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on International Finance |
| By: | Ingomar Krohn; Mariel Maguiña |
| Abstract: | Global currency risk factors continue to explain a large share of the variation in the Canadian dollar during the period following the 2008–09 global financial crisis. We show that they are also systematically important for risk premiums, and only in recent months has the role of idiosyncratic country-specific risks grown. |
| Keywords: | Asset pricing; Exchange rates; International financial markets |
| JEL: | F3 F31 G1 G12 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-20 |
| By: | Mr. Eugenio M Cerutti; Mr. Stijn Claessens |
| Abstract: | We quantify the importance of the Global Financial Cycle (GFCy) in domestic credit and various local asset prices and compare it with that in capital flows. Using 2000-2021 data for 76 economies and a simple methodology, we find that each respective series’ common factor and conventional US GFCy-drivers together typically explain about 30 percent of the variation in domestic credit, up to 40 percent in stock market returns, about 60 percent in house prices, and more than 75 percent in interest rates and government bond spreads. These median estimates much exceed the 25 percent for capital flows. Our findings help to put the existing literature into context and have important implications for economic and financial stability policies, notably for the usage of quantity tools (e.g., FX interventions) that impact asset prices. |
| Keywords: | global financial cycle; credit; asset prices; capital flows; financial conditions; comovements; empirical; data; center; country; panel; fit; equity; bonds; FDI; credit; policy measures; macroprudential; capital flow management policies |
| Date: | 2024–07–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/158 |
| By: | Célestin Coquidé (UTINAM - Univers, Théorie, Interfaces, Nanostructures, Atmosphère et environnement, Molécules (UMR 6213) - INSU - CNRS - Institut national des sciences de l'Univers - CNRS - Centre National de la Recherche Scientifique - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]); José Lages (UTINAM - Univers, Théorie, Interfaces, Nanostructures, Atmosphère et environnement, Molécules (UMR 6213) - INSU - CNRS - Institut national des sciences de l'Univers - CNRS - Centre National de la Recherche Scientifique - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]); Dima Shepelyansky (LPT - Laboratoire de Physique Théorique - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique - FeRMI - Fédération de recherche « Matière et interactions » - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Abstract During the April 2023 Brazil–China summit, the creation of a trade currency supported by the BRICS countries was proposed. Using the United Nations Comtrade database, providing the frame of the world trade network associated to 194 UN countries during the decade 2010–2020, we study a mathematical model of influence battle of three currencies, namely, the US dollar, the euro, and such a hypothetical BRICS currency. In this model, a country trade preference for one of the three currencies is determined by a multiplicative factor based on trade flows between countries and their relative weights in the global international trade. The three currency seed groups are formed by 9 eurozone countries for the euro, 5 Anglo-Saxon countries for the US dollar and the 5 BRICS countries for the new proposed currency. The countries belonging to these 3 currency seed groups trade only with their own associated currency whereas the other countries choose their preferred trade currency as a function of the trade relations with their commercial partners. The trade currency preferences of countries are determined on the basis of a Monte Carlo modeling of Ising type interactions in magnetic spin systems commonly used to model opinion formation in social networks. We adapt here these models to the world trade network analysis. The results obtained from our mathematical modeling of the structure of the global trade network show that as early as 2012 about 58% of countries would have preferred to trade with the BRICS currency, 23% with the euro and 19% with the US dollar. Our results announce favorable prospects for a dominance of the BRICS currency in international trade, if only trade relations are taken into account, whereas political and other aspects are neglected. |
| Keywords: | World trade network, International trade, Currency, Opinion formation model |
| Date: | 2023–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04641803 |
| By: | Schwartz, Herman M. |
| Abstract: | What explains the US dollar's role in the global economy and the tensions affecting its likely persistence? Most analyses start from Triffin's dilemma, which accurately captured specific but partial tensions of a global monetary system based on essentially fixed exchange rates, gold backing for its core currency, and relatively robust capital controls. Triffin's approach, and those based on it, struggles to explain the tensions in a system with floating exchange rates and fiat money, because Triffin and successors assume a commodity theory of money, a loanable funds model for credit creation, and the "triple coincidence" of monetary, legal, and economic zones. Approaching the question from different premises - chartalist money, endogenous credit creation, and interlocked global balance sheets - enables us to see four factors behind the antinomies or dilemmas that structure the dynamics and durability of US dollar centrality. Those four factors are adequate credit creation and thus global aggregate demand growth, current account deficits for the core, domestic legitimacy in major economies, and the dollar's status as global quasi-state money. |
