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34 posts on "International Economics"

March 31, 2014

Measuring Global Bank Complexity

Nicola Cetorelli, Linda Goldberg, and Arun Gupta

This post is the seventh in a series of thirteen Liberty Street Economics posts on Large and Complex Banks. For more on this topic, see this special issue of the Economic Policy Review.

Paraphrasing a famous Supreme Court opinion: “I know bank complexity when I see it.” This expression probably speaks to the truth that, if we look at a given banking organization, we ought to be able to state whether it is more or less “complex.” And yet, such an approach hardly offers any guidance if one wants to understand the intricacies of global banks and to monitor and regulate them. What should be the appropriate metrics? It seems to us that there is not a consensus just yet on what complexity might mean in the context of banking. The global dimension of a bank adds many layers, so focusing on global banks is bound to yield a more comprehensive take on the issue than examining purely domestic banking entities. Therefore, in this piece, we view complexity through the lens of the operations of global banks.

Continue reading "Measuring Global Bank Complexity" »

Posted by Blog Author at 7:00 AM in Financial Markets, International Economics | Permalink | Comments (0)

March 05, 2014

Risk Aversion, Global Asset Prices, and Fed Tightening Signals

Jan Groen and Richard Peck

The global sell-off last May of emerging market equities and currencies of countries with high interest rates (“carry-trade” currencies) has been attributed to changes in the outlook for U.S. monetary policy, since the sell-off took place immediately following Chairman Bernanke’s May 22 comments concerning the future of the Fed’s asset purchase programs. In this post, we look back at global asset market developments over the past summer, and measure how changes in global risk aversion affected the values of carry-trade currencies and emerging market equities between May and September of last year. We find that the initial signal of a possible change in U.S. monetary policy coincided with an increase in global risk aversion, which put downward pressure on global asset prices.

Continue reading "Risk Aversion, Global Asset Prices, and Fed Tightening Signals " »

February 20, 2014

Just Released: The Inflation Outlook in the Euro Zone . . . Survey Says

Robert Rich, Kaivan K. Sattar, and Joseph Tracy

The European Central Bank (ECB) released its 2014:Q1 Survey of Professional Forecasters (SPF) on February 13. The release comes at a time of growing concern about low Euro-zone inflation: consumer prices were up only 0.7 percent over the year in January, the fourth consecutive monthly reading of less than 1 percent and well below the ECB’s target of just below 2 percent. Some commentators have argued that falling inflation after five years of recession or very slow growth has raised the threat of deflation.

Continue reading "Just Released: The Inflation Outlook in the Euro Zone . . . Survey Says" »

Posted by Blog Author at 7:00 AM in International Economics, Macroecon | Permalink | Comments (0)

February 05, 2014

Comparing U.S. and Euro Area Unemployment Rates

Thomas Klitgaard and Richard Peck

Euro area growth has been stalled since 2010, mired in the sovereign debt crisis, while the United States has managed a slow but steady recovery following the Great Recession. Euro area and U.S. labor markets reflect these differing growth paths. While unemployment rates in the euro area and the United States were both around 10 percent in 2010, the unemployment rate in the euro area has since increased to 12.0 percent, and the U.S. rate has fallen to 6.7 percent. However, the outperformance of the U.S. labor market as measured by unemployment rates is overstated. Employment relative to the population has declined in the euro area, but the divergence of this measure from that of the United States is more modest than suggested by unemployment rates. The difference is that, unlike in the United States, the share of women in the euro area labor force is increasing, and that development accounts for roughly half of the current gap between unemployment rates in the two economies.

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Posted by Blog Author at 7:00 AM in International Economics, Labor Economics | Permalink | Comments (0)

November 18, 2013

Yen and Yang: The Response of the Nikkei to the Yen

Andrew Howland and Benjamin Mandel

To what extent are Japanese equities driven by changes in the value of the yen? This question is especially relevant for recent developments in Japan, where both the Nikkei equity index and the dollar value of the yen appear to have reacted strongly to new policy initiatives that were introduced in late 2012 (that is, the fiscal and monetary policy changes collectively referred to as “Abenomics”). In this post, we use a particular statistical technique to compute how much of the post-Abenomics Nikkei reaction can be ascribed to changes in the foreign exchange rate. Our estimates imply that roughly half of the recent movements in the Nikkei can be ascribed to the changing value of the yen, with the remainder reflecting the domestic implications of Abenomics and other factors.

