observatory, Keio University); Taiyo Yoshimi (Faculty of Economics, Chuo University) |
| Abstract: | This study explores the evolution of invoicing currency choice, focusing on inertia in invoicing currency and the role of export experience. We theorize that inertia in the producer fs currency pricing (PCP) weakens with lower forex risk management costs, whereas inertia in foreign currency pricing is more pronounced under similar conditions. For the export experience, exporters tend to adopt PCP when they start exporting if the costs are significant. Empirical analysis using firm-level export data in Thailand from 2007 to 2014 supports these predictions. Specifically, we show that the inertia in PCP diminishes with access to forward exchange contracts or when the importer fs currency has a higher forex turnover than the Thai baht. We also show that the tendency to adopt PCP in first exports diminishes under these conditions. Our findings imply that exporters initially prefer invoicing in their own currency, but this preference decreases as export experience accumulates or if there are financial tools or favorable currency turnover conditions. |
| Keywords: | Invoicing currency, Export dynamics, Inertia, Learning effect, Customs data |
| JEL: | F14 F31 F39 |
| Date: | 2024–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-005&r=ifn |
| By: | Yoshimichi Murakami (Research Institute for Economics and Business Administration, Kobe University, JAPAN) |
| Abstract: | Local sourcing of intermediate inputs by foreign affiliates is a major source of the positive spillover effects of foreign direct investments (FDIs) in emerging countries. However, few studies have analyzed the determinants of local sourcing; studies using panel data in a specific emerging country are particularly rare. Considering that Chile is well-integrated into global value chains (GVCs) and that its position in GVCs is relatively upstream compared to that of other Latin American countries, this study empirically analyzes whether foreign affiliates' upstream positions have positive effects on their local sourcing, which is defined as the share of local material inputs to total costs. By matching industry-level panel data, including positions in GVCs, to plant-level panel data, this study constructs a unique dataset for the period from 1995 to 2006. We find that the upstream positions of foreign affiliates in GVCs are positively associated with the share of local material inputs to the total costs. We find that this positive effect is robust to the difference in entry modes between joint ventures and wholly owned subsidiaries, use of lagged affiliate-level variables, exclusion of affiliates with changes in industry affiliation, and different periods of analysis. Moreover, we find that the magnitude of the coefficient of the GVC position index is substantially larger than that of a previous study that analyzed other developing countries. Thus, the findings indicate that foreign affiliates operating in upstream industries have successfully developed backward linkages with local suppliers in Chile, contrary to the traditional view that FDI in natural-resource-related sectors has an enclave nature with very limited backward linkages. Therefore, this study provides new evidence on the role of FDI for productive linkages in resource-based economies. |
| Keywords: | Global value chains (GVCs); Upstream position; Foreign direct investment (FDI); Local sourcing; Chile |
| JEL: | F21 F23 F61 O54 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2024-08&r=ifn |
| By: | Lorenzo Rotunno; Michele Ruta |
| Abstract: | As governments resort to industrial policies to achieve economic and non-economic objectives, the number of subsidies implemented each year has more than tripled in the last decade. Using detailed data across a large number of advanced and emerging economies, we empirically investigate the effects of domestic subsidies on international trade flows. Estimates from a difference-in-difference specification show that on average subsidies promote both exports and imports. These effects are partly driven by selection into subsidies, as governments target export-oriented and import-competing products. The results however mask significant differences across countries. Specifically, exports of subsidized products from G20 emerging markets increase 8 percent more than exports of other products, with no evidence of selection. The gravity estimates confirm that subsidies promote international relative to domestic trade. These spillover effects are concentrated in some industries, such as electrical machinery, and are stronger when subsidies are given through tax breaks than other policy instruments. The subsidy-led rise in trade calls for international cooperation to manage risks of retaliatory actions and possible drifts towards a subsidy war. |
| Keywords: | Subsidies; Industrial Policy; International Trade; Spillovers |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/041&r=ifn |
| By: | Tommaso Gasparini; Vivien Lewis; Stéphane Moyen; Stefania Villa |
| Abstract: | Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to default risk. In the model, a wave of corporate defaults leads to losses on banks' balance sheets; banks respond by selling assets and reducing credit provision. A highly leveraged banking sector exacerbates the contractionary effects of firm defaults. We show that high minimum capital requirements jointly implemented with a countercyclical capital buffer are effective in dampening the adverse consequences of firm risk shocks. |
| Keywords: | Bank Default, Capital Buffer, Firm Risk, Macroprudential Policy |
| JEL: | E44 E52 E58 E61 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:944&r=ifn |
| By: | Christina Anderl; Guglielmo Maria Caporale |
| Abstract: | This paper uses the endogenous regime switching model with dynamic feedback and interactions developed by Chang et al. (2023) to estimate global food price mean and volatility indicators, the latter measuring uncertainty and risk in the global food market. Both are then included in structural VAR models to examine their effects on domestic food price inflation for a range of countries with different food shares in total consumption and in the CPI basket. Next, counterfactual analysis is carried out to assess the effects on core inflation. The results suggest that both global food price mean and volatility shocks have sizeable effects on food price inflation in all countries and persistent second-round effects on core inflation in most countries. An extension of the analysis using disaggregate global food price data shows that the existence of second-round effects is independent of the size of the response of domestic food inflation to global food price shocks. These findings imply that policymakers should distinguish carefully between the two types of global food price shocks (namely mean or volatility) and their effects on core inflation to formulate appropriate policy responses. |
| Keywords: | food price volatility, core inflation, endogenous regime switching, second-round effects |
| JEL: | C13 C58 E31 Q10 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10992&r=ifn |
| By: | Crowley, M. A.; Han, L.; Son, M. |
| Abstract: | Using administrative transactions data from the United Kingdom, we document a swift decline in sterling use among British exporters after the 2016 Brexit vote. Through a novel decomposition, we document most of this decline comes from two sources: (i) continuously-operating firms switching from sterling to dollars or local currencies and (ii) reductions in transactions for sterling-loyal firms. In contrast, new entrants into exporting primarily invoice in sterling before and after the Brexit vote. Our findings provide the first evidence on the quantitative relevance of new channels that contribute to changes in aggregate invoicing shares amidst political upheaval. |
| Keywords: | Invoicing Currency, Trade Transactions, Sterling, Brexit |
| JEL: | F14 F31 F41 |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2413&r=ifn |