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U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows

2017
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Release : 2017
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Book Rating : 357/5 ( reviews)

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Book Synopsis U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows by : Taeree Wang

Download or read book U.S. Monetary Policy Shocks and Their Impacts on International Capital Flows written by Taeree Wang. This book was released on 2017. Available in PDF, EPUB and Kindle. Book excerpt: During the 2008 global financial crisis, several emerging market economy (EME) authorities argued that advanced economy policies including large-scale asset purchases by the U.S. Federal Reserve were primary sources of excessive capital flows and created adverse spillover effects to the EMEs. More recently, EME policy makers have been concerned about the adverse effects of advanced economy monetary policy normalization. Tracking the link between the monetary policy shocks in advanced countries and capital flows to emerging markets can be crucial for informing the debate about appropriate policy responses to capital inflows by the EMEs.

International Capital Flows

2007-12-01 Business & Economics
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Release : 2007-12-01
Genre : Business & Economics
Kind : eBook
Book Rating : 807/5 ( reviews)

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Book Synopsis International Capital Flows by : Martin Feldstein

Download or read book International Capital Flows written by Martin Feldstein. This book was released on 2007-12-01. Available in PDF, EPUB and Kindle. Book excerpt: Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.

Addressing Spillovers from Prolonged U.S. Monetary Policy Easing

2021-07-09 Business & Economics
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Release : 2021-07-09
Genre : Business & Economics
Kind : eBook
Book Rating : 499/5 ( reviews)

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Book Synopsis Addressing Spillovers from Prolonged U.S. Monetary Policy Easing by : Stephen Cecchetti

Download or read book Addressing Spillovers from Prolonged U.S. Monetary Policy Easing written by Stephen Cecchetti. This book was released on 2021-07-09. Available in PDF, EPUB and Kindle. Book excerpt: There is growing recognition that prolonged monetary policy easing of major economies can have extraterritorial spillovers, driving up financial system leverage in other countries. When faced with such a rise of threats to financial stability, what can countries do? Specifically, is there a role for macroprudential tools, capital controls or foreign exchange intervention in safeguarding financial stability from risks arising externally? We examine the efficacy of these policy interventions by exploring whether preemptive or reactive policy interventions can mitigate such risks. Using a sample of 950 bank and nonbank financial firms across 28 non-U.S. economies over the past two decades, we show that if policymakers are able to implement policies prior to an additional consecutive decline in U.S. interest rates, financial institutions do not increase their leverage by as much as they otherwise would. By contrast, it is more difficult to counter the spillovers with reactive policy interventions. In practice, however, policymakers need to remain cautious about the timing of preventative tightening, especially when their economies face large negative shocks such as a pandemic.

Bank Leverage and Monetary Policy's Risk-Taking Channel

2013-06-06 Business & Economics
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Release : 2013-06-06
Genre : Business & Economics
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Book Rating : 130/5 ( reviews)

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Book Synopsis Bank Leverage and Monetary Policy's Risk-Taking Channel by : Mr.Giovanni Dell'Ariccia

Download or read book Bank Leverage and Monetary Policy's Risk-Taking Channel written by Mr.Giovanni Dell'Ariccia. This book was released on 2013-06-06. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence of a risk-taking channel of monetary policy for the U.S. banking system. We use confidential data on the internal ratings of U.S. banks on loans to businesses over the period 1997 to 2011 from the Federal Reserve’s survey of terms of business lending. We find that ex-ante risk taking by banks (as measured by the risk rating of the bank’s loan portfolio) is negatively associated with increases in short-term policy interest rates. This relationship is less pronounced for banks with relatively low capital or during periods when banks’ capital erodes, such as episodes of financial and economic distress. These results contribute to the ongoing debate on the role of monetary policy in financial stability and suggest that monetary policy has a bearing on the riskiness of banks and financial stability more generally.

Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies

2021-08-06 Business & Economics
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Release : 2021-08-06
Genre : Business & Economics
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Book Rating : 741/5 ( reviews)

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Book Synopsis Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies by : Juan Yepez

Download or read book Unintended Consequences of U. S. Monetary Policy Shocks: Dutch Disease and Capital Flow Measures in Emerging Markets and Developing Economies written by Juan Yepez. This book was released on 2021-08-06. Available in PDF, EPUB and Kindle. Book excerpt: Dutch disease is often referred as a situation in which large and sustained foreign currency inflows lead to a contraction of the tradable sector by giving rise to a real appreciation of the home currency. This paper documents that this syndrome has been witnessed by many emerging markets and developing economies (EMDEs) as a result of surges in capital inflows driven by accommodative U. S. monetary policy. In a sample of 25 EMDEs from 2000-17, U. S. monetary policy shocks coincided with episodes of currency appreciation and a contraction in tradable output in these economies. The paper also shows empirically that the use of capital flow measures (CFMs) has been a common policy response in several EMDEs to U.S. monetary policy shocks. Against this background, the paper presents a two sector small open economy augmented with a learning-by-doing (LBD) mechanism in the tradable sector to rationalize these empirical findings. A welfare analysis provides a rationale for the use of CFMs as a second-best policy when agents do not internalize the LBD externality of costly resource misallocation as a result of greater capital inflows. However, the adequate calibration of CFMs and the quantification of the LBD externality represent important implementation challenges.

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