Self-oriented monetary policy,global financial markets and excess volatility of international capital flows

This paper explores the nature of macroeconomic spillovers from advanced economies to emerging market economies (EMEs) and the consequences for independent use of monetary policy in EMEs. We first empirically document that a US contractionary monetary policy shock leads a retrenchment in EME capital flows, a fall in EME GDP, and an exchange rate depreciation. We construct a theoretical model that can help to account for these findings. In the model, macroeconomic spillovers may be exacerbated by financial frictions. Absent financial frictions, international spillovers are minor, and an inflation targeting rule represents an effective policy for the EME. With frictions in financial intermediation, however, spillovers are substantially magnified, and an inflation targeting rule has little advantage over an exchange rate peg. However, an optimal monetary policy markedly improves on the performance of naive inflation targeting or an exchange rate peg. Furthermore, optimal policies don't need to be coordinated across countries. A non-cooperative, self-oriented optimal policy gives results very similar to those of a global cooperative optimal policy.     

Stock market synchronization and monetary integration

This paper focuses on the relationship between stock market comovements and monetary integration. A panel specification is used to explain bilateral stock market return correlations between fifteen developed economies over the period 1975-2006. Time fixed effects are included to capture global shocks and we also examine the role of bilateral trade linkages and international financial integration. Monetary integration leads to stronger stock market synchronization, both through the elimination of exchange rate volatility and through the common monetary policy and the convergence of inflation expectations. Trade and financial integration also contribute to higher stock market return comovements.     

Spillover effects from Euro area monetary policy across Europe: A factor-augmented VAR approach

I analyze spillover effects from a Euro area monetary policy shock to fourteen European countries outside the Euro area. The analysis is based on a factor-augmented VAR model with two blocks, which exploits a large cross-country data set. After a Euro area monetary policy expansion, production increases in most non-Euro area countries, whereas short-term interest rates and financial uncertainty decline. These effects are on average comparable to the responses in the aggregate Euro area. However, the size of spillover effects varies with country characteristics. Spillovers on production are larger in non-Euro area economies with higher trade openness, whereas financial variables react to a higher extent in countries with higher financial integration. Regarding the exchange rate regime, countries with fixed exchange rates show stronger spillovers both in terms of production and interest rates. Finally, prices increase in Western European economies outside the Euro area, but decline or do not respond in Central and Eastern Europe.     

全球金融周期、美国货币政策与“三元悖论”

全球金融周期存在的背景下“三元悖论”是否依然成立充满争议。本文通过构建包含银行与金融摩擦的两国DSGE模型,为考察全球金融周期的形成提供了理论依据。美国货币政策通过资本流动传导到外围国金融市场,使外围国信贷利率、银行风险承担以及杠杆率与美国银行趋同,形成全球金融周期。金融渠道的传导速度快于实体经济渠道导致外围国国内经济周期与金融周期相背离,外围国想要稳定经济就不得不与美国保持同向的政策利率变化,货币政策独立性将不再存在。随着全球经济一体化进程加速,估值效应的作用越来越明显,浮动汇率制度并不能隔离全球金融周期的影响也无法保证货币政策的独立性。在资本账户开放的情况下,外围国金融市场越不发达,受全球金融周期的影响越大,货币政策越不独立。     

International spillover effects of unconventional monetary policies of major central banks

This study examines the effects of unconventional monetary policies (UMPs) by the major central banks, namely the Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB) and the Federal Reserve (Fed), on the international financial markets, taking global spillovers and monetary policy interaction into account. To this end, we applied the Global Vector Autoregressive (GVAR) model to 35 countries/economies and one region for the period from March 2009 to July 2019. In addition, we accommodated the smooth transition to the GVAR to consider possible structural changes in the effects of UMPs and monetary policy interaction. Our results indicate the importance of capturing structural changes, showing the remarkable difference between the beginning and end of the sample. For example, we found clear evidence of monetary policy coordination after the global financial crisis and less evidence of policy interaction in the recent period. Also, our results suggest that generally, the UMPs of the major central banks had stronger effects on both domestic and international bond markets in the earlier period. In contrast, the global equity markets responded more positively to the UMPs in the recent period, although there was no noticeable difference in the responses of domestic equity markets throughout the sample.     

