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Begin New Search Topic International Trade and Finance Publishing Institution Board of Governors of the Federal Reserve System

71. News or Noise? An Analysis of Brazilian GDP Announcements

Author:
Rebeca de la Rocque Palis, Roberto Luis Olinