The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market

This paper examines foreign direct investment by studying shareholder wealth gains for 1273 U.S. firms acquired during the period 1970-1987. Three findings stand out. First, cross-border takeovers are more frequent in research and development intensive industries than are domestic acquisitions; furthermore, in three-fourths of cross-border transactions the buyer and seller are in related industries. These industry patterns suggest that costs and imperfections in product markets play an important role in foreign direct investment. Second, targets of foreign buyers have significantly higher wealth gains than do targets of U.S. firms. This cross-border effect is comparable in size to the wealth effects of all-cash and multiple bids, two effects receiving substantial attention in the finance literature, and is robust to inclusion of these two variables. Third, while the cross-border effect on wealth gains is not well explained by industry and tax variables, it is positively related to the weakness of the U.S. dollar, indicating a significant role for exchange rate movements in foreign direct investment.     

The impact of foreign stock markets on macroeconomic dynamics in open economies: A structural estimation

With the increased international financial integration in recent years, bilateral financial linkages between countries may have a growing influence on their real economies. This paper employs a structural two-country New Keynesian model, which incorporates a cross-border wealth channel, to estimate the effect that foreign stock market fluctuations may have on macroeconomic variables in open economy countries.The model is estimated using Bayesian methods on a sample of open economies that can potentially be affected by changes in a larger foreign stock market: Australia, Canada, New Zealand, Ireland, Austria, and the Netherlands. The estimation allows for deviations from rational expectations and for learning by economic agents.The empirical results indicate important cross-country wealth effects for Ireland and Austria, from fluctuations in the U.S. and U.K. and in the U.S. and German stock markets, respectively; the wealth effect is largest in Ireland. The data favor, instead, specifications with no significant wealth effect for the remaining countries. Foreign stock price fluctuations, however, still play a role by affecting domestic expectations about future output gaps in all countries in the sample.     

Using survey data to resolve the exchange risk exposure puzzle: Evidence from U.S. multinational firms

This paper examines the effect of unexpected exchange rate movements on U.S. shareholder wealth. Empirical results based on a sample of 634 U.S. multinational firms (1) confirm previously reported evidence that the disaggregation of the worldwide trade-weighted U.S. dollar exchange rate index into seven region-specific trade-weighted indices increases the precision and significance of exposure estimates; (2) show that models assuming that changes in spot exchange rates are unanticipated are frequently misspecified and, thus, unable to correctly detect the impact of currency movements on firm value; (3) reveal that forward and survey expectations enable us to distinguish between the effect of ‘realized’ and ‘unexpected’ currency movements; and (4) reveal that investors making pricing and hedging decisions prefer to use the information contained in short-term forward and survey expectation rates to the information included in long-term forecasts.     

从中美经济相互依存看我国高额外汇储备管理

美债危机爆发后,中国作为美国在海外最大的债券持有者仍然不得不继续增持美债,一方面是由于人民币汇率长期与美元挂钩,国际贸易和金融交易主要以美元结算以及我国出口导向型经济增长方式短期内无法改变均导致外汇储备被动积累,另一方面更是因为一旦我国大规模减持美元资产,将引起全球外汇市场对美元的恐慌性抛售,并最终危及我国在美金融资产安全。美债危机表明我国经济对美国高度依赖,并凸显了经济增长方式转变以及对高额外汇储备有效管理的重要性与紧迫性。     

Forward Hedging the Exchange Risks of U.S. Equity Investments in the U.K., Germany and France

This paper simulates forward hedging of foreign exchange risks for U.S. investments in U.K., German and French equities. Rolling OLS and SUR regressions are used to obtain monthly exposure coefficients (hedge ratios), and the micro-market mechanics of the exchange rate bid-ask spread are considered throughout. While the coefficient of variation favors not hedging, no statistically significant differences are found between no hedge and hedge strategies. However, hedging produces a nontrivial incidence of cases where liquidated foreign equity values are less than amounts sold forward. The results, robust to rising and falling dollar sub-periods, do not support forward hedging.     

The high-frequency response of exchange rates and interest rates to macroeconomic announcements

The joint movements of exchange rates and U.S. and foreign term structures over short-time windows around macro announcements are studied using a 14-year span of high-frequency data. In order to evaluate whether the joint effects can be reconciled with conventional theory, the implications of these joint movements for changes in expected future exchange rates and changes in foreign exchange risk premia are deduced. For several real macro announcements, a stronger than expected release appreciates the dollar today, and must either (i) lower the risk premium for holding foreign currency rather than dollars, or (ii) imply net expected dollar depreciation over the ensuing decade.     

