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Working Paper
Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?
We study how U.S. banks' exposure to the economic fallout due to governments' response to Covid-19 in foreign countries has affected their credit provision to borrowers in the United States. We combine a rarely accessed dataset on U.S. banks' cross-border exposure to borrowers in foreign countries with the most detailed regulatory ("credit registry") data that is available on their U.S.-based lending. We compare the change in the U.S. lending of banks that are more vs. less exposed to the pandemic abroad, during and after the onset of Covid-19 in 2020. We document strong spillover effects: ...
Working Paper
International Financial Spillovers to Emerging Market Economies: How Important Are Economic Fundamentals?
We assess the importance of economic fundamentals in the transmission of international shocks to financial markets in various emerging market economies (EMEs), covering the so-called taper-tantrum episode of 2013 and seven other episodes of severe EME-wide financial stress since the mid-1990s. Cross-country regressions lead us to the following results: (1) EMEs with relatively better economic fundamentals suffered less deterioration in financial markets during the 2013 taper-tantrum episode. (2) Differentiation among EMEs set in relatively early and persisted through this episode. (3) During ...
Working Paper
Bad Bad Contagion
Bad contagion, the downside component of contagion in international stock markets, has negative implications for financial stability. I propose a measure for the occurrence and severity of global contagion that combines the factor-model approach in Bekaert et al. (2005) with the model-free or co-exceedance approach in Bae et al. (2003). Contagion is measured as the proportion of international stock markets that simultaneously experience unexpected returns beyond a certain threshold. I decompose contagion into its downside or bad component (the co-exceedance of low returns) and its upside or ...
Working Paper
Complexity of Global Banks and their Foreign Operation in Hong Kong
This paper studies the relation between the complexity of global banking organizations and their foreign banking operations (FBOs) in Hong Kong. Our empirical evidence indicates that the complexity of the parent company has significant effects on their Hong Kong branch?s business model, liquidity management, risk-taking, and profitability. The more complex the global banking organizations, their Hong Kong FBOs are more likely to derive a larger share of revenues from fee-based activities, and incur a higher cost of production despite enjoying a funding cost advantage. Notwithstanding the FBOs ...
Working Paper
The Rise in Home Currency Issuance
Using a large sample of private international bond issues, we document a substantial decline in the share of international bonds denominated in major reserve currencies over the last two decades, and an increase in bonds denominated in issuers? home currencies. These secular trends appear to have accelerated notably after the global financial crisis. Observed increases in home currency foreign bond issuance was larger in countries with stable inflation and lower government debt, and in emerging markets that adopted explicit inflation targeting policies. We then present a model that ...
Working Paper
Risk-on/Risk-off: Measuring Shifts in Investor Sentiment
A new, high frequency measure of investor sentiment outperforms similar measures in forecasting investment activity in emerging markets.
Working Paper
R* and the Global Economy
This paper provides a synthesis of explanations for why the natural rate of interest, r*, has fallen over the last several decades. Demographic factors, declining productivity, slower output growth, and increasing inequality likely all have been important factors. Perhaps less recognized is the role of increasing global demand for safe assets, particularly by foreign investors. Suggestive empirical evidence is presented showing that foreign demand for U.S. safe assets, particularly government-provided assets, has increased dramatically, and may now be playing a much larger role in the ...
Working Paper
The International Transmission of Shocks: Foreign Bank Branches in Hong Kong during Crises
The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the European sovereign debt crisis on foreign bank branches in Hong Kong. Unlike the literature on global banking that studies a global bank?s foreign operations from a home country perspective, our analysis uses foreign bank branches in Hong Kong and has a distinct host country perspective, which would seem ...
Report
Measuring Global Financial Market Stresses
We propose measures of financial market stress for forty-six countries and regions across the world. Our measures indicate that worldwide financial market stresses rose significantly in March following the widespread economic shutdowns in the wake of the COVID-19 pandemic. However, hardly anywhere in the world did these March peaks in financial stresses reach those seen during the trough of the 2007-09 Global Financial Crisis. Since March, financial market conditions normalized rapidly with financial market stresses around average levels. We also show that our financial stress measures ...
Journal Article
Home currency issuance in global debt markets
Historically, businesses in most countries have not been able to sell bonds denominated in their home currencies to foreign investors. In recent decades this trend has been changing. Research shows that bonds denominated in currencies other than the major global currencies have increased, particularly following the global financial crisis. However, not all countries were affected equally. Countries that were able to take advantage of the temporary disruption and near-zero interest rates in global financial markets were the ones with a combination of low government debt and a history of stable ...