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on International Finance |
| By: | Mary Amiti; Patrick McGuire; David E. Weinstein |
| Abstract: | What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the “Anna Karenina Principle”: all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country’s creditor banks. This has important implications for why standard models break down during crises. |
| JEL: | F34 G01 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23536&r=ifn |
| By: | Amiti, Mary; McGuire, Patrick M.; Weinstein, David E. |
| Abstract: | What is the role for supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in Amiti and Weinstein (forthcoming) to exactly decompose the growth in international bank credit into common shocks, idiosyncratic supply shocks and idiosyncratic demand shocks for the period 2000-2016. A striking feature of the global banking flows data can be characterized by what we term the "Anna Karenina Principle": all healthy credit relationships are alike, each unhealthy credit relationship is unhealthy in its own way. During non-crisis years, bank flows are well-explained by a common global factor and a local demand factor. But during times of crisis flows are affected by idiosyncratic supply shocks to a borrower country's creditor banks. This has important implications for why standard models break down during crises. |
| JEL: | F34 G01 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12091&r=ifn |
| By: | Obstfeld, Maurice; Ostry, Jonathan D.; Qureshi, Mahvash S. |
| Abstract: | This paper examines the claim that exchange rate regimes are of little salience in the transmission of global financial conditions to domestic financial and macroeconomic conditions by focusing on a sample of about 40 emerging market countries over 1986-2013. Our findings show that exchange rate regimes do matter. Countries with fixed exchange rate regimes are more likely to experience financial vulnerabilities - faster domestic credit and house price growth, and increases in bank leverage - than those with relatively flexible regimes. The transmission of global financial shocks is likewise magnified under fixed exchange rate regimes relative to more flexible (though not necessarily fully flexible) regimes. We attribute this to both reduced monetary policy autonomy and a greater sensitivity of capital flows to changes in global conditions under fixed rate regimes. |
| Keywords: | Capital Flows; emerging market economies; global financial cycle; trilemma |
| JEL: | F31 F36 F41 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12093&r=ifn |