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on International Finance |
| By: | Signe Krogstrup; Cédric Tille |
| Abstract: | The literature on the drivers of capital flows stresses the prominent role of global financial factors. Recent empirical work, however, highlights how this role varies across countries and time, and this heterogeneity is not well understood. We revisit this question by focusing on financial intermediaries’ funding flows in different currencies. A concise portfolio model shows that the sign and magnitude of the response of foreign currency funding flows to global risk factors depend on the financial intermediary’s pre-existing currency exposure. An analysis of a rich dataset of European banks’ aggregate balance sheets lends support to the model predictions, especially in countries outside the euro area. |
| Date: | 2018–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/97&r=ifn |
| By: | Callum Jones; Mariano Kulish; Daniel M. Rees |
| Abstract: | After 2007, countries that cut their policy interest rates close to zero turned, among other policies, to forward guidance. We estimate a two-country model of the U.S. and Canada to quantify how unexpected changes in U.S. forward guidance affected Canada. Expansionary U.S. forward guidance shocks, like conventional policy shocks, are beggar-thy-neighbor and depress Canadian output, but by twice as much as conventional shocks. We find that the effect of U.S. forward guidance shocks on Canadian output, unlike conventional policy shocks, depends on the state of U.S. demand and can be five times smaller when U.S. demand is weak. |
| Date: | 2018–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/114&r=ifn |