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on International Finance |
| By: | Michael W. Klein |
| Abstract: | This paper examines the pattern of controls on capital inflows, and the association of these controls on financial variables, GDP, and exchange rates. A key point of the paper is the distinction between long-standing controls on a broad range of assets (walls) and episodic controls that are imposed and removed, and tend to be on a narrower set of assets (gates). The paper presents a new data set that differentiates between controls on different categories of assets for a set of 44 advanced and emerging market economies over the 1995 to 2010 period. The imposition of episodic controls is found to not follow the prescriptions of theories that suggest first imposing controls on international asset inflows that are most likely to contribute to financial vulnerability. Estimates show significant differences in the partial correlations of long-standing and episodic controls with the growth of financial variables and with GDP growth, but these differences seem to arise because countries with long-standing controls are poorer than the other countries in the sample. With a few exceptions, there is little evidence of the efficacy of capital controls on the growth of financial variables, the real exchange rate, or GDP growth at an annual frequency. These preliminary results raise doubts about assumptions behind recent calls for a greater use of episodic controls on capital inflows. |
| JEL: | F3 F33 F36 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18526&r=ifn |
| By: | Joshua Aizenman; Ilan Noy |
| Abstract: | This paper investigates the impact of the history of crises on macroeconomic performance. We first study the impact of past banking crises on the probability of a future banking crisis. Applying data for 1980-2010 for all countries for which the required information is available, controlling for conventional macro variables and the history of banking crises occurring after 1970, we do not detect a learning process from past banking crises. Countries that have already experienced one banking crisis generally have a higher likelihood of experiencing another crisis; and the depth of the present crisis does not appear to be affected by the previous historical experience with crisis events. Evidence also suggests that, in middle-income countries, higher de jure capital account openness is associated with lower likelihood of a banking crisis, a lower ratio of non-performing loans during the crisis, and higher levels of forgone output in the crisis’ aftermath. In contrast, we find that past crisis experience has a significant impact on savings. When facing considerable political risk, the past does seem to matter – countries with more people who were exposed, over their lifetime, to larger disasters will tend to save more. This association, however, does not hold for countries with more stable political systems. We interpret these results as consistent with a differential sectoral adjustment to a crisis hypothesis. The private sector, by virtue of its harder budget constraints, adjusts faster, whereas the government adjusts at a slower pace following a crisis. The financial sector may find itself in between the two. The “too big to fail” doctrine associated with large banks provides them with a softer budget constraint, delaying the day of adjustment; for some, delaying bankruptcy. Occasionally, the separation between banks and the public sector is murky, further delaying necessary adjustments of the financial sector. |
| JEL: | E2 E4 F3 F36 F41 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18527&r=ifn |
| By: | Julien Martin; Isabelle Méjean |
| Abstract: | We use the results of a survey conducted on a sample of 3,013 exporting firms located in 5 EMU countries to explore the link between the invoicing currency of exports, firm size, and hedging. About 90% of firms in the sample invoice exports in their (producer) currency. Large firms are more likely to use another currency. The aggregate use of the euro is thus 15 percentage points lower when firms are weighted by their size than for the average firm. This heterogeneity is robust to controlling for determinants of the invoicing choice stressed by the literature. We however show that large firms and firms pricing in another currency as the euro are also more likely to hedge against exchange rate risk. An IV estimation shows the causal impact of access to hedging on the choice of the invoicing currency. We find (large) firms having access to hedging being more likely to invoice in the importer’s currency. |
| Keywords: | Invoicing currency;Financial hedging;Firm-level data |
| JEL: | F31 F41 G32 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2012-28&r=ifn |