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on International Finance |
| By: | Levy Yeyati, Eduardo (Harvard University and Universidad Torcuato di Tella); Zuniga, Jimena (Universidad Torcuato di Tella) |
| Abstract: | Capital flows have been the subject of key policy concern since the Brady plan launched the emerging markets asset class. Their massive volume, coupled with their volatile and procyclical nature, is often associated with a variety of financial and real risks: excess exchange rate volatility (gradual overvaluation and sharp corrections), dollar liquidity crunches, distressed asset sales, and crisis propensity. These risks have changed over time. Emerging market crises in the 1990s and 2000s were inherently driven by financial dollarization and balance sheet effects, the latter were intimately related with capital inflows in the form of growing foreign liability positions. But, now that financial dollarization has receded in the emerging market word (either through debt deleveraging or international reserve accumulation), the focus shifted to the macroeconomic effects of cross market flows, including extended periods of exchange rate misalignment and the amplification of business cycles in a context of large and persistent terms-of-trade shocks and global liquidity swings. Hence, the difficulty of evaluating capital flows based on data mostly from the 1990s and early 2000s. Hence, also, the emphasis on the recent empirical literature that revisits the issue with fresh data and an open mind. |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp15-025&r=all |
| By: | Fabio Comelli |
| Abstract: | We identify episodes of sudden stops in emerging economies and estimate the probability to observe them. Sudden stops are more likely when global growth falters, risk aversion in financial markets rises, and vulnerabilities in the external and financial sectors increase. However, the significance of the explanatory variables vary across regions. In Latin America and Eastern Europe, gross capital inflows are more responsive to changes in global growth than in Asia. Trade linkages tend to be more important than financial linkages in Eastern Europe, while in Asia and Latin America the opposite is true. The model captures only a third of sudden stops outside the estimation sample, but issues reliable sudden stop signals. |
| Keywords: | Capital flows;Cross country analysis;Emerging markets;International finance;Parameter estimation;Regional economics;Sensitivity analysis;Sudden stops;gross capital inflows, emerging market economies, emerging market, market, market economies, Models with Panel Data, emerging market economies., |
| Date: | 2015–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/138&r=all |
| By: | Gustavo Adler; Noemie Lisack; Rui Mano |
| Abstract: | We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets. |
| Keywords: | Central banks and their policies;Foreign exchange intervention;Foreign exchange;Reserves;exchange rate, exchange, exchange rates, central bank, |
| Date: | 2015–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/130&r=all |
| By: | Eguren-Martin, Fernando (Bank of England) |
| Abstract: | The acceleration in the formation of global imbalances in the period preceding the last financial crisis prompted a revival of the debate on whether exchange rate regimes affect the flexibility of the current account (ie its degree of mean reversion), as originally proposed by Friedman (1953). I analyse this relation systematically using a panel of 180 countries over the 1960–2007 period. In contrast to pioneering work on the subject, I find robust evidence that flexible exchange rate arrangements do deliver a faster current account adjustment among non-industrial countries. Additionally, I try to identify channels through which this effect could be taking place. Evidence suggests that exports respond to expenditure-switching behaviour by consumers when faced with changes in international relative prices. There is mixed evidence of credit acting as an additional avenue of influence. |
| Keywords: | External dynamics; exchange rate regimes; current account imbalances. |
| JEL: | F31 F32 F33 F41 |
| Date: | 2015–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0544&r=all |