The impact of international spillovers on Swiss inflation and the exchange rate

Understanding the effects and transmission of international spillovers is key to ensuring that the best possible decisions are reached by central banks – particularly those of small open economies. This paper analyses the impact of international spillovers on Swiss inflation and the exchange rate, and examines the response of the Swiss National Bank (SNB) to these phenomena. In doing so, the paper compares the recent crisis period starting in mid-2008 with earlier decades. While the exchange rate absorbed a sizeable share of global inflationary pressure before the crisis, spillover effects transmitted through the exchange rate have been the principal cause of the significant decline in Swiss inflation since 2008. The SNB has therefore repeatedly adjusted its monetary policy – and resorted to some unconventional measures – in order to contain these spillover effects. These actions have so far kept the adverse effects of international spillovers on Swiss inflation at bay. However, as Switzerland's experience since the onset of the financial crisis shows, controlling inflation may occasionally become more difficult for small open economies.     

Explaining Monetary Spillovers: The Matrix Reloaded

This paper relies on a high-frequency identification approach to provide new insights into monetary policy spillovers by major central banks. Our long and broad sample (1999–2019, from four major economies to 47 advanced and emerging market economies) allows us to accurately identify the properties of spillovers and to shed light on different transmission channels. We find that spillovers by the Fed to foreign interest rates are economically large, but more surprisingly, document an intensification of spillovers by the European Central Bank over time. Spillovers are more significant to bond yields in advanced economies than they are to those in emerging markets. Differentiating across key spillover channels, we find strongest support for a financial links channel, but weaker evidence for the macroeconomic links channel and foreign exchange regime channel.     

Demand for money in open economies

The demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments. The model is estimated using quarterly postwar data for Canada, Germany, UK and US. There is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income, domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates. The conclusion, that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper.     

Financial crisis,US unconventional monetary policy and international spillovers

We study the impact of US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error-correction model (GVECM). We focus on the effects of reductions in the US term and corporate spreads. The estimated effects of QE are sizeable and vary across economies. First, we find the QE impact from reducing the US corporate spread to be more important than that from lowering the US term spread, consistent with Blinder's (2012) argument. Second, counterfactual exercises suggest that successive US QE measures might have prevented episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging economies are diverse but generally larger than those found for the United States and other advanced economies. The estimates suggest that US monetary policy spillovers contributed to the overheating in Brazil, China and some other emerging economies in 2010 and 2011, but supported their respective recoveries in 2009 and 2012. These heterogeneous effects point to unevenly distributed benefits and costs of cross-border monetary policy spillovers.     

International spillovers of monetary policy: Lessons from Chile,Korea, and Poland

In this paper, we assess evidence on international monetary policy spillovers to domestic bank lending in Chile, Korea, and Poland, using confidential bank-level data and different measures of monetary policy shocks in relevant currency areas. These three emerging market economies are small and open, their banking systems do not have significant presence overseas, and they can be considered as price takers in the world economy. Such features allow for better identification of binding financial constraints and foreign monetary policy shocks. We find that the monetary policy shocks spill over into domestic bank lending, modifying the degree to which financial frictions tighten or relax, and this evidence is consistent with international bank lending and portfolio channels.     

