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on International Finance |
| By: | de Boer, Jantke |
| Abstract: | The position of countries in a network of external portfolio investments provides a novel macroeconomic characteristic to explain violations of uncovered interest rate parity. I derive a network centrality measure, where central countries are highly integrated with key suppliers of tradeable financial assets. Currency risk premia decrease as network centrality increases. Asset pricing tests confirm that the centrality risk factor is priced in the cross-section. Further, negative global shocks appreciate central countries' currencies and depreciate peripheral ones. In a consumption-based capital asset pricing model, central countries experience lower consumption growth in high marginal utility states, leading to currency appreciation. |
| Keywords: | Exchange rates, currency risk premia, external portfolios, financial network, asset pricing |
| JEL: | F31 E43 E44 G12 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:rwirep:312406 |
| By: | Ha, Jongrim; Liu, Haiqin; Rogers, John |
| Abstract: | Emerging markets and developing economies (EMDEs) exhibit significantly greater volatility in asset returns than advanced economies. The commonalities in these returns (and flows) across countries are particularly strong for EMDEs. If these occur independently of the exchange rate regime and if these global financial cycle effects are furthermore independent of countries’ financial openness, the result is Obstfeld (2022)’s “Lemma”: countries can do nothing to decouple from the global financial cycle. Under the prevalent view that U.S. monetary policy is the key driver of the global financial cycle, countries then inherit U.S. monetary policy no matter what they do on exchange rates or capital control policies. Using structural vector autoregression models for 78 countries over 1995–2019, as well as different methods of identifying U.S. monetary policy shocks from the literature, this paper tests the proposition that countries with less open capital accounts exhibit systematically smaller responses to U.S. monetary policy shocks than low capital control countries. This paper also considers the role of other institutional features such as exchange rate regimes and foreign exchange interventions in explaining cross-country differences in the responses to the shocks. The empirical results suggest that more stringent capital controls exhibit smaller responses of interest rates and exchange rates to U.S. monetary policy shocks and that this result holds more firmly for EMDEs than advanced economies. In contrast, the analysis finds only weak evidence that the degree of exchange rate flexibility affects U.S. spillovers to foreign interest rates and exchange rates. |
| Date: | 2023–10–04 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10582 |
| By: | Khalil, Makram; Osten, David; Strobel, Felix |
| Abstract: | In recent years, major exporting economies experienced rising geopolitical risk. From the perspective of the US and the euro area, we employ detailed product data panels to study the consequences of trading-partner geopolitical risk shocks on bilateral imports. We find that these shocks lower import volumes and raise import prices. The decline in imports is stronger when the shocks hit countries that exhibit greater geopolitical distance to the US and the euro area, or when geopolitical risk shocks hit countries that are under US sanctions. Thus, increasing geopolitical risk triggers dynamics that are conducive to a fragmentation of global trade. A case in point are large effects for geopolitical risk shocks originating in China. We find that US and euro area imports from non-Chinese trading partners are also affected by such shocks, which also owes to US dollar and global oil price movements as well as trading-partner value chain linkages with China. |
| Keywords: | Geopolitical risk, imports, United States, euro area |
| JEL: | F14 F41 F61 F62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:311836 |
| By: | Alviarez, Vanessa; Pedroni, Peter; Powell, Andrew; Quevedo Rocha, Ingri Katherine |
| Abstract: | This study investigates the disconnect between falling agricultural commodity prices and persistent food inflation by applying a Heterogeneous Vector Autoregression (VAR) model to a panel of 203 countries using data from 1961 to 2022. It analyzes the impact of global crops, fertilizer, and oil prices on domestic inflation and explores the asymmetries in the pass-through of global shocks. Results show that fertilizer price shocks significantly influence crop prices, especially maize and soybeans, while production shocks have a weaker effect. Demand-driven price changes exhibit higher pass-through to food inflation compared to supply-driven shocks, with country-specific characteristics shaping these responses. A historical decomposition reveals that global factors played a larger role in inflation during 2021, particularly for emerging economies, while advanced economies were more affected by domestic shocks. These findings highlight the importance of tailored policies to mitigate inflation in the face of global commodity price volatility. |
| JEL: | E30 E31 Q02 Q11 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13986 |