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on International Finance |
| By: | Riccardo Degasperi; Seokki Simon Hong; Giovanni Ricco |
| Abstract: | This paper studies the transmission of US monetary shocks across the globe by employing a high-frequency identification of policy shocks and large VAR techniques, in conjunction with a large macro- financial dataset of global and national indicators covering both advanced and emerging economies. Our identification controls for the information effects of monetary policy and allows for the separate analysis of tightenings and loosenings of the policy stance. First, we document that US policy shocks have large real and nominal spillover effects that affect both advanced economies and emerging markets. Policy actions cannot fully isolate national economies, even in the case of advanced economies with exible exchange rates. Second, we investigate the channels of transmission and find that both trade and financial channels are activated and that there is an independent role for oil and commodity prices. Third, we show that effects are asymmetric and larger in the case of contractionary US monetary policy shocks. Finally, we contrast the transmission mechanisms of countries with different exchange rates, exposure to the dollar, and capital control regimes. |
| Keywords: | Monetary policy, Trilemma, exchange rates, Foreign Spillovers |
| JEL: | E5 F3 F4 C3 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:814&r=all |
| By: | Graciela Laura Kaminsky (George Washington University and NBER); Leandro Medina (Strategy Policy and Review Department, International Monetary Fund); Shiyi Wang (George Washington University) |
| Abstract: | With a novel database, we examine the evolution of capital flows to the periphery since the collapse of the Bretton Woods System in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly use data from the 2000s, we find that booms and busts in capital flows are mainly explained by regional factors and not the global factor. We then ask, what drives these regional factors. Is it the leverage cycle in the financial center? What triggers the leverage cycle in the financial center? Is it a change in global investors’ risk appetite? Or, is it a change in the demand for capital in the periphery? We link leverage in the financial center to regional capital flows and the cost of borrowing in international capital markets to answer these questions. Our estimations indicate that regional capital flows are driven by supply shocks. Interestingly, we find that the leverage in the financial center has a time-varying behavior, with a movement away from lending to the emerging periphery in the 1970s to the 1990s towards lending to the advanced periphery in the 2000s. |
| Keywords: | International Borrowing Cycles, Global and Regional Factors, Push and Pull Factors of Capital Flows, Financial Center Leverage Cycles |
| JEL: | F30 F34 F65 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2020-2&r=all |
| By: | Katharina Bergant; Michael Fidora; Martin Schmitz |
| Abstract: | We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase Programme at the security level. Our empirical analysis shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme and other euro-denominated debt securities, towards foreign debt instruments, including `closest substitutes', i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. Our analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts. |
| Keywords: | Financial and Monetary Sector;Financial crises;Debt securities;Mutual funds;Economic policy;International investment patterns,capital flows,sovereign debt,investor heterogeneity,quantitative easing,WP,PSPP,euro area,debt security,rebalance,MFIs |
| Date: | 2020–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2020/046&r=all |
| By: | Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Rachel Cordonier (Swiss National Bank); Ouarda Merrouche (University of Lausanne) |
| Abstract: | An unintended consequence of loose US monetary policy is the increase in currency risk exposure abroad. Using firm-level data on corporate bond issuances in 17 emerging market economies (EME) between 2003 and 2015, we find that EME companies are more likely to issue bonds in foreign currency when US interest rates are low. This increase occurs across the board, including for firms more vulnerable to foreign exchange exposure, and is particularly strong for bonds issued in local markets. Interestingly, capital controls on bond inflows significantly decrease the likelihood of issuing in foreign currency and can even eliminate the adverse impact of low US interest rates. In contrast, macroprudential foreign exchange regulations tend to increase foreign currency issuances of non-financial corporates, although this effect can be significantly reduced using capital controls. |
| Keywords: | foreign currency, corporate bonds, emerging markets, capital controls, currency risk |
| JEL: | G21 G30 E44 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2051&r=all |
| By: | Callum Jones; Mariano Kulish; Daniel Rees |
| Abstract: | We estimate a two-country model of the US and Canada over the post 2009 sample to study the cross-country spillovers of forward guidance shocks. To do so, we propose a method to identify forward guidance shocks during the fixed interest rate regime. US forward guidance shocks have a larger impact than conventional monetary policy shocks. A 2 quarter expansionary forward guidance shock decreases Canadian output by about 0.2% to 0.4% on impact. The effect of US forward guidance shocks on Canadian output, unlike conventional policy shocks, depends crucially on the state of the US risk premium shock. The estimated forward guidance shocks coincide with significant US monetary policy announcements such as the introduction of calendar based guidance. |
| Keywords: | forward guidance shocks, identification, spillovers, zero lower bound |
| JEL: | E2 E4 E5 F4 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:870&r=all |