Browsing by Subject "emerging markets"

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  • Ponomarenko, Alexey (2016)
    BOFIT Discussion Papers 4/2016
    Published in Journal of Financial Economic Policy, Volume 9, Issue 1, 2017, Pages 70-85
    This paper discusses the money creation mechanisms in emerging markets with special focus on external transactions. We argue that one should not rule out the possibility that fluctuations in the loans-to-deposits and non-core liabilities ratios are driven by the banks. We also argue that, under a flexible exchange rate regime in which the central bank is not trying to accumulate foreign reserves, external transactions are unlikely to contribute significantly to money growth. To make our argument, we analyze a historical episode of these flows in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies.
  • Chang, Roberto; Fernández, Andrés; Gulan, Adam (2016)
    Bank of Finland Research Discussion Papers 22/2016
    Published in Journal of Monetary Economics, Volume 85, 1 January 2017: 90-109 http://dx.doi.org/10.1016/j.jmoneco.2016.10.009
    Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
  • Banerjee, Ryan; Hofmann, Boris; Mehrotra, Aaron (2020)
    BOFIT Discussion Papers 6/2020
    Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies.
  • Krupkina, Anna; Ponomarenko, Alexey (2015)
    BOFIT Discussion Papers 32/2015
    We apply empirical modelling set-ups developed to capture the hysteresis effect in the data on deposit dollarization in a cross-section of emerging market economies. Specifically, we estimate a nonlinear relationship that determines two equilibrium levels of deposit dollarization depending on the current value of dollarization and previous episodes of sharp depreciation of the national currency over the past five years. When exchange rates are stable, convergence to a higher equilibrium level of dollarization begins when the 45–50% thresh-old of deposit dollarization is exceeded. We estimate the model for short-run dynamics of dollarization and find that the speed of convergence to the higher equilibrium implies quarterly increases of 1.2–3 percentage points in the ratio of foreign currency deposits to total deposits.
  • Amstad, Marlene; Ye, Huan; Ma, Guonan (2018)
    BOFIT Discussion Papers 11/2018
    Inflation in emerging markets is often driven by large, persistent changes in food and energy prices. Core inflation measures that neglect or under-weight volatile CPI subcomponents such as food and energy risk excluding information helpful in assessing current and future inflation trends. This paper develops an underlying inflation gauge (UIG) for China, extracting the persistent part of the common component in a broad dataset of price and non-price variables. Our proposed UIG for China avoids the excess volatility reduction that plagues traditional Chinese core inflation measures. When forecasting headline CPI, the proposed UIG outperforms traditional core inflation measures over a variety of samples.
  • Beckmann, Joscha; Comunale, Mariarosaria (2021)
    BOFIT Discussion Papers 11/2021
    This paper assesses the financial channel of exchange rate fluctuations for emerging countries and the link to the conventional trade channel. We analyze whether the effective exchange rate affects GDP growth, the domestic credit and the global liquidity measure as the credit in foreign currencies, and how global liquidity affects GDP growth. We make use of local projections in order to look at the shocks’ transmission covering 11 emerging market countries for the period 2000Q1–2016Q3. We find that foreign denominated credit plays an important macroeconomic role, operating through various transmission channels. The direction of effects depends on country characteristics and is also related to the policy stance among countries. We find that domestic appreciations increase demand regarding foreign credit, implying positive effects on investment and GDP growth. However, this is valid only in the short-run; in the medium-long run, an increase of credit denominated in foreign currency (for instance, due to apeiation) decreases GDP. The financial channel works mostly in the short run except for Brazil, Malaysia, and Mexico, where the trade channel always dominates. Possibly there is a substitution effect between domestic and foreign credit in the case of shocks in exchange rate.
  • Klein, Paul-Olivier; Weill, Laurent (2015)
    BOFIT Discussion Papers 33/2015
    Published in Economics of Transition and Institutional Change, 26, 3, July 2018, 363–399 as "Bond offerings in China"
    There has been a considerable expansion of corporate bond markets in China in the recent years. The objective of this study is to examine the stock market reaction following bond issuance by Chinese companies. In addition to analyzing for positive or negative reactions to bond issues, we consider the influences of ownership and management characteristics on the stock market reaction. Applying an event-study methodology to a sample of 481 bond issues of 347 Chinese companies over the period 2009–2013, the univariate results show that Chinese bond issues typically generate a positive stock market reaction. The reaction is only significantly positive, however, in the case of central state-owned companies (as opposed to those owned by local or provincial governments). The multivariate results indicate that insider ownership influences stock market reaction to a bond issue, while management characteristics have no discernable impact.
  • Bank of Finland (2008)
    3/2008
    Editorial+Demographic transition, taxes and sustainability of public finances: simulations of alternative policies to smooth the tax burden across generations+Are subsidies called for when adverse selection hinders the financing of innovation?+Monetary policy rules for emerging economies
  • Hasan, Iftekhar; Khalil, Fahad; Sun, Xian (2017)
    Bank of Finland Research Discussion Papers 17/2017
    We investigate the impacts of improved intellectual property rights (IPR) protection on cross-border M&A performance. Using multiple measures of IPR protection and based on generalized difference-in-differences estimates, we find that countries with better IPR protection attract significantly more hi-tech cross-border M&A activity, particularly in developing economies. Moreover, acquirers pay higher premiums for companies in countries with better IPR protection, and there is a significantly higher acquirer announcement effect associated with these hi-tech transactions.
  • Hasan, Iftekhar; Khalil, Fahad; Sun, Xian (2017)
    Quarterly Journal of Finance 3
    BoF DP 17/2017
    We investigate the impacts of improved intellectual property rights (IPR) protection on cross-border M&A performance. Using multiple measures of IPR protection and based on generalized difference-in-differences estimates, we find that countries with better IPR protection attract significantly more hi-tech cross-border M&A activity, particularly in developing economies. Moreover, acquirers pay higher premiums for companies in countries with better IPR protection, and there is a significantly higher acquirer announcement effect associated with these hi-tech transactions.
  • Ayala, Diana; Nedeljkovic, Milan; Saborowski, Christian (2016)
    BOFIT Discussion Papers 8/2016
    ​This paper studies the determinants of shifts in debt composition among emerging market non-financial corporates. We show that institutions and macro fundamentals create an enabling environment for bond market development. During the recent boom episode, however, global cyclical factors accounted for most of the variation of bond shares in total corporate debt. The sensitivity to global factors appears to vary with relative bond market size rather than local fundamentals. Foreign bank linkages help explain why bond markets increasingly substituted for banks in channeling liquidity to EMs. Our results highlight the risk of capital flow reversal in EMs that benefited from the upturn in the global financial cycle mostly due to their liquid markets rather than strong fundamentals.