Journal of International Money and Finance最新文献

A stylized fact of international capital markets is that advanced countries tend to be long and developing countries short in risky assets (i.e., portfolio equity and foreign direct investment (FDI)). In other words, residents of advanced countries hold a larger stock of portfolio equity abroad than residents of developing countries, and firms in advanced countries have more foreign subsidiaries than firms in developing countries. This paper is the first to utilize a large-scale international survey on economic preferences to propose a behavioral explanation for the heterogeneity in the asset composition of international investment positions. We provide robust empirical evidence that countries with a high time preference (i.e., patience) or a high risk preference (i.e., risk-taking) tend to have a positive net international investment position and a positive net risky position. In addition, we show that countries with a high degree of negative reciprocity (e.g., willingness to punish for unfair action) tend to have a positive net FDI position. Overall, our findings suggest that preferences are important determinants of cross-country variation in net foreign asset positions.

This paper studies the impact of global oil market shocks on the level, volatility, and correlation dynamics of real effective exchange rates over time. We find that the USD and the EURO act as shock absorbers, as shocks to the global oil market explain substantial proportions of the volatility and correlation dynamics of each exchange rate – compared to the small or even negligible contributions of exogenous interest rate and effective exchange rate shocks. Further we find an interesting “puzzle” that the Euro Area unexpectedly behaves as if it were an oil exporting country - the EURO appreciates in response to a flow demand shock that increases oil price. Our findings are garnered from a generalized time-varying SVAR model with stochastic volatility that allows for correlated disturbances between observation and transition equations and among transition equations themselves. This approach of enriching dynamics between the first and second moments of endogenous variables is particularly suitable for capturing the transmission of structural level oil shocks to the volatility of exchange rates and their correlation with the global oil market.

Using a panel of over 200 countries and 30 years of annual data since 1990, we find evidence of increasing durability in national monetary regimes. There are now three types of long-lived monetary systems. There have long been stable multilateral currency unions in the developing world, most notably in the Caribbean and both Western and Central Africa; the advent of EMU has (re-)introduced monetary union to the rich countries of Western Europe. A large number of mostly small countries continue to have durably fixed exchange rates. Most dramatically, inflation-targeting has emerged as a third stable monetary regime. We document the decline in monetary instability across countries and discuss some of the slowly evolving causes. Rising monetary stability and the spread of inflation targeting has had benign consequences for business cycles, inflation, real exchange rate volatility, openness, and the incidence of financial crises.

We begin by examining determinants of aggregate foreign exchange reserve holdings by central banks (size of issuing country’s economy and financial markets, ability of the currency to hold value, and inertia). But understanding the determination of reserve holdings probably requires going beyond the aggregate numbers, instead observing individual central bank behavior, including characteristics of the holding country (bilateral trade with the issuing country, bilateral currency peg, and proxies for bilateral exposure to sanctions), in addition to the characteristics of the reserve currency issuer. On a currency-by-currency basis, US dollar holdings are somewhat well explained by several issuer characteristics; but the other currencies are less successfully explained. It may be that the results from currency-by-currency estimation are impaired by insufficient sample size. This consideration offers a motivation for pooling the data across the major currencies and imposing the constraints that reserve holdings are determined in the same way for each currency. In this setting, most economic determinants enter with significance: economic size as measured by GDP, bilateral currency peg, and bilateral trade share. While one geopolitical factor (congruence in voting in the UN) is typically significant in the expected manner (with the exception of the US dollar), the other geopolitical factor (sanctions) does not enter with significance.

Global factors have traditionally determined capital flows, but domestic policies also matter. Developing countries face the challenge of managing procyclical capital inflows that can destabilize their macroeconomic environment. Inflation targeting can help solve this problem by enhancing the credibility and predictability of monetary policy. In this paper, we explore how inflation targeting affects the cyclical behavior of capital inflows in developing countries. First, we complement the data on international capital flows from the IMF with locational and consolidated banking statistics from the BIS. Second, we address the self-selection associated with inflation targeting by using entropy balancing. We find that inflation targeting reduces the procyclicality of capital inflows in developing countries. Specifically, inflation-targeting countries receive more (less) capital inflows during recessions (booms) than non-targeting countries. Other investment debt from the private sector mainly drives this effect. Our results are robust to various sensitivity checks and alternative specifications and methodologies.

