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The Historical Effects of Banking Distress on Economic Activity
Bräuning, Falk; Sheremirov, Viacheslav (2023-05-25)
The failures of several U.S. regional banks have stimulated discussions about the macroeconomic effects of a likely credit contraction triggered by the recent banking turmoil. Drawing on historical evidence from advanced economies, this study documents a sizable and persistent decline in output and rise in unemployment following non-systemic financial distress. The effects of a systemic banking crisis are two to four times as large. High corporate leverage exacerbates banking turmoil, whereas high bank capitalization and a relatively large share of market financing in corporate debt mitigate ...
Current Policy Perspectives

Working Paper
The pricing of FX forward contracts: micro evidence from banks’ dollar hedging
Bräuning, Falk; Abbassi, Puriya (2018-03-01)
We use transaction-level data on foreign exchange (FX) forward contracts for the period 2014 through 2016 in conjunction with supervisory balance sheet information to study the drivers of banks? dollar hedging costs. Comparing contracts of the same maturity that are initiated during the same hour of the same day, we find large heterogeneity in banks? hedging costs. We show that these costs (i) are higher for banks with a larger FX funding gap, (ii) depend on banks? FX funding composition in terms of the source (interbank versus retail) and rollover structure (long-term versus short-term), ...
Working Papers , Paper 18-6

Working Paper
International financial integration, crises, and monetary policy: evidence from the euro area interbank crises
Peydró, José-Luis; Bräuning, Falk; Fecht, Falko; Abbassi, Puriya (2017-07-01)
We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home ? but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman ...
Working Papers , Paper 17-6

Working Paper
The Valuation Effects of Trade
Barbiero, Omar (2021-09-01)
This paper estimates the cash flow and real effects of currency mismatches generated by foreign-priced operations of French manufacturers. The value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. I aggregate foreign-priced operations to the firm level to build a shift-share measure of invoice currency mismatch. This measure outperforms any trade-weighted effective exchange rate index in explaining cash flows of trading firms. Large firms absorb valuation shocks in their balance sheet, and ...
Working Papers , Paper 21-11

Working Paper
The international monetary and financial system: a capital account historical perspective
Borio, Claudio; James, Harold; Shin, Hyun Song (2014-10-01)
In analysing the performance of the international monetary and financial system (IMFS), too much attention has been paid to the current account and far too little to the capital account. This is true of both formal analytical models and historical narratives. This approach may be reasonable when financial markets are highly segmented. But it is badly inadequate when they are closely integrated, as they have been most of the time since at least the second half of the 19th century. Zeroing on the capital account shifts the focus from the goods markets to asset markets and balance sheets. Seen ...
Globalization Institute Working Papers , Paper 204

Working Paper
What drives the German current account? and how does it affect other EU member states?
Kollmann, Robert; Vogel, Lukas; Roeger, Werner; Ratto, Marco; in't Veld, Jan (2014-05-13)
We estimate a three-country model using 1995-2013 data for Germany, the Rest of the Euro Area (REA) and the Rest of the World (ROW) to analyze the determinants of Germany?s current account surplus after the launch of the Euro. The most important factors driving the German surplus were positive shocks to the German saving rate and to ROW demand for German exports, as well as German labour market reforms and other positive German aggregate supply shocks. The convergence of REA interest rates to German rates due to the creation of the Euro only had a modest effect on the German current account ...
Globalization Institute Working Papers , Paper 176

Working Paper
Stability or upheaval? The currency composition of international reserves in the long run
Mehl, Arnaud; Livia, Chitu; Eichengreen, Barry (2014-10-01)
We analyze how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. We extend data on the currency composition of foreign reserves backward and forward to investigate whether there was a shift in the determinants of the currency composition of international reserves around the breakdown of Bretton Woods. We find that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. We show that negative policy ...
Globalization Institute Working Papers , Paper 201

Working Paper
The international monetary and financial system: its Achilles heel and what to do about it
Borio, Claudio (2014-10-01)
This essay argues that the Achilles heel of the international monetary and financial system is that it amplifies the ?excess financial elasticity? of domestic policy regimes, ie it exacerbates their inability to prevent the build-up of financial imbalances, or outsize financial cycles, that lead to serious financial crises and macroeconomic dislocations. This excess financial elasticity view contrasts sharply with two more popular ones, which stress the failure of the system to prevent disruptive current account imbalances and its tendency to generate a structural shortage of safe assets ? ...
Globalization Institute Working Papers , Paper 203

Working Paper
Hedging against the government: a solution to the home asset bias puzzle
Bhattarai, Saroj; Berriel, Tiago C. (2012)
This paper explains two puzzling facts: international nominal bonds and equity portfolios are biased domestically. In our two-country model, holding domestic government nominal debt provides a hedge against shocks to bond returns and the impact on taxes they induce. For this result, only two features are essential: some nominal risk and taxes falling only on domestic agents. A third feature explains why agents choose to hold primarily domestic equity: government spending falls on domestic goods. Then, an increase in government spending raises the returns on domestic equity, providing a hedge ...
Globalization Institute Working Papers , Paper 113

Working Paper
Economic fundamentals and monetary policy autonomy
Davis, J. Scott (2016-02-24)
During a time of rising world interest rates, the central bank of a small open economy may be motivated to increase its own interest rate to keep from suffering a destabilizing outflow of capital and depreciation in the exchange rate. This is especially true for a small open economy with a current account deficit, which relies on foreign capital inflows to finance this deficit. This paper will investigate the underlying structural characteristics that would lead an economy with a floating exchange rate to adjust their interest rate in line with the foreign interest rate, and thus adopt a de ...
Globalization Institute Working Papers , Paper 267

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