The Financial Center Leverage Cycle: Does It Spread around the World?

2020 ◽  
Vol 110 ◽  
pp. 504-510
Author(s):  
Graciela Laura Kaminsky ◽  
Leandro Medina ◽  
Shiyi Wang
Keyword(s):  
Capital Flows ◽  
International Capital ◽  
International Capital Markets ◽  
Bretton Woods ◽  
Global Factor ◽  
The World ◽  
Regional Factors ◽  
Financial Center ◽  
The Cost ◽  
Regional Capital

With a novel database, we examine the evolution of capital flows since the collapse of the Bretton Woods system in the early 1970s. We decompose capital flows into global, regional, and idiosyncratic factors. In contrast to previous findings, which mostly use data from the 2000s, we find that booms and busts in capital flows are mainly explained by regional factors and not the global factor. We link leverage in the financial center to regional capital flows and the cost of borrowing in international capital markets to examine the drivers of capital flow bonanzas and busts.

Boom-Bust Capital Flow Cycles

2019 ◽  
Author(s):  
Graciela Laura Kaminsky
Keyword(s):  
Monetary Policy ◽  
Capital Flows ◽  
Corporate Bond ◽  
Global Crisis ◽  
Financial Flows ◽  
Global Factor ◽  
Risk Appetite ◽  
Boom And Bust ◽  
Financial Center ◽  
New Research

This article examines the new trends in research on capital flows fueled by the 2007–2009 Global Crisis. Previous studies on capital flows focused on current account imbalances and net capital flows. The Global Crisis changed that. The onset of this crisis was preceded by a dramatic increase in gross financial flows while net capital flows remained mostly subdued. The attention in academia zoomed in on gross inflows and outflows with special attention to cross-border banking flows before the crisis erupted and the shift towards corporate bond issuance in its aftermath. The boom and bust in capital flows around the Global Crisis also stimulated a new area of research: capturing the “global factor.” This research adopts two different approaches. The traditional literature on the push–pull factors, which before the crisis was mostly focused on monetary policy in the financial center as the “push factor,” started to explore what other factors contribute to the co-movement of capital flows as well as to amplify the role of monetary policy in the financial center on capital flows. This new research focuses on global banks’ leverage, risk appetite, and global uncertainty. Since the “global factor” is not known, a second branch of the literature has captured this factor indirectly using dynamic common factors extracted from actual capital flows or movements in asset prices.

scholarly journals Revisiting Sovereign Ratings, Capital Flows And Financial Contagion in Emerging Markets

2015 ◽  
Vol 1 (2) ◽  
pp. 3 ◽  
Author(s):  
Noha Emara ◽  
Ayah El Said
Keyword(s):  
Emerging Markets ◽  
Capital Flows ◽  
Financial Contagion ◽  
International Capital ◽  
Dynamic Panel ◽  
International Capital Markets ◽  
Sovereign Credit Ratings ◽  
Different Types ◽  
The Impact ◽  
The Relationship

This study revisits sovereign credit ratings, contagion and capital flows to Emerging Markets (EMs), and clarify the relationship between them. Specifically, this study analyzes how the changes in sovereign rating influence different types of capital flows to EMs and whether the changes in the different kinds of capital flows in one country be explained by a sovereign ratings’ change in another country. Using Arellano-Bover/Blundell-Bond Dynamic Panel System GMM for 23 EMs over the period 1990-2012 the results of the study suggest that sovereign ratings is a crucial factor for EMs’ access to international capital markets and that capital flows is a major source of financing for Ems. In addition, the results show that financial contagion may continue to be a threat to capital flowing into EMs and that financial crisis increases the impact of sovereign rating on foreign direct investment but is not the case with portfolio investment.

Part III Europe, 12 The Use of a Composition Plan as a Valuation and Distribution Framework

2017 ◽  
Author(s):  
Faber Dennis ◽  
Verhoeven Frédéric ◽  
Vermunt Niels
Keyword(s):  
Capital Markets ◽  
International Capital ◽  
International Capital Markets ◽  
Lehman Brothers ◽  
The World ◽  
Second Tier ◽  
Bankruptcy Code ◽  
Dutch History

The commencement of chapter 11 proceedings in respect of Lehman Brothers Holdings Inc (LBHI) triggered the downfall of its intricate web of group companies around the world. The Dutch incorporated second-tier subsidiary Lehman Brothers Treasury Co BV (LBT) was declared bankrupt on 8 October 2008 – the largest bankruptcy case in Dutch history and unprecedented in Dutch insolvency practice. Various new features were tested (and approved by the court) in the LBT proceedings which could provide important lessons for future large insolvency cases of issuers of debt securities on the international capital markets. Despite the fact that the Dutch Bankruptcy Code dates back more than a century ago and was not designed for several complex issues which arose in the LBT proceedings, the chapter argues, it did facilitate a tailored made solution for an effective and transparent settlement of the affairs of the main treasury entity of the Lehman Brothers group.