Exchange market pressure and absorption by international reserves: Emerging markets and fear of reserve loss during the 2008–2009 crisis

This paper evaluates how the global financial crisis emanating from the U.S. was transmitted to emerging markets. Our focus is on the extent that the crisis caused external market pressures (EMP), and whether the absorption of the shock was mainly through exchange rate depreciation or the loss of international reserves. Controlling for variety of factors associated with EMP, we find clear evidence that emerging markets with higher total foreign liabilities, including short- and long-term debt, equities, FDI and derivative products—had greater exposure and were much more vulnerable to the financial crisis. Countries with large balance sheet exposure – high external portfolio liabilities exceeding international reserves—absorbed the global shock by allowing greater exchange rate depreciation and comparatively less reserve loss. Despite the remarkable buildup of international reserves by emerging markets during the period prior to the financial crisis, countries relied primarily on exchange rate deprecation rather than reserve loss to absorb most of the exchange market pressure shock. This could reflect a deliberate choice (“fear of reserve loss”) or market actions that caused very rapid exchange rate adjustment, especially in emerging markets with open capital markets, overwhelming policy actions.     

谁将挑战美元

1976年以来,美元作为国际货币的作用逐渐减弱,一些新兴市场经济体的货币开始登上历史舞台。而美元作为国际货币的地位并没有发生直线下降,尤其是2010年以来,美元在各国中央银行外汇储备中的占比止跌企稳,在外汇市场交易中的占比也开始回升。目前来看,欧元和人民币均难以替代美元。但未来美元仍存在被其他货币超越和取代的可能。     

Oil Currency and the Dollar Standard: A Simple Analytical Model of an International Trade Currency

The U.S. dollar is the central reference currency for international trade pricing and the main invoicing currency for primary commodities. This paper links these two observations within a stylized theoretical framework, and shows how to obtain a quantitative estimate of the gain to the U.S. economy when the dollar is a reference currency. With dollar invoicing of primary commodities, U.S. firms bear less exchange rate risk than foreign firms. This asymmetry leads to a dollar standard in international goods pricing. We then derive a simple analytical formula to calculate the gains and find that they are extremely small.     

U.S. Monetary Policy and International Bond Markets

This paper analyzes how U.S. monetary policy affects the pricing of dollar‐denominated sovereign debt. We document that yields on dollar‐denominated sovereign bonds are highly responsive to U.S. monetary policy surprises—during both the conventional and unconventional policy regimes—and that the passthrough of unconventional policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition, a conventional U.S. monetary easing (tightening) leads to a significant narrowing (widening) of credit spreads on sovereign bonds issued by countries with a speculative‐grade credit rating but has no effect on the corresponding weighted average of bilateral exchange rates for a basket of currencies from the same set of risky countries; this indicates that an unanticipated tightening of U.S. monetary policy widens credit spreads on risky sovereign debt directly through the financial channel, as opposed to indirectly through the exchange rate channel. During the unconventional policy regime, yields on both investment‐ and speculative‐grade sovereign bonds move one‐to‐one with policy‐induced fluctuations in yields on comparable U.S. Treasuries. We also examine whether the response of sovereign credit spreads to US monetary policy differs between policy easings and tightenings and find no evidence of such asymmetry.     

Are US-Dollar-Hedged-ETF investors aggressive on exchange rates? A panel VAR approach

Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge against exchange rate volatility may have itself become a source of volatility, which have implications for the further financialization of the ETF industry.     

Asymmetric foreign exchange risk exposure: Evidence from U.S. multinational firms

This paper examines how U.S. multinational firms are affected by foreign currency movements. In light of detailed exchange rate data, we find that 29% of our sample of 935 U.S. firms with real operations in foreign countries is significantly affected by currency movements between 1990 and 2001. Results show moreover that U.S. stock returns react asymmetrically to currency movements. By introducing nonlinearity in foreign currency risk exposure, we noticeably increase the precision and the significance of exposure estimates. We demonstrate moreover that asymmetries are more pronounced towards large versus small currency fluctuations than over depreciation and appreciation cycles.     

U.S. Monetary Policy Surprises and International Securitized Real Estate Markets

This paper examines the impact of U.S. monetary policy surprises on securitized real estate markets in 18 countries. The policy surprises are measured by both the surprise changes to the target federal funds rate (the target factor) and surprises in the future direction of the Federal Reserve monetary policy (the path factor). The results show that most international securitized real estate markets have significantly positive responses to surprise decrease in current or future expected federal funds rates, though such responses vary greatly across countries. Also, while the U.S. securitized real estate market reacts mainly to the target factor, foreign securitized real estate markets react to the path factor. Furthermore, we find that the cross-country variation in the response to the target factor is correlated with the country’s exchange rate regime and its degree of real economic and particularly financial integration, while the cross-country variation in the response to the path factor is mainly related to the country’s degree of financial integration.     

Capital Controls and the International Transmission of U.S. Money Shocks

We assess whether capital controls effectively insulate countries from U.S. monetary shocks, examining a large range of country experiences in a unified estimation framework. We estimate the effect of identified U.S. monetary shocks on the exchange rate and foreign country interest rates, and test whether countries with less open capital accounts exhibit systematically smaller responses. We find essentially no evidence of this. Other country factors such as the exchange rate regime or degree of dollarization explain more of the cross-country differences in responses. The significant differences in responses we do find are more pronounced at short horizons.     

