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on International Finance |
| By: | Davis, J. Scott (Federal Reserve Bank of Dallas) |
| Abstract: | This paper will consider whether debt- and equity-based capital inflows have different macroeconomic effects. Using external instruments in a structural VAR, we first identify the component of capital inflows that is driven not by domestic economic and financial conditions but by conditions in the rest of the world. We then estimate the response to an exogenous shock to debt or equity-based capital inflows in a structural VAR model that includes domestic variables like GDP, inflation, the exchange rate, stock prices, credit growth, and interest rates. An exogenous increase in debt inflows leads to a significant increase in GDP, inflation, stock prices and credit growth and an appreciation of the exchange rate. An exogenous increase in equity-based capital inflows has almost no effect on the same variables. Thus the macroeconomic effects of exogenous capital inflows are almost entirely due to changes in debt, not equity-based. |
| JEL: | F3 F4 |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:214&r=ifn |
| By: | Mauricio Villamizar-Villegas; David Perez-Reyna |
| Abstract: | In this paper we survey prominent theories that have shaped the literature on sterilized foreign exchange interventions. We identify three main strands of literature: 1) that which advocates the use of sterilized interventions; 2) that which deems sterilized interventions futile; and 3) that which requires some market friction in order for sterilized interventions to be effective. We contribute to the literature in three important ways. First, by reviewing new theoretical models that have surfaced within the last decade. Second, by further penetrating into the theory of interventions in order to analyze the key features that make each model distinct. And third, by only focusing on sterilized operations, which allows us to sidestep the effects induced by changes in the stock of money supply. Additionally, the models that we present comprise both a macro and micro-structure approach so as to provide a comprehensive view of the theory behind exchange rate intervention. |
| Keywords: | Sterilized foreign exchange intervention, impossible trinity, portfolio balance channel, signaling channel, uncovered interest rate parity. |
| JEL: | E52 E58 F31 |
| Date: | 2015–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:012424&r=ifn |
| By: | Martin Uribe (Columbia University); Alessandro Rebucci (The Johns Hopkins Carey Business School); Andres Fernandez (Inter American Development Bank) |
| Abstract: | A growing recent theoretical literature advocates the use of prudential capital control policy, that is, the tightening of restrictions on cross-border capital flows during booms and the relaxation thereof during recessions. We examine the behavior of capital controls in a large number of countries over the period 1995-2011. We find that capital controls are remarkably acyclical. Boom-bust episodes in output, the current account, or the real exchange rate are associated with virtually no movements in capital controls. These results are robust to decomposing boom-bust episodes along a number of dimensions, including the level of development, the level of external indebtedness, or the exchange-rate regime. We also document a near complete acyclicality of capital controls during the Great Contraction of 2007-2009. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:951&r=ifn |