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on International Finance |
| By: | Raputsoane, Leroi |
| Abstract: | This paper analyses the reaction of the minerals industry to foreign exchange developments in South Africa. This is achieved by augmenting a Taylor rule type central bank monetary policy reaction function with the foreign exchange rate. The results provide evidence that, following an a percentage point increase in foreign exchange rate, output of the minerals industry decreases and bottoms out after 3 months. The results further show that the effect of an increase in foreign exchange rate on output of minerals industry is statistically significant up to 5 months. The results are consistent with the dominant currency pricing paradigm, with the U.S. dollar being the most dominant currency, hence appreciation of the dollar against other currencies predicts a decline in the volume of trade between these countries. Most currencies, including the rand, follow a freely floating exchange rate regime with little direct or indirect intervention for the purpose of influencing their exchange rates. As a result, the exporters and importers could use the available strategies and financial instruments to manage the exchange rate risk and to minimise the adverse |
| Keywords: | Foreign exchange rate, Minerals industry, Economic cycles |
| JEL: | C11 E52 F31 L72 |
| Date: | 2024–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123014 |
| By: | Pérez Caldentey, Esteban |
| Abstract: | The United States dollar has increased its importance as an international medium of exchange, maintained its strength as a store of value and reinforced its role as the world’s unit of account. At the same time the capital market has become a major source of funding throughout the world including for developing countries. This context has major financial implications for the United States and for those countries, mainly developing countries, that are anchored to the dollar. These implications are brought to the fore by focusing on some of the main transmission mechanisms of international financial conditions to developing countries and by analyzing the components of the external balance sheets for the United States and for developing countries. The analysis is placed within the context of some of the changes that have occurred in the international financial system and in the composition of international financial flows in the aftermath of the Global Financial Crisis. |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:ecr:col035:81187 |
| By: | Yakhin, Yossi |
| Abstract: | The paper introduces foreign exchange interventions (FXIs) into a standard New-Keynesian small open economy model. It solves for the optimal FXI policy, suggests an implementable policy rule, and studies the transmission mechanism of FXIs. Relying on the portfolio balance channel, deviations from the uncovered interest rate parity (UIP) reflect financial inefficiencies. Therefore, a policy rule that stabilizes the UIP premium moves the economy toward its optimal allocation, regardless of the type of shocks it faces. Augmenting the rule with foreign reserves smoothing further improves welfare. The paper discusses the conditions under which strict targeting of the UIP premium is optimal. FXIs are transmitted by affecting the UIP premium. Purchasing foreign reserves increases the UIP premium, thereby raising the effective return home agents face and depreciating the domestic currency. Consequently, domestic demand contracts and export expands. The results are robust to a variety of modeling alternatives for the financial sector. |
| Keywords: | Foreign Exchange Interventions; Policy Rule; UIP Premium; Monetary Policy; Open Economy Macroeconomics |
| JEL: | E44 E58 F30 F31 F41 G15 |
| Date: | 2024–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122948 |
| By: | Laura Alfaro; Saleem A. Bahaj; Robert Czech; Jonathon Hazell; Ioana Neamtu |
| Abstract: | This paper studies a form of liquidity risk that we call ‘Liquidity After Solvency Hedging’ or “LASH” risk. Financial institutions take LASH risk when they hedge against solvency risk, using strategies that require liquidity when the solvency of the institution improves. We focus on LASH risk relating to interest rate movements. Our framework implies that institutions with longer-duration liabilities than assets—e.g. pension funds and insurers—take more LASH risk as interest rates fall. Using UK regulatory data from 2019-22 on the universe of sterling repo and swap transactions, we measure, in real time and at the institution level, LASH risk for the non-bank sector. We find that at the peak level of LASH risk, a 100bps increase in interest rates would have led to liquidity needs close to the cash holdings of the pension fund and insurance sector. Using a cross-sectional identification strategy, we find that low interest rates caused increases in LASH risk. We then find that the pre-crisis LASH risk of non-banks predicts their bond sales during the 2022 UK bond market crisis, contributing to the yield spike in the market. |
| JEL: | E44 F30 G10 G22 G23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33241 |
| By: | Ashani Amarasinghe; Kathryn Baragwanath |
| Abstract: | This paper examines how domestic economic conditions shape international status-seeking behavior. We develop a novel measure of inter-government interactions using high-frequency event data across 18, 330 country dyads from 2001-2019. To establish causality, we exploit plausibly exogenous variation in countries’ natural resource wealth driven by global commodity price shocks. We find that positive resource shocks significantly increase countries’ aggressive behavior in international relations, primarily through verbal rather than material confrontation. This effect operates strategically: aggression is targeted at peripheral nations while avoiding major trading partners, suggesting a deliberate approach to status enhancement that preserves economic relationships. The mechanism works through domestic political channels, with resource windfalls reducing public discontent and providing governments with political capital to pursue more assertive foreign policy. Consistent with theories of status-seeking behavior as a tool for enhancing international standing, the effects are concentrated in middle and low-income countries and in political systems with electoral accountability. Our findings highlight how domestic economic conditions influence international relations through the strategic pursuit of status, with implications for understanding the economic roots of geopolitical behavior. |
| Keywords: | Economic shocks, natural resources, international interactions, status-seeking |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2025-01 |