Greenium in the Chinese corporate bond market

This paper explores the pricing implications of green bonds in the Chinese corporate bond market. We document a large greenium in the Chinese green bond market, whereby green bonds are issued at lower offering yield spreads in the primary market and traded at lower yields in the secondary market. The magnitude of the Chinese greenium is substantially greater than other international green bond markets. Exploring the underlying mechanisms, we document convincing evidence that mitigation of information asymmetry and exposure to salient environmental stimuli such as air pollution are plausible explanations of the greenium.     

Emerging market sovereign bond spreads and shifts in global market sentiment

The paper studies how the relationship between emerging market sovereign bond spreads, economic fundamentals and global financial market conditions differs across three regimes of global market sentiment. Following the identification of periods characterized by low, medium and high volatility in financial markets, we analyze the behavior of spreads from three different angles. First, we demonstrate that the cross-country correlation of spreads increases in high-volatility regimes, implying that countries cannot fully decouple from developments in other emerging markets during periods of distress. Second, using the interactions of several domestic and global variables with the probabilities of each regime prevailing in a given period as the explanatory variables of spreads, the fixed effects panel estimation shows that while country-specific fundamentals are important determinants of spreads in each regime, the importance of global financial conditions increases in high-volatility periods. Third, we show that countries can benefit from stronger fundamentals in the form of lower exposure of their sovereign spreads to unfavorable regime shifts in global market sentiment.     

Emerging market sovereign bond spreads: Estimation and back-testing

We estimate sovereign bond spreads of 28 emerging economies over the period January 1998–December 2011 and test the ability of the model in generating accurate in-sample predictions for bond spreads. The impact and significance of explanatory variables on spreads vary across regions and periods. During crisis times, good macroeconomic indicators are helpful in containing spreads, but less than in non-crisis times, possibly reflecting the impact of extra-economic forces on spreads when a financial crisis occurs. For some economies, in-sample predictions of the monthly changes in spreads obtained with rolling regression routines are more accurate than those obtained with random guessing.     

Identifying risks in emerging market sovereign and corporate bond spreads

This paper investigates the systematic risk factors driving emerging market (EM) credit risk by jointly modeling sovereign and corporate credit spreads at a global level. We use a multi-regional Bayesian panel VAR model, with time-varying betas and multivariate stochastic volatility. This model allows us to decompose credit spreads and build indicators of EM risks. A key result is that indices of EM sovereign and corporate credit spreads differ because of their specific reactions to global risks (risk aversion, liquidity and US corporate risk). For example, following Lehman's default, EM sovereign spreads ‘decoupled’ from the US corporate market, whereas EM corporates ‘recoupled.’     

国债规模:在财政与金融之间寻求平衡

本文从财政政策和货币政策协调配合角度,探讨了国债在金融体系中的特殊地位和作用,着重分析了国债市场作为核心金融市场在提供市场流动性方面的不可替代的作用.本文的政策含义就是,为了给我国的金融市场运行创造一个良好的基础,我们的国债政策应当超越单纯财政的财政眼光.     

Emerging market bond spreads and sovereign credit ratings: reconciling market views with economic fundamentals

This paper uses a panel data estimation of a simple univariate model of sovereign spreads on ratings to analyze statistically significant differences between actual spreads and ratings-based spreads. When such deviations are significant, we find that ‘excessively high’ spreads are on average followed by episodes of spread tightening 1 month later rather than credit downgrades. In contrast, observations with ‘excessively low’ spreads are on average followed by rating upgrades 3 months later rather than episodes of spread widening. The paper also illustrates how significant disagreements between market and rating agencies’ views can be used as a signal that further technical and sovereign analysis is warranted. For instance, we find that spreads were ‘excessively low’ for most emerging markets before the Asian crisis. More recently, spreads were ‘excessively high’ for a number of emerging markets.     

The rise of dollar credit in emerging market economies and US monetary policy

This paper examines the hypothesis that the boom in dollar credit in emerging market economies (EMEs) is associated with an excessively low interest rate in the US. For this purpose, we use a multivariate correlated unobserved component model that allows for correlation between shocks to dollar credit, cross‐border interest rate gaps—measured as the difference between emerging market interest rate and the US interest rate, and dollar index both in the short run and in the long run. In addition, it also provides us a quantitative estimate of the permanent and transitory movements in dollar credit in EMEs, interest rate gaps and dollar index. The results from this model do suggest that a temporary increase in interest rate gaps and decline in the dollar index are associated with a temporary increase in the dollar credit in EMEs with a very high degree of correlation. The estimate of the cyclical component of the dollar credit in EMEs from our model captures the recent boom and bust in this market and compares favourably to alternative trend–cycle decomposition methods.     

Recovering from bond market distress: Good luck and good policy

This paper focuses on the resolution of bond market crises. Episodes of bond market distress are identified using secondary market sovereign bond spreads. Duration models are used to assess the role of the global environment, domestic policy, IMF programs and political events in explaining the length of distress episodes. We find a rich set of interactions between favourable external conditions, sound macroeconomic policies and the presence of an IMF program which contribute to shorter bond market crises.     

Financial stability and monetary policy

Business Economics - Financial conditions should be an important component of the Fed’s monetary policy reaction function. I don’t think financial stability is a goal that really...     