This paper studies the impact of the Eurosystem’s low interest rate policy on euro area banks. We first assess the impact of low rates on banks’ net interest margins. An important extension to previous studies is that we split the interest margin into a funding and lending component. The decomposition makes clear that the low interest rate environment significantly reduced banks’ net interest income by squeezing funding margins, which corroborates the reversal rate literature. We find no strong evidence that banks have boosted their lending margins to offset the lost funding margin. However, we do observe that banks partly compensated for the impact of low rates by switching to non-interest income sources and by cost savings. We also find that low interest rates have not reduced bank lending, which suggests that banks’ compensatory measures largely outweighed the impact of low rates.

This study examines whether a country’s institutional quality can affect its output recovery after the recessions caused by financial crises. Utilizing a sample of 66 countries that experienced various financial crises during the period 1985–2010, we find that the quality of government institutions is negatively associated with the duration of recovery as well as the depth and severity of output losses during recessions. The results remained valid even after accounting for potential endogeneity. Moreover, institutional quality’s ability to improve output recovery is more pronounced for countries with the largest output losses, when coupled with an expansionary monetary policy, in emerging economies, during banking and sovereign debt crises, and in the 1990s.

This paper analyzes the dynamics of sectoral Real Gross Value Added (RGVA) around sudden stops in foreign capital inflows. We identify sudden stop episodes statistically from changes in gross capital inflows from the financial account. In the baseline specification, we estimate changes in the growth rate of sectoral RGVA during sudden stops and in the few quarters preceding and following them. We also look at whether real exchange rate movements and the depth of the RGVA decline on impact explain different sectoral dynamics afterwards. In an additional exercise, we analyze deviations from the sectors' long-run growth path. Our findings indicate that: (i) the construction sector experiences the largest drop in its growth rate during sudden stops; (ii) generally, tradable sectors, especially manufacturing, face larger damages during sudden stops than nontradable sectors, but they decelerate less in the medium run than some service sectors; (iii) the depth of the initial slowdown is related to a more favorable subsequent performance (a rebound effect), while we find only very weak evidence that real exchange rate depreciations facilitate adjustment. Overall, our results suggest a prolonged reallocation of economic activity away from service sectors, towards the production of goods. This is consistent with a traditional view of the role of tradable and nontradable sectors in a sudden stop episode.

This paper measures the output effects of financial fragmentation in the euro area by estimating an extended IS curve. Using a panel approach, we find that two fragmentation measures are significantly related to the output gap: sovereign spreads and spreads in the long-term cost of borrowing of the private sector. We use these output effects to construct a Monetary Conditions Index (MCI) for euro area countries. This index summarizes the combined effect of the monetary policy stance and financial fragmentation. We show that the MCI approach is well-suited to capture cross-country differences in a fragmentation-enhanced measure of the monetary policy stance. Using this metric, we find that during the sovereign debt crisis, the cross-country dispersion of MCI's based on sovereign spreads was much larger than that based on the private cost of borrowing. We also show that convergence is slower for MCI's based on sovereign spreads. We conclude that the causes of fragmentation in monetary conditions may change over time, and that this has implications for the appropriate policy response.

We investigate the behavior of central banks in seven advanced economies, focusing on how observed monetary policies align with optimal ones as determined by model-consistent welfare measures. Our approach stands out by emphasizing the importance of inertia’s impact on the output gap and the dynamics of prices and wages. We incorporate inertia into our model using duration-dependent adjustments. By integrating this aspect into a simple New Keynesian model, our analysis aims to identify shared patterns and distinctive features in the monetary policy approach of central banks across different countries.