December 2019: New VoxEU column – The aggregate and distributional effects of financial globalisation

Free trade has contributed to a ‘great convergence’ of emerging market countries toward incomes in industrialised nations in recent decades. It is less clear whether free mobility of capital across national boundaries has conferred similar benefits. This column presents evidence suggesting that the gains in average incomes have been – at best – small, while[…]

CEPR Working Paper: US Monetary Policy and International Risk Spillovers

Author(s): Sebnem Kalemli-Ozcan Date: October 2019 Abstract: I show that monetary policy divergence vis-a-vis the U.S. has larger spillover effects in emerging markets than advanced economies. The monetary policy of the U.S. affects domestic credit costs in other countries through its effect on global investors’ risk perceptions. Capital flows in and out of emerging market[…]

CEPR Working Paper: The Limits of Monetary Economics: On Money as a Medium of Exchange in Near-Cashless Credit Economies

Author(s): Ricardo Lagos, Shengxing Zhang Date: October 2019 Abstract: We study the transmission of monetary policy in credit economies where money serves as a medium of exchange. We find that-in contrast to current conventional wisdom in policy-oriented research in monetary economics-the role of money in transactions can be a powerful conduit to asset prices and[…]

CEPR Working Paper: Chinese Financial Conditions and their Spillovers to the Global Economy and Markets

Author(s): Rong Fu, Jeremy Lawson, Carolina Martinez, Abigail Watt Date: October 2019 Abstract: Assessing financial conditions in China is challenging given the wide range of conventional and unconventional policy tools the authorities wield to influence economic and market variables. We utilise principal component analysis to construct a new index that captures the most important policy[…]

CEPR Working Paper: Rules versus Discretion in Bank Resolution

Author(s): Lucy White and Ansgar Walther Date: October 2019 Abstract: Recent reforms give regulators broad powers to “bail-in” bank creditors during financial crises. We analyze efficient bail-ins and their  implementation. To preserve liquidity, regulators must avoid signaling negative private information to creditors. Therefore, optimal bail-ins in bad times depend only on public information. As a[…]

NBER Working Paper: A Macroprudential Theory of Foreign Reserve Accumulation

Author(s):Fernando Arce, Julien Bengui, Javier Bianchi Date:September 2019 Abstract: This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy[…]

CEPR Working Paper: Macroprudential Policy with Leakages

Author(s): Julien Bengui, Javier Bianchi Date: August 2019 Abstract: The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such concerns affect the design of optimal regulatory policy in a workhorse model in which pecuniary externalities[…]

NBER Working Paper: The Natural Level of Capital Flows

Authors: John D. Burger, Francis E. Warnock, Veronica Cacdac Warnock Date: August 2019 Abstract: We put forward the notion that capital flows—specifically, gross portfolio flows—fluctuate around some natural level. Our particular measure of the natural level of capital flows, denoted by KF*, is a theory-based time-varying supply-side factor, much like potential GDP is a theory[…]

CEPR Working Paper: China’s Overseas Lending

Authors: Sebastian Horn, Carmen M. Reinhart, Christoph Trebesch Date: July 2019 Abstract: Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood. Over the past decades, China has exported record amounts of capital to the rest of the world. Many of these financial flows are not reported[…]

IMF Working Paper: Capital Flows: The Role of Bank and Nonbank Balance Sheets

Authors: Yuko Hashimoto ; Signe Krogstrup Date: April  2019 Abstract: This paper assesses the role of bank and nonbank financial institutions’ balance sheet foreign exposures and risk management practices in driving capital flow responses to global risk. Using a unique and previously unexplored dataset on domestic and cross border balance sheet positions of financial institutions[…]