Openness and optimal monetary policy

We show that the composition of international trade has important implications for the optimal volatility of the exchange rate, above and beyond the size of trade flows. Using an analytically tractable small open economy model, we characterize the impact of the trade composition on the policy trade-off and on the role played by the exchange rate in correcting for price misalignments. Contrary to models where openness can be summarized by the degree of home bias, we find that openness can be a poor proxy of the welfare impact of alternative monetary policies. Using input–output data for 25 countries we document substantial differences in the import and non-tradable content of final demand components, and in the role played by imported inputs in domestic production. The estimates are used in a richer small-open-economy DSGE model to quantify the loss from an exchange rate peg relative to the Ramsey policy conditional on the composition of imports. We find that the main determinant of the losses is the share of non-traded goods in final demand.     

European monetary policy: Institutional design and policy experience

The following article examines design issues relevant to European monetary policy: central bank independence, and the accountability and transparency of monetary policy strategy. An empirical approach is then applied which allows a comparison between the ECB and other central banks. It also enables an investigation of whether the ECB simply follows the US Federal Reserve Bank, as is sometimes claimed.     

Exchange rate expectations and monetary policy

The adjustment process to a monetary disturbance is studied in a model of perfect capital mobility and flexible exchange rates. Exchange rate expectations are emphasized and used to establish an adjustment process. In the short run, a monetary expansion gives rise to a depreciation in the exchange rate and a reduction in saving due to the terms of trade deterioration. The exchange rate depreciation, in the short run, may be in excess of the long-run depreciation. The trade balance in the short run may worsen. The long-run equilibrium of the analysis conforms to the Mundell-Fleming results that establish the force of monetary policy under flexible rates.     

International monetary policy surprise spillovers

This is the first paper to examine international monetary surprise spillovers and to estimate the response of security prices to monetary and nonmonetary surprises. Monetary surprises have a slope effect on the domestic yield curve—short maturity yields adjust much more than longer maturity yields. These results are similar to other studies. The following results are new. US monetary surprises spill over and affect Australian yields and equity returns. Australian monetary surprises do not spill over to the US. Nonmonetary surprises are much more important than monetary policy surprises in explaining longer maturity yield changes and equity returns.     

Foreign exchange and monetary policy in Mexico

The liberalization and reform of the Mexican economy has been headline material for several years. As Agustin Carstens explains in his article, one of the single most important factors in this turnaround has been sound fiscal policies and the recent moves to make the central bank independent. The foreign exchange rate policies and anti-inflation monetary policies have been the backbone of Banco de Mexico's efforts. These efforts, and their attendant effect upon Mexican financial markets serve as an illustration of current reform movements.     

Inflation,uncertainty, and monetary policy

Low inflation likely reflects factors whose influence should fade over time. But many uncertainties attend this assessment, and downward pressures on inflation could prove to be unexpectedly persistent. My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation. In interpreting incoming data, we will need to stay alert to these possibilities and, in light of incoming information, adjust our views about inflation, the overall economy, and the stance of monetary policy best suited to promoting maximum employment and price stability. How should policy be formulated in the face of such significant uncertainties? In my view, it strengthens the case for a gradual pace of adjustment. But we should also be wary of moving too gradually. It would be imprudent to keep monetary policy on hold until inflation is back to 2%.     

Consumer credit and monetary policy in Malaysia

What is the impact of monetary policy on the Malaysian consumer? The study addresses this issue by empirically investigating the consequences of interest rate shocks on consumer credit in Malaysia. The study relies on the impulse response functions and the variance decomposition analysis based on the structural Vector Auto‐regression methodology. Apart from analysing the responses of aggregate consumer loans (ACL) to interest rate changes, further disaggregation is made in efforts to arrive at more detailed findings. In particular, the ACL data are categorized into loans for purchase of residential property, loans for personal uses, loans for credit cards, loans for purchase of consumer durables, loans for purchase of passenger cars and loans for purchase of securities. Through this disaggregation, the study shows the relative sensitivity of the various types of consumer loans to interest rate shocks.     

基于货币政策非对称效应的我国宽松货币政策退出研究

货币政策效应是非对称的,经济过热时的紧缩作用大于经济萧条阶段的刺激作用,因此货币政策的操作也是非对称的.本文认为在世界经济还存在不确定性的情况下,基于货币政策的非对称效应,我国当前在退出宽松货币政策时应保持谨慎.     

Emerging market multinationals and internalisation theory

There is ongoing debate about the applicability of internalisation theory to Emerging Market Multinationals (EMNEs). Internalisation theory normally describes multinationals exploiting superior knowledge directly abroad rather than licensing its use to foreign firms. We argue that EMNEs can be explained readily in terms of internalisation theory. This involves internalisation in the opposite direction: knowledge is internalised by EMNEs which then exploit it utilising home-country cost advantages. However, this is normally achieved by means that avoid the licensing of key technologies from leading firms. This clarifies the theoretical basis of EMNE strategic asset seeking investment. Market-seeking investments are also linked to technology-seeking investments through fixed costs. A model formalises the arguments, establishing conditions leading to different types of equilibria when an advanced-economy firm competes with an emerging-economy firm. The range of factors that it incorporates means that it is also compatible with other theories of the EMNE.