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on International Finance |
| By: | Frankel, Jeffrey (Harvard University) |
| Abstract: | After a 30-year absence, calls for international coordination of macroeconomic policy are back. This time the issues go by names like currency wars, taper tantrums, and fiscal compacts. In traditional game theory terms, the existence of spillovers implies that countries are potentially better off if they coordinate policies than under the Nash non-cooperative equilibrium. But what is the nature of the spillover and the coordination? The paper interprets recent macroeconomic history in terms of four possible frameworks for proposals to coordinate fiscal policy or monetary policy: the locomotive game, the discipline game, the competitive depreciation game (currency wars) and the competitive appreciation game. (The paper also considers claims that monetary coordination has been made necessary by the zero lower bound among advanced countries or financial imperfections among emerging markets.) Perceptions of the sign of spillovers and proposals for the direction of coordination vary widely. The existence of different models and different domestic interests may be as important as the difference between cooperative and non-cooperative equilibria. In some cases complaints about foreigners' actions and calls for cooperation may obscure the need to settle domestic disagreements. |
| JEL: | F42 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:16-002&r=ifn |
| By: | McQuade, Peter; Schmitz, Martin |
| Abstract: | This paper highlights a recent ‘great moderation’ in global capital flows, characterised by smaller volumes and lower volatility of cross-border transactions. However, there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005-06, immediately prior to the onset of the global financial crisis, to the post-crisis period of 2013-14, when global flows arguably settled at a ‘new normal’. We find that since the pre-crisis period, gross capital inflows recovered more for economies with smaller pre-crisis external and internal imbalances, lower per capita income, improving growth expectations, a less severe impact of the global financial crisis and less stringent macroprudential policy. On the asset side, countries with a more accommodative monetary policy, a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post-crisis period. JEL Classification: F15, F21, F32 |
| Keywords: | external imbalances, global financial crisis, international capital flows, monetary |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20161952&r=ifn |
| By: | Berrospide, Jose M. (Board of Governors of the Federal Reserve System); Correa, Ricardo (Board of Governors of the Federal Reserve System); Goldberg, Linda S. (Federal Reserve Bank of New York); Niepmann, Friederike (Board of Governors of the Federal Reserve System) |
| Abstract: | Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. Using U.S. micro-banking data for the first quarter of 2000 through the third quarter of 2013, this study shows that some regulatory changes indeed spill over. First, a foreign country’s tightening of limits on loan-to-value ratios and local currency reserve requirements increase lending growth in the United States through the U.S. branches and subsidiaries of foreign banks. Second, a foreign tightening of capital requirements shifts lending by U.S. global banks away from the country where the tightening occurs to the United States and to other countries. Third, tighter U.S. capital regulation reduces lending by large U.S. global banks to foreign residents. |
| Keywords: | macroprudential policies; international banking; bank credit; spillovers |
| JEL: | F42 F44 G15 G21 |
| Date: | 2016–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:793&r=ifn |
| By: | Scheubel, Beatrice; Stracca, Livio |
| Abstract: | This paper critically reviews the theoretical basis for the provision of the global financial safety net (GFSN) and provides a comprehensive database covering four elements of the GFSN (foreign exchange reserves, IMF financing, central bank swap lines and regional financing arrangements) for over 150 countries in the sample period 1960-2015. This paper also presents some key stylised facts regarding the provision of GFSN financing and compares macroeconomic outcomes in capital flow reversal episodes depending on how much GFSN financing was available to countries. Finally, this paper concludes with some avenues for further research on the possible evolution of the GFSN. JEL Classification: F32, F33, F34, G01, H87 |
| Keywords: | financial globalisation, financial integration, global financial safety net, IMF |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2016177&r=ifn |
| By: | Joyce, Joseph |
| Abstract: | This paper investigates the change in the composition of the liabilities of emerging market countries from primarily debt (bonds, bank loans) to equity (foreign direct investment, portfolio) in the decades preceding the global financial crisis. We investigate the determinants of equity and debt liabilities on external balance sheets in a sample of 21 emerging market economies and 20 advanced economies over the period of 1981-2013. We use a new measure of domestic financial development that allows us to distinguish between financial institutions and financial markets. Our results show that the development of financial markets is linked to an increase in equity liabilities, and in particular, portfolio equity. FDI liabilities are more common when financial institutions are not well developed. Larger foreign exchange reserves are associated with larger amounts of portfolio equity. Moreover, countries with higher economic growth rates have larger amounts of equity liabilities. Domestic credit is inversely related to the share of equity in all liabilities. Foreign debt, on the other hand, is inversely related with the development of domestic financial markets. Larger amounts of debt liabilities are also associated with smaller foreign reserve holdings, lower growth rates and larger amounts of domestic credit. |
| Keywords: | : equity, FDI, portfolio equity, debt |
| JEL: | F21 F34 F36 |
| Date: | 2016–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73880&r=ifn |
| By: | Gandhi, Priyank (University of Notre Dame); Lustig, Hanno (Stanford University); Plazzi, Alberto (University of Lugano and Swiss Finance Institute) |
| Abstract: | Equity is a cheap source of funding for a country's largest financial institutions. In a large panel of 31 countries, we find that the stocks of a country's largest financial companies earn returns that are significantly lower than stocks of non-financials with the same risk exposures. In developed countries, only the largest banks' stock earns negative risk-adjusted returns, but, in emerging market countries, other large non-bank financial firms do. Even though large banks have high betas, these risk-adjusted return spreads cannot be attributed to the risk anomaly. Instead, we find that the large-minus-small, financial-minus-nonfinancial, risk-adjusted spread varies across countries and over time in ways that are consistent with stock investors pricing in the implicit government guarantees that protect shareholders of the largest banks. The spread is significantly larger for the largest banks in countries with deposit insurance, backed by fiscally strong governments, and in common law countries that offer shareholders better protection from expropriation. Finally, the spread also predicts large crashes in that country's stock market and output. |
| JEL: | G01 G12 G21 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3454&r=ifn |