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on International Finance |
| By: | Purva Gole (EHESS, Paris); Erica Perego (CEPII, Paris); Camelia Turcu (LEO, University of Orl´eans) |
| Abstract: | In this paper, we reconsider the role of uncertainty in explaining uncovered interest rate parity (UIP) deviations by focusing on 60 emerging and developing (EMDE) and advanced (AE) economies, over the period 1995M1–2023M3. We show that differentiating between EMDE currencies and AE currencies is crucial for understanding UIP deviations as the behaviour of excess returns differs in the two groups in periods of uncertainty: deviations become wider for EMDEs and narrow for AEs. These new results are consistent with the idea that in periods of uncertainty, global investors might change their risk preferences and move from high currency-risk investments in EMDEs towards less risky ones in AEs. This evidence holds for both the short-run and long-run UIP, and becomes stronger since the Global Financial Crisis (GFC). |
| Keywords: | Uncertainty, uncovered interest rate parity, risk premia, emerging countries |
| JEL: | E |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2024.5&r= |
| By: | Tobias Adrian; Gaston Gelos; Nora Lamersdorf; Emanuel Moench |
| Abstract: | We document that U.S. monetary policy shocks have highly persistent but asymmetric effects on U.S. Treasury and global bond yields, with a clear break around the Great Financial Crisis (GFC). Prior to the GFC, tightening shocks used to lead to a pronounced hump-shaped increase of Treasury yields across maturities. Yields used to respond little to easing shocks as term premiums would rise strongly, offsetting the associated decline of expected policy rates. Since the GFC, term premiums have been declining persistently following both tightening and easing shocks. As a result, post-GFC tightening shocks only have transitory positive effects on yields, which reverse later. The response of advanced-economy and emerging market sovereign yields essentially mimics the pattern observed for Treasury yields. Consistent with recent work by Kekre et al. (2022) we find that changes in the duration of primary dealer Treasury portfolios pre- and post-GFC are highly informative about the sign of the term premium response to policy shocks, but cannot explain the full picture. The observed puzzling persistence of returns is likely to stem at least in part from slow and persistent mutual fund flows following monetary policy surprises. |
| Keywords: | spillovers, monetary policy, yield curve, capital flows |
| JEL: | F32 E43 E52 G12 G15 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1195&r= |
| By: | Ana Maria Santacreu |
| Abstract: | Excluding China, foreign patent applications have narrowed the gap with domestic patent applications, suggesting a global trend toward cross-border patenting. |
| Keywords: | patents; patent applications |
| Date: | 2024–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:98379&r= |
| By: | Pablo Ottonello; Diego J. Perez; William Witheridge |
| Abstract: | We study the role of exchange rates in industrial policy. We construct an open-economy macroeconomic framework with production externalities and show that the desirability of these policies critically depends on the dynamic patterns of externalities. When they are stronger in earlier stages of development, economies that are converging to the technological frontier can improve welfare by intervening in foreign exchange markets, keeping the exchange rate undervalued, and speeding the transition; economies that are not converging to the technological frontier are better off not using the exchange rate as an industrial policy tool. Capital-flow mobility and labor market dynamism play a central role in the effectiveness of these policies. We also discuss the role of capital controls as an industrial policy tool and use our framework to interpret historical experiences. |
| JEL: | F0 F3 F4 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32522&r= |
| By: | Clemens Graf von Luckner (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Carmen Reinhart (Harvard University); Kenneth Rogoff (Department of Economics, Harvard University - Harvard University) |
| Abstract: | This paper employs high frequency transactions data on the world's two oldest and most extensive centralized peer-to-peer Bitcoin markets, enabling trade in the currencies of more than 160 countries. We develop an algorithm that allows us, with high probability, to detect "crypto vehicle transactions" in which crypto currency is used to move capital across borders, and/or to exchange one fiat currency for another. The data suggest that the use of Bitcoin has become an increasingly important channel to receive remittances and evade capital controls in emerging markets. Two event studies on Venezuela and Argentina provide supporting evidence. |
| Keywords: | cryptocurrencies, bitcoin, international capital flows, transactions, speculative bubbles |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04603357&r= |
