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on International Finance |
| By: | Gourinchas, Pierre-Olivier; Rey, Hélène; Sauzet, Maxime |
| Abstract: | International currencies fulfill different roles in the world economy with important synergies across those roles. We explore the implications of currency hegemony for the external balance sheet of the United States, the process of international adjustment, and the predictability of the US dollar exchange rate. We emphasize the importance of international monetary spillovers, of the exorbitant privilege, and analyse the emergence of a new `Triffin dilemma'. |
| Keywords: | Exchange Rates; External assets and liabilities; Global financial cycle; International adjustment; International Currencies; Triffin dilemma |
| JEL: | E0 F3 F4 G1 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13714&r=all |
| By: | Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo |
| Abstract: | We show that local central bank policies attenuate global financial cycle (GFC)’s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (with strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, Brazilian FX large intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local policies confirm the results. |
| Keywords: | foreign exchange, monetary policy, central bank, bank credit, hedging |
| JEL: | E5 F3 G01 G21 G28 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1089&r=all |
| By: | Michael D. Bauer; Aeimit Lakdawala; Philippe Mueller |
| Abstract: | This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the transmission of monetary policy to financial markets. First, changes in uncertainty have substantial effects on a variety of asset prices that are distinct from the effects of the conventional policy surprise measure. For example, the Fed's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path. Second, at high levels of uncertainty a monetary policy surprise has only modest effects on assets, whereas with low uncertainty the impact is significantly more pronounced. |
| Keywords: | monetary policy uncertainty, Federal Reserve, event study, monetary transmission, implied volatility |
| JEL: | E43 E44 E47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7621&r=all |