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International Finance

Impact factor: 0.6 5-Year impact factor: 0.927 Print ISSN: 1367-0271 Online ISSN: 1468-2362 Publisher: Wiley Blackwell (Blackwell Publishing)

Subjects: Business, Finance, Economics

Most recent papers:

  • Political Ideology, Exchange Rate and State History.
    Tu Nhu Nguyen.
    International Finance. 13 days ago
    ["International Finance, EarlyView. ", "\nABSTRACT\nThrough the variation of exploitation in ideological distance between U.S. investors and foreign governments and the combination of investor‐level ideology measures proposed by Kempf et al. with foreign‐party ideology extracted from electoral manifesto data from 2000 to 2018 of 23 different nations, the study explores how changes in political ideology impact domestic currency values relative to the U.S. dollar. The findings show that an increase in ideological distance following elections is associated with a statistically significant 2% appreciation of the domestic currency against the U.S. dollar, which can be interpreted as causal. The potential mechanism operates through country origin and state‐history legacies, which capture differences in institutional quality.\n"]
    April 27, 2026   doi: 10.1111/infi.70035   open full text
  • Measuring Cross‐Border Spillovers: A Natural Language Processing‐Based Approach.
    Jelle Barkema, Borislava Mircheva, Mico Mrkaic, Yuanchen Yang.
    International Finance. April 23, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis paper dives into the Fund's historical coverage of cross‐border spillovers in its surveillance. We use a deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openness, a history of financial crises, and lower inflation are more likely to discuss spillovers in their Article IV staff reports.\n"]
    April 23, 2026   doi: 10.1111/infi.70034   open full text
  • Natural Disasters and Corporate Dividend Policies: International Evidence.
    Chih‐Wei Wang, Weizheng Lin, Shih‐Xuan Lin.
    International Finance. April 21, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nOur study aims to explore the potential impact of natural disasters on corporate dividend policies. This research encompasses 128 global countries from 1990 to 2023. We demonstrate a significant positive correlation between natural disasters and corporate dividends. To mitigate endogeneity concerns, we apply ITCV, Oster (2019), Two‐Stage Least Squares (2SLS), Lewbel (2012) methodology, and Entropy Balance (EB), and difference‐in‐differences (DID), which yielded consistent results. Our analysis also reveals that cash holdings and leverages are crucial channels that mediated natural disasters on dividend policies. Further investigation reveals that the positive relationship between natural disasters and increased corporate dividends is more amplified during non‐crisis periods but becomes negligible during financial crises. This effect is stronger in Asia and the Americas than in other regions and is more evident in BRICS countries than in OECD countries.\n"]
    April 21, 2026   doi: 10.1111/infi.70033   open full text
  • Sharing the Pain: The U.S.–China Trade War and the Narrowing of the Intra‐Firm Wage Gap in China.
    Xiaoxia Zhao, Haoru Li, Xiujun Qin.
    International Finance. April 10, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis study investigates the impact of the U.S.–China trade shock on intra‐firm pay inequality in China. Using a sample of Chinese A‐share listed firms from 2015 to 2021, we employ a multi‐period difference‐in‐differences framework that exploits industry‐level tariff exposure as a quasi‐natural experiment. Our results reveal that the trade shock significantly suppresses both average wages and the vertical wage dispersion between executives and rank‐and‐file employees. This risk‐sharing effect is more pronounced in state‐owned enterprises and high‐R&D‐intensive firms. Mechanism analysis indicates that the trade friction narrowed wage disparities primarily by tightening firms' financing constraints and reducing internal cash flows. These findings suggest that in response to major external shocks, internal compensation structures may be shaped more by considerations of organizational stability and cohesion than by managerial power alone.\n"]
    April 10, 2026   doi: 10.1111/infi.70031   open full text
  • Global Versus Domestic Supply Chain Disruptions: Implications for Inflation and Economic Confidence.
    Hakan Yilmazkuday.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 135-148, Spring 2026. ", "\nABSTRACT\nThis article investigates the effects of global and domestic supply chain disruptions on inflation and economic confidence in seven major economies. Using a structural vector autoregression model on monthly data from 2010 to 2024, the analysis controls for global oil prices, shadow policy rates and nominal effective exchange rates. The results demonstrate that supply chain disruptions significantly increase inflation in developed economies, with global shocks having a dominant influence over domestic ones. Quantitatively, supply chain disruptions explain about 55% and 51% of inflation volatility in the United States and Spain, respectively. Supply chain disruptions also significantly reduce consumer confidence globally and depress business confidence in the United States, the United Kingdom and Spain. These findings hold robust across alternative identification strategies and model specifications. The analysis highlights distinct cross‐country heterogeneity, notably sensitivity of the United States to domestic bottlenecks and exposure of France to oil price shocks, suggesting that policy responses must be structurally tailored.\n"]
    April 08, 2026   doi: 10.1111/infi.70017   open full text
  • Monetary Policy in the Open Economy With Digital Currencies.
    Pietro Cova, Alessandro Notarpietro, Patrizio Pagano, Massimiliano Pisani.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 79-91, Spring 2026. ", "\nABSTRACT\nThis paper investigates the transmission of monetary policy within a two‐country New Keynesian model, accounting for both traditional cash and digital currencies, including a global stablecoin and a central bank digital currency, which are treated as imperfect substitutes. Our analysis reveals that if the global stablecoin assumes a significant role as a means of payment, the macroeconomic effects of a monetary policy shock may vary, potentially resulting in outcomes that can be either smaller or larger than those observed in an economy primarily reliant on cash. This result hinges on the response to the shock of the assets backing the supply of the stablecoin. The benchmark monetary transmission can be substantially restored if either the stablecoin is fully backed by cash or the central bank digital currency is a relevant means of payment.\n"]
    April 08, 2026   doi: 10.1111/infi.70010   open full text
  • Does Societal Trust Influence Corporate Debt Maturity? International Evidence.
    Ying‐Chieh Wang, Zhi‐Yuan Feng, Yu‐Te Lien, Sharon. S. Yang.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 186-204, Spring 2026. ", "\nABSTRACT\nThis article analyses data from 26 countries to examine the effects of societal trust levels on corporate debt maturity. Empirical evidence shows that companies operating in countries with higher societal trust exhibit longer debt maturities. The study also investigates the moderating role of investor protection on the relationship between societal trust and debt maturity, particularly focusing on the effectiveness of legal institutions, legal strength, and political stability. The results reveal that firms in countries with stronger investor protections experience a more pronounced positive impact of societal trust on debt maturity. Additionally, the study addresses potential endogeneity issues, firm fixed effects, and self‐selection biases to ensure that the results are consistent and reliable.\n"]
    April 08, 2026   doi: 10.1111/infi.70021   open full text
  • Does State‐Owned Capital Matter for Strategic Change? Evidence From Chinese Private Enterprises.
