International Finance最新文献

This paper investigates the impact of infectious diseases on the evolution of sovereign credit default swap (CDS) spreads for a panel of 77 countries. Using annual data over 2004–2020, we find that infectious-disease outbreaks have no discernible effect on CDS spreads, after controlling for macroeconomic and institutional factors. However, a granular analysis using high-frequency data indicates that the COVID-19 pandemic has had a significant impact on CDS spreads. This adverse effect appears to be more pronounced in advanced economies, which may reflect the greater severity of the pandemic and depth of the economic crisis in these countries, at least during the initial stage of the outbreak, as well as underreporting in developing countries due to differences in testing availability and institutional capacity. While more stringent containment measures help lower sovereign CDS spreads, the fiscal burden of these efforts could undermine credit worthiness and eventually push the cost of borrowing higher.

This study tests whether international reserve accumulation is inflationary because of moral hazard and incentive effects. We use the 2009 allocation of Special Drawing Rights (SDR) as a natural experiment to trace the effect of an exogenous nonmonetary shock on International Monetary Fund members' reserve holdings. In countries that received large SDR allocations, inflation was about half a percentage point higher in the 2 years following the allocation, controlling for other standard determinants. This effect is commensurate with the size of these countries' discretionary fiscal deficits. This result is consistent with the hypothesis that reserve accumulation may be inflationary because of incentive effects.

We distinguish the announcement effects of conventional and unconventional monetary policy measures on macroeconomic variables using a high-frequency data set that measures the impact of the European Central Bank's monetary policy decisions. For the period 2002 to 2019, we show that conventional and unconventional monetary policy measures differ considerably in their impact on inflation. While conventional measures show the expected response, that is, an interest rate cut increases inflation, unconventional measures appear to generally have no significant influence. However, this does not hold for quantitative easing, which is found to have a similar influence on inflation as the conventional interest rate changes.

In response to severe fiscal consolidation policies implemented after the Great Recession and the euro area sovereign debt crisis, many have questioned the effectiveness of fiscal consolidations in reducing the burden of public debt. This paper revisits this fundamental policy debate qualitatively and quantitatively, studying conditions under which primary budget balance changes can successfully reduce government debt-to-GDP ratios. We first illustrate these conditions through a partial equilibrium setting. We then investigate the conditions quantitatively using a medium-scale New Keynesian DSGE model calibrated on periphery countries of the euro area. The analysis highlights the critical role of sovereign spreads in driving the debt-to-GDP dynamics following a restrictive primary balance shock. Fiscal consolidations turn out to successfully reduce the debt-to-GDP even for fairly low elasticities of spreads to fiscal variables. However, their effectiveness is quantitatively moderate and varies crucially with the initial spread level, with the degree of monetary policy accommodation, and with the responsiveness of market investors to economic fundamentals.

U.S. and European research suggests that firms tend to overpay when acquiring cross-border targets. Our research focuses on an Asian setting. We find that Japanese acquirers pay significantly higher premiums for cross-border targets than for domestic ones. We also find that, in the case of acquisitions of domestic firms, acquirers that are laden with debt or that have higher market-to-book ratios (which signals their attractiveness) pay lower premiums. By contrast, we find that in the case of cross-border acquisitions, neither variable has a significant impact on premiums, which suggests that premiums are not set efficiently for cross-border acquisitions.

A broad perspective on the sectoral composition of the domestic borrower and recipients of capital flows is needed to deepen the understanding of the mechanisms through which cross-border capital flows interact with credit provision. Exploring this detail reveals stark differences across (i) credit measures that include only lending by banks and those that encompass all lenders (ii) the sum of all private borrower sectors versus nonfinancial corporation and household credit (iii) advanced economies and emerging markets (iv) instrument and sectoral composition of flows.