International Finance最新文献

This paper investigates empirically the linkages between corporate debt overhang and investment activity at the firm level for a cross section of large-sized emerging market and developing economies. It analyzes the extent to which investment may be discouraged by high levels of debt that put at risk future profits, as well as firm dimensions that may sharpen the debt-investment link. Using balance sheet data from a broad set of emerging market and developing economy firms, the analysis suggests that corporate debt overhang imposes a sizable effect on investment at the firm level. This linkage is more pronounced for large firms and highly leveraged firms. The analysis also finds evidence of a nonlinear effect, in which debt overhang discourages investment more severely under high levels of indebtedness.

The global financial crisis triggered discussions about what factors constitute a stable mortgage finance system. This paper contributes to these discussions by empirically analysing the Swiss mortgage finance system from a macroeconomic and banking sector balance sheet perspective. Our analysis is based on a novel and near-comprehensive data set of mortgage bond (Swiss Pfandbrief) issuances over the sample period from 1932 to 2014. The empirical results suggest that growth in the volume of the Swiss Pfandbrief does not induce more loan growth than expected given the state of the economy and that compared with other bank refinancing activities, the Swiss Pfandbrief provides a stabilising source of funding.

This paper asks whether a textbook Phillips curve can explain the behavior of core inflation in the euro area. A critical feature of the analysis is that we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the Organisation for Economic Co-operation and Development); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery.

This paper examines how the short-sales constraints on stocks affect the pricing of firm characteristics—size, book-to-market ratio, liquidity, earnings-to-price ratio and dividend yield. Using a unique feature of Hong Kong regulations on short selling that, at each point of time, only a designated list of stocks can be sold short, we find that stocks not allowed to be sold short have higher adjusted returns, exhibit more prominent size effect and offer higher compensation for lagged illiquidity than stocks that can be sold short. The results also indicate that the presence of both short-sales constraints and opinion dispersion would cause contemporaneous returns to rise and future returns to fall by more than those caused by the opinion dispersion only. Practically, when financial analysts evaluate the stocks, or fund managers construct their trading strategies based on some financial anomalies, the shortability of the assets has to be a very important factor to be considered.

This study investigates the apparent lack of insurance against country-specific risk observed internationally. Using a sample of 21 emerging and 21 advanced economies over the period 1980–2014, I document new evidence from international co-movements of prices and quantities suggesting that risk sharing is worse in emerging economies than in advanced economies. I then extend a standard international business cycle model to assess the implications of the “cycle is the trend” hypothesis for international risk sharing. I show that shocks to trend productivity growth provide a compelling explanation for the distinct risk-sharing features of emerging market economies. The findings of this study are relevant for the conduct of stabilization policy, as it critically depends on the nature of the shocks that affect an economy.

This study applies the spatial Durbin model to analyse the extent to which international trade and geographical proximity affect the stability of African sovereign-debt markets. Using sovereign credit default swap spreads, our empirical findings show that it is not only a country's macroeconomic fundamentals that influence its likelihood of default but also contagion from other countries. Trade linkages are found to be a strong transmission channel for contagion risk, especially among countries that trade heavily. A decomposition of the results demonstrates that at least 60% of the variation in credit default swap spread changes is attributed to spillovers through the trading channel. A change in the weighting matrix to geographical proximity confirms the baseline findings that an African country's debt market is susceptible to macroeconomic events in other countries.

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.