    Yuanyuan Yang, Xiaoxia Liu, Qian Sun.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 149-166, Spring 2026. ", "\nABSTRACT\nState‐owned capital, serving as a stabiliser in economic development, can strengthen risk prevention by taking equity stakes in private enterprises, thereby reducing strategic changes in these firms. This study examines non‐financial listed companies on China's Shanghai and Shenzhen A‐share markets that were privately owned at establishment between 2007 and 2022, to assess the extent and mechanisms by which state‐owned capital equity participation influences strategic change in private enterprises. The findings show that state‐owned capital participation significantly reduces strategic change in private enterprises. Mechanism analysis indicates that this effect occurs mainly through reduced risk‐taking and enhanced external oversight. Further analysis shows that the inhibitory effect of state‐owned capital participation on strategic change is stronger when environmental dynamism is higher, marketisation is greater, and prior performance is better. Additionally, regarding specific dimensions of strategic change, state‐owned capital participation significantly reduces advertising expenditure. This paper contributes to research on the economic consequences of state‐owned capital participation and the factors influencing corporate strategic change. It offers theoretical support and practical guidance for government departments to advance reverse mixed‐ownership reform, enabling different ownership types to learn from each other, promote mutual development, and achieve shared progress.\n"]
    April 08, 2026   doi: 10.1111/infi.70019   open full text
  • Analyst Coverage and Commonality in Liquidity: International Evidence.
    Nguyen Tram Anh Tran, Van Ha Nguyen, Bao Ngoc Dinh.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 167-185, Spring 2026. ", "\nABSTRACT\nThis research investigates the relationship between analyst coverage and liquidity commonality, as well as whether country‐level institutional environments affect this relationship. Our empirical analysis is based on an international sample of publicly‐listed firms from 53 countries over the period of 2000–2019. Amihud's (2002) daily illiquidity measure is employed as a proxy for stock liquidity, whereas the stock's liquidity commonality is calculated by using the R2 obtained from the regression of the daily change in individual stock liquidity on the daily change in the market's liquidity. We find that analyst coverage is negatively related to the stock's liquidity commonality. Importantly, our further analysis indicates that the negative association between analyst coverage and liquidity commonality is more (less) pronounced in countries exhibiting weaker (stronger) institutional characteristics. Our results remain unchanged when employing the alternative proxy of stock liquidity, different methods to control for endogeneity problems and across subsamples. Our study is one of the first to provide cross‐country evidence on the effect of analyst coverage on commonality in liquidity. As such, our study highlights the important role played by analyst coverage in improving firm information environment in international equity markets.\n"]
    April 08, 2026   doi: 10.1111/infi.70018   open full text
  • Fiscal Opacity and Lack of Consensus in Expectations for External Sector Variables.
    Gabriel Caldas Montes, Helder Ferreira de Mendonça, Matheus Rosa Ribeiro.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 110-134, Spring 2026. ", "\nABSTRACT\nFiscal transparency is essential for the expectations formation process, as governmental fiscal opacity often leads to forecast errors due to insufficient information. This study examines the relationship between fiscal unpredictability, particularly related to the primary budget, and the lack of consensus in expectations for external sector variables in Brazil. Specifically, based on several regression models considering different expectations horizons, we investigate whether fiscal opacity generates a lack of consensus in expectations for the trade balance, foreign direct investment and exchange rate. Additionally, we propose a composite indicator for the lack of consensus in external sector expectations derived from principal component analysis of related variables. The findings indicate that fiscal opacity increases the lack of consensus in expectations for the external sector. In brief, our results highlight the need for greater fiscal transparency to reduce uncertainty and improve consensus in economic expectations, particularly in expectations for external sector variables.\n"]
    April 08, 2026   doi: 10.1111/infi.70016   open full text
  • Linkage Between Electoral Cycle and the Discouragement of African Firms in the Credit Market.
    Cherif Abdramane, Simplice A. Asongu.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 57-78, Spring 2026. ", "\nABSTRACT\nThis article analyzes the linkage between the electoral cycle and the discouragement of SMEs in the credit market of 14 African countries. It focuses on 12,145 firms over the period 2006–2020. The results obtained from Probit estimates show elections are negatively linked with the discouragement of firms in the credit market. Firms are less discouraged from asking for credit during the electoral period. The negative relationship begins during the pre‐election year and continues into the post‐election year. Results are robust to the use of alternative measures of discouragement and the employment of sophisticated econometric techniques. When within‐African heterogeneity in terms of firm size is taken into account, large firms have a relatively higher probability than small firms of requesting credit during the election year as well as during pre‐election years. Small firms have a relatively higher probability than medium firms of requesting credit during post‐election years. Implications are discussed.\n"]
    April 08, 2026   doi: 10.1111/infi.70013   open full text
  • The Impact of Unconventional Monetary Policies on Retail Lending and Deposit Rates in the Euro Area.
    Boris Hofmann, Anamaria Illes, Marco Lombardi, Paul Mizen.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 29-43, Spring 2026. ", "\nABSTRACT\nThis paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and nonfinancial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key determinants of bank funding costs through daily event study analysis, together with a monthly estimation of the pass‐through to retail rates. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries (France, Germany, Italy and Spain). Our results show that the ECB's UMPs—particularly the measures launched since 2012—significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy.\n"]
    April 08, 2026   doi: 10.1111/infi.70012   open full text
  • Measuring U.S. Core Inflation: The Stress Test of COVID‐19.
    Laurence Ball, Daniel Leigh, Prachi Mishra, Antonio Spilimbergo.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 44-56, Spring 2026. ", "\nABSTRACT\nLarge price changes in industries affected by the COVID‐19 crisis caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020–2021, the height of the pandemic. The Federal Reserve's preferred measure of core, the inflation rate excluding food and energy prices, performed poorly over that period: it was almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed's sticky‐price inflation rate, were less volatile, but the least volatile were measures that filter out large price changes in any industry, such as the Cleveland Fed's median inflation rate and the Dallas Fed's trimmed mean inflation rate. These core measures followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy rebounded."]
    April 08, 2026   doi: 10.1111/infi.70011   open full text
  • Optimal Monetary Policy in a Small Open Economy With Habit Persistence.
    Yongseung Jung.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 2-28, Spring 2026. ", "\nABSTRACT\nThis paper presents up a canonical New Keynesian small open economy model with habit persistence in consumption. The presence of habit persistence complicates the attainment of domestic price stability in the small open economy. The monetary authority may need to deviate from price stability to address the distortions linked to habit persistence, even if households exhibit the Cole–Obstfeld preference. This finding contrasts with previous studies. The paper also highlights the importance of the implementability of taxation/subsidy policies in achieving the efficient steady state and the welfare implications of different monetary policy rules. The results suggest that a time‐invariant tax on labour income to achieve the efficient steady state favours a domestic product price inflation targeting rule over other simple rules. However, if this tax is not feasible, an exchange rate peg may outperform a domestic product price index inflation targeting rule, even with moderate values of intratemporal elasticity of substitution.\n"]
    April 08, 2026   doi: 10.1111/infi.70008   open full text
  • How Important Is the Home Market for Cross‐Listed Biotech Companies?
