|
on International Finance |
| By: | Zhengyang Jiang |
| Abstract: | I propose a dynamic model of the reserve currency paradigm that centers on the liquidity demand for safe assets. In global recessions, the demand for the U.S. safe bond increases and raises its convenience yield, giving rise to a stronger dollar and a countercyclical seigniorage revenue. The seigniorage revenue raises the U.S. wealth and consumption shares in recessions, despite the U.S. suffering portfolio losses from its external positions. This asset demand channel also connects exchange rate dynamics to the marginal utility over bond holding, which provides new perspectives on exchange rate disconnect and on the relationship between exchange rates and capital flows. Under this safe-asset view, exorbitant privilege does not require exorbitant duty. |
| JEL: | E44 F32 G15 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32454&r= |
| By: | Ken Armstrong; Leslie Conner Warren; Asani Sarkar |
| Abstract: | Spot bitcoin exchange-traded products (ETPs) began trading in the U.S. on January 11, 2024. For investors, these ETPs purport improved liquidity and price efficiency, and more convenient access to bitcoin trading compared to other means of trading bitcoin in spot markets. Proponents also cite bitcoin holdings as a portfolio diversification opportunity due to historically low correlation with traditional financial securities. Others argue that bitcoin remains a speculative asset and that ETPs increase its interconnections with the traditional financial system. In this post, we examine the initial performance, trading costs, and price efficiency of spot bitcoin ETPs in the U.S. |
| Keywords: | bitcoin; exchange-traded products (ETPs) |
| JEL: | G23 G14 G00 |
| Date: | 2024–05–28 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98297&r= |
| By: | Gerald P. Dwyer (Banco de España); Biljana Gilevska (Banco de España); María J. Nieto (Banco de España); Margarita Samartín (Banco de España) |
| Abstract: | We examine the effects of all three major European Central Bank (ECB) unconventional monetary policies since 2011 for euro area banks’ holdings of loans, government securities and cash deposited in central banks. The three ECB policies are longer-term refinancing operations (LTROs), the asset purchase programmes and the ECB’s interest rate on its deposit facility. We also compare the responses of non-crisis and crisis countries to these policies. Our evidence indicates that the ECB’s unconventional monetary policy measures increased bank lending across the euro area countries. The second round of LTROs, also known as targeted LTROs (TLTROs), were conditional on banks increasing their lending. This change had a substantially larger effect on total lending by banks. The computed effects of the LTROs and TLTROs, based on average size, indicate that in non-crisis countries LTROs increased bank loans by 7.6% of assets and TLTROs increased bank loans by 16.4% of assets, whereas in crisis countries the increases were 8.4% and 14.6% for LTROs and TLTROs, respectively. We find that both LTROs and TLTROs were associated with decreases in government securities held by banks in non-crisis countries, while the LTROs were associated with increases in government securities held by banks in crisis countries. |
| Keywords: | euro area, unconventional monetary policy, banks, financial crisis |
| JEL: | E44 E52 G01 G21 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2416&r= |
| By: | Ursel Baumann; Annalisa Ferrando; Dimitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt |
| Abstract: | This paper provides new survey evidence on firms’ inflation expectations in the euro area. Building on the ECB’s Survey on the Access to Finance of Enterprises (SAFE), we introduce consistent measurement of inflation expectations across countries and shed new light on the properties and causal effects of these expectations. We find considerable heterogeneity in firms’ inflation expectations and show that firms disagree about future inflation more than professional forecasters but less than households. We document that differences in firms’ demographics, firms’ choices and constraints, and cross-country macroeconomic environments account for most of the variation in inflation expectations by roughly equal shares. Using an RCT approach, we show that firms update their inflation expectations in a Bayesian manner. Moreover, they revise their plans regarding prices, wages, costs and employment in response to information treatments about current or future inflation. |
| JEL: | E20 E31 E52 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32504&r= |
| By: | Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper investigates the effects of global geopolitical risk on stock prices of 29 economies by using the local projections method for the monthly period between 1985M1-2023M9. The results show that a positive unit shock of global geopolitical risk (normalized to one standard deviation) reduces stock prices (normalized to one standard deviation) in a statistically significant way by 0.80 in Latvia, 0.71 in China, 0.62 in the Euro Area, 0.50 in Sweden, 0.42 in the United Kingdom, 0.39 in the United States, 0.38 in Switzerland, 0.34 in Israel, 0.28 in Canada, and 0.21 in Denmark in a year following the shock, whereas it increases those only in Iceland by 0.28 that can be used to hedge against any geopolitical risk. Subsample analyses further suggest that the negative effects of the same shock exist in several economies (including the United States, China and Euro Area) during the first half of the sample period that coincides with the geopolitical events that the United States is involved with, whereas they only exist in Russia, Poland, Euro Area and the United Kingdom for the second half of the sample period, suggesting that the Russo-Ukrainian War has mostly affected the stock prices in these nearby economies. It is implied that the geographical location of geopolitical events as well as the countries involved are important indicators to understand the effects of any global geopolitical risk on stock prices. |
| Keywords: | Geopolitical Risk, Stock Prices, Local Projections Method |
| JEL: | G15 G41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:fiu:wpaper:2407&r= |
| By: | Kamila Kuziemska-Pawlak; Jakub Mućk |
