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on International Finance |
| By: | Calebe de Roure; Steven Furnagiev; Stefan Reitz |
| Abstract: | This paper uses a microstructure approach to analyze the effectiveness of capital controls introduced in Brazil to counter an appreciation of the Real. Based on a rich data set from the Brazilian foreign exchange market, we estimate a reduced-form VAR to characterize the interaction of the central bank, financial and commercial customers in times of regulatory policy measures. Controlling for regular FX interventions we find that capital controls change market participants' behavior. Referring to thesource of order flow, we find no evidence that the appreciation of the Real is driven by financial customers’ activity. Instead, commercial customers seem to be a primary driver of the Real within our model. To the extent that capital controls influence commercial customers' order flow, this is the likely channel policy makers use to respond to a perceived loss of international competitiveness |
| Keywords: | Foreign Exchange,Sterilized Intervention, Macroprudential Policies, Market Microstructure |
| JEL: | F31 E58 G14 G15 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1865&r=ifn |
| By: | Marius del Giudice Rodriguez; Thomas Wu |
| Abstract: | Has the recent wave of capital controls and prudential foreign exchange (FX) measures been effective in promoting exchange rate stability? We tackle this question by studying a panel of 25 countries/currencies from July 1, 2009, to June 30, 2011. We calculate daily measures of exchange rate volatility, absolute crash risk, and tail risk implied in currency option prices, and we construct indices of capital controls and prudential FX measures taking into account the exact date when policy changes are implemented. Using a difference-in-differences approach, we find evidence that (i) tightening controls on non-residents suppresses daily exchange rate fluctuations at the cost of increasing the frequency of outliers, (ii) easing controls on residents truly improves exchange rate stability over all dimensions, and (iii) tightening prudential FX measures not specific to derivative markets reduces absolute crash risk and tail risk, with no effect on volatility. |
| Keywords: | Foreign exchange |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-20&r=ifn |
| By: | G. Andrew Karolyi (Cornell University); David T. Ng (Cornell University and Hong Kong Institute for Monetary Research); Eswar S. Prasad (Cornell University and Brookings Institution) |
| Abstract: | Private investors from emerging market economies are increasingly putting their funds in overseas assets. Understanding the volumes and patterns of the various outflows-sovereign and private-and analyzing what influences them will help shed light on how the landscape of international capital flows is likely to change as emerging market economies become more integrated into global financial markets. We look at the types of capital outflows from emerging markets and describe some preliminary results. |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:082013&r=ifn |
| By: | Kugler, Maurice (United Nations Development Programme (UNDP)); Levintal, Oren (Bar-Ilan University); Rapoport, Hillel (Bar-Ilan University) |
| Abstract: | The gravity model has provided a tractable empirical framework to account for bilateral flows not only of manufactured goods, as in the case of merchandise trade, but also of financial flows. In particular, recent literature has emphasized the role of information costs in preventing larger diversification of financial investments. This paper investigates the role of migration in alleviating information imperfections between home and host countries. We show that the impact of migration on financial flows is strongest where information problems are more acute (that is, for more informational sensitive investments and between more culturally distant countries) and for the type of migrants that are most able to enhance the flow of information, namely, skilled migrants. We interpret these differential effects as additional evidence pointing to the role of information in generating home-bias and as new evidence of the role of migration in reducing information frictions between countries. |
| Keywords: | migration, international financial flows, international loans, gravity models, information asymmetries |
| JEL: | F21 F22 O1 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7548&r=ifn |
| By: | Haddow, Abigail (Bank of England); Mileva, Mariya (Kiel Institute for the World Economy) |
| Abstract: | The aim of this paper is to investigate theoretically how financial factors affect the international transmission mechanism. We build a two-country dynamic stochastic general equilibrium model with sticky prices and financial frictions. To add to the literature we extend the model to include two types of credit spread shocks that are micro-founded; a mean preserving shock to the dispersion of firms idiosyncratic productivity (risk shock) and a shock to financial agents net worth (financial wealth shock). We find that the source of the shock to the credit spread matters; credit spread shocks of equivalent size, but driven by different innovations, have different consequences for output and inflation in the home and foreign economy. In general risk shocks generate more realistic spillovers to activity than a financial wealth shock. |
| Keywords: | International transmission mechanism; financial frictions; financial shocks; DSGE model |
| JEL: | E37 F41 F42 F44 |
| Date: | 2013–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0479&r=ifn |