International Finance最新文献

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.

This paper shows that bilateral currency crises reduce bilateral trade up to 50% after controlling for the depreciation rate. Using a trade model, these reductions are connected to the welfare costs of currency crises. The results show that a single currency crisis can result in welfare reductions through changes in international trade corresponding to more than 10% (and up to 41%) of the costs of autarky for 23 different currency crisis episodes between 1960 and 2014. These welfare costs are also shown to be greater than the welfare gains from having free trade agreements and using common currencies for 25 different currency crisis episodes.

We compute steady-state economic growth—defined as the rate of growth that the economy would converge to in the absence of new shocks. As we show, this rate can be computed in real-time by means of a parsimonious time-varying parameter (TVP) vector autoregression model. Our procedure offers a relatively agnostic estimation of benchmark equilibrium growth rates. Estimates show that the steady-state gross domestic product growth rate in the case of the United States has declined from just above 3% per year in the 1990s to 2.4% at present. Results for other six advanced economies and the euro area indicate that the steady-state growth rate, which is consistent with stable inflation and financial conditions, has been relatively stable since 2010 in most cases in spite of a recent slowdown in actual GDP growth rates. In contrast, per capita steady-state growth rates during the last decade were typically lower than in the 1990s.