Mexican fiscal orthodoxy to be maintained amid crisis

2020 ◽  
Keyword(s):  
Capital Markets ◽  
Public Debt ◽  
Public Spending ◽  
Country Risk ◽  
Economic Recovery ◽  
International Capital ◽  
Content Type ◽  
International Capital Markets ◽  
The Cost ◽  
Spending Cuts

Significance Public finances have not so far deteriorated as dramatically as they might have done, considering the economic contraction caused by the COVID-19 pandemic. This is explained partly by public spending cuts and one-off revenues that will not be repeated next year. Impacts Fiscal orthodoxy will not be rewarded by international capital markets, as anti-investment moves have hit confidence. Perceptions of country risk will continue to worsen, pushing up the cost of refinancing public debt. A slow post-pandemic economic recovery and lingering unemployment could weigh on the government’s popularity.

scholarly journals The New Role for the World Bank

2016 ◽  
Vol 30 (1) ◽  
pp. 53-76 ◽  
Author(s):  
Michael A. Clemens ◽  
Michael Kremer
Keyword(s):  
World Bank ◽  
Capital Markets ◽  
Private Capital ◽  
International Capital ◽  
International Capital Markets ◽  
Global Capital ◽  
The World Bank ◽  
The World ◽  
Private Capital Flows

The World Bank was founded to address what we would today call imperfections in international capital markets. Its founders thought that countries would borrow from the Bank temporarily until they grew enough to borrow commercially. Some critiques and analyses of the Bank are based on the assumption that this continues to be its role. For example, some argue that the growth of private capital flows to the developing world has rendered the Bank irrelevant. However, we will argue that modern analyses should proceed from the premise that the World Bank’s central goal is and should be to reduce extreme poverty, and that addressing failures in global capital markets is now of subsidiary importance. In this paper, we discuss what the Bank does: how it spends money, how it influences policy, and how it presents its mission. We argue that the role of the Bank is now best understood as facilitating international agreements to reduce poverty, and we examine implications of this perspective.

The Nation-State and International Capital Flows in Historical Perspective

1997 ◽  
Vol 32 (1) ◽  
pp. 84-113 ◽  
Author(s):  
Helen Thompson
Keyword(s):  
Capital Flows ◽  
Political Authority ◽  
Nation State ◽  
International Capital ◽  
Economic Management ◽  
International Capital Markets ◽  
Political World ◽  
International Investors ◽  
Exchange Transactions ◽  
Financial Environment

IN RECENT YEARS IT HAS BECOME A COMMONPLACE OF BOTH academic and financial discourse that we are living in a new economic and political world in which financial globalization is destroying the economic autonomy of individual states and hence the foundations of the nation-state as the focus of political authority and the possibilities of politics. Of course, other threats to the nation-state exist — most crucially, the inability to reconcile its virtual monopoly of political authority, and the constraints it imposes on cooperation between states, with ecological causality — but it is the macro-economic crisis of the state which has captured most attention. Undoubtedly, the contemporary international financial environment makes macro-economic management an extremely difficult practical task for many states. With the daily value of foreign exchange transactions amounting to over $1200 billion, governments run the perpetual risk that their choices, or indeed those of other governments, will precipitate an unsustainable rise or fall in the value of their currency. At the same time they must, if they wish to borrow in international capital markets, pursue policies which will secure, and retain, the confidence of international investors. This, of course, creates a very considerable incentive for governments to choose policies which, in both fiscal and monetary terms, prioritize low inflation over growth and employment.

A World Accounting Framework: Trade and Financial Flows between Developing Countdes and the Rest of the World

1992 ◽  
Vol 31 (4II) ◽  
pp. 655-665
Author(s):  
Joke Lurnk
Keyword(s):  
International Trade ◽  
Capital Flows ◽  
Analytical Framework ◽  
International Capital Flows ◽  
Data Sources ◽  
Published Data ◽  
Domestic Saving ◽  
International Capital ◽  
Financial Flows ◽  
The World

The patterns of trade and fmancial flows between different parts of the world economy have changed dramatically over the last two decades. These changes have been accompanied by large increases in discrepancies in macroeconomic statistics. Published data sources on global macroeconomic aggregates may be highly misleading because of their lack of consistency. A first necessary step towards the analysis of changes in the patterns of international trade and finance is therefore to develop a consistent global accounting framework in which international finance can be placed in relationship to international trade and domestic accumulation: this framework we call the World Accounting Matrix (WAM). The W AM is based on the concept that related variables - international trade, fmancial flows and stocks, and domestic saving and investments - should be presented in one framework that explicitly takes the relationships between the variables into account. It is an integrated data system centred around accumulation balances. It presents aggregates in matrix format, for groups of countries. The purpose of the W AM is (i) to bring data from various data sources together in one framework in order to make better use of existing statistics, (ii) to check for consistency and to disentangle discrepancies both within and between data sources and to make adjustments for the discrepancies, (iii) to provide an analytical framework for the analysis of the effects of different types of international capital flows and external shocks on economic growth and stability in developing countries and the role of international capital flows in the process of global adjustment.

scholarly journals Bad Investments and Missed Opportunities? Postwar Capital Flows to Asia and Latin America

2018 ◽  
Vol 108 (12) ◽  
pp. 3541-3582 ◽  
Author(s):  
Lee E. Ohanian ◽  
Paulina Restrepo-Echavarria ◽  
Mark L. J. Wright
Keyword(s):  
Latin America ◽  
World War Ii ◽  
Capital Flows ◽  
Investment Incentives ◽  
International Capital ◽  
World War ◽  
Missed Opportunities ◽  
International Capital Markets ◽  
Slow Growing

After World War II, international capital flowed into slow-growing Latin America rather than fast-growing Asia. This is surprising as, everything else equal, fast growth should imply high capital returns. This paper develops a capital flow accounting framework to quantify the role of different factor market distortions in producing these patterns. Surprisingly, we find that distortions in labor markets, rather than domestic or international capital markets, account for the bulk of these flows. Labor market distortions that indirectly depress investment incentives by lowering equilibrium labor supply explain two-thirds of observed flows, while improvement in these distortions over time accounts for much of Asia's rapid growth. (JEL E22, E24, E32, F21, F32, O16, O47)

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