nep-ifn New Economics Papers
on International Finance
Issue of 2024‒04‒22
ten papers chosen by
Jiachen Zhan, University of California,Irvine

  1. Capital Flow Reversals and Currency Crises: Do Capital Flow Types Matter? By Mengting Zhang; Andreas Steiner; Jakob de Haan; Haizhen Yang
  2. Keynesian Policy Space in "Globalized" Economies By Biagio Bossone
  3. Asset price changes, external wealth and global welfare By Meyer, Timothy Andreas
  4. The Entry of BRICS Currency and Exit of Dollar: Evidence from International Trade Theories and Policy Implications By R, Pazhanisamy
  5. Financial Asymmetries, Risk Sharing and Growth in The EU. By Cavallaro, Eleonora; Villani, Ilaria
  6. Differential Crowding Out Effects of Government Loans and Bonds: Evidence from an Emerging Market Economy By Isha Agarwal; David Jaume; Everardo Tellez de la Vega; Martin Tobal
  7. Mild deglobalization: Foreign investment screening and cross-border investment By Eichenauer, Vera; Wang, Feicheng
  8. International Banking and Nonbank Financial Intermediation: Global Liquidity, Regulation, and Implications By Claudia M. Buch; Linda S. Goldberg
  9. Trans-development and the Global South: Counter-hegemonic Strategy for Building an Ecological Global Civilization By Khan, Haider
  10. Presidential Approval Ratings and Stock Market Performance in Latin America By Yuvana Jaichand; Renee van Eyden; Rangan Gupta

  1. By: Mengting Zhang; Andreas Steiner; Jakob de Haan; Haizhen Yang
    Abstract: We analyse how reversals of several types of capital flows impact currency crises in emerging market and developing economies. Estimates of logit models show that reversals of (equity and debt) portfolio flows significantly increase the likelihood of currency crises in emerging market economies. In developing economies, reversals of portfolio debt flows and banking flows have a significant positive impact on currency crises. Finally, our results suggest that countries with mature financial systems and fixed exchange rate regimes are less likely to experience a currency crisis after a capital flow shock. The mediating role of capital account liberalization varies by country type.
    Keywords: capital flow reversals, currency crises, event study approach, logit models, domestic financial factors
    JEL: E44 E51 F34 F41
    Date: 2024
  2. By: Biagio Bossone
    Abstract: This article shows that in highly internationally financially integrated ("globalized") economies, policymakers' ability to implement effective expansionary macroeconomic policies, referred to in the article as "Keynesian policy space, " is influenced by the portfolio decisions of a specific group of investors known as "Global investors." This conclusion arises from a two-country, open-economy model in which Global investors allocate capital internationally based primarily on their perception of the policy credibility of the countries where they invest their managed wealth. In countries that Global investors deem highly credible, expansionary macroeconomic policies prove effective in terms of stimulating output and resource employment. Conversely, in countries perceived as having weak credibility, the portfolio decisions of these investors may undermine the effectiveness of such policies. Consequently, the anticipated real effects of these policies may dissipate into domestic currency depreciation and higher inflation. Following the derivation and evaluation of this conclusion, the article explores various options for countries to establish and maintain Keynesian policy space.
    Keywords: credibility; exchange rate; financial integration; global investor; inflation; intertemporal budget constraint; macro-policies
    JEL: E31 E40 E50 E62 F31 G15 H30
    Date: 2024–04
  3. By: Meyer, Timothy Andreas
    Abstract: U.S. equity outperformance and sustained dollar appreciation have led to large valuation gains for the rest of the world on the U.S. external position. The author constructs their global distribution, carefully accounting for the role of tax havens. Valuation gains are concentrated and large in developed countries, while developing countries have been mostly bypassed. To assess the welfare implications of these capital gains, the author adopts a sufficient statistics approach. In contrast to the large wealth changes, most countries so far did not benefit much in welfare terms. This is because they did not rebalance their portfolios and realize their gains, while they were further hurt by rising import prices from the strong dollar.