    Theodore Panagiotidis, Pavlos Tsiokas.
    International Finance. April 08, 2026
    ["International Finance, Volume 29, Issue 1, Page 92-109, Spring 2026. ", "\nABSTRACT\nThis study investigates five German biotechnology firms cross‐listed on XETRA and NASDAQ. By employing high‐frequency data, we estimate both bivariate and trivariate vector error correction models—the latter explicitly accounting for exchange rate dynamics—to assess which market, domestic or U.S., leads in price discovery. The results suggest that XETRA plays a dominant role for larger firms, whereas smaller firms are more influenced by NASDAQ. Simulations show that bivariate models—common in the literature—yield biased results under volatile exchange rate conditions, whereas trivariate models produce more robust estimates. Finally, exchange rate shocks affect NASDAQ and XETRA differently.\n"]
    April 08, 2026   doi: 10.1111/infi.70015   open full text
  • Geopolitical Risk Shocks and China's Foreign Trade: An Asymmetric Granger Causality Investigation.
    Yina Qiao, Zhonglu Chen.
    International Finance. March 18, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nEscalating geopolitical conflicts and great power games have posed severe challenges to cross‐border trade and global economic stability. However, the literature inadequately addresses the nexus between geopolitical risk (GPR) and China's foreign trade, particularly the heterogeneous import and export effects across regions. To fill this gap, this study adopts the asymmetric Granger causality test to explore the causal link between the China GPR Index (CGPR) and its import and export volume with eight major trading regions (the US, Japan, South Korea, Australia, India, Russia, ASEAN and the EU), using monthly data from January 2014 to June 2025. The empirical results reveal significant asymmetric Granger causality between China's GPR and foreign trade, with notable differences in causal intensity and direction during the upward/downward trends of the CGPR and trade expansion/contraction. Distinct regional heterogeneities are also identified, and the two‐way causal interaction features long‐term persistence, with GPR exerting sustained effects on medium‐ to long‐term trade growth rather than short‐term fluctuations. Notably, asymmetry implies that policymakers should formulate asymmetric risk response policies, such as reinforcing trade resilience during GPR surges and seizing trade growth opportunities during GPR downturns, while adopting regionally differentiated strategies. Accordingly, this study provides concrete empirical support for targeted foreign trade and GPR policies that are critical to stabilizing China's trade growth amid a complex international landscape.\n"]
    March 18, 2026   doi: 10.1111/infi.70030   open full text
  • When the Fed Sneezes, What Stock Market Catches the Cold?
    Carlo Rosa.
    International Finance. March 18, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis paper identifies three indicators of monetary policy surprises—unexpected changes in the federal funds rate, forward guidance and large‐scale asset purchases—and examines their effects on international stock prices using an intraday event study approach. Both US and international equity indexes respond significantly to all three types of monetary surprises, with international stock returns more sensitive than US stocks. Announcement drifts ahead of Federal Open Market Committee (FOMC) meetings are also stronger internationally. While international stocks are more volatile, adjusting for volatility or beta does not fully explain their excess sensitivity. FOMC announcement effects become mostly insignificant when measuring stock returns in local currency and including S&P 500 exposure, highlighting the role of exchange rate passthrough and US market linkages in global monetary transmission.\n"]
    March 18, 2026   doi: 10.1111/infi.70024   open full text
  • Beyond Linear Insights in the Feldstein–Horioka Puzzle: Delving Into Monotonic and Nonlinear Statistical Dependencies With Moving Windows.
    Insu Choi, Woo Chang Kim.
    International Finance. March 15, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThe Feldstein–Horioka puzzle hypothesizes that when there is complete capital mobility, domestic savings and investment should be weakly correlated. However, empirical data frequently challenge this. This study analyzes the dynamics between gross capital formation and gross savings across 102 countries. The results reveal that some nations (e.g., Albania, Bangladesh, India) have strong positive correlations indicating limited international capital mobility (supporting the hypothesis); whereas others (e.g., Argentina, Germany, Iceland) display weak or negative correlations, suggesting greater capital fluidity. Significance testing reveals that ~66% of the countries demonstrate positive correlations at 5% significance, whereas 34% show non‐significant relationships. Incorporating normalized mutual information captures nonlinear dependencies that traditional correlation measures may overlook. Continental analysis reveals substantial heterogeneity; North American countries exhibit the strongest average correlations (0.50) and Asian nations the lowest (0.35), with the highest variability. The findings underscore the need to explore country‐specific global economic intricacies and region‐specific policy formulation.\n"]
    March 15, 2026   doi: 10.1111/infi.70029   open full text
  • Cash for Transactions or Store‐of‐Value? A Comparative Study on Scandinavian Countries and Canada.
    Carl Andreas Claussen, Björn Segendorf, Franz Seitz.
    International Finance. March 13, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nWe estimate the demand for transactional and non‐transactional cash balances (banknotes and coins) in Canada, Denmark, Iceland, Sweden and Norway over the last decades exploiting the seasonality of cash demand. These countries share many features that are relevant for cash demand, but nevertheless show large differences in terms of aggregate cash balances. While Canada, Iceland and Denmark have seen increased aggregate cash balances, Norway and especially Sweden have seen a dramatic decline. We find that transactional balances have decreased somewhat in all of the countries and the differences in aggregated cash balances is due to differences in the development of non‐transactional cash balances. We argue that different de facto legal tender status, crisis exposures, foreign demand and cash supply‐side policies help explain these findings.\n"]
    March 13, 2026   doi: 10.1111/infi.70028   open full text
  • US–China Tension Relationship and Firm Innovation: Evidence From China.
    Tao Huang, Wei Jing, Zhe Zhao.
    International Finance. March 13, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis paper investigates the effect of US–China tension relationship on Chinese firm innovation. Using a sample of Chinese A‐share companies from 2003 to 2023, we find robust evidence that US–China tension relationship, which is measured by US–China tension index, significantly encourages firms’ patent application, particularly substantive patents. Meanwhile, this positive relationship can continue for 3 years. Specifically, we also show that this positive effect is more profound for state‐owned enterprises and enterprises with lower financial constraint. Moreover, increased government subsidy is plausible channel that allows US–China tension relationship to promote innovation. Overall, these results shed light on the real effects of US–China relationship and the determinants of firm innovation."]
    March 13, 2026   doi: 10.1111/infi.70027   open full text
  • How Does Global Liquidity Affect Mortgage and Business Credit Interest Rates?: Evidence From Emerging Markets.
    Berrak Bahadir, Neven Valev.
    International Finance. February 23, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nWe show that changes in global liquidity have an influence on bank lending interest rates across emerging market economies. Specifically, global liquidity has a negative effect on mortgage interest rates and on business interest rates with mortgage rates showing a more pronounced response. Country characteristics also play a role. The negative relationship between global liquidity and domestic interest rates is particularly strong in countries with more foreign banks and greater bank concentration as well as in countries with fewer capital controls. Conversely, countries with greater financial and institutional development experience a reduced impact of global liquidity on lending interest rates.\n"]
    February 23, 2026   doi: 10.1111/infi.70026   open full text
  • Extreme Capital Flows and Risk Linkages in Emerging Market Financial Submarkets.
