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Working Paper
International Financial Spillovers to Emerging Market Economies: How Important Are Economic Fundamentals?
Ahmed, Shaghil; Coulibaly, Brahima; Zlate, Andrei (2015-04-22)
We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs). Our analysis covers the so-called taper-tantrum episode of 2013 and six earlier episodes of severe EME-wide financial stress since the mid-1990s. Cross-country regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in quite early and persisted throughout this episode. ...
International Finance Discussion Papers , Paper 1135

Report
Risk appetite and exchange Rates
Shin, Hyun Song; Etula, Erkko; Adrian, Tobias (2009)
We present evidence that the growth of U.S.-dollar-denominated banking sector liabilities forecasts appreciations of the U.S. dollar, both in-sample and out-of-sample, against a large set of foreign currencies. We provide a theoretical foundation for a funding liquidity channel in a global banking model where exchange rates fluctuate as a function of banks? balance sheet capacity. We estimate prices of risk using a cross-sectional asset pricing approach and show that the U.S. dollar funding liquidity forecasts exchange rates because of its association with time-varying risk premia. Our ...
Staff Reports , Paper 361

Speech
Global financial stability - the road ahead
Dudley, William (2014-02-26)
Remarks at the Tenth Asia-Pacific High Level Meeting on Banking Supervision, Auckland, New Zealand
Speech , Paper 130

Report
Global Liquidity: Drivers, Volatility and Toolkits
Goldberg, Linda S. (2023-06-01)
Global liquidity refers to the volumes of financial flows—largely intermediated through global banks and non-bank financial institutions—that can move at relatively high frequencies across borders. The amplitude of responses to global conditions like risk sentiment, discussed in the context of the global financial cycle, depends on the characteristics and vulnerabilities of the institutions providing funding flows. Evidence from across empirical approaches and using granular data provides policy-relevant lessons. International spillovers of monetary policy and risk sentiment through ...
Staff Reports , Paper 1064

Working Paper
Global Flight to Safety, Business Cycles, and the Dollar
Bodenstein, Martin; Cuba-Borda, Pablo A.; Gornemann, Nils M.; Presno, Ignacio; Prestipino, Andrea; Queraltó, Albert; Raffo, Andrea (2023-10-11)
We develop a two-country macroeconomic model that we fit to a set of aggregate prices and quantities for the U.S. and the rest of the world. In addition to a standard array of shocks, the model includes time variation in agents’ preference for safe bonds. We allow for a component of this time variation to be common across countries and biased toward dollar-denominated safe assets, and refer to this component as global flight to safety (GFS). We find that GFS shocks are the most important shocks driving world business cycles, and are also important drivers of activity in the U.S. and ...
Working Papers , Paper 799

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 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
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

Working Paper
A Theory of the Global Financial Cycle
Davis, J. Scott; Van Wincoop, Eric (2021-09-09)
We develop a theory to account for changes in prices of risky and safe assets and gross and net capital flows over the global financial cycle (GFC). The multi-country model features global risk-aversion shocks and heterogeneity of investors both within and across countries. Within-country heterogeneity is needed to account for the drop in gross capital flows during a negative GFC shock (higher global risk-aversion). Cross-country heterogeneity is needed to account for the differential vulnerability of countries to a negative GFC shock. The key vulnerability is associated with leverage. In ...
Globalization Institute Working Papers , Paper 410

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