International Finance最新文献

Procyclicality of fiscal policy is a common feature in emerging markets, by contrast with high-income economies, and leads to greater business-cycle amplitudes. We investigate potential causes of fiscal procyclicality, including a host of economic and institutional variables of especial import in emerging markets. We employ dynamic panel methods in a large sample of countries to investigate what factors are associated with fiscal cyclicality. We find that fiscal procyclicality is mainly due to procyclical fluctuations in government investment expenditure. In addition, we find that procyclical fiscal policy is positively associated with government debt levels, terms-of-trade volatility, and costs of foreign borrowing, while negatively associated with better government efficiency. Only a weak association is found between International Monetary Fund program participation and fiscal procyclicality. Finally, we find that certain fiscal rules are associated with lower fiscal procyclicality and, in particular, balanced-budget rules may help mitigate the adverse cyclicality effects of high terms-of-trade volatility and government debt burdens in emerging markets.

According to Jean Monnet, one of the founding fathers of the European integration after World War II, Europe always needs a crisis to make progress in integration. The COVID-19 crisis seems to deliver a perfect case to go forward. The pandemic represents an exogenous shock for all EU member countries. But the impact is asymmetric. Countries with already high public debt before the crisis would run into great difficulties in financing the measures needed to stabilise their economies. Against this background, a number of politicians and academics have called for a “Hamilton moment” and proposed mutualising the new debt at the European level and providing the financial means to the countries most seriously hit by the pandemic.

In 1790, upon a proposal by the Union's finance minister Alexander Hamilton, the debt of states accumulated during the War of Independence was assumed by the Union. Hamilton interpreted this act as “cement” for the Union. Should the EU follow this example and move in the direction of a fiscal union? This article tries to demonstrate that the historical comparison is not well founded, and the establishment of a fiscal union in Europe needs a change of the Treaty on the Union.

European integration saw many ups and downs and always needed a crisis to make an important step forward. According to this perception, on the one hand, European integration is based on a grand political design. On the other hand, progress in political reality can only be achieved—and the manifold obstacles overcome—under the pressure of a crisis.

In short, politics must use the opportunity, following the motto: never let a crisis go to waste. Since the start of (Western) European integration after the end of WWII, there has been no shortage of crises. The great financial crisis of 2008/2009 was only partly used to deepen integration—and mainly wasted. The turbulences caused by the current pandemic now offer an almost unique chance to do better.

For many observers—among them German Finance Minister Olaf Scholz—this crisis offers a “Hamilton moment”, referring to the situation after the American War of Independence. Alexander Hamilton, the first Finance Minister of the Union, proposed the assumption of the debt that states had accumulated to finance their participation in the war. Hamilton argued that the debt of the 13 states was not the consequence of permissive fiscal policy, but due to external circumstances—today, one would call it an exogenous shock—namely the war. The debt was the price of liberty (Hamilton, 1790). On 4 August 1790, the US Congress accepted Hamilton's proposal to assume, that is, nationalise, states’ debt. Negotiations ended in a compromise. In exchange for the bail-out, the authority to tax imports, the most important source of revenue, was transferred from the states to the federal government (Sargent, 2012). (The compromise also included the decision to make Washington the futur

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.