Search Results
Working Paper
To What Degree and through Which Channel Do Central Banks Other Than the Federal Reserve Cause Spillovers?
Spillovers play a crucial role in driving monetary policy around the world. The literature focuses predominantly on spillovers from the Federal Reserve. Less attention has been paid to spillovers from other central banks. I measure the degree to which 20 central banks cause spillovers. I show that central banks in medium- to high-income countries cause spillovers to medium- to long-term interest rates in similar countries through a bond-pricing channel. These effects are narrower than spillovers from the Federal Reserve, which also affect emerging markets, short-term interest rates, and other ...
Working Paper
Global Drivers of Gross and Net Capital Flows
While prior to the global financial crisis, the empirical international capital flow literature has focused on net capital flows (the current account), since the crisis there has been an increased focus on gross flows. In this paper we jointly analyze global drivers of gross flows (outflows plus inflows) and net flows (outflows minus inflows) by estimating a latent factor model. We find evidence of two global factors, which we call the GFC (global financial cycle) factor and a commodity price factor as they closely track respectively the Miranda-Agrippino and Rey asset price factor and an ...
Report
International Capital Flow Pressures and Global Factors
The risk sensitivity of international capital flow pressures is explored using a new Exchange Market Pressure index that combines pressures observed in exchange rate adjustments with model-based estimates of incipient pressures that are masked by foreign exchange interventions and policy rate adjustments. The sensitivity of capital flow pressures to risk sentiment, including for so-called safe-haven currencies, evolves over time, varies significantly across countries, and differs between normal times and extreme stress events. Across countries, risk sensitivities and safe-haven status are ...
Report
The international transmission of monetary policy
This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the United States, the euro area, Japan, and the United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private ...
Working Paper
The Global Financial Cycle and Capital Flows During the COVID-19 Pandemic
We estimate the heterogeneous effect of the global financial cycle on exchange rates and cross-border capital flows during the COVID-19 pandemic, using weekly exchange rate and portfolio flow data for a panel of 59 advanced and emerging market economies. We begin by estimating a global financial cycle (GFC) index at the weekly frequency with data through the end of 2021, and observe an outsized decline in the index over a period of just four weeks during February and March 2020. We then estimate the country-specific sensitivities of exchange rates and capital flows to fluctuations in the GFC. ...
Working Paper
A Theory of Net Capital Flows over the Global Financial Cycle
We develop a theory to account for changes in net capital flows of safe and risky assets over the global financial cycle. We show empirically that countries that have a net debt of safe assets experience a rise in net outflows of safe assets (reduced accumulation of safe debt) during a downturn in the global financial cycle. This is accomplished through a rise in total net outflows and a drop in net outflows of risky assets. We develop a multi-country portfolio choice model that can account for these facts. The theory relies on cross-country heterogeneity in the share of an investor's ...
Working Paper
Sovereign Risk and Financial Risk
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are ...
Working Paper
Sovereign Risk and Financial Risk
In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are ...
Report
Uncertainty Shocks, Capital Flows, and International Risk Spillovers
Foreign investors’ changing appetite for risk-taking has been shown to be a key determinant of the global financial cycle. Such fluctuations in risk sentiment also correlate with the dynamics of uncovered interest parity (UIP) premia, capital flows, and exchange rates. To understand how these risk sentiment changes transmit across borders, we propose a two-country macroeconomic framework. Our model features cross-border holdings of risky assets by U.S. financial intermediaries that operate under financial frictions and act as global intermediaries in that they take on foreign asset risk. In ...
Report
The Global Credit Cycle
Do global credit conditions affect local credit and business cycles? Using a large cross-section of equity and corporate bond market returns around the world, we construct a novel global credit factor and a global risk factor that jointly price the international equity and bond cross-section. We uncover a global credit cycle in risky asset returns, which is distinct from the global risk cycle. We document that the global credit cycle in asset returns translates into a global credit cycle in credit quantities, with a tightening in global credit conditions predicting extreme capital flow ...