When Is U.S. Bank Lending to Emerging Markets Volatile?

Using bank-specific data on U.S. bank claims on individual foreign countries since the mid-1980s, this paper: 1) characterizes the size and portfolio diversification patterns of the U.S. banks engaging in foreign lending; and 2) econometrically explores the determinants of fluctuations in U.S. bank claims on a broad set of countries. U.S. bank claims on Latin American and Asian emerging markets, and on industrialized countries, are sensitive to U.S. macroeconomic conditions. When the United States grows rapidly, there is substitution between claims on industrialized countries and claims on the United States. The pattern of response of claims on emerging markets to U.S. conditions differs across banks of different sizes and across emerging market regions. Moreover, unlike U.S. bank claims on industrialized countries, we find that claims on emerging markets are not highly sensitive to local country GDP and interest rates.

Predicting Exchange Rate Crises: Mexico Revisited

This paper predicts ex-ante the probability of currency crises end size of expected devaluations month by month for Mexico between 1980 and 1986 using a heterodox linear discrete time model of exchange rate crises. The forces contributing to speculative attacks on the Mexican peso include internal money creation, external credit shocks, and relative price shocks. The framework proves highly successful for generating forecasts of the probability of speculative attacks on the peso and for predicting lower bounds for post- collapse exchange rates using a range of assumptions about critical levels of central bank reserve floors. Simulation results suggest that reducing domestic credit growth, increasing the uncertainty surrounding this growth, and reducing the size and perhaps increasing the frequency of currency realignments might have greatly reduced the amount of currency speculation against the peso in some of the crisis periods between 1980 and 1986.

Financial sector FDI and host countries: new and old lessons

Foreign direct investment (FDI) into the financial sectors of emerging economies soared during the 1990s, leaving many countries with banking sectors owned primarily by foreign institutions. While the implications of FDI into emerging markets are well documented, less clearly understood is how the host countries are affected by financial sector FDI specifically. An understanding of this relationship is crucial for countries formulating policy with respect to foreign banks. This article argues that many lessons learned from work on FDI into manufacturing and primary resource industries apply directly to host-country financial sectors. The author provides evidence on such themes as technology transfers, productivity spillovers, wage effects, macroeconomic growth, and fiscal policy to show that financial sector FDI into emerging markets generally has positive effects on the host countries. In banking and finance specifically, she argues that financial sector FDI can potentially strengthen institutional development through improvements to regulation and supervision.Investments, Foreign ; Emerging markets ; Banks and banking, Foreign ; International finance

The International Role of the Dollar and Trade Balance Adjustment

The pattern of international trade adjustment is affected by the continuing international role of the dollar and related evidence on exchange rate pass-through into prices. This paper argues that a depreciation of the dollar would have asymmetric effects on flows between the United States and its trading partners. With low exchange rate pass-through to U.S. import prices and high exchange rate pass-through to the local prices of countries consuming U.S. exports, the effect of dollar depreciation on real trade flows is dominated by an adjustment in U.S. export quantities, which increase as U.S. goods become cheaper in the rest of the world. Real U.S. imports are affected less because U.S. prices are more insulated from exchange rate movements — pass-through is low and dollar invoicing is high. In relation to prices, the effects on the U.S. terms of trade are limited: U.S. exporters earn the same amount of dollars for each unit shipped abroad, and U.S. consumers do not encounter more expensive imports. Movements in dollar exchange rates also affect the international trade transactions of countries invoicing some of their trade in dollars, even when these countries are not transacting directly with the United States.

The evolving external orientation of manufacturing: a profile of four countries

Using more than two decades of industry data, the authors profile the external orientation of manufacturing industries in the United States, Canada, the United Kingdom, and Japan. They use the term "external orientation" to describe the potential exposure of an industry's revenues and costs to world events through exports, imports, and imported inputs. For each major manufacturing industry, the authors provide histories of the share of total revenues earned in foreign markets, the role of imports in domestic consumption, and the costs of imported inputs in total production. In addition, they construct a measure of net external orientation, which is intended to capture how much an industry's use of imported inputs (a cost factor) can potentially offset exposure to the international economy through exports (a revenue factor).Manufactures ; International economic relations ; Exports ; Imports ; Production (Economic theory)

Investment, Pass-Through and Exchange Rates: A Cross-Country Comparison

Although large changes in real exchange rates have occurred during the past decades, the real implications of these movements remain an empirical question. Using detailed data from the United States, Canada, the United Kingdom, and Japan we examine the implications of exchange rates for time series of sectoral investment. Both theoretically and empirically we show that investment responsiveness to exchange rates varies over time, positively in relation to sectoral reliance on export share and negatively with respect to imported inputs into production. The quantitative importance of each of these channels of exposure is a function of a set of exchange rate pass-through and demand elasticities. There exist important differences in investment endogeneity across high and low markup sectors, with investment in low markup sectors significantly more responsive to exchange rates. Unlike pass-through elasticities, which are viewed as industry-specific, investment endogeneity to exchange rates is a country-specific phenomenon.

Banking globalization, monetary transmission and the lending channel

The globalization of banking in the United States is influencing the monetary transmission mechanism both domestically and in foreign markets. Using quarterly information from all U.S. banks filing call reports between 1980 and 2005, we find evidence for the lending channel for monetary policy in large banks, but only those banks that are domestically-oriented and without international operations. We show that the large globally-oriented banks rely on internal capital markets with their foreign affiliates to help smooth domestic liquidity shocks. We also show that the existence of such internal capital markets contributes to an international propagation of domestic liquidity shocks to lending by affiliated banks abroad. While these results imply a substantially more active lending channel than documented in the seminal work of Kashyap and Stein (2000), the lending channel within the United States is declining in strength as banking becomes more globalized. --Lending channel,Bank,global,liquidity,transmission,internal capital markets