International capital flows Tille, Cédric; van Wincoop, Eric
Journal of international economics,
03/2010, Volume:
80, Issue:
2
Journal Article
Peer reviewed
The surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice. We develop the implications of portfolio choice for both gross ...and net international capital flows in the context of a simple two-country dynamic stochastic general equilibrium (DSGE) model. We focus on the time-variation in portfolio allocation following shocks, and resulting capital flows. Endogenous time-variation in expected returns and risk, which are the key determinants of portfolio choice, affect capital flows in often subtle ways. The model is consistent with a broad range of empirical evidence. An additional contribution of the paper is to overcome the technical difficulty of solving DSGE models with portfolio choice by developing a broadly applicable solution method.
China's overseas lending Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
Journal of international economics,
November 2021, 2021-11-00, Volume:
133
Journal Article
Peer reviewed
Open access
Compared with China's pre-eminent status in world trade, its role in global finance is poorly understood. This paper studies the size, terms and destination of Chinese official international lending ...on the basis of a new “consensus” database of 4900 loans and grants to 146 countries, 1949–2017. Using the loan-level lending data we estimate outstanding debt stocks owed to China for more than 100 developing and emerging economies since 2000. As of 2017, China had become the world's largest official creditor, surpassing the World Bank and the IMF. The terms of China's state-driven international loans typically resemble commercial rather than official lending. We also find that 50% of China's official lending to developing countries is not reported in the most widely used official debt statistics. These “hidden” debts have important implications for debt sustainability.
This paper explores the impact of cross-border capital flows on bank lending volumes and risk. Employing bank-level data from the euro area, we show that capital inflows are associated with higher ...bank credit supply and lower average loan quality. By showing that the lending patterns of smaller domestic banks are also affected, we present evidence that the impact of international capital flows is not limited to large banks with international exposure. Nevertheless, the observed effects are stronger for large banks as well as for banks with low levels of capitalisation, suggesting that agency issues reinforce the link between capital flows and bank lending.
•We find a significant impact of U.S. monetary policy uncertainty on China's RMB exchange rate volatility.•China's direct and portfolio investment flows are important transmission channels.•Prior to ...the 8∙11 exchange rate reform in 2015, China's direct investment flow channels played an important role.•The role of China's portfolio liquidity channels has become even more significant after the 8∙11 exchange rate reform.
This study investigates the impact of US monetary policy uncertainty on the volatility of the Chinese RMB exchange rate using a counterfactual SVAR model. Additionally, we examine the transmission mechanism from the perspective of different types of international capital flows. The findings suggest that an increase in US monetary policy uncertainty worsens RMB exchange rate volatility, and can have a significant impact on RMB exchange rate volatility through the intermediate transmission of China's direct investment flows and portfolio investment flows. Notably, the increase in US monetary policy uncertainty worsens RMB exchange rate volatility through these two channels respectively, before and following the “8.11″ exchange rate reform in 2015.
We employ a structural global VAR model to analyze whether U.S. unconventional monetary policy shocks, identified through changes in the central bank’s balance sheet, have an impact on financial and ...economic conditions in emerging market economies (EMEs). Moreover, we study whether international capital flows are an important channel of shock transmission. We find that an expansionary policy shock significantly increases portfolio flows from the U.S. to EMEs for almost two quarters, accompanied by a persistent movement in real and financial variables in recipient countries. Moreover, EMEs on average respond to the shock with an easing of their own monetary policy stance. The findings appear to be independent of heterogeneous country characteristics like the underlying exchange rate arrangement, the quality of institutions, or the degree of financial openness.
The effects of macroprudential policy on portfolio flows vary considerably across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on ...bond and equity flows, increasing outflows significantly more during risk-off episodes and increasing inflows significantly more during risk-on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods and for regulations that target specific risks instead of generalized cyclical buffers. This paper estimates these relationships using a policy-shocks approach that corrects for reverse causality by combining high-frequency risk measures with weekly data on portfolio investment and a new measure of macroprudential regulations that captures the intensity of policy stances. Overall, the results support a growing body of evidence that macroprudential regulation can reduce the volume and volatility of bank flows but shift risks in ways that aggravate vulnerabilities in other parts of the financial system.
The study examines the impact of geopolitical tensions, which have increased sharply in recent times, on international capital flows. It shows that geopolitical tensions affect cross-border ...investment flows through three main channels: increased geopolitical risks that encourage international investors to reduce investments in countries with different foreign policies; tighter controls on incoming FDI in many countries to ensure national security; and financial sanctions imposed by Western countries to put pressure on other states. Based on the analysis of investment relations between the United States and China, the contradictions between which are the main source of geopolitical tension in the world, the author confirms the conclusion that the influence of geopolitical factors on capital flows between the countries has increased since the second half of the 2010s. However, the study substantiates that the emerging fragmentation of cross-border capital flows can have not only negative, but also positive consequences for the global economy and finance. The compression of capital flows between the countries of the global North and South may push the latter to establish closer integration ties in the financial sector, create financial infrastructure independent of the West, focused on the needs of developing countries, and accelerate the internationalization of their currencies. As a result, these processes could weaken the dominance of Western countries in the global financial system and facilitate its transition to a more equitable multipolar configuration.
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