Linkages between Indian and US financial markets: impact of global financial crisis and Eurozone debt crisis

This paper examines inter-linkages between Indian and US equity, foreign exchange and money markets using the vector autoregressive-multivariate GARCH-BEKK framework. We investigate the impact of global financial crisis (GFC) and Eurozone debt crisis (EZDC) on the conditional volatility and conditional correlation estimates derived from the multivariate GARCH model for Indian and US financial markets. Our results indicate that there is significant bidirectional causality-in-mean between the Indian stock market returns and the Rs./USD market returns, and significant unidirectional causality-in-mean from the US stock market returns to the Indian stock market returns. As regards volatility spillovers, we find that volatility in the Indian stock market rises in response to domestic as well as US financial market shocks but Indian financial market shocks do not impact the US markets. Further, impact of the recent crisis episodes on the covariance matrix is found to be significant. We find that volatility in the Indian and US financial markets significantly amplified during GFC. The conditional correlations across asset markets were significantly accentuated in the wake of the two crisis episodes. The impact of GFC on cross-market conditional correlations is higher for majority of the asset market pairs in comparison to the EZDC.     

Cross‐Country Spillovers from Fiscal Consolidations

In the aftermath of the global financial crisis, many OECD countries adopted fiscal consolidation strategies to reduce their debt‐to‐GDP ratios. This paper investigates the effects of fiscal consolidation on trading partners’ growth through trade linkages. Using a measure of exogenous fiscal shocks in export markets, fiscal consolidation spillovers are found to slow down domestic growth and decrease employment. To the extent that fiscal consolidations are synchronised, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger between countries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with lower bilateral exports, higher bilateral imports and relative increases in unit labour costs in currency unions. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets.     

Global financial shocks and foreign asset repatriation: Do local investors play a stabilizing role?

We study the dynamic response of gross capital flows in emerging market economies to different global financial shocks, using a panel vector-autoregressive (PVAR) approach. Our focus lies primarily on the potentially stabilizing role played by domestic investors in offsetting the response of foreign investors to adverse global shocks. We find that, while foreign investors tend to retrench from emerging markets in response to global risk aversion and monetary policy shocks, foreign asset repatriation by resident investors does not always follow suit. Local investors play a meaningful stabilizing role in the face of global risk aversion shocks, with sizeable asset repatriation largely offsetting the retrenchment of non-residents. In contrast, foreign investor retrenchment in response to global monetary policy shocks is not mirrored by asset repatriation. Finally, we find robust evidence that positive global real shocks tend to have a positive impact on net capital inflows to emerging markets. Our results shed light on the likely impact of the Fed's QE tapering on capital flows to emerging market economies.     

Are global shocks leading indicators of currency crisis in Viet Nam?

This paper aims to identify leading indicators of a currency crisis in Viet Nam based on an early warning system for the period 1996–February 2016. This paper found that global financial shocks (e.g., regional and global financial crisis, unexpected changes in monetary policy of largest economies such as the United States and the People’s Republic of China), and domestic credit growth rate are leading indicators of a currency crisis in Viet Nam in all three models. Deficits in trade balance, international reserves, and overvaluation of the dong are also good indicators. In addition, a model in which a currency crisis or turbulence in the foreign exchange market is defined based on the exchange market pressure and parallel market premium, with window length of 2 months, outperformed for predicting a currency crisis in Viet Nam. Empirical results suggested that probability of predicting a true currency crisis was 77.5%.     

Monetary policy spillovers and the trilemma in the new normal: Periphery country sensitivity to core country conditions

We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies – the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of countries' financial variables to the center economies [policy interest rate, stock market prices, and the real effective exchange rates (REER)] while controlling for global and domestic factors. Next, we examine the association of the estimated sensitivity coefficients with the macroeconomic conditions, policies, real and financial linkages with the center economies, and the level of institutional development. In the last two decades, for most financial variables, the strength of the links with the center economies have been the dominant factor while the movements of policy interest rate also appear sensitive to global financial shocks around the emerging market crises of the late 1990s and since the global financial crisis of 2008. While certain macroeconomic and institutional variables are important, the arrangement of open macropolicies such as the exchange rate regime and financial openness are also found to have direct influence on the sensitivity to the center economies. An economy that pursues greater exchange rate stability and financial openness faces a stronger link with the center economies through policy interest rates and real effective exchange rate (REER) movements. We also find that exchange market pressure (EMP) in peripheral economies is sensitive to the movements of the center economies' REER and EMP during and after the global financial crisis. Open macro policy arrangements, especially exchange rate regimes, also have indirect effects on the strength of financial linkages, interacting with other macroeconomic conditions. Thus, trilemma policy arrangements, including exchange rate flexibility, continue to affect the sensitivity of developing countries to policy changes and shocks in the center economies.     