| By: | Christine Arriola; Przemyslaw Kowalski; Frank van Tongeren |
| Abstract: | This report analyses the broad risks associated with sectoral output disruptions both domestically and abroad, examining several exposure metrics. The results indicate that domestic shocks generally have larger sectoral impacts than foreign shocks. In most cases, foreign production disruptions cause minimal domestic output responses, suggesting that domestic and international linkages, along with economic adjustment mechanisms, tend to dampen rather than amplify foreign shocks. However, a cumulation of adverse shocks can significantly affect specific sectors, with manufacturing sectors are on average much more exposed to foreign output shocks than services and agrifood given their greater internationalisation of output and inputs. Economies with strong backward and forward global value chain links to major foreign economies also tend to be more exposed to foreign shocks. |
| Keywords: | CGE, Exposure risk, Global Value Chains, GVCs, METRO Model, Shock transmission, Supply Chains |
| JEL: | C68 F14 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:oec:traaab:283-en&r= |
| By: | Olivier J. Blanchard; Ben S. Bernanke |
| Abstract: | In a collaborative project with ten central banks, we have investigated the causes of the post-pandemic global inflation, building on our earlier work for the United States. Globally, as in the United States, pandemic-era inflation was due primarily to supply disruptions and sharp increases in the prices of food and energy; however, and in sharp contrast to the 1970s, the inflationary effects of these supply shocks have not been persistent, in part due to the credibility of central bank inflation targets. As the effects of supply shocks have subsided, tight labor markets, and the rises in nominal wages, have become relatively more important sources of inflation in many countries. In several countries, including the United States, curbing wage inflation and returning price inflation to target may require a period of modestly higher unemployment. |
| JEL: | E30 E31 E32 E52 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32532&r= |
| By: | Joel Ong; Dorien Herremans |
| Abstract: | This paper introduces DeepUnifiedMom, a deep learning framework that enhances portfolio management through a multi-task learning approach and a multi-gate mixture of experts. The essence of DeepUnifiedMom lies in its ability to create unified momentum portfolios that incorporate the dynamics of time series momentum across a spectrum of time frames, a feature often missing in traditional momentum strategies. Our comprehensive backtesting, encompassing diverse asset classes such as equity indexes, fixed income, foreign exchange, and commodities, demonstrates that DeepUnifiedMom consistently outperforms benchmark models, even after factoring in transaction costs. This superior performance underscores DeepUnifiedMom's capability to capture the full spectrum of momentum opportunities within financial markets. The findings highlight DeepUnifiedMom as an effective tool for practitioners looking to exploit the entire range of momentum opportunities. It offers a compelling solution for improving risk-adjusted returns and is a valuable strategy for navigating the complexities of portfolio management. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.08742&r= |
| By: | Andrea Bellucci (Universita' degli Studi dell'Insubria and Mo.Fi.R.); Alexander Borisov (Lindner College of Business, University of Cincinnati and MoFiR); Gianluca Gucciardi (Department of Economics, Management and Statistics, University of Milano-Bicocca and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR) |
| Abstract: | Technological advancements and globalization of venture capital (VC) point to a diminishing role of direct face-to-face (F2F) interactions between VCs and entrepreneurs seeking funding. We show that ability to conduct such interactions remains an important factor for segments of the VC market, and especially for its internationalization. Using a sample of VC deals around the world, and the staggered implementation of travel restrictions across countries in response to the spread of Covid-19 in 2020, we find that investment by foreign VCs in a country drops after it halts inbound travel. Our analysis of possible channels suggests that information asymmetry between contracting parties is the main driver of the importance of F2F, while technological constraints on the transmission of information and cultural differences are less significant. |
| Keywords: | Face-to-Face Interaction, Investments, Venture Capital |
| JEL: | G24 F21 D81 E22 E44 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:185&r= |
| By: | Mauricio Barbosa-Alves; Javier Bianchi; César Sosa-Padilla |
| Abstract: | This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads. |
| Keywords: | International reserves; rollover crises; Sovereign debt |
| JEL: | E40 F34 F32 E50 F41 |
| Date: | 2024–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:98384&r= |