Sterilization of short-term capital inflows—through lower interest rates?

Reductions in international interest rates are a major cause of capital flows to emerging economies. Increases in domestic interest rates are a frequent policy response to the resulting price increases. This is often unsuccessful. The paper suggests a theoretical explanation based on distinctive features of emerging financial markets, including imperfect asset substitutability and imperfect capital mobility for some sectors of the economy. It concludes that the appropriate policy response to capital inflows may be lower interest rates.     

The euro: The logic and inevitability of UK adoption

A competitive, smoothly functioning financial system is widely accepted as a prerequisite for realising an economy's growth potential. Modern growth theories have broadened their focus beyond the rate of interest as the means of equilibrating savings and investment to the contribution that efficiently operating financial markets make to underlying growth rates. The successful introduction of the euro marks an historic and significant step towards the achievement of a competitive, smoothly functioning pan-European integrated financial system. The elimination nominal currency risk for participants and reduced transaction costs are only the start of a continuing dynamic process that is steadily reducing asymmetries and increasing contestability. More generally a single currency and a smoothly functioning pan-European financial system are necessary counterparts to a single EU market in goods, services, labour and financial capital. This paper advances the argument that the integration of the EU's financial markets should be viewed as part of a longer-term process of economic and political integration in Europe. The UK is unable to stop this trend and UK business in general, and the UK financial markets in particular, would be wise to acknowledge these forces and to start to work with them. Marketing UK financial services with a view to UK membership of EMU would not only align marketing with the flow of history, but also it offers the prospects of a greater longer-term return.     

内外部金融周期差异如何影响中国跨境资本流动?

本文揭示了内外部金融周期差异影响跨境资本流动的机制,并以美国为外部经济代表,基于1998年第一季度至2018年第一季度数据进行了实证检验。研究发现:(1)中国跨境资本流动波动主要来自短期资本流动波动;分类看,其他投资波动较大;方向上看,流入波动要大于流出波动。(2)利差、汇差、资产价差(股指变动差异和房价变动差异)是影响跨境资本流动的重要因素,汇差和资产价差对短期资本流动影响尤甚。(3)内外部金融周期差异变动对资本流入的影响比对资本流出的影响更明显。(4)近年来,利差对跨境资本流动影响减弱,汇差和资产价差对跨境资本流动影响增强。结果说明,防范跨境资本流动风险要关注其他投资资本流动大幅波动风险,同时注意防范汇率和资产价格波动共振对跨境资本流动的冲击。     

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。     

Monitoring Compliance with IFRS: Some Insights from the French Regulatory System

European Union Regulation 1606/2002 is aimed at improving the quality of financial reporting and developing a single capital market in Europe. Nevertheless, these goals cannot necessarily be achieved solely by making a requirement for EU companies to use International Financial Reporting Standards (IFRS), and the EU has sought to create a mechanism to oversee the appropriate application of these standards. In this paper, we describe and comment on the methods used by the French stock exchange regulator, the Autorité des Marchés Financiers (AMF), for monitoring compliance with the national reporting rules as this bears upon the issue of enforcement of IFRS in Europe as from 2005. The AMF has been chosen in our study because of its extensive experience with the review of financial statements of listed companies. Our paper draws on qualitative interviews with people involved directly in scrutinizing financial information at the AMF as well as on the experience gained from attachment to the AMF's Accounting Division. While there is recent research that addresses the issues on enforcement of accounting standards, there is still a lack of studies which discuss the relevance and effectiveness of the methods used to monitor compliance with accounting standards. Our paper may be of interest to different groups of participants including regulatory oversight bodies, auditors, producers and users of financial information in the capital markets.     

Time variation paths of international transmission of stock volatility — US vs. Hong Kong and South Korea

This study examines continuous time variation paths of sensitivities of the Hong Kong and South Korea stock markets to the US stock market and bond market (proxied by long-term interest rates) by using the Flexible Least Squares (FLS) estimation technique. The FLS findings suggest that changes in both the US stock market and US long-term interest rates may simultaneously have significant effects on the Hong Kong stock market in some time periods. In other periods, neither may have significant effects on the Hong Kong stock market. The results also indicate that the South Korea stock market is overall insensitive to changes in the US capital markets. However, it becomes more sensitive in the 1990s. Some macroeconomic variables may explain changes in the sensitivities of the Hong Kong and South Korea stock markets to changes in the US capital markets.     

The Impact of IAS/IFRS on Polish Accounting Regulations and their Practical Implementation in Poland

Abstract

In the face of the globalization process that we have witnessed over recent years, the European Union (EU) decided that it is crucial to improve the competitiveness of Europe and the development of financial services and capital markets through enforcement of International Financial Reporting Standards (IFRS) as a basis of financial reporting of listed companies. Poland as a member of the EU was obliged to incorporate International Accounting Standards (IAS)/IFRS in national accounting regulations. Our paper discusses this issue. We also present the impact of IAS/IFRS implementation by Polish companies on their financial statements, particularly the impact on income and equity (capital). The presentation is the result of the review and analysis of 255 financial reports (including 171 consolidated) of companies listed on the Warsaw Stock Exchange.     

Financial liberalisation, foreign aid, and capital mobility: evidence from 90 developing countries

The methodology of Feldstein and Horioka (Econ. J. 90 (1980) 314) is used to gauge the degree of capital mobility and accessibility to international financial markets following financial liberalisation. The sample consists of 90 developing countries divided into four regions: Africa, Asia, Latin America, and the Middle East. The sample period is 1975–1995, split into two periods. Our results indicate that for developing countries capital is relatively immobile. There is also evidence that access to international financial markets increases following financial liberalisation. Finally, including foreign aid in the saving–investment regression has an important positive effect on the saving coefficient.     

Internationalization and the capital structure of firms in emerging markets: Evidence from Latin America before and after the financial crisis

This study examines the impact of internationalization on the capital structure of firms in emerging markets before and after the financial crisis of 2008, with evidence from five countries in Latin America (Argentina, Brazil, Chile, Mexico, and Peru). We find that before the financial crisis, Latin American MNCs are characterized by lower debt levels than purely domestic firms. However, after the financial crisis, we find that the MNCs are characterized by higher debt levels. This finding suggests that after the financial crisis, the Latin American MNCs (like many firms) may be taking advantage of their access to low interest rates in the global capital markets.     

Fiscal policy events and interest rate swap spreads: Evidence from the EU

This paper assesses the importance given in capital markets to the credibility of the European fiscal framework. We evaluate to which extent relevant fiscal policy events taking place in 2002 produced a reaction in the long-term bond segment of European capital markets. Firstly, we identify the relevant fiscal policy events. Secondly, we estimate the impact of these fiscal events on interest rate swap spreads in 13 EU member states. According to our results the reaction of swap spreads, when significant, has been mostly around five basis points or less.     

Global financial services and a global single currency

The purpose of this paper is to highlight the evolution of financial institutions in the context of increasingly volatile foreign exchange markets. The paper discusses the importance of the formation of a single currency in the US in the 19th century and the formation of the Euro in the 20th century for reducing volatility in foreign exchange markets that have assisted financial institutions’ international business expansion. The paper also considers some of the key assumptions of an optimal currency theorem such as labour mobility and argues that in the 21st century, more comprehensive financial market integration and a single global currency could emerge, provided that capital mobility and hence foreign capital flows continue meeting labour in the host countries for production rather than the other way round.     

Monetary policy and covered interest parity in the post GFC period: Evidence from the Australian dollar and the NZ dollar

After the global financial crisis (GFC), most major currencies had higher interest rates than the US dollar on forward contract because of increased demand for the US dollar as international liquidity. However, unlike the other major currencies, the Australian dollar and the NZ dollar had lower interest rates than the US dollar on forward contract in the post GFC period. The purpose of this paper is to explore why this happened through estimating the covered interest parity (CIP) condition. In the analysis, we focus on a unique feature of Australia and New Zealand where short-term interest rates remained significantly positive even after the GFC. The paper first constructs a theoretical model where increased liquidity risk causes deviations from the CIP condition. It then tests this theoretical implication by using daily data of six major currencies. We find that both money market risk measures and policy rates had significant effects on the CIP deviations. The result implies that unique monetary policy feature in Australia and New Zealand made deviations from the CIP condition distinct on the forward contract.     

Deviations from Covered Interest Rate Parity

We find that deviations from the covered interest rate parity (CIP) condition imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on banks' balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed income spreads and with nominal interest rates.     

Impact of Market Expectations on the U.S. Interest Rate Lift-Off in ASEAN-5 Financial System

During 2015–2016, the market has lowered its expectations on the pace and magnitude of U.S. interest rate lift-off, which should have reduced capital outflow and supported the ASEAN-5 financial markets. Yet, the ASEAN-5 financial markets have recorded mixed fortunes, possibly due to spikes in global risk (proxied by CBOE VIX index). Against the contrasting background of higher global risk and gradual interest rate lift-off, this paper investigates the impact of market expectations on U.S. interest rate on the ASEAN-5 financial markets. This paper concludes that both global risk and market expectations on interest rate lift-off affect the ASEAN-5 financial markets, whereby the negative effect of higher global risk dominates the positive effect of market expectations of gradual interest rate lift-off in the ASEAN-5 currencies and equity markets. However, it is the reverse in the ASEAN-5 sovereign bonds as the positive impact of market expectations of more gradual interest rate lift-off dominates the negative effect of higher global risk.

     

The scope for national monetary policy in the face of globalised financial markets

Conclusion Experience has shown that German monetary policy is far from impotent There is consequently no call for passive resignation. The monetary authorities must send clear signals if the current turbulence on the currency markets is to be kept in check. The Bundesbank itself has clearly shown — during the period following German Unification — that an autonomous monetary policy is possible in spite of the high degree of integration on international financial markets. It is hard to see why this should not be the case today simply because it is no longer interest rate hikes but base rate cuts that are called for.If interest rates are not reduced, the interest rate on the German capital market will continue to follow the lead set by American monetary policy. But is it right that the American central bank, on the basis of data on the state of the US economy, indirectly helps to determine whether new jobs are created in Germany and whether existing jobs are made more secure? What is required in the medium term is greater independence on the part of German monetary policy. The globalisation of financial markets does not stand in the way of such a strategy.     

International reserves for emerging economies: A liquidity approach

The massive stocks of foreign exchange reserves, mostly held in the form of U.S. T-bonds by emerging economies, are still an important puzzle. Why do emerging economies continue to willingly loan to the United States despite the low rates of return? We suggest that a dynamic general equilibrium model incorporating international capital markets, characterized by decentralized trade and U.S. T-bonds as facilitators of trade, can provide one possible resolution to this question. Declining financial frictions in these over-the-counter (OTC) markets would generate rising liquidity premium on U.S. T-bonds, thereby causing low U.S. real interest rates. Meanwhile, the superior liquidity properties of the U.S. T-bonds would induce recipients of foreign investments, namely emerging economies, to hold more liquidity, that is U.S. T-bonds, in equilibrium. The prediction of our model is confirmed by an empirical simultaneous equations approach considering an endogenous relationship between OTC capital inflows and reserve holdings.     

Monetary policy and financial stability: What role for the futures market?

This paper examines interactions between monetary policy and financial stability. There is a general view that central banks smooth interest rate changes to enhance the stability of financial markets. But might this induce a moral hazard problem, and induce financial institutions to maintain riskier portfolios, the presence of which would further inhibit active monetary policy? Hedging activities of financial institutions, such as the use of interest rate futures and swap markets to reduce risk, should further protect markets against consequences of unforeseen interest rate changes. Thus, smoothing may be both unnecessary and undesirable. The paper shows by a theoretical argument that smoothing interest rates may lead to indeterminacy of the economy's rational expectations equilibrium. Nevertheless, our empirical analysis supports the view that the Federal Reserve smoothes interest rates and reacts to interest rate futures. We add new evidence on the importance for policy of alternative indicators of financial markets stress.     

US money announcements and covered interest parity: The case of Japan

This paper examines the effects of US money announcements on dollar-and yen-denominated securities in their respective onshore markets. The effects are consdered over several periods corresponding to possible US and Japanese policy regimes. The consistency of the responses is further examined by testing whether the responses of dollar-denominated securities, yen-denominated securities, the spot yen/dollar exchange rate, and the forward yen/dollar exchange rate violate covered interest parity. Given the results of previous studies, the evidence suggests that restrictions on capital mobility in Japan have not allowed complete international integration of Japanese financial markets.     

人口学特征与利率期限结构:老年社会平缓的收益率曲线

本文将刻画人口结构的生命周期模型引入消费-资本资产定价模型,考察人口结构对利率期限结构的影响。模型表明,人口结构及其家庭生命周期特征不仅决定利率水平,而且将通过人对债券期限的不同偏好,影响利率期限结构。少年人口占比对利率期限结构的影响为正,中年和老年人口占比的影响为负。相比少年人口,中老年人口更偏好长期债券,使长期收益率下降,期限结构的斜率更为平缓。基于全球数据的经验研究验证了这一结论。少年人口占比增加期限利差,中老年人口占比则起反向作用。因此,在年长的经济体中,期限利差更小,呈现更平缓的收益率曲线特征。在更换人口结构变量、期限利差变量、估计方法、赋权样本和处理遗漏变量后,结果表现稳健。本文从人口学视角拓宽了利率期限结构的决定因素,揭示了老年经济体可能面临一个平缓的收益率曲线,而这说明老龄化还可能通过抑制短期投机和促进长期投资来提高长期经济发展质量。     

The Core,Periphery, and Beyond: Stock Market Comovements among EU and Non‐EU Countries

Using linear and nonlinear correlations, copulas, quantile dependence and lower tail dependence, we find that (1) equity markets of the advanced European Union (EU) countries comove more closely with each other than with the peripheral economies, (2) comovements with non‐EU countries are lower, (3) relative comovement structure before, during, and after the global financial crisis has been very stable, and (4) the level of comovements remained virtually the same between the crisis and post‐crisis periods. Our results are robust to controlling for Fama‐French, U.S. and global risk factors, as well as monetary policy, market interest rates, exchange rates, and uncertainty.