Friday, August 31, 2012

How did China’s rise affect competitiveness across advanced economies?

Coming soon!

How did China’s rise affect competitiveness across advanced economies?
Irineu de Carvalho Filho
August 31, 2012

Abstract: The rapid growth in exports and import demand of a large country has the potential to change world prices and transmit terms of trade shocks to distant economies. This note shows that the advanced economies whose patterns of export specialization most closely resembled Chinese ones appear to have been penalized in terms of export and GDP growth. The evidence is also suggestive that exposure to Chinese competition may have played a role in the lack of economic dynamism of some peripheral Euro area members.

 

Thursday, August 30, 2012

Risk-off episodes: the role of capital flows

Coming soon!

Risk-off episodes and Swiss franc appreciation: the role of capital flows
Irineu de Carvalho Filho
August 31 2012

Abstract: During episodes of increased global risk aversion, or risk-off episodes, safe haven currencies such as the Japanese yen and the Swiss franc tend to appreciate, but apparently for different reasons, as risk-off episodes drive large capital inflows to Switzerland, but not to Japan. The immediate impact of a risk-off shock is an increase in net private inflows to Switzerland, mostly driven by a reduction in Swiss residents net purchases of foreign debt securities and reduced foreign exposure by Swiss banks: Over several quarters, risk-off episodes are also related to reductions in net FDI outflows by Swiss residents. Given that the bulk of capital movements related to risk-off episodes appear to be driven by decisions of Swiss residents, capital flows management policies that discriminate based on the residency of the investor (capital controls) are not likely to be effective at reducing the impact of risk-off episodes. However, prudential policies that limit leveraging or foreign exposure by Swiss banks may diminish the volatility of capital flows during risk-off episodes.


 

The behavior of currencies during risk-off episodes

Coming soon!

The behavior of currencies during risk-off episodes
Reinout De Bock and Irineu de Carvalho Filho
August 30, 2012

Abstract: Episodes of increased global risk aversion have become more frequent and severe since 2007. We find that currency markets exhibit recurrent patterns during these risk-off episodes. The Japanese Yen and Swiss franc tend to appreciate significantly versus the US dollar whereas other G-10 and emerging market currencies depreciate. In addition, information on policy rates, external position, and a currency’s long-term valuation available prior to the risk-off episode, explains the cross-sectional variation in spot returns. Currencies with wider bid-ask spreads and from countries with more restrictions on cross-border financial flows tend to depreciate during risk-off episodes. Since 2007 currency performance in a risk-off episode has become more related to a currency’s yield and relation to broader risks, and our research warns against complacency during periods of FX strength.