Global roles of currencies

This paper presents a new concept – the global roles of currencies. The concept combines the domestic and international (cross-border) use of currencies and therefore captures the overall importance of different currencies in a globalised economy. The measure of a currency’s global role is based on the size and stage of development of the underlying economy, as well as the size and stage of development of its financial markets and the scope of financial instruments available in this currency. The paper applies the concept to 22 currencies of advanced and emerging economies. The results confirm the well-known ranking for the leading currencies – in particular the US dollar and the euro – but give considerably greater weight to currencies of emerging economies than the results obtained from the international debt market, which has so far been used as the basis for measuring the international role of currencies in capital markets. The paper also discusses this established measure in detail, arguing that in view of financial globalisation, an indicator based on currency shares in the international debt market alone represents a decreasing share of international financial market activity, as this market excludes government debt, other domestic debt and equities, which are in- creasingly of interest to international investors. The paper also presents an empirical application of the new global concept to examine cross-border portfolio holdings in debt and equity markets across advanced and emerging economies. It finds that the global role indicator is positively correlated with such holdings and, especially for emerging economies, fares better than the established international debt market indicator. The findings suggest a positive relationship between domestic financial development and international financial integration. JEL Classification: F31, F33, F37, G15, E58global capital markets, international currencies, International Finance

Multimarket trading and the cost of debt: evidence from global bonds

Global bonds are international securities designed to be traded and settled efficiently in multiple markets. This paper studies global bonds to examine the effects of multimarket trading on corporate bond liquidity, prices, and the cost of debt. Using a sample of primary and secondary market transactions matched by issuer, I find that global bonds command a significant liquidity and price advantage over comparable domestic bonds. On average, global bonds trade at yields 15 to 25 basis points below domestic bonds of the same issuers, with the difference being greater for speculative grade bonds and in times of crisis. Global issues are more liquid, as evidenced by several trade-based liquidity measures, but the liquidity advantage of global bonds does not fully explain the yield differential. The findings imply that international corporate bond markets are not fully integrated, and global bond offerings can reduce the cost of debt. JEL Classification: G15, G12, G32, F36corporate bonds, Cost of debt, international financial markets, liquidity

Do demographic changes affect risk premiums? Evidence from international data

We examine the link between equity risk premiums and demographic changes using a very long sample over the whole twentieth century for the US, Japan, UK, Germany and France, and a shorter sample covering the last third of the twentieth century for fifteen countries. We find that demographic variables significantly predict excess returns internationally. However, the demographic predictability found in the US by past studies for the average age of the population does not extend to other countries. Pooling international data, we find that, on average, faster growth in the fraction of retired persons significantly decreases risk premiums. This demographic predictability of risk premiums is stronger for countries with well-developed social security systems and lesser-developed financial markets. JEL Classification: G12, G15, J10, P46demography, international predictability, Population aging, risk premiums, social security

Risk, commercialism and social purpose: Repositioning the English housing association sector

Originally seen as the ‘third arm’ of UK housing policy, the independent, not-for-profit housing association sector had long been seen as effective in ‘filling the gap’ where the state or market were unable to provide for households in need. Since the 1980s in particular, successive governments had viewed housing associations in favourable terms as efficient, semi-autonomous social businesses, capable of leveraging significant private funding. By 2015, in contrast, central government had come to perceive the sector as inefficient, bureaucratic and wasteful of public subsidy. Making use of institutional theory, this paper considers this paradigm shift and examines the organisational responses to an increasingly challenging operating environment. By focusing, in particular, on large London housing associations, the paper analyses their strategic decision-making to address the opportunities and threats presented. The paper argues that in facing an era of minimal subsidy, low security and high risk, the 2015 reforms represent a critical juncture for the sector. Housing organisations face a stark dilemma about whether to continue a strategy of ‘profit for purpose’ or to embrace an unambiguously commercial ethos. The article contends that the trajectory of decision-making (although not unidirectional) leads ultimately towards an increased exposure to risk and vulnerability to changes in the housing market. More fundamentally, the attempt to reconcile social and commercial logics is likely to have wider consequences for the legitimacy of the sector

Transnational governance in global finance - the principles for stable capital flows and fair debt restructuring in emerging markets

This paper analyses and assesses the track record and effectiveness of the so-called “Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets”,which have emerged as an important instrument for crisis prevention and crisis resolution in the international financial system. The paper argues that, notwithstanding their low profile, the Principles which were jointly agreed between sovereign debtors and their private creditors in 2004 have proved to be an effective instrument in spite of their voluntary and nonbinding nature. Indeed, an increasing number of sovereign debtors and private creditors have adopted the Principles’ recommendations on transparency and the timely flow of information, close dialogue, “good faith” actions and fair treatment. Two elements have been critical to the success of the Principles: (i) their specific design feature as a soft mode of governance agreed by a transnational public-private partnership and (ii) the “hardening” after their launch in terms of precision and delegation, thus moving them somewhat along the continuum of soft law and hard law towards the latter. The paper also makes the case that the Principles and their design features can provide some lessons for the current international policy debate on codes of conduct in global financial regulation.. JEL Classification: F34, F51, F53, G15, G18.Crisis prevention, debt restructuring, sovereign default, soft law, transnational public-private partnership, global financial governance.

The International lender of last resort: an historical perspective

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Democracy and Reforms: Evidence from a New Dataset

Empirical evidence on the relationship between democracy and economic reforms is limited to few reforms, countries, and years. This paper studies the impact of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital and banking sectors, product markets, agriculture, and trade for 150 countries over the period 1960-2004. Democracy has a positive and significant impact on the adoption of economic reforms but there is no evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.

Early-Stage Globalization and Corporate Debt Maturity: The Case of South Korea, 1980-94

Using data from publicly traded South Korean corporations for the period 1980-94, this paper finds evidence that increases in financial liberalization that accompanied the more general process of financial globalization have significantly reduced the maturity structure of corporate debt contracts, thus lending partial empirical support to the idea that financial liberalization can be well described as “short-term pain, long-term gain”. This effect of financial liberalization on corporate debt maturity is robust to changes in econometric specification, and does not seem to be counteracted by opposing forces that tended to lengthen the maturity of corporate debt during the same period.Globalization, corporate debt maturity, South Korea

Democracy and Reforms

Empirical evidence on the relationship between democracy and economic reforms is scarce, limited to few reforms and countries and for few years. This paper studies the impact of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital, public, and banking sectors, product and labor markets, agriculture, and trade for 150 countries over the period 1960-2004. Democracy has a positive and significant impact on the adoption of economic reforms but there is no evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.economic liberalization, transition, political economy