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Posted by Blog Author at 7:00 AM in International Economics, Macroecon | Permalink | Comments (2)

November 04, 2013

Japan's Missing Wall of Money

Thomas Klitgaard

The Bank of Japan announced an open-ended asset purchase program in January 2013 and an unexpectedly ramped-up version of the program was implemented in early April. Market commentary at that time suggested that flooding the economy with liquidity would lead to a “wall of money” flowing out of Japan in search of higher yields, affecting asset prices worldwide. So far, however, Japan’s wall of money remains missing in action, with no pickup in Japanese foreign investment since the April policy shift. Why is this? Here we explain that while economic theory does not offer clear guidance on how financial outflows might respond to the injection of cash from central bank asset purchases, it does point to an important constraint on the potential size. In particular, monetary expansion will not cause a surge in financial outflows unless it also induces a similar surge in capital flowing into the country.

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Posted by Blog Author at 7:00 AM in International Economics | Permalink | Comments (1)

October 02, 2013

Capital Flight inside the Euro Area: Cooling Off a Fire Sale

Matthew Higgins and Thomas Klitgaard

Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a balance of payments crisis, the contraction in domestic credit was less severe than would ordinarily be caused by capital flight of this scale. Why was that? An important reason is that much of the capital flight was financed by credits to deficit countries’ central banks, with those credits extended collectively by other central banks in the euro area. This balance of payments financing was paired with policies to supply liquidity to periphery commercial banks. Absent these twin lifelines, periphery countries would have had to endure even steeper recessions from the sudden withdrawal of foreign capital.

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Posted by Blog Author at 7:00 AM in International Economics | Permalink | Comments (0)

May 22, 2013

Foreign Borrowing in the Euro Area Periphery: The End Is Near

Matthew Higgins and Thomas Klitgaard

Current account deficits in euro area periphery countries have now largely disappeared. This represents a substantial adjustment. Only two years ago, deficits stood at nearly 10 percent of GDP in Greece and Portugal and 5 percent in Spain and Italy (see chart below). This sharp narrowing means that spending has been brought in line with income, largely righting an imbalance that had left these countries dependent on heavy foreign borrowing. However, adjustment has come at a sizable cost to growth, with lower domestic spending only partly offset by higher export sales. Downward pressure on domestic spending should abate now that the periphery countries have been weaned from foreign borrowing. The risk, though, is that foreign creditors might demand that the countries pay down (rather than merely service) accumulated external debts, forcing them to reduce spending below incomes.

Continue reading "Foreign Borrowing in the Euro Area Periphery: The End Is Near" »

Posted by Blog Author at 7:00 AM in International Economics | Permalink | Comments (1)

May 13, 2013

Capital Controls, Currency Wars, and International Cooperation

Bianca De Paoli and Anna Lipinska

The debate over whether there’s a case for limiting capital flows has intensified recently—both in media and academic forums. The traditional view has generally been that the voluntary exchange of funds across borders makes everyone better off: Borrowers have access to cheaper credit while lenders enjoy higher returns on their investments. But, as a recent article in The Economist highlights, this view has been revisited. In this post, we review arguments on this issue and discuss how our recent research contributes to the debate.

Continue reading "Capital Controls, Currency Wars, and International Cooperation" »

Posted by Blog Author at 7:00 AM in International Economics, Macroecon | Permalink | Comments (1)

April 22, 2013

Japanese Inflation Expectations, Revisited

Benjamin R. Mandel and Geoffrey Barnes

An important measure of success for monetary policy is a central bank’s ability to anchor inflation expectations; inflation expectations influence actual inflation and, hence, the achievement of a given inflation goal. This notion has special significance for Japan, where CPI inflation has been intermittently negative since 1994 and where it is widely believed that expectations of future inflation have been persistently negative (that is, ongoing deflation is expected). In this post, we describe and evaluate an alternative, market-based measure of Japanese inflation expectations based on international price parity conditions. We find that recent inflation expectations have attained a level substantially higher than their previous peaks over the past three years.

Continue reading "Japanese Inflation Expectations, Revisited" »

Posted by Blog Author at 12:00 PM in International Economics, Monetary Policy | Permalink | Comments (0)
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