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on International Finance |
| By: | Marcel Fratzscher; Marco Lo Duca; Roland Straub |
| Abstract: | The paper analyses the global spillovers of the Federal Reserve's unconventional monetary policy measures. First, we find that Fed measures in the early phase of the crisis (QE1), but not since 2010 (QE2), were highly effective in lowering sovereign yields and raising equity markets in the US and globally across 65 countries. Yet Fed policies functioned in a procyclical manner for capital flows to emerging markets (EMEs) and a counter-cyclical way for the US, triggering a portfolio rebalancing across countries out of EMEs into US equity and bond funds under QE1, and in the opposite direction under QE2. Second, the impact of Fed operations, such as Treasury and MBS purchases, on portfolio allocations and asset prices dwarfed those of Fed announcements, underlining the importance of the market repair and liquidity functions of Fed policies. Third, we find no evidence that FX or capital account policies helped countries shield themselves from these US policy spillovers, but rather that responses to Fed policies are related to country risk. The results thus illustrate how US unconventional measures have contributed to portfolio reallocation as well as a re-pricing of risk in global financial markets. |
| Keywords: | Monetary policy, quantitative easing, portfolio choice, capital flows, Federal Reserve, United States, policy responses, emerging markets, panel data |
| JEL: | E52 E58 F32 F34 G11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1304&r=ifn |
| By: | Jinjarak, Yothin (Asian Development Bank Institute); Noy, Ilan (Asian Development Bank Institute); Zheng, Huanhuan (Asian Development Bank Institute) |
| Abstract: | Driven by waves of foreign capital inflows and outflows, Indonesia, the Republic of Korea, and Thailand—among several other emerging markets—have resorted to capital control policy since 2006. Are capital controls effective? Controls on capital inflows have been experiencing a renaissance since 2008, with several prominent Asian and Latin American countries implementing them. This paper focuses on Brazil, which instituted five changes in its capital account regime over 2008–2011. It concludes that the effectiveness of capital controls should be viewed on a case-by-case basis, together with the political economy considerations, and other policy tools, i.e., foreign exchange intervention. |
| Keywords: | capital control; brazil; global financial crisis; mutual fund flows; exchange rate |
| JEL: | E60 F32 G23 |
| Date: | 2013–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0423&r=ifn |
| By: | Ron Alquist; Rahul Mukherjee; Linda Tesar |
| Abstract: | Using a new data set, we examine the characteristics and dynamics of cross-border mergers and acquisitions during emerging-market financial crises, that is, so-called “fire-sale FDI.” Our findings shed fresh light on whether the transactions undertaken during crisis periods differ in fundamental ways from those undertaken during more tranquil periods. The increase in foreign acquisitions during crises is mainly driven by non-financial acquirers targeting firms in the same industry rather than foreign financial firms. This increase in acquisition activity in a given industry is unrelated to the industry’s dependence on external finance. There is also no evidence of an increase in the size of stakes bought during crises. In terms of the effect of crises on emerging-market mergers and acquisitions, we find little evidence that foreign acquisitions are resold, or “flipped,” more frequently than domestic acquisitions. Moreover, flipping rates are uncorrelated with the industry’s dependence on external finance. Finally, the probability of being flipped to a domestic buyer does not differ across crisis and non-crisis periods. All of these results are robust to alternative empirical specifications, different definitions of crises, and the inclusion of macroeconomic controls. Contrary to conventional wisdom, fire-sale FDI and asset flipping by foreign firms appear to have been “business as usual.” |
| Keywords: | Financial markets; International financial markets; International topics |
| JEL: | F21 G01 G34 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-17&r=ifn |
| By: | Joshua Aizenman; Mahir Binici; Michael M. Hutchison |
| Abstract: | This paper investigates the impact of credit rating changes on the sovereign spreads in the European Union and investigates the macro and financial factors that account for the time varying effects of a given credit rating change. We find that changes of ratings are informative, economically important and highly statistically significant in panel models even after controlling for a host of domestic and global fundamental factors and investigating various functional forms, time and country groupings and dynamic structures. Dynamic panel model estimates indicate that a credit rating upgrade decreases CDS spreads by about 45 basis points, on average, for EU countries. However, the association between credit rating changes and spreads shifted markedly between the pre-crisis and crisis periods. European countries had quite similar CDS responses to credit rating changes during the pre-crisis period, but that large differences emerged during the crisis period between the now highly-sensitive GIIPS group and other European country groupings (EU and Euro Area excluding GIIPS, and the non-EU area). We also find a complicated non-linear pattern dependent on the level of the credit rating. The results are robust to the including credit “outlook” or “watch” signals by credit rating agencies. In addition, contagion from rating downgrades in GIIPS to other euro countries is not evident once own-country credit rating changes are taken into account. |
| JEL: | F30 F34 G01 G24 H63 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19125&r=ifn |