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Working Paper
Bad Sovereign or Bad Balance Sheets? Euro Interbank Market Fragmentation and Monetary Policy, 2011-2015
Gabrieli, Silvia; Labonne, Claire (2018-07-12)
We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks? cross-border and cross-sector exposures. We study the impact of the credit risk on banks? balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders? liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks? access to the interbank market ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-3

Working Paper
A seniority arrangement for sovereign debt
Eyigungor, Burcu; Chatterjee, Satyajit (2015-01-31)
A sovereign's inability to commit to a course of action regarding future borrowing and default behavior makes long-term debt costly (the problem of debt dilution). One mechanism to mitigate the debt dilution problem is the inclusion of a seniority clause in sovereign debt contracts. In the event of default, creditors are to be paid off in the order in which they lent (the ?absolute priority" or ?first-in-time" rule). In this paper, we propose a modification of the absolute priority rule that is more suited to the sovereign debt context and analyze its positive and normative implications ...
Working Papers , Paper 15-7

Report
The Real Consequences of Macroprudential FX Regulations
Jung, Hyeyoon (2021-10-01)
I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using crossbank variation in the regulation's tightness, I show that it causes a reduction in the supply of FX derivatives (FXD) and results in a substantial decline in exports for the firms that were heavily relying on FXD hedging. I offer a mechanism in which imbalances in hedging demand, banks' costly equity financing, and firms' costly switching of banking relationships play a central role in ...
Staff Reports , Paper 989

Journal Article
Recent developments in cross-border investment in securities
Griever, William L.; Bertaut, Carol C. (2004-01)
Securities have replaced bank lending in recent years as the primary means through which funds are invested internationally, and in the process, the share of U.S. securities owned by foreigners has grown markedly. Between 1974 and 2002, the proportion of the value of outstanding U.S. long-term securities (equities and long-term debt) that was foreign-owned increased from about 5 percent to about 12 percent. At the same time, U.S. holdings of foreign long-term securities also increased, although their growth did not match the rapid growth in foreign holdings of U.S. securities. At $1.8 ...
Federal Reserve Bulletin , Volume 90 , Issue Win

Working Paper
Foreign exchange predictability during the financial crisis: implications for carry trade profitability
Anatolyev, Stanislav; Liu, Xiaochun; Gospodinov, Nikolay; Jamali, Ibrahim (2015-08-01)
In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability than raw returns. We allow the two components to respond to currency-specific risk factors and use the joint conditional distribution of these components to obtain forecasts of future carry trade returns. Our results suggest that the decomposition model produces higher forecast and directional accuracy ...
FRB Atlanta Working Paper , Paper 2015-6

Working Paper
Interest Rate Volatility and Sudden Stops : An Empirical Investigation
Tenorio, Gabriel; Reyes-Heroles, Ricardo M. (2017-07)
Using a multi-country regime-switching vector autoregressive (VAR) model we document the existence of two regimes in the volatility of interest rates at which emerging economies borrow from international financial markets, and study the statistical relationship of such regimes with episodes of sudden stops. Periods of high volatility tend to be persistent and are associated with high interest rates, the occurrence of sudden stops in external financing, and large declines in economic activity. Most strikingly, we show that regime switches drive the countercyclicality of interest rates in ...
International Finance Discussion Papers , Paper 1209

Working Paper
Reversals in Global Market Integration and Funding Liquidity
Malkhozov, Aytek; Carrieri, Francesca; Akbari, Amir (2017-03)
This paper looks at the reversals in global financial integration through the funding liquidity lens. First, we construct a segmentation indicator based on differences in funding liquidity across countries as measured by the performance of betting-against-beta strategies. Second, we find that funding liquidity shocks help explain recent reversals in integration in the absence of explicit foreign investment barriers. These findings are consistent with tighter limits to arbitrage and increased home bias during funding distress periods. Our empirical analysis is guided by a margin-CAPM model ...
International Finance Discussion Papers , Paper 1202

Speech
Panel remarks at the International Symposium of the Banque de France
Dudley, William (2014-11-07)
Remarks at the International Symposium of the Banque de France, Central Banking: The Way Forward? Paris, France.
Speech , Paper 150

Working Paper
A sentiment-based explanation of the forward premium puzzle
Yu, Jianfeng (2011)
This paper presents a sentiment-based explanation of the forward premium puzzle. Agents over- or underestimate the growth rate of the economy. All else equal, when perceived domestic growth is higher than perceived foreign growth, the domestic interest rate is higher than the foreign interest rate. At the same time, an econometrician would expect an increase in the home currency value. Together, the model with investor misperception can account for the forward premium puzzle.> ; In addition, it helps explain the low correlation of consumption growth differentials and exchange rate growth and ...
Globalization Institute Working Papers , Paper 90

Report
Informational contagion in the laboratory
Cipriani, Marco; Guarino, Antonio; Guazzarotti, Giovanni; Tagliati, Federico; Fischer, Sven (2015-03-01)
We study the informational channel of financial contagion in the laboratory. In our experiment, two markets with correlated fundamentals open sequentially. In both markets, subjects receive private information. Subjects in the market opening second also observe the history of trades and prices in the first market. We find that although in both markets private information is only imperfectly aggregated, subjects are able to make correct inferences based on the public information coming from the market that opens first. As a result, we observe financial contagion in the laboratory: Indeed, the ...
Staff Reports , Paper 715

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