| Abstract: | Wie lässt sich die Bedeutung des US-Dollars in der Weltwirtschaft erklären? Was hat das mit den Spannungen auf sich, die über den Fortbestand der Dollar-Dominanz entscheiden? Die meisten Analysen nehmen das Triffin-Dilemma zum Ausgangspunkt, das spezifische Spannungen des globalen Geldsystems einst gut erfasste. Dieses System basierte im Wesentlichen auf festen Wechselkursen, einer goldgedeckten Leitwährung und Kapitalverkehrskontrollen. Triffins Ansatz und darauf aufgebaute Analysen haben aber Schwierigkeiten, wenn es um die Spannungen in einem Geldsystem mit Fiatgeld und frei schwankenden Wechselkursen geht. Triffin und seine Nachfolger nahmen die Warentheorie des Geldes und das Loanable-Funds-Modell der Kreditschöpfung als stimmig und die dreifache Koinzidenz von Währungs-, Rechts- und Wirtschaftsräumen als gegeben an. Wenn wir das Problem hingegen unter den Prämissen des chartalistischen Geldes, der endogenen Kreditschöpfung und miteinander verzahnter globaler Bilanzen betrachten, lassen sich hinter den Unvereinbarkeiten und Dilemmata vier Faktoren erkennen, die für die Dynamiken und die Dauerhaftigkeit der Dollar-Dominanz entscheidend sind: eine angemessene Kreditschöpfung und damit ein Wachstum der globalen Gesamtnachfrage; Leistungsbilanzdefizite der Kernländer; innenpolitische Legitimität in den großen Volkswirtschaften; und der Status des Dollars als globales Quasi-Staatsgeld. |
| Keywords: | Balance of payments, foreign debt, geo-economics, international financial system, money, power, reserve currency, Auslandsverschuldung, Geld, Geoökonomie, internationales Finanzsystem, Leitwährung, Macht, Zahlungsbilanz |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:mpifgd:300666 |
| By: | Tobias J. Moskowitz; Chase P. Ross; Sharon Y. Ross; Kaushik Vasudevan |
| Abstract: | Studies of intermediated arbitrage argue that bank balance sheets are an important consideration, yet little evidence exists on banks’ positioning in this context. Using confidential supervisory data (covering $25 trillion in daily notional exposures) we examine banks’ positions in connection with covered-interest parity (CIP) deviations. Exploiting cross-sectional variation in CIP deviations that have largely challenged existing theories, we document three novel forces that drive bases: 1) foreign safe asset scarcity, 2) market power and segmentation of banks specializing in different markets, and 3) concentration of demand. Our findings shed empirical light on the interplay of frictions influencing banks’ provision of dollar funding. |
| JEL: | F3 F31 G1 G11 G12 G15 G2 G20 G21 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32707 |
| By: | David Beers; Obiageri Ndukwe; Alex Charron |
| Abstract: | The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default. The 2024 edition updates the historical data and revisits sovereign defaults on local currency debt. |
| Keywords: | Debt management; Development economics; Financial stability; International financial markets |
| JEL: | F3 F34 G1 G10 G14 G15 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:24-19 |
| By: | Hélène Rey; Adrien Rousset Planat; Vania Stavrakeva; Jenny Tang |
| Abstract: | We introduce a novel empirical decomposition of equity price growth rates in terms of equity holdings, based on market-clearing conditions. Although our sample holdings cover only an average of 5% of market capitalization, our reconstructed equity holdings account for, on average, 89% of the time variation in over 20, 000 individual stock prices and 96% of the fluctuations in 33 aggregate stock markets. Using this decomposition, we introduce new stylized facts to inform asset pricing models. We find that changes in portfolio weights explain most of the variation of individual stock prices, while aggregate wealth effects are more important for the overall stock market fluctuations. Equity markets are global and exchange rates play a key equilibrating role. They dampen local stock market volatility for all stock markets, except those associated with the three safe-haven currencies---USD, JPY, and CHF---and currencies pegged to the USD. |
| JEL: | F30 G11 G23 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32756 |
| By: | Shafique Ur Rehman; Touqeer Ahmad; Wu Dash Desheng; Amirhossein Karamoozian |
| Abstract: | This study examines the interdependence between cryptocurrencies and international financial indices, such as MSCI World and MSCI Emerging Markets. We compute the value at risk, expected shortfall (ES), and range value at risk (RVaR) and investigate the dynamics of risk spillover. We employ a hybrid approach to derive these risk measures that integrate GARCH models, extreme value models, and copula functions. This framework uses a bivariate portfolio approach involving cryptocurrency data and traditional financial indices. To estimate the above risks of these portfolio structures, we employ symmetric and asymmetric GARCH and both tail flexible EVT models as marginal to model the marginal distribution of each return series and apply different copula functions to connect the pairs of marginal distributions into a multivariate distribution. The empirical findings indicate that the eGARCH EVT-based copula model adeptly captures intricate dependencies, surpassing conventional methodologies like Historical simulations and t-distributed parametric in VaR estimation. At the same time, the HS method proves superior for ES, and the t-distributed parametric method outperforms RVaR. Eventually, the Diebold-Yilmaz approach will be applied to compute risk spillovers between four sets of asset sequences. This phenomenon implies that cryptocurrencies reveal substantial spillover effects among themselves but minimal impact on other assets. From this, it can be concluded that cryptocurrencies propose diversification benefits and do not provide hedging advantages within an investor's portfolio. Our results underline RVaR superiority over ES regarding regulatory arbitrage and model misspecification. The conclusions of this study will benefit investors and financial market professionals who aspire to comprehend digital currencies as a novel asset class and attain perspicuity in regulatory arbitrage. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.15766 |