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on International Finance |
| By: | Bacchetta, Philippe; Cordonier, Rachel; Merrouche, Ouarda |
| 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: | capital controls; corporate bonds; currency risk; emerging markets; foreign currency |
| JEL: | E44 G21 G30 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14928&r= |
| By: | Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Padova) |
| Abstract: | We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is. |
| Keywords: | Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier |
| JEL: | C32 E32 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0269&r= |