International Finance最新文献

Governments are responsible for economic policy implementation, and their actions affect financial and capital market outcomes. Specifically, the way fiscal policy is conducted matters when credit agencies have to decide on how to rate a sovereign. This paper empirically assesses the effect of a new time-varying measure of fiscal counter-cyclicality on the sovereign credit ratings of the main agencies: Fitch, Standard & Poor's, and Moody's. I focus on a heterogeneous sample of 63 advanced and developing economies between 1980 and 2015. First, we find that the degree of fiscal counter-cyclicality is generally positive and has been increasing over time, being larger in advanced economies. Second, the more counter-cyclical a fiscal policy is, the better the assessment a rating agency gives to that country, particularly if it is an advanced one. This suggests that fiscal prudence and stabilization concerns are rewarded. Our results are robust to several sensitivity and robustness checks.

We examine the temporal dynamics of the historical series of real interest rates for France, Germany, Italy, Japan, the Netherlands, Spain pre-1730 and post-1800, the United Kingdom, and the United States stretching back to the 14th century. We use the Robinson approach to determine the fractional order of integration and examine both linear deterministic trends and multiple smooth breaks. In the latter case we make use of the Chebyshev polynomials in time. With the exception of two countries (Italy and France), where the linear model appears more appropriate, our results reveal evidence that real interest rates are driven by the interaction between nonlinearities in the deterministic trends and fractional integration processes. They suggest that real interest rates are mean-reverting but not as persistent as suggested in the literature. In particular, the nonlinear model with autocorrelated errors provides no evidence of long memory, which questions most of the literature on real interest rates. The implications of these results are relevant to evaluate the effectiveness of policy interventions and the theoretical implications of different macroeconomic models as shocks affecting real interest rates will dissipate by themselves.

This paper examines currency manipulation policies in foreign exchange markets. In particular, we focus on whether a country has implemented one-sided interventions that mostly lean against the appreciation wind in foreign exchange markets. Using quarterly data from 1998:Q1 to 2017:Q2 for 10 emerging countries, we find that China, Singapore, and Taiwan engaged in one-sided interventions. A further rolling regression analysis shows some moderate evidence that Taiwan is the only country conducting one-sided interventions on a continuing basis.

Using a unique data set of information ratings (IRs) for firms listed on the Shenzhen Stock Exchange from 2001 to 2018, we examine the impact of information asymmetry on capital structure decisions in China. We determine that firms with higher IRs have fewer debt issuances and lower leverage. This negative relationship is consistent for firms listed on the Main Board, Small and Medium-sized Enterprise (SME) board and Growth Enterprise Market (GEM) board. We further decompose IR into accounting-associated and nonaccounting-associated components and find that both are negatively correlated with leverage. Additional analyses reveal that for firms listed on the SME and GEM boards, the nonaccounting-associated component exhibits a stronger relationship with leverage than does the accounting-associated component. Our results suggest that information asymmetry is instrumental in capital-structure decision-making.

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.