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on International Finance |
| By: | Gauvin, Ludovic (EconomiX-CNRS and Banque de France); McLoughlin, Cameron (Graduate Institute, Geneva); Reinhardt, Dennis (Bank of England) |
| Abstract: | We examine the extent to which uncertainty with regard to macroeconomic policies in advanced countries spills over to emerging market economies (EMEs) via gross portfolio bond and equity flows. We find that the impact of fluctuations in policy uncertainty on portfolio equity flows differs markedly depending on whether changes in policy uncertainty originate from the Untied States or the European Union (EU). Increases in US policy uncertainty reduce both bond and equity inflows into EMEs. Conversely, increases in EU policy uncertainty decrease bond inflows, but increase equity inflows. The size and direction of these spillover effects depends on the level of global risk, with increased European policy uncertainty only having a negative impact on bond inflows into EMEs when global risk is high. For equity inflows, the level of country-specific sovereign default risk also matters for non-linearities: increased EU policy uncertainty pushes portfolio equity inflows into EMEs even if global risk is high, but only into countries with low sovereign default risk. |
| Keywords: | Policy uncertainty; portfolio capital flows; EMEs; non-linearities |
| JEL: | F21 F32 F42 |
| Date: | 2014–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0512&r=ifn |
| By: | Ludmila Fadejeva; Martin Feldkircher; Thomas Reininger |
| Abstract: | In this paper, we examine international transmission of the negative credit supply shock, which originated in the euro area and the US. We use the multi-country global vector autoregression (GVAR) approach with trade and bilateral banking exposures as weights, and identify five structural shocks via sign restrictions. Special focus of this research is on CESEE – a region that shares strong financial linkages with the euro area. Our main results are as follows. First, US-specific shocks account for a significant share in explaining the deviations from growth trends in output and total credit in both the euro area and the US; second, compared to a domestic aggregate demand shock, the economic downturn caused by the credit supply shock in the US and the euro area can bring more harm in the long run, yet the international spillover of the former is stronger; third, the transmission of euro area shocks to emerging Europe is faster and more pronounced compared to US shocks; fourth, there is strong heterogeneity in responses of emerging Europe to shocks in the euro area and the US. |
| Keywords: | credit shock, global vector autoregressions, sign restrictions |
| JEL: | C32 F44 E32 O54 |
| Date: | 2014–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201405&r=ifn |