International dimensions of optimal monetary policy

This paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities. An inward-looking policy of domestic price stabilization is not optimal when firms’ markups are exposed to currency fluctuations. Such a policy raises exchange rate volatility, leading foreign exporters to charge higher prices vis-à-vis increased uncertainty in the export market. As higher import prices reduce the purchasing power of domestic consumers, optimal monetary rules trade off a larger domestic output gap against lower consumer prices. Optimal rules in a world Nash equilibrium lead to less exchange rate volatility relative to both inward-looking rules and discretionary policies, even when the latter do not suffer from any inflationary (or deflationary) bias. Gains from international monetary cooperation are related in a non-monotonic way to the degree of exchange rate pass-through.     

Assessing the extreme risk spillovers of international commodities on maritime markets: A GARCH-Copula-CoVaR approach

Maritime market relies on demand of international commodity trade from producers to consumers. Focusing on measuring the inherent correlation, this paper employs a GARCH-Copula-CoVaR approach to address the debate on the extreme risk spillovers from commodity market to maritime market. Our results provide new evidence regarding risk transmission from oil and ex-energy sector to the maritime markets, as well as the interactions between different sub-sectors of maritime market. It is also found that commodity markets exert different spillover effects on global and Chinese domestic maritime markets. In additional, the risk spillovers in oil-freight index pairs after global financial crisis is different from the before. Results enrich the knowledge of risk spillovers between commodity and maritime market, which help stakeholders improve portfolio optimization.     

International interest rates and US monetary policy announcements: Evidence from Hong Kong and Singapore

This paper investigates the responses of market interest rates to US monetary policy announcements for the US and two emerging economies, Hong Kong and Singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years. Our results, based on market expectations extracted from federal fund futures rates, document that FOMC announcements significantly affect the term structure of interest rate in the US and both Asian countries. Further, international interest rate differentials around FOMC meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases. Finally, for the case of Singapore, we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements. These results are robust to time-varying futures risk premia and alternative measures of interest rates expectations.     

美元大幅贬值的原因及对主要经济体货币政策的挑战

美元自2000年以来对主要货币大幅贬值。美元大幅贬值增加了全球金融的不确定性,易诱发金融风险。而且在美元不断贬值过程中,世界其它主要经济体的货币政策亦陷入困境。本文首先分析美元贬值的原因,然后探讨全球主要经济体在此背景下货币政策选择的难点和挑战。     

货币政策与宏观审慎政策共同支持宏观经济稳定

货币政策是维持宏观经济稳定运行的重要政策工具,但2007—2009年国际金融危机表明,仅仅保持物价水平稳定,忽视金融风险,并不足以维持宏观经济稳定。近年来中国提出双支柱宏观政策框架以支持宏观经济稳定,这一创新具有重要的理论与现实意义。我们首先提出了双支柱宏观调控的框架,强调应该注重两类政策目标的协同与矛盾、政策传导渠道的相互交叉与影响、冲击类型与开放条件的差异等,从而保证双支柱宏观调控对宏观经济的稳定效应。接下来,我们建立了一个DSGE两国模型,作为分析双支柱宏观调控稳定宏观经济的案例研究。研究表明,第一,金融冲击下,货币政策有助于稳定宏观经济,且随着汇率制度从固定转向浮动,货币政策稳定宏观经济的效果会明显加强。第二,在货币政策的基础上,增加以跨境资本流入税为代表的宏观审慎政策工具,可以有效遏制金融市场的顺周期机制,进一步提高宏观经济的稳定性,从而验证了双支柱宏观调控的有效性。第三,双支柱宏观调控的有效性与汇率制度有关,当汇率灵活性水平较低时,双支柱宏观调控对宏观经济的稳定效果更好。