    Keywords: Foreign Assets, Global Imbalances, Valuation Effects
    JEL: F21 F32 F40 G15
    Date: 2024
  4. By: R, Pazhanisamy
    Abstract: The purpose of this paper is to explore the impact of BRICS unions’ currency on the Dollar and its performances on international trade among the nations. The compound reviews of literature on the classical, neo classical and modern theories of trade reveals the non existence of research works on the multinational union currencies and its impact on the validity of the dollar and the economic gain of the nations and its influence over the trade activities for which this attempt is made. Due to lack of availability of the numerical data on the new currency and its impact over the economics through trade the graphical approach is used with the logical realistic assumptions and justified how the value of currencies of BRICS nations in international market would certainly be appreciate. It also portrays that how simultaneously the dominant dollar depreciate its value through the market forces of demand and supply changes in the global scale
    Keywords: BRICS currency, Alternative to Dollar, Gain from trade, Value of currency in the international market, Foreign Exchange Exploitation, Solutions to US sanction
    JEL: E44 E51 E58 F23 F3 F33 F36 F38 F52 F55 G15 G21 P51
    Date: 2024–01–03
  5. By: Cavallaro, Eleonora (University of Rome, Sapienza, Department of Economics and Law); Villani, Ilaria (Banking Supervision, European Central Bank)
    Abstract: This paper proposes an index to benchmark EU financial systems against their potential to enhance resilient growth and international risk sharing. It finds that the risk sharing mechanism is more effective in more stable financial environments, whereas a larger fraction of shocks remains unsmoothed in the lower financial clusters, especially in the aftermath of the global financial crisis, when the credit channel is significantly downsized.
    Keywords: financial structure, financial heterogeneity, growth, volatility, risk sharing
    JEL: F15 F36 O16 E44 G1
    Date: 2024–02
  6. By: Isha Agarwal (Sauder School of Business/University of British Columbia); David Jaume (Bank of Mexico); Everardo Tellez de la Vega (Sauder School of Business/University of British Columbia); Martin Tobal (Bank of Mexico)
    Abstract: We provide the first empirical evidence that the “type” of bank lending to the government affects the extent of crowding out in an Emerging Market and Developing Economy (EMDE). For this purpose, we build a new dataset combining proprietary information on all loans granted by commercial banks to non-financial private firms and the government in Mexico, along with data on government bonds held by these banks. By exploiting heterogeneity in firms’ exposure to different types of bank lending to the government within this unique dataset, we show for the first time that the size of crowding out of credit to small and medium-sized firms (SMEs) varies significantly across debt instruments. Specifically, we find that the crowding-out effect is around three times larger for bank loans than for bank holdings of government bonds. This reduced crowding-out effect of bonds is linked to banks’ ability to use them as collateral in the interbank market, which helps them raise secured funding and reduces the need to curtail credit supply to firms. Our findings underscore the importance of welldeveloped sovereign bond markets in mitigating the adverse effects of government borrowing on credit access for SMEs, particularly in EMDEs where credit markets are underdeveloped and these firms are more credit-constrained.
    Keywords: Crowding Out, Firm Credit, Public Sector Financing
    JEL: E44 H63 G20
    Date: 2024–04
  7. By: Eichenauer, Vera; Wang, Feicheng
    Abstract: Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007-2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers' attention to weighing the benefits of national security and the economic costs of introducing investment screening.
    Keywords: foreign direct investments, national security, M&A, investment screening, global capital allocation, geoeconomic fragmentation, deglobalization
    JEL: F21 F52 G34
    Date: 2024
  8. By: Claudia M. Buch; Linda S. Goldberg
    Abstract: Global liquidity flows are largely channeled through banks and nonbank financial institutions. The common drivers of global liquidity flows include monetary policy in advanced economies and risk conditions. At the same time, the sensitivities of liquidity flows to changes in these drivers differ across institutions and have been evolving over time. Microprudential regulation of banks plays a role, influencing leverage and capitalization, changing sensitivities to shocks, and also driving risk migration from banks to nonbank financial institutions. Risk sensitivities and flightiness of global liquidity are now strongest in more leveraged nonbank financial institutions, raising challenges in stress episodes. Current policy initiatives target linkages across different types of financial institutions and associated risks. Meanwhile, significant gaps remain. This paper concludes by discussing policy options for addressing systemic risk in banks and nonbanks.
