International Finance最新文献

Using local projection and event studies, this paper investigates the nonlinear effects of U.S. monetary policy shocks on financial-asset prices in 10 advanced economies from 1990 to 2014. The international asset prices show evidence of the asymmetric or state-dependent propagation of U.S. monetary shocks. Moreover, the results indicate that the nature of the nonlinearity in the propagation of the shocks differs across two asset classes, bond yields, and equity prices. Contractionary U.S. monetary policy shocks are quite influential in sovereign bond markets, while their impacts are largely insignificant in stock markets; the opposite is true for expansionary monetary policy shocks. These results are typical across open economies and suggest that U.S. monetary announcements and the subsequent reactions of international risk premiums may play a critical role in international shock propagation.

The correlation between stock and bond returns, which went from positive in the 1980–1990s to negative in the 2000–2010s, is analysed with a model that simultaneously determines the price of stocks and bonds as dependent on the real interest rate, economic growth and inflation. The analysis finds that the structural reversal of the correlation in the United States and Germany largely depends on the dynamics of inflation, which has gone from counter-cyclical to pro-cyclical. In turn, inflation is likely to be pro-cyclical when it is low or negative and propelled by demand rather than supply shocks. A negative correlation implies that bonds can hedge the risk of stocks when the economy is in poor condition, thus increasing the demand for bonds. However, central-bank purchases of long-term bonds have increased the correlation and made portfolio immunization more difficult for investors.

This paper characterizes trends of the shares of the U.S. dollar, the euro, and total foreign currencies in international debt denomination over the last two decades. We find that countries with a high output growth trend, greater financial development, better fiscal conditions, and more investment opportunities tend to decrease the extent of their reliance on the dollar, but increase that on the euro, while their dependency on total foreign currencies remains unaffected. Stronger trade ties with the United States (the euro area) contribute to a higher dollar (euro) share in the currency denomination of international debt securities. We also find that absent from the global financial crisis (GFC), the dollar (euro) share in debt denomination would have been higher (lower) than the observed shares in the postcrisis period. That suggests that the outbreak of the GFC increased the demand for the dollar as a safe haven.

Exchange rate volatility is a stated concern for policymakers in many emerging market economies. This paper investigates whether exchange rate volatility impacts the commitment to inflation targeting monetary policy by analyzing thirteen emerging market economies and nine advanced economies from 2000 to 2016. Using a dynamic panel threshold regression model, the response of the domestic target interest rate to the inflation gap, output gap, and exchange rate condition is tested in scenarios of above-threshold and below-threshold exchange rate volatility. Both emerging and advanced economies adhere to their inflation targeting commitments when exchange rate volatility is below 1%, but are unable or unwilling to respond to deviations in the inflation gap when volatility is beyond this threshold value.

This study examines how excessive growth in credit, housing and international capital flows, referred to as credit, housing and capital booms, can serve as an early warning signal (EWS) for an impending banking crisis. We examine 56 sample countries that comprise 32 advanced countries and 24 emerging countries. We have two novel results. The first supports the “more booms, stronger warning signal” argument for predicting the onset and persistence of a crisis. The joint consideration of credit, housing and foreign capital booms can be an important EWS for a systemic banking crisis. Second, the lead times for the three booms are different. Capital booms occur 1 year ahead of a crisis, but credit and housing booms occur 2 years ahead.

We examine the sensitivity of corporate investment to stock-market valuations (measured by Tobin's q) and internal funds (measured by cash flow) in a setting that captures the unique country institutional characteristics of the Middle East and North Africa region. We report a higher sensitivity of investments to cash flow than Tobin's q. However, both sensitivities are unaffected by the country institutional characteristics. By examining the sensitivity of investments to cash flow and Tobin's q before and after the 2008 global financial crisis, we document that the investment-cash flow relation has weakened over time, while the investment-Tobin's q relation has significantly strengthened. Finally, after dividing our country sample into resource-rich and resource-poor countries, the importance of cash flow over Tobin's q in the determination of corporate investment levels is asserted and the role of financial markets is found to be restricted to resource-rich countries only.

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.