Policy uncertainty and overseas property purchases: Evidence from China

A political leadership transition occurs in China every five years. This shift in leadership is accompanied by tremendous uncertainty within Chinese society, particularly for the nation's wealthy people. Examining private residential property transaction data in Singapore, this paper reveals that the number of transactions by Chinese mainland buyers increases by half during political transitions that occurred between 1998 and 2013, in comparison to buyers from Malaysia, the US, and Hong Kong.     

The relationship between corporate governance and foreign ownership of the banks in developing countries

The aim of this paper is to determine the effect of corporate governance on foreign ownership of the banks. Within this context, annual data of 65 developing countries for the periods between 2004 and 2013 was analyzed. In addition to this situation, 7 explanatory variables were used in this study in order to achieve this objective. As a result of the analysis, it was identified that there is a strong relationship between operations of foreign banks and governance levels of the countries. In this regard, it was determined that the factors of corruption, political stability, rule of law and flexibility in legal regulations affect foreign bank operations. Moreover, it was also analyzed that foreign bank operations are stronger in the countries that have low poverty, high political stability and efficient legal infrastructure. On the other hand, it was defined that strict legal regulation affects foreign bank operations negatively which shows that foreign banks prefer to enter into the countries that have flexible legal regulations. This study gives essential information to developing countries about the factors that affect the decisions of foreign banks in order to enter into a developing country. Therefore, by considering the results of this study, the authorities of these countries can have a chance to take necessary actions so as to attract foreign banks.     

The impact of exchange rate deviations from relative PPP equilibrium on the U.S. demand for foreign equities

Applying fixed-effects panel data, this study investigates the impact of U.S. dollar exchange rate movements during different exchange rate states (overvaluation and undervaluation) on the monthly real gross and real net purchases of foreign equities by U.S. residents over the post-Plaza Accord period. The foreign equities come from 22 developed and 25 developing countries. Previous research has posited two alternative hypotheses regarding the relationship between exchange rates and foreign investment. These are the wealth effect and the profit-oriented effect. The evidence herein suggests that these two hypotheses coexist. We find robust evidence for a negative relationship between the exchange rate movements of an undervalued U.S. dollar and the demand for foreign equities. For developed countries, the wealth effect dominates the profit-oriented effect when the U.S. dollar is overvalued, while, for developing countries, the profit-oriented effect dominates the wealth effect. The results emphasize the importance of considering exchange rate states derived from a relative PPP equilibrium when analyzing U.S. allocations to foreign equities. The findings with respect to the macroeconomic control variables are mainly in agreement with the predictions of international financial theory. Some of the results, however, disappear or become inconclusive for the period after the bankruptcy of Lehman Brothers. This may be explained by the increased uncertainty in international financial markets following this unprecedented event. The findings are robust with respect to different constructed equilibrium exchange rates.     

Aid econometrics: Lessons from a stochastic growth model

This paper evaluates the standard empirical methods employed in the study of foreign aid, when the data generating process is a calibrated stochastic growth model in which aid recipients make optimal investment and consumption decisions. When recipients receive a stochastic flow of aid and wish to smooth consumption, standard methods fail to distinguish between the response to transient and permanent aid shocks, and hence yield misleading results concerning the object of interest to policy makers: the long-run impact of aid.     

Central banks and macroeconomic policy choices: Relaxing the trilemma

Macroeconomic policy choices in open economies are constrained by the trilemma according to which the objectives of exchange rate stability, monetary independence and capital mobility cannot be attained jointly. This paper shows that foreign exchange interventions provide an effective instrument to relax the trilemma. An active reserve policy allows central banks to pursue independent monetary and exchange rate policies when the capital account is liberalised.We use the framework of the portfolio balance model to show that exchange market interventions may substitute for capital controls. Both allow a country to achieve the other two objectives of the trilemma. Our empirical analysis of a large country panel data set covering the period 1970–2010 confirms this theoretical insight: the weighted sum of the three trilemma objectives increases in the degree of foreign exchange market intervention. The capacity to relax the trilemma constraint has increased over time and has been most effective in emerging markets.     

基于模糊决策理论的中国外汇储备币种结构研究

借鉴模糊决策理论的满意度概念,从理论上建立外汇储备币种结构选择的一般最优化模型,从实证上模拟在不同隶属函数参数和不同汇率路径假设下的中国外汇储备币种结构,并分析了收益率隶属函数参数和利率对中国外汇储备货币结构的影响.     

IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia

We report new findings on bank efficiency in East Asian countries for the pre- and post-IMF restructuring periods. We find that bank efficiency has improved, but only to the pre-IMF intervention level, and that restructured banks are not more efficient than their unrestructured counterparts. Different restructuring measures have different effects. Bank closures are economically justified, but mergers show short-term efficiency losses. Recapitalization and reprivatization of badly performing banks lead to efficiency improvement, but also increase government ownership. Ease of entry that has allowed for more foreign bank participation results in slightly improved performance of badly performing banks.

On the cost of delayed currency fixing announcements

In Foreign Exchange Markets vanilla and barrier options are traded frequently. The market standard is a cutoff time of 10:00 a.m. in New York for the strike of vanillas and a knock-out event based on a continuously observed barrier in the inter bank market. However, many clients, particularly from Italy, prefer the cutoff and knock-out event to be based on the fixing published by the European Central Bank on the Reuters Page ECB37. These barrier options are called discretely monitored barrier options. While these options can be priced in several models by various techniques, the ECB source of the fixing causes two problems. First of all, it is not tradable, and secondly it is published with a delay of about 10–20 min. We examine here the effect of these problems on the hedge of those options and consequently suggest a cost based on the additional uncertainty encountered.      

Does the law of one price hold in international financial markets? Evidence from tick data

This paper investigates the validity of the law of one price (LOP) in international financial markets by examining the frequency, size and duration of inter-market price differentials for borrowing and lending services (‘one-way arbitrage’). Using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency, we find that the LOP holds on average, but numerous economically significant violations of the LOP arise. The duration of these violations is high enough to make it worthwhile searching for one-way arbitrage opportunities in order to minimize borrowing costs and/or maximize earnings on given funds. We also document that such opportunities decline with the pace of the market and increase with market volatility.     

Two currencies,one model? Evidence from the Wall Street Journal forecast poll

We use the foreign exchange forecasts of the Wall Street Journal (WSJ) poll to analyze the expectation formation process of forecasters for the exchange rates of the euro and the yen vis-à-vis the U.S. dollar for the period 1999–2005. We also compare the expectation formation process with the actual exchange rate process. We find that most forecasters have contrarian exchange rate expectations, but our results also indicate significant heterogeneity between forecasters. While the actual exchange rate process of the yen/dollar exchange rate shows negative autocorrelation, the dollar/euro exchange rate exhibits positive autocorrelation.