    Keywords: international banks; nonbank financial institutions; global liquidity; regulation; prudential policy
    JEL: F3 G21 G23 G28
    Date: 2024–03–01
  9. By: Khan, Haider
    Abstract: We define Trans-development as an overcoming of maldevelopment under capitalism towards building a planetary ecological civilization that is equitable, life-affirming and can ensure flourishing of humans along with nature and other species. How can such a planetary ecological counterhegemony be established in the Global South? I answer this question through exploring a fairly comprehensive strategy for development as freedom beyond the ecological and other crises-filled capitalism in the 21st century. Accordingly, I try to find a way to integrate useful markets with the key characteristics of the Enabling Ecological Trans-developmental State(EETDS) for the 21st Century in order to build a growing ecologically sustainable economy with equity in terms of capabilities. This will doubtless require a new global financial and ecological architecture. Relative Degrowth which involves sustainable people’s capabilities enhancing growth in the Global South, and degrowth in the Global North is a necessary condition for such a postcapitalist planetary civilization. Proceeding from a critical capabilities perspective that is fully grounded in social reality of deepening structural and ecological crises of the Global Capitalist System, we discover that such a perspective leads to the need to include among the characteristics of the EETDS for the 21st Century its capacity to build an ecologically sustainable egalitarian Trans- development strategy from the beginning. In addition, democracy must be deepened from the beginning. For the Global South including Eurasia, and particularly for Africa and Latin America, a new cooperative community of nations following their own rhythm to reach their own dynamic trajectories towards development as freedom will be possible if they cooperate regionally and globally on the basis of equal sovereignty and mutual respect. One precondition is to pragmatically unite for a common economic strategy. For this a decolonization of the mind in the global south is also necessary. The Gramscian idea of counterhegemony can be a fruitful way to carry out a thoroughgoing decolonization that dialectically addresses both material and ideational/ideological aspects of such decolonization. Strengthening the global south counterhegemonic movement built around a strategic program of trans-development is crucial for achieving real decolonization and creating a planetary ecological civilization.
    Keywords: Trans-development, Counterhegemony, Decolonization, Global South, Dialectics, Enabling Ecological Trans-developmental State(EETDS), Stoffwechsel, Ecological Imperialism, Relative Degrowth, New Non-aligned Movement(NNAM), New International Economic Order, Democratic Internationalism, Egalitarianism, Ecological Crisis, Global Capitalist System(GCS), Counterhegemonic movements, Ecosocialism, Nonlinearities, Multiple equilibria, Entropy and Information Theory
    JEL: F6 O1 P0
    Date: 2024–02–28
  10. By: Yuvana Jaichand (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Renee van Eyden (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This paper examines the time-varying causality between presidential approval ratings and stock market performance, as measured by stock returns and realised volatility, in Latin America over the monthly period 1990M01 to 2016M05. Our study focuses on four prominent Latin American countries, Brazil, Chile, Colombia, and Mexico. While the standard constant parameter causality test does not reveal significant evidence of causality, the time-varying analysis uncovers bidirectional causal relationships persisting throughout the sample period. Moreover, our results remain robust when controlling for macroeconomic conditions and presidential approval ratings in other Latin American countries, using principal component analysis to construct these control variables. Furthermore, we explore the impact of US presidential approval ratings on Latin American stock market performance and presidential approval ratings. Our analysis reveals a significant causal impact of US presidential approval ratings on both Latin American presidential approval ratings and stock market performance. Our findings underscore the significant role of US presidential approval ratings in understanding global stock market dynamics and contagion effects.
    Keywords: Presidential approval ratings, stock returns, stock market volatility, time-varing causality
    JEL: C32 G10 G17
    Date: 2024–03

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