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on International Finance |
| By: | Stijn Claessens; Giulio Cornelli; Leonardo Gambacorta; Francesco Manaresi; Yasushi Shiina |
| Abstract: | We analyse how macroprudential policies (MaPs), largely applied to banks and to a lesser extent borrowers, affect non-bank financial intermediation (NBFI). Using data for 24 of the jurisdictions participating in the Financial Stability Board's monitoring exercise over the period 2002–17, we study the effects of MaP episodes on bank assets and on those NBFI activities that may involve bank-like financial stability risks (the narrow measure of NBFI). We find that a net tightening of domestic MaPs increases these NBFI activities and decreases bank assets, raising the NBFI share in total financial assets. By contrast, a net tightening of MaPs in foreign jurisdictions leads to a reduction of the NBFI share – the effect of a drop in NBFI activities and an increase in domestic banking assets. Tightening and easing MaPs have largely symmetric effects on NBFI. We find that the effect of MaPs (both domestic and foreign) is economically and statistically significant for all those NBFI economic functions that may pose risks to financial stability. |
| Keywords: | macroprudential policy, non-bank financial intermediation, shadow banking, international spillovers |
| JEL: | G10 G21 O16 O40 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:927&r=all |
| By: | Marcin Kolasa; Grzegorz Wesołowski |
| Abstract: | Large international capital movements tend to be associated with strong fluctuations in asset prices and credit, contributing to domestic financial cycles and posing challenges for stabilization policies, especially in emerging market economies. In this paper we argue that these challenges are particularly severe if the global financial cycle is driven by quantitative easing (QE) in the US, and when the local banking sector has large holdings of government bonds, like in many Latin American countries. We first show empirically that a typical round of QE by the US Fed leads to a persistent expansion in credit to households and a significant loss of price competitiveness in this group of economies. We next develop a quantitative macroeconomic model of a small open economy with segmented asset markets and banks, which accounts for these observations. In this framework, foreign QE creates tensions between macroeconomic and financial stability as a contractionary impact of exchange rate appreciation is accompanied by booming credit and house prices. As a consequence, conventional monetary policy accommodation aimed at stabilizing output and inflation would further exacerbate domestic financial cycle. We show that an effective way of resolving this trade-off is to impose a time-varying tax on capital inflows. Combining foreign exchange interventions with tightening of local credit policies can also restore macroeconomic and financial stability, but at the expense of a large redistribution of wealth between borrowers and savers. |
| Keywords: | quantitative easing, global financial cycle, domestic credit, exchange rate interventions, capital controls, macroprudential policy |
| JEL: | E44 E58 F41 F42 F44 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2021063&r=all |
| By: | Billio, Monica; Lo, Andrew W.; Pelizzon, Loriana; Getmansky, Mila; Zareei, Abalfazl |
| Abstract: | The centrality of the United States in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that China now holds a comparable position. Using minute-by-minute data from 2012 to 2020 on the financial performance of twelve country-specific exchange-traded funds, we construct daily snapshots of the global financial network and analyze them for the centrality and connectedness of each country in our sample. We find evidence that the U.S. was central to the global financial system into 2018, but that the U.S.-China trade war of 2018-2019 diminished its centrality, and the Covid-19 outbreak of 2019-2020 increased the centrality of China. These indicators may be the first signals that the global financial system is moving from a unipolar to a bipolar world. |
| Keywords: | Network theory,Centrality,High Frequency Data,ETFs,Financial Crises,Covid-19,International Finance |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:304&r=all |
| By: | Claudia M. Buch; Matthieu Bussiere; Linda S. Goldberg |
| Abstract: | While policymakers around the world have aggressively and swiftly reacted to the common negative economic shock from COVID-19, the timing and forms of policy responses in the economic recovery stage may be more geographically differentiated. The range in policy responses, along with variations in the financial health of banks, likely will affect the flow of international credit through global banks. In this post, we ask whether, based on historical precedent, global banks are likely to provide additional support to the economic recovery in the locations they serve. |
| Keywords: | global bank; international capital flow; COVID-19; recovery; spillovers |
| JEL: | G21 I1 E51 I15 F3 |
| Date: | 2021–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:90038&r=all |