    Yang Chen, Yun Feng, Qing Liu.
    International Finance. February 14, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis paper examines the drivers and impacts of extreme capital flow events in emerging markets, with a focus on distinguishing among flow types (portfolio, bank and FDI) and event categories (surge vs. stop). We find that the global financial cycle drives extreme events in portfolio and bank flows, while FDI is more sensitive to domestic factors. Notably, sudden stops in cross‐border capital flows, particularly in bank and FDI flows, have a greater impact on the overall risk interconnectedness of domestic financial submarkets compared to surge events. We also identify the transmission channels: extreme bank flow events increase credit market net risk spillovers, while concurrent extreme capital flow events heighten foreign exchange market net risk spillovers. Further discussion shows that foreign exchange sales and macroprudential policies mitigate the adverse effects of negative global financial cycle shocks, with macroprudential measures demonstrating stronger effectiveness in the medium term.\n"]
    February 14, 2026   doi: 10.1111/infi.70025   open full text
  • Composite Uncertainty Indicators and Stock Market Returns: Based on Supervised Dimension Reduction Techniques.
    Yongan Xu, Lijuan Peng, Aimin Song.
    International Finance. January 26, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis study develops two composite uncertainty indicators for China (USPCA and UPLS) by employing scaled principal component analysis (SPCA) and partial least squares regression (PLS) as dimensionality reduction techniques to synthesise critical information from multiple uncertainty indices. This study subsequently evaluates the effectiveness of these techniques in predicting returns in China's stock markets. Empirical findings demonstrate that the SPCA and PLS methodology substantially enhances stock return forecasting across in‐sample and out‐of‐sample tests while generating meaningful economic benefits for mean‐variance optimised portfolios. Furthermore, both USPCA and UPLS outperform individual uncertainty indices and conventional economic predictors in predictive capability. In particular, the forecasting power of the two composite indicators is stronger during bear market phases than under bull market conditions. The analysis also reveals that geopolitical events such as the Russia–Ukraine conflict can temporarily reduce the predictive efficacy of uncertainty‐based indicators for stock returns.\n"]
    January 26, 2026   doi: 10.1111/infi.70023   open full text
  • International Spillovers of Conventional Versus Unconventional US Monetary Policy.
    Hakan Yilmazkuday.
    International Finance. January 20, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nThis paper investigates the international spillovers of conventional and unconventional US monetary policy for a diverse set of 44 countries. A two‐stage empirical approach is considered, first using country‐specific structural vector autoregressions to isolate US monetary policy shocks and estimate their dynamic effects on other economies. In the second stage, cross‐country regressions are used to identify the structural characteristics that drive the heterogeneity in these spillovers. The results suggest a distinct dichotomy in the transmission mechanisms: conventional US monetary policy appears to spill over primarily through trade‐related channels in this framework, with its impact shaped by a country's participation in global value chains. In contrast, unconventional policy is transmitted mainly through financial channels, with a country's degree of financial openness being the most critical determinant of its vulnerability. While conventional US monetary policy tightening typically causes currencies to appreciate, unconventional tightening leads to widespread depreciation. These findings imply that the specific tool used by the Federal Reserve may influence the relative dominance of international transmission channels and that financial openness significantly reduces monetary policy autonomy in the face of unconventional US monetary policy shocks.\n"]
    January 20, 2026   doi: 10.1111/infi.70022   open full text
  • Does Pegging Affect Market Efficiency? Assessing Long Memory in Stablecoin and Cryptocurrency Markets.
    Qing Yan, Lei Huang, Liang Wu.
    International Finance. January 13, 2026
    ["International Finance, EarlyView. ", "\nABSTRACT\nStablecoins attract academic interest because of their value‐pegging mechanisms and price stability. This likely results in distinct market efficiency. This study compares stablecoins (USDC, Tether, Dai) with Bitcoin and Ethereum and assesses long memory through the Hurst exponent while addressing distortions caused by heavy tails and extreme events. Through shuffled and rank‐order series with a sliding‐window approach, we provide the first reliable time‐varying analysis. The results show that stablecoins exhibit inefficiency and anti‐persistence, with Tether being relatively more efficient. Their tail properties are highly sensitive to extreme events. In contrast, Bitcoin and Ethereum maintain stable weak‐form efficiency even during the COVID‐19 pandemic. These differences are linked to stablecoins' US dollar pegging mechanisms and regulatory constraints. The findings of this study enable comparisons of market efficiency between stablecoins and unpegged cryptocurrencies and offer insights for regulation and investment decisions.\n"]
    January 13, 2026   doi: 10.1111/infi.70020   open full text
  • Monetary policy and inequality: Financial channels.
    Rory O'Farrell, Lukasz Rawdanowicz.
    International Finance. August 29, 2017
    This paper analyses the effects of monetary policy on inequality over the business cycle via its impacts on returns on assets, the cost of debt servicing, and asset prices in selected advanced economies. Monetary policy easing has a priori ambiguous effects on income and net wealth inequality via financial channels. Effects depend in a complex way on the relative size and distributions of assets, liabilities, and income. In practice, these effects are estimated to be small. A house price increase generally reduces net wealth inequality, while the opposite is true for increases in stock and bond prices. As monetary policy has the potential to affect inequality, monetary authorities face communication challenges. The available research on interactions between monetary policy and inequality does not justify targeting inequality by central banks.
    August 29, 2017   doi: 10.1111/infi.12108   open full text
  • The monetary policy origins of the eurozone crisis.
    David Beckworth.
    International Finance. August 29, 2017
    The eurozone crisis represents one of the greatest economic tragedies of the past century. It has caused immense human suffering, which continues to this day. The standard view attributes the economic crisis to an earlier buildup of public and private debt that was augmented by the imposition of austerity during the crisis. Although evidence exists of a relationship between the debt buildup, austerity measures, and economic growth during the crisis, that same evidence, on closer examination, points to eurozone countries’ common monetary policy as the real culprit behind the area's sharp decline in economic activity. In particular, it seems that the European Central Bank's tightening of monetary policy in 2008 and again in 2010–2011 not only caused two recessions but also sparked the sovereign debt crisis and gave teeth to the austerity programs. Such findings point to the need for a new monetary policy regime in the eurozone. The case is made for the new regime to be a targeted growth path for total money spending.
    August 29, 2017   doi: 10.1111/infi.12110   open full text
  • The open economy trilemma in Latin America: A three‐decade analysis.
    Helder Ferreira de Mendonça, Igor da Silva Veiga.
    International Finance. August 29, 2017
    This study concerns the open economy trilemma in emerging economies, and uses a panel data framework to investigate cross‐dependence among the countries and respective parameters of the 23 countries in Latin America from 1980 to 2010. We examine the impact that trilemma choices impose on economic performance (output volatility and inflation), as well as whether the adoption of inflation targeting influences the results. The findings indicate that promoting exchange rate stability and financial openness are efficient strategies for improving the economic performance of Latin America economies. Furthermore, the adoption of inflation targeting enhances the effects of financial openness on output volatility.