Understanding the Backus–Smith puzzle: It's the (nominal) exchange rate,stupid

Backus, Kehoe and Kydland (BKK 1992) demonstrated that if international capital markets are complete, consumption growth correlations across countries should be higher than their corresponding output growth correlations. In stark contrast to the theory, however, in actual data the consumption growth correlation is lower than the output growth correlation. By assuming trade imperfections due to non-traded goods, Backus, D.K., Smith, G.W. [1993 Consumption and real exchange rates in dynamic economies with non-traded goods. Journal of International Economics 35(3–4), 297–316] showed that there is an additional impediment at work that can lower the consumption growth correlation. While their argument was successful in partially explaining the puzzlingly low cross country correlation of consumption growth rates, it contributed to generating another puzzle because the data forcefully show that consumption growth is negatively correlated with the real exchange rate, which is also a violation of the theory. Using data for OECD countries, we decompose real exchange rate growth into its nominal exchange rate growth and inflation differential components, and find that nominal exchange rate movements are the main source for the Backus-Smith puzzle. We demonstrate the robustness of this finding by examining sub-samples of the data, by allowing for imperfect risk sharing due to ‘rule of thumb’ consumers, and by examining intranational data across the U.S. states where the nominal exchange rate is fixed.     

Capital Inflows and the U.S. Housing Boom

We estimate an open‐economy vector autoregressive (VAR) model to study the effect of capital‐inflow shocks on the U.S. housing market. We look at different external shocks that generate capital inflows to the U.S., in particular “saving‐glut” shocks and foreign monetary‐policy expansions. The shocks are identified with theoretically robust sign restrictions derived from an open‐economy dynamic stochastic general equilibrium (DSGE) model. Our findings suggest that capital inflows that result from “saving‐glut” shocks have a positive and persistent effect on real house prices and real residential investment.     

The U.S. current account deficit and the expected share of world output

We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries—more modest than the growth over the past 20 years—the current account deficit is near optimal levels. We then explore the implications for the real exchange rate. Under some plausible assumptions, the model implies little change in the real exchange rate over the adjustment path, though the conclusion is sensitive to assumptions about tastes and technology. Then we turn to empirical evidence. A test of current account sustainability suggests that the U.S. is not keeping on a long-run sustainable path. A direct test of our model finds that the dynamics of the U.S. current account—the increasing deficits over the past decade—are difficult to explain under a particular statistical model (Markov-switching) of expectations of future U.S. growth. But, if we use survey data on forecasted GDP growth in the G-7, our very simple model appears to explain the evolution of the U.S. current account remarkably well. We conclude that expectations of robust performance of the U.S. economy relative to the rest of the advanced countries is a contender—though not the only legitimate contender—for explaining the U.S. current account deficit.     

美国量化宽松货币政策与人民币的国际化

2008年国际金融危机的爆发和美国量化宽松货币政策的实施,导致我国外汇储备管理风险剧增,由此,我国加快推进人民币国际化战略目标下各项政策措施的出台。为应对量化宽松货币政策下美元流动性的泛滥,我国连续上调了金融机构的存贷款利率和存款准备金率。人民币升值压力增大,套汇、套利等投机交易下的短期资本流动风险加剧,增加了人民币国际化进程中的风险。对此,本文提出了在当前国际经济金融环境下人民币国际化发展的对策建议。     

How did a domestic housing slump turn into a global financial crisis?

The global financial crisis clearly started with problems in the U.S. sub-prime sector and spread across the world from there. But was the direct exposure of foreigners to the U.S. financial system a key driver of the crisis, or did other factors account for its rapid contagion across the world? To answer this question, we assessed whether countries that held large amounts of U.S. mortgage-backed securities (MBS) and were highly dependent on dollar funding experienced a greater degree of financial distress during the crisis. We found little evidence of such direct spillovers from the United States to abroad. Although CDS spreads generally rose higher and bank stocks generally fell lower in countries with more exposure to U.S. MBS and greater dollar funding needs, these correlations were not robust, and they fail to explain the lion’s share of the deterioration in asset prices that took place during the crisis. Accordingly, less tangible channels of contagion may have played a more important role in the global spread of the crisis: a generalized run on global financial institutions, given the opacity of their balance sheets; excessive dependence on short-term funding; vicious cycles of mark-to-market losses driving fire sales of MBS; the realization that financial firms around the world were pursuing similar (flawed) business models; and global swings in risk aversion. The U.S. sub-prime crisis, rather than being a fundamental driver of the global crisis, may have been merely a trigger for a global bank run and for disillusionment with a risky business model that already had spread around the world.     

House Price Booms,Current Account Deficits,and Low Interest Rates

Domestic factors, such as credit and preference shocks, can explain the negative correlation between house prices and the current account in the U.S. and several other countries before the recent crisis. These shocks, however, cannot account for the fall of world real interest rates observed in the data. Expansionary monetary policy shocks in the U.S., coupled with exchange rate pegs to the dollar in emerging economies, are crucial to understanding the evolution of the real interest rate. Yet, monetary policy factors play virtually no role for house prices and the current account.