| Abstract: | This paper proposes an extension of the fundamental equilibrium exchange rate (FEER) model that accounts for the trade linkages within the Global Value Chains (GVCs). In the modified FEER framework, both backward and forward linkages are taken into consideration. To demonstrate the empirical relevance of the complex nature of existing trade linkages, the proposed FEER model is applied to analyze exchange rate fluctuations of the selected Central and Eastern European countries against the euro. It is documented that in Czechia, Hungary, and Poland the standard FEER framework predicts rapid appreciation of the equilibrium exchange rate after 2010, which implies deepening undervaluation of the actual real exchange rate towards the end of the analysed period. Instead, when the GVCs' linkages are taken into account in the framework, actual real exchange rates are broadly in line with the fundamental equilibrium exchange rates, and hence the missing real appreciation of the Czech krone, the Hungarian forint and the Polish zloty is to a large extent an equilibrium phenomenon. |
| Keywords: | exchange rate, current account, foreign trade, Global Value Chains |
| JEL: | C32 C33 F12 F31 F32 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2024100&r= |
| By: | Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies, Tokyo, Japan; The Rimini Centre for Economic Analysis); Blessings Majoni (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | We obtain a novel analytic expression of the likelihood for a stationary inverse gamma Stochastic Volatility (SV) model. This allows us to obtain the Maximum Likelihood Estimator for this non linear non gaussian state space model. Further, we obtain both the filtering and smoothing distributions for the inverse volatilities as mixture of gammas and therefore we can provide the smoothed estimates of the volatility. We show that by integrating out the volatilities the model that we obtain has the resemblance of a GARCH in the sense that the formulas are similar, which simplifies computations significantly. The model allows for fat tails in the observed data. We provide empirical applications using exchange rates data for 7 currencies and quarterly inflation data for four countries. We find that the empirical fit of our proposed model is overall better than alternative models for 4 countries currency data and for 2 countries inflation data. |
| Keywords: | Hypergeometric Function, Particle Filter, Parallel Computing, Euler Acceleration. |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:23-07&r= |
| By: | Gueyon Kim; Cassandra Merritt; Giovanni Peri |
| Abstract: | The evolution of work is of emerging importance to advanced economies' growth. In this study, we develop a new semantic-distance-based algorithm to identify “new work, ” namely the new types of jobs introduced in the US. We characterize how “new work” relates to task content of jobs and skill characteristics of workers and document its geographic distribution and association with employment growth. Then, we analyze whether local factors associated in the previous literature with agglomeration economies and productivity growth as well as local exposures to global shocks—technology, trade, immigration, and population aging—predict the creation of “new work.” We find local supply of college educated in 1980 as the strongest predictor of “new work.” Using the historical location of 4-year colleges, a strong instrument for local college share, we find a positive and significant causal effect of local supply of human capital on “new work.” |
| JEL: | F1 J11 J14 J23 J24 J61 O33 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32526&r= |
| By: | Hongyu Xiao |
| Abstract: | Recent trends suggest that domestic demand alone may not be enough to explain the increase in overall demand for Canadian banknotes (Engert et al., 2019). Estimating foreign cash demand is difficult due to data availability issues and confounding factors that simultaneously affect domestic demand. In this paper, I provide a quantitative causal estimate of banknote demand from international visitors to Canada by exploiting the exogenous shock from COVID-19 international travel restrictions, which led to an unprecedented drop in cross-border travel. To identify international visitor demand shocks from contemporaneous domestic demand shocks due to the pandemic, I apply a difference-in-differences strategy, taking advantage of foreign traveler demand’s distinct regional patterns and data from the Bank of Canada’s Bank Note Distribution System. I find that each international visitor brought on average $165 worth of hundred-dollar notes with them to Canada prior to the pandemic. Under plausible assumptions, total holdings by international visitors constitute roughly 10% of total $100 CAD notes in circulation at the end of 2019. |
| Keywords: | Bank notes; Central bank research; Coronavirus disease (COVID-19); Financial services; International topics |
| JEL: | E41 E42 E58 F22 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-23&r= |
| By: | Christian Bittner; Alexander Rodnyansky; Farzad Saidi; Yannick Timmer |
| Abstract: | We study the interaction of expansionary rate-based monetary policy and quantitative easing, despite their concurrent implementation, by exploiting heterogeneous banks and the introduction of negative monetary-policy rates in a fragmented euro area. Quantitative easing increases credit supply less, translating into weaker employment growth, when banks’ funding costs do not decrease. Using administrative data from Germany, we uncover that among banks selling their securities, central-bank reserves remain disproportionately with high-deposit banks that are constrained due to sticky customer deposits at the zero lower bound. Affected German banks lend relatively less to firms while increasing their interbank exposure in the euro area. |
| Keywords: | Negative Interest Rates, Quantitative Easing, Unconventional Monetary Policy, Bank Lending Channel |
| JEL: | E44 E52 E58 E63 F45 G20 G21 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_552&r= |
| By: | Wanissa Suanin; Panit Wattanakoon |
| Abstract: | The global demographic shift to an ageing society poses challenges for the international food trade. People in different age groups have different dietary preferences, nutritional needs, and income levels, which influence consumer preference and purchasing power. This study examines the impact of global demographic shifts towards silver economies on international food imports using structural gravity analysis. The findings suggest that silver economies will shift consumer preferences to import healthier food, resulting in increased income elasticity of demand for these imports. The primary target markets for healthy food trade are developed countries, particularly Japan, the EU, and the US, where income elasticity is high and remains near or greater than one. Although consumers in developing countries may not prefer healthy foods, their income elasticity for healthy food imports will rise as the elderly population grows. |
| JEL: | F10 F14 J10 Q18 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pas:papers:2024-5&r= |