    August 29, 2017   doi: 10.1111/infi.12109   open full text
  • Macroeconomic effectiveness of non‐standard monetary policy and early exit. A model‐based evaluation.
    Lorenzo Burlon, Andrea Gerali, Alessandro Notarpietro, Massimiliano Pisani.
    International Finance. August 29, 2017
    This paper evaluates the macroeconomic effects of the Eurosystem's expanded asset purchase programme (APP) under alternative assumptions about (i) unwinding the asset positions accumulated under the APP and (ii) current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area (EA). Our results are as follows. First, if the monetary authority brings forward the unwinding of its long‐term sovereign bond holdings, the stimulus from the APP on inflation and economic activity is correspondingly reduced. Second, if the monetary authority communicates that the policy rate will be held constant for 1 year instead of 2, the APP would be less effective and the increase in inflation would be halved. Third, an early exit from bond holding subdues the impact of the APP, delaying the normalization of monetary policy conditions after a negative EA‐wide demand shock.
    August 29, 2017   doi: 10.1111/infi.12112   open full text
  • Central bank transparency under the cost channel.
    Meixing Dai, Qiao Zhang.
    International Finance. August 29, 2017
    This paper studies the implications of information disclosure about the central bank's preferences regarding inflation and output‐gap stabilization in the presence of the cost channel of monetary transmission. Through this channel, higher interest rates translate into higher marginal costs of production and, finally, into higher inflation. Conventional wisdom has it that whether the central bank is transparent alters the effects of cost‐push or supply shocks, but does not change the fact that demand shocks are fully offset by optimal monetary policy. We show that this view is incorrect in the presence of a cost channel, since the latter not only affects how transparency interacts with cost‐push shocks, but also makes it interact with demand shocks. Moreover, the desirability of full transparency when shocks are persistent is significantly reduced by the presence of the cost channel.
    August 29, 2017   doi: 10.1111/infi.12107   open full text
  • The fiscal costs of systemic banking crises.
    David Amaglobeli, Nicolas End, Mariusz Jarmuzek, Geremia Palomba.
    International Finance. May 19, 2017
    This paper examines fiscal costs of systemic banking crises. It uses a dataset of 65 crisis episodes since 1980 and considers both the direct budgetary cost of government intervention and the overall fiscal impact as proxied by changes in the public debt‐to‐GDP ratio. We find that both direct and overall fiscal impacts of banking crises are high when countries enter the crisis with large banking sectors, rely on excessive external funding, have highly leveraged non‐financial private sectors, and resort to using government guarantees on bank liabilities during the crisis. Better quality of banking supervision and higher coverage of deposit insurance help, however, alleviate the direct fiscal costs. We also identify a policy trade‐off: costly short‐term interventions are not necessarily associated with larger increases in public debt, supporting the thesis that immediate intervention may actually be a more cost‐effective solution over the long term.
    May 19, 2017   doi: 10.1111/infi.12100   open full text
  • A century and three‐quarters of Bank Rate and long‐term interest rates in the United Kingdom.
    Hakan Berument, Ezequiel Cabezon, Richard Froyen.
    International Finance. May 19, 2017
    Over the years from 1844 to 2013, the United Kingdom had several distinct monetary policy regimes. This paper examines the relationship between the Bank of England policy rate and UK long‐term rates in each regime. Our starting point is R. G. Hawtrey's A century of Bank Rate, which focused mainly on the classical Gold Standard. We also examine the Interwar years, post‐Second World War years of policy by discretion and the recent regime of inflation targeting. We find that policy regimes that firmly anchor inflationary expectations result in long‐run interest rates becoming less responsive to changes in monetary policy rates. This suggests a conflict between a regime that anchors inflationary expectations and one that allows a central bank to have significant effects on long‐term rates via a short‐term policy rate.
    May 19, 2017   doi: 10.1111/infi.12101   open full text
  • The influence of monetary policy on bank profitability.
    Claudio Borio, Leonardo Gambacorta, Boris Hofmann.
    International Finance. May 19, 2017
    This paper investigates how monetary policy affects bank profitability. We use data for 109 large international banks headquartered in 14 major advanced economies for the period 1995–2012. Overall, we find a positive relationship between the level of short‐term rates and the slope of the yield curve (the ‘interest rate structure’, for short), on the one hand, and bank profitability – return on assets – on the other. This suggests that the positive impact of the interest rate structure on net interest income dominates the negative one on loan loss provisions and on non‐interest income. We also find that the effect is stronger when the interest rate level is lower and the slope less steep, that is, when non‐linearities are present. All this suggests that, over time, unusually low interest rates and an unusually flat term structure erode bank profitability.
    May 19, 2017   doi: 10.1111/infi.12104   open full text
  • Vulnerabilities to housing bubbles: Evidence from linkages between housing prices and income fundamentals.
    MeiChi Huang.
    International Finance. May 19, 2017
    This paper investigates US state‐level housing markets by examining three signs of vulnerabilities to housing bubbles: negative or insignificant co‐movements between housing prices and income fundamentals, high housing‐price persistence, and boom–bust regime‐switching phenomena. The study effectively mitigates potential estimation bias by estimating income growth using three explanatory variables for housing markets: the stock price, the federal funds, rate and non‐farm‐employment growth. The moving‐average thresholds track housing boom–bust regime shifts from a forward‐looking perspective. Although only California displays high housing‐bubble vulnerability in all dimensions analysed, all selected states show signs of housing‐bubble vulnerabilities because income fundamentals lack explanatory power for housing price dynamics. The results suggest that the US government had difficulties in stabilizing the housing market during the period 1976–2010.
    May 19, 2017   doi: 10.1111/infi.12103   open full text
  • Sovereign Credit Risk Co‐Movements in the Eurozone: Simple Interdependence or Contagion? .
    Manuel Buchholz, Lena Tonzer.
    International Finance. December 14, 2016
    We investigate credit risk co‐movements and contagion in the sovereign debt markets of 17 industrialized countries during the period 2008–2012. We use dynamic conditional correlations of sovereign credit default swap spreads to detect contagion. This approach allows us to separate contagion channels from the determinants of simple interdependence. The results show that, first, sovereign credit risk co‐moves considerably, particularly among eurozone countries and during the sovereign debt crisis. Second, contagion varies across time and countries. Third, similarities in economic fundamentals, cross‐country linkages in banking and common market sentiment constitute the main channels of contagion.
    December 14, 2016   doi: 10.1111/infi.12099   open full text
  • External and Macroeconomic Adjustment in the Larger Euro‐Area Countries .
    Elena Angelini, Michele Ca’ Zorzi, Katrin Forster van Aerssen.
    International Finance. December 14, 2016
    A balanced current account in the euro area has disguised sizable imbalances at the country level, exposing the common currency area to severe pressures during the financial crisis. The key contribution of this paper is to evaluate the adjustment process using the New Multi Country Model (NMCM) at the country and sectoral levels. The model suggests that a recovery in wage competitiveness reduces external deficits but has only mildly expansionary effects at the cost of higher net borrowing by households. It also suggests that the impact of an aggregate demand shock in Germany is not enough to lead to a rebound in economic activity and address external imbalances in the rest of the euro area. Finally, the presence of supportive external conditions, while facilitating the implementation of vital reforms, would not necessarily unravel intra‐euro‐area imbalances.
    December 14, 2016   doi: 10.1111/infi.12098   open full text
  • Is There a Too‐Big‐to‐Fail Discount in Excess Returns on German Banks’ Stocks?
    Thomas Nitschka.
    International Finance. November 04, 2016
    Since the global financial crisis, German and other European banks’ stocks have underperformed compared with the overall euro‐area stock market. Does this observation reflect the explicit state guarantee for too‐big‐to‐fail (TBTF) banks? In that case, investors have an incentive to hold stocks of systemically important banks because they provide insurance against disaster risk through the state guarantee. Indeed, recent studies reveal a TBTF discount in large US banks’ stock returns. Does this finding pertain to German (representing continental European) banks too? The main results of this paper suggest that it does. Risk‐adjusted returns on a German bank stock index were negative in the period from 1973 to 2014. The key driver of this finding is an unanticipated, adverse shock to the German banking sector at the beginning of the global financial crisis. This shock increased the probability of a bank default and thus the insurance value of government support.
    November 04, 2016   doi: 10.1111/infi.12097   open full text
  • The Interplay Between Public and Private External Debt Stocks.
    Michał Brzozowski, Joanna Siwińska‐Gorzelak.
    International Finance. October 24, 2016
    Using a sample of 48 emerging and developing countries in the 1970–2012 period, we investigated the interactions between the stock of sovereign debt and the quantity of corporate external borrowing. We found that public external debt hinders private‐sector access to external loan and bond markets. By contrast, the stock of private debt in international financial markets exerts a positive influence on public external debt from all sources except other private creditors. We also found the incidence of bank crises, capital account openness and the rate of economic growth to be among the macroeconomic variables that have a significant impact on both public and private external debts.
    October 24, 2016   doi: 10.1111/infi.12095   open full text
  • The Conceptual Foundations of Macroprudential Policy: A Roadmap .
    Augusto de la Torre, Alain Ize.
    International Finance. October 24, 2016
    The global financial crisis unleashed a flurry of academic literature and regulations addressing macroprudential issues. However, reflecting weak links between research and policy as well as varying risk environments (across countries and over time), policy remains exposed to pitfalls, including overreacting, underreacting and applying the wrong or untimely medicine. To help policy makers navigate through the maze, this paper proposes a broad typology of financial frictions that classifies the root causes of socially pernicious financial dynamics under four ‘paradigms’, with distinct grounds, implications and aims for macroprudential policy: (i) offsetting the moral hazard implications of bailouts; (ii) protecting unsophisticated market participants from abusive practices; (iii) inducing market players to internalize the systemic consequences of their individual actions; and (iv) tempering destructive mood swings. As policies to curb one source of systemic risk can exacerbate others, the macroprudential policy challenge is to strike a sensible balance among complicated trade‐offs.
    October 24, 2016   doi: 10.1111/infi.12096   open full text
  • That Squeezing Feeling: The Interest Burden and Public Debt Stabilization .
    Xavier Debrun, Tidiane Kinda.
    International Finance. July 05, 2016
    The paper explores the extent to which the pressure of debt service on other spending items may magnify governments’ concern for debt dynamics, independently of the public debt level itself. Our empirical analysis identifies thresholds of interest bill indicators beyond which governments appear to intensify efforts to curb the debt trajectory. Hence, in the current context of historically high public debts, a country experiencing high and rising borrowing costs and interest payments would be more likely to enact a more aggressive fiscal consolidation than one benefitting from persistently low interest rates – even though both consolidation paths would be consistent with solvency. This could be an important consideration when setting the appropriate pace of normalization of monetary policy.
    July 05, 2016   doi: 10.1111/infi.12090   open full text
  • On the Stability of Synthetic CDO Credit Ratings.
    Javier Zapata, Arturo Cifuentes.
    International Finance. June 08, 2016
    Synthetic collateralized debt obligations (CDOs) performed very badly during the subprime crisis: they suffered massive rating downgrades (even at the most senior levels of the capital structure) and inflicted significant losses on investors. Using numerical simulations, this study shows that such structures are highly unstable; minor errors in the basic assumptions could manifest dramatically in the accuracy of CDO rating calculations. Regardless of the quality of the underlying assets, it is impossible to make reliable statements regarding the future performance of a synthetic CDO tranche. Moreover, this study demonstrates that single‐point credit risk estimators (in which no attempt at specifying a confidence interval is made) could be especially misleading. Finally, the study suggests that a regulatory framework based on credit ratings as they are presently defined is unlikely to be effective.
    June 08, 2016   doi: 10.1111/infi.12086   open full text
  • A Secular Increase in the Equity Risk Premium .
    Kevin Daly.
    International Finance. June 07, 2016
    There is an increasing consensus that global ‘excess saving’ has contributed to a reduction in equilibrium real interest rates. While economists dispute the extent of the decline, few now question that a decline has taken place or that excess saving has played a causal role. A key implication of this narrative is a decline in yields of all assets, including but not restricted to government bond yields. Yet, since the turn of the century, yields on global equity have risen. A complementary explanation is that there has been an increase in the global equity risk premium (ERP), which has simultaneously pushed risk‐free yield curves lower and equity yields higher. Applying a sign restrictions approach, I find that excess savings shocks were the predominant force affecting global real bond yields between the mid‐1980s and 2000 but that ‘risk premium’ shocks have accounted for more of the decline in real bond yields since 2000.
    June 07, 2016   doi: 10.1111/infi.12085   open full text
  • The Elusive Predictive Ability of Global Inflation .
    Carlos A. Medel, Michael Pedersen, Pablo M. Pincheira.
    International Finance. June 07, 2016
    In this paper we analyse the utility of international measures of inflation in predicting local ones. To that end, we consider a set of 31 OECD economies for which monthly inflation data are available. Three main conclusions emerge. First, there is an important share of countries for which relatively robust evidence of predictability is found for both core and headline inflation. Second, the share of countries for which there is evidence of robust predictability is about the same for core and headline inflation, although gains in root‐mean‐squared prediction error are higher for headline inflation. Third, while the evidence indicates that an international inflation factor may be a useful predictor for several countries, it also indicates that, for many countries as well, predictability is either questionable, undetectable, non‐robust or simply non‐existent.
    June 07, 2016   doi: 10.1111/infi.12087   open full text
  • Measuring Unobserved Expected Inflation .
    Rafi Melnick.
    International Finance. April 25, 2016
    The aim of this study is to develop an eclectic but robust model that allows for a better measure of expected inflation and facilitates testing for all sorts of biases. Improving the measure of expected inflation is of critical importance for conducting monetary policy. In many circumstances, indicators of expected inflation move in opposite directions, and this divergence may be critical for the setting of the interest rate. I estimate the model for a special set of Israeli data via the Kalman filter methodology and then test for systematic biases, a better normalization of the model, liquidity problems and inflation risk – which could all be present in current measures of expected inflation.
    April 25, 2016   doi: 10.1111/infi.12080   open full text
  • Monetary Policy and Asset Price Booms: A Step Towards a Synthesis .
    Hiroshi Fujiki, Sohei Kaihatsu, Takaaki Kurebayashi, Takushi Kurozumi.
    International Finance. April 25, 2016
    Should a monetary policy maker following a Taylor‐type rule set a higher policy rate than the level suggested by the rule because of a possibility of an asset price bust in the near future? Our answer to this question for monetary policy makers who have two scenarios of ‘boom–bust cycle’ and ‘stable growth’ is yes if the following two conditions are satisfied. First, early warning indicators based on credit and residential investment data show a high probability of a boom–bust cycle occurring. Second, the policy rate path that minimizes the boom–bust probability‐based expected value of a social loss associated with inflation and the output gap over the two scenarios is higher than the rate path by the Taylor‐type rule. Our counterfactual analysis shows that the Fed should have raised the federal funds rate by a small amount over and above the level suggested by a Taylor‐type rule in the early 2000s.
    April 25, 2016   doi: 10.1111/infi.12081   open full text
  • Macroeconomic Effects of Simultaneous Implementation of Reforms .
    Andrea Gerali, Alessandro Notarpietro, Massimiliano Pisani.
    International Finance. April 25, 2016
    This paper evaluates the macroeconomic effects of simultaneously implementing growth‐friendly fiscal consolidation and competition‐friendly reforms in one European country by simulating a dynamic general equilibrium model. Our results are as follows. First, in the case of joint implementation, the increase in gross domestic product (GDP) is larger than the sum of GDP increases obtained from implementing reforms separately. Growth‐friendly public debt consolidation uses lower interest payments in the long run to permanently reduce tax rates, and competition‐friendly reform expands the tax base, allowing for further rate reductions. Second, the medium‐term output loss associated with the temporary increase in taxes during the fiscal consolidation is mitigated by its implementation alongside the competition‐friendly reform, whose expansionary effects limit the tax rate increase. Third, in the short run (the first two years), all measures imply a macroeconomic cost in terms of output loss, which is smaller than the permanent output gain in the long run.
    April 25, 2016   doi: 10.1111/infi.12082   open full text
  • Banking Efficiency in the Enlarged European Union: Financial Crisis and Convergence .
    José L. Gallizo, Jordi Moreno, Manuel Salvador.
    International Finance. April 25, 2016
    The aim of this study is to analyse whether the great shock occasioned by the financial crisis and the reaction from national governments have compromised the process of financial integration in the EU. This question is important because banking union is a cornerstone of the European integration process. We estimated the evolution of cost and profit efficiency in the enlarged EU during the period from 2000 to 2013 using Bayesian frontier stochastic models (SFA), and analysed the convergence among countries using the beta and sigma convergence tests. Our results show that the outbreak of the financial crisis interrupted the convergence and gave rise to a new divergence process. These results suggest that major reforms in European banking should be adopted by EU regulators in order to strengthen financial integration.
    April 25, 2016   doi: 10.1111/infi.12083   open full text
  • Adoption of the Gold Standard and Real Exchange Rates in the Core and Periphery, 1870–1913.
    Andre Varella Mollick.
    International Finance. January 27, 2016
    In this paper I estimate the speed of adjustment to shocks to real effective exchange rates (REERs) during the gold standard years. Adoption of the gold standard by the United States in 1879 resulted in all four core countries (France, Germany, the United Kingdom and the United States) being fully committed to gold. I use the concept of half‐life (HL) to measure the time it takes for a deviation from purchasing power parity (PPP) to dissipate by 50%. Relative to the years 1870–1913, between 1880 and 1913 the half‐lives of REERs in core countries decrease from between 4.4 and 5.2 years to between 3.1 and 3.4 years, with similar declines across dynamic panels. Combined with evidence elsewhere that interest rates adjusted quickly, the evidence herein suggests that adjustment in goods markets was faster following adoption of the gold standard.
    January 27, 2016   doi: 10.1111/infi.12079   open full text
  • Do Better Capitalized Banks Lend Less? Long‐Run Panel Evidence from Germany.
    Claudia M. Buch, Esteban Prieto.
    International Finance. April 14, 2014
    Higher capital features prominently in proposals for regulatory reform. But how does increased bank capital affect business loans? The real costs of increased bank capital in terms of reduced loans are widely believed to be substantial. But the negative real‐sector implications need not be severe. In this paper, we take a long‐run perspective by analysing the link between the capitalization of the banking sector and bank loans using panel cointegration models. We study the evolution of the German economy for the past 44 years. Higher bank capital tends to be associated with higher business loan volume, and we find no evidence for a negative effect. This result holds both for pooled regressions as well as for the individual banking groups in Germany.
    April 14, 2014   doi: 10.1111/infi.12041   open full text
  • Sovereign Yield Spreads During the Euro Crisis: Fundamental Factors Versus Redenomination Risk.
    Jens Klose, Benjamin Weigert.
    International Finance. April 14, 2014
    The intensity of the euro crisis has been reflected in significant increases in sovereign bond yields in the most troubled countries. This has triggered a debate over whether this increase can be attributed solely to fundamental factors or whether part of the increase represents redenomination risk that one or more countries will drop out of the European Monetary Union and reintroduce their own national currencies. Using a novel market‐based indicator from the virtual prediction market Intrade, this paper explores whether such systemic risk is present in the yield spreads of nine euro‐area countries. We find that redenomination risk has played a role in the determination of sovereign yields, and that this risk is related to the expected valuations of newly introduced currencies: those of Portugal, Ireland, Spain and Italy are expected to depreciate, while newly introduced currencies of other countries are expected to appreciate following a break‐up of the EMU. ‘Risk premia that are related to fears of the reversibility of the Euro are unacceptable, and they need to be addressed in a fundamental manner.’ (ECB President Mario Draghi, August 2012) ‘Es gibt fundamentale Zweifel der Märkte an der Sicherheit der Währungsunion.’ There are fundamental doubts on the financial markets about the integrity of the [European] monetary union. (Bundesbank President Jens Weidmann, 10 July 2012)
    April 14, 2014   doi: 10.1111/infi.12042   open full text
  • What Is a Prime Bank? A Euribor–OIS Spread Perspective.
    Marco Taboga.
    International Finance. April 14, 2014
    Since the outbreak of the financial crisis in 2007, the level and volatility of the Euribor–OIS spreads have increased significantly. According to the literature, this variability is mainly explained by credit and liquidity risk premia. I provide evidence that part of the variability might also be explained by ambiguity in the phrasing of the Euribor survey. The participants in the survey are asked at what rate they believe interbank funds are exchanged between prime banks; given the lack of a clear definition of a prime bank, this question might leave room for subjective judgment. In particular, I find evidence that some of the variability of the Euribor rates might be explained by changes in the survey participants' perception of what a prime bank is. This evidence adds to the difficulties already encountered by previous studies in identifying and measuring exactly the determinants of the Euribor rates. I argue that these difficulties are at odds with the clarity, simplicity and replicability that should be required of a widely used financial benchmark.
    April 14, 2014   doi: 10.1111/infi.12044   open full text
  • Communications Challenges for Multi‐Tasking Central Banks: Evidence, Implications.
    Pierre L. Siklos.
    International Finance. April 14, 2014
    The communications challenges facing central banks that share macroprudential responsibilities with other agencies are daunting. Central bank surveys and an index of central bank transparency reveal that central banks have adopted the necessary institutional arrangements to communicate effectively a price stability objective. However, their communications strategy is ill suited to dealing with financial stability issues. Recent events require a departure from the pre‐crisis narrative that entailed a predictable relationship between inflation and output gaps, of which financial stability was considered a by‐product. I argue that central banks should adopt a hybrid form of inflation and price level targeting as well as require that macroprudential regulators jointly communicate their determination to act in concert, especially when the financial system is under stress. The current practice of announcing the rationale for the setting of monetary policy instruments is no longer an effective communication strategy when central banks must also evince a concern for financial stability.
    April 14, 2014   doi: 10.1111/infi.12043   open full text
  • Monetary Policy in a Downturn: Are Financial Crises Special?
    Morten L. Bech, Leonardo Gambacorta, Enisse Kharroubi.
    International Finance. April 14, 2014
    This paper analyses the effectiveness of monetary policy during downturns associated with financial crises. Based on a sample of 24 developed countries, our empirical analysis suggests that monetary policy is less effective following a financial crisis as the monetary transmission mechanism is partially impaired. In particular, our results suggest that the benefits of accommodative monetary policy during a downturn are elusive when the downturn is associated with a financial crisis. In addition, we find that private sector deleveraging during a downturn helps to induce a stronger recovery.
    April 14, 2014   doi: 10.1111/infi.12040   open full text
  • Testing the Strategic Asset Allocation of Stabilization Sovereign Wealth Funds.
    Fabio Bertoni, Stefano Lugo.
    International Finance. July 24, 2013
    None of the models that have been developed to determine the optimal strategic asset allocation (SAA) of stabilization sovereign wealth funds (SWFs) has received direct empirical validation, primarily because there is a lack of transparency regarding some of the key parameters that characterize the problem. In this paper, building on a mean‐variance framework, we derive three sets of parsimonious statistical tests to compare the actual SAA of SWFs to a theoretical optimum. We apply these tests to the portfolio of the world's largest stabilization SWF (the Norwegian Government Pension Fund—Global or GPF) for the period between 2002 and 2005. The empirical analysis confirms that the static and dynamic deviations of the GPF's SAA from the market equity portfolio are consistent with the theoretical predictions.
    July 24, 2013   doi: 10.1111/j.1468-2362.2013.12022.x   open full text
  • Cross‐Border Banking in Europe and Financial Stability.
    Dirk Schoenmaker, Wolf Wagner.
    International Finance. July 24, 2013
    In this paper, we propose country‐specific and systemic metrics that can be used to judge whether cross‐border banking in a country (or region) takes a desirable form. Applying these metrics to the EU countries, we find that the countries with the largest banking centres, the UK and Germany, are well diversified. By contrast, the New Member States (NMS) are highly dependent on a few West European banks and vulnerable to contagion effects. The Nordic and Baltic regions are closely interwoven with little diversification. At the system level, the EU banking system is weakly diversified, with an overexposure to the United States and an underexposure to Japan and China. This explains why the recent US‐originated financial crisis had such a significant impact on European banks.
    July 24, 2013   doi: 10.1111/j.1468-2362.2013.12026.x   open full text
  • Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model‐Based Assessment.
    Sandra Gomes, Pascal Jacquinot, Matthias Mohr, Massimiliano Pisani.
    International Finance. July 24, 2013
    The recent financial crisis is likely to have damaged the potential output of many countries belonging to the euro area. Moreover, the heterogeneity in long‐run macroeconomic performance among Member States may not be sustainable in the presence of strong monetary and financial integration, thus suggesting the need for coordinating structural reforms. Using a multi‐country dynamic general equilibrium model of the euro area, we assess the macroeconomic effects of increasing competition in the labour and services markets in Germany and the rest of the euro area and, in an alternative scenario, Portugal and the rest of the euro area. Our main results suggest that (i) a unilateral increase in competition in the labour and services markets would increase long‐run output; and that (ii) cross‐country coordination would make the macroeconomic performance of the different regions more homogeneous, in terms of both price competitiveness and of real activity.
    July 24, 2013   doi: 10.1111/j.1468-2362.2013.12025.x   open full text
  • Testing the Effectiveness of Market‐Based Controls: Evidence From the Experience of Japan With Short‐Term Capital Flows in the 1970s.
    Taro Esaka, Shinji Takagi.
    International Finance. July 24, 2013
    This paper tests the effectiveness of marginal reserve requirements employed by Japan in the 1970s to influence short‐term capital flows. We thereby contribute to the ongoing debate on the use of capital controls—market‐based ones in particular. While the case for using market‐based controls relies on the mixed evidence from the experience of Chile with unremunerated reserve requirements, testing for their effectiveness is hampered by the endogeneity of such a measure, which is typically imposed or intensified when inflows surge. We address this problem in the Japanese context by applying the method of propensity score matching, and find that an increase in marginal reserve requirements modestly reduced short‐term capital inflows through non‐resident free‐yen accounts. The impact was not statistically significant, however, implying that the price elasticity of short‐term capital flows was likely small. We conclude that market‐based controls must be nearly prohibitive, perhaps combined with administrative measures, to be effective in a meaningful way.
    July 24, 2013   doi: 10.1111/j.1468-2362.2013.12023.x   open full text
  • Taylor's Rule Versus Taylor Rules.
    Alex Nikolsko‐Rzhevskyy, David H. Papell.
    International Finance. July 24, 2013
    Does the Taylor rule prescribe negative interest rates for 2009–11? This question is important because negative prescribed interest rates provide a justification for quantitative easing once actual policy rates hit the zero lower bound. We answer the question by analyzing Fed policy following the recessions of the early‐to‐mid‐1970s, the early 1990s and the early 2000s, in the context of both Taylor's original rule and latter variants of Taylor rules. While Taylor's original rule, which can be justified by historical experience during and following the recessions, does not produce negative prescribed interest rates for 2009–11, variants of Taylor rules with larger output gap coefficients, which do produce negative interest rates, cannot be justified by the same historical experience. We conclude that the Taylor rule does not provide a rationale for quantitative easing.
    July 24, 2013   doi: 10.1111/j.1468-2362.2013.12024.x   open full text