International Finance最新文献

Bank competition in Japan is weakening. This study theoretically analyzes the supply side of the bank loan market to examine how this weak banking competition influences the effectiveness of monetary policies. In a Cournot game, there are efficient banks, and inefficient banks that must pay a risk premium in the call market. Less competitive banks either go out of business or merge with efficient banks. The call rate and risk premium are central banks’ policy instruments. This paper's main finding is that, with a few exceptions, the weak competition reduces the effectiveness of monetary policies because concentration decreases the volume of bank loans. However, concentration makes monetary policy via a reduced risk premium more effective when this policy targets inefficient banks that do not exit or merge. In response to lending declines by efficient banks when they exit or merge, inefficient banks increase their lending activity.

This paper compiles a novel data set of time-varying measures of government-consumption cyclicality for a panel of 46 African economies between 1960 and 2014. Government consumption has, generally, been highly procyclical over time in this group of countries. However, sample averages hide serious heterogeneity across countries with the majority of them showing procyclical behaviour despite some positive signs of graduation from the “procyclicality trap” in a few cases. By means of weighted least squares regressions, we find that more developed African economies tend to have a smaller degree of government-consumption procyclicality. Countries with higher social fragmentation, and those that are more reliant on foreign aid inflows, tend to have a more procyclical government-consumption policy. Better governance promotes countercyclical-fiscal policy while increased democracy dampens it. Finally, some fiscal rules are important in curbing the procyclical behaviour of government consumption.

This paper revisits the monetary “trilemma” versus “dilemma” debate by examining empirically interest-rate policy independence for a large sample of both advanced and developing countries over the period 1973–2014. We broadly concur with the growing body of literature that suggests that the trilemma still holds, emphasizing the important insulating effects afforded by exchange-rate flexibility. However, as with Han and Wei (2018), we also document the existence of an asymmetric pattern or 2.5-lemma between the trilemma and dilemma; though, in contrast to them, we find there seems to be evidence of a “fear of capital reversal” rather than a “fear of appreciation.” We further find that holding higher levels of foreign reserves may help countries regain a degree of monetary-policy autonomy.

A large share of global trade being priced and invoiced primarily in U.S. dollar rather than the exporter's or the importer's currency has important implications for the transmission of shocks. We introduce this “dominant-currency pricing” (DCP) into ECB-Global, the ECB's macroeconomic model for the global economy. To our knowledge, this is the first attempt to incorporate DCP into a major global macroeconomic model used at central banks or international organisations. In ECB-Global, DCP affects in particular the role of expenditure-switching and the U.S. dollar exchange rate for spillovers: In case of a shock in a non-U.S. economy that alters the value of its currency multilaterally, expenditure-switching occurs only through imports; in case of a U.S. shock that alters the value of the U.S. dollar multilaterally, expenditure-switching occurs both in non-U.S. economies’ imports and—as these are imports of their trading partners—exports. Overall, under DCP the U.S. dollar exchange rate is a major driver of global trade, even for transactions that do not involve the United States. To illustrate the usefulness of ECB-Global and DCP for policy analysis, we explore the implications of the euro rivalling the U.S. dollar as a second dominant currency in global trade. According to ECB-Global, in such a scenario the global spillovers from U.S. shocks are smaller, whereas those from euro area shocks are amplified; domestic euro area monetary policy effectiveness is hardly affected by the euro becoming a second globally dominant currency in trade.

This paper investigates how safe (or risky) the Chinese renminbi is as an international currency from the perspectives of dollar- and euro-based investors. It estimates the “safehavenness” of the currency, defined as the extent to which the currency plays the role of a safe haven, in both its onshore and offshore markets alongside 20 most-traded currencies in the world, including those in the special drawings rights (SDR) basket. We find that the Chinese renminbi has generally registered a high level of safehavenness among the most-traded currencies since it became actively traded in the offshore market. Compared with the other SDR currencies, it consistently ranks below the Japanese yen and U.S. dollar but above the British pound and euro on the scale of safehavenness. Despite market fragmentation, the safehavenness of the Chinese renminbi onshore (CNY) is very similar to, albeit marginally lower, that of the Chinese renminbi offshore (CNH), attributable possibly to a stronger price discovery process in the latter market. These estimation results show striking consistency between dollar- and euro-based investors in their assessment across various time periods characterized by major structural differences.

In the context of debates about the euro exchange rate's (EXR) impact on Germany's (DE) trade surplus, we estimate a multiregion macroeconomic model (1999–2018) and provide a counterfactual in which we simulate the shocks of the estimated model in an alternative setting with freely floating nominal EXRs. The results suggest a reduction of the DE trade surplus by up to 1.3% of gross domestic product (GDP; around 1/4 of the surplus) during 2010–2015 compared to the data, together with a stronger real effective EXR (REER). The rest of the euro area (REA) net exports are more negative (by up to −0.6% of GDP) in the counterfactual before the EA crisis, but more positive (by up to 0.4% of GDP) in recent years. Overall, the counterfactual DE and REA trade balance and REER trajectories are very similar to the actual paths. Modifying shock processes in the counterfactual would give rise to larger differences.

Sovereign and bank risk can feed into each other and trigger destabilizing dynamics. In this paper, I use euro-area countries’ credit default swap data to study what factors and shocks underlie bouts of enhanced correlation between bank and sovereign risk. Sovereign risk pass-through, where sovereign instability undermines domestic banks’ health, is stronger than bank risk pass-through, where bank instability taints the sovereign's fiscal outlook. When banks are more exposed to the sovereign or the latter loses its investment-grade status, sovereign risk transfers to banks particularly strongly. In the other direction, risk transmits to the sovereign from banks more strongly if the banks are larger or if the government is bailing them out. During bailout periods, bank risk pass-through is more likely if banks hold more domestic sovereign debt, they are more externally indebted, or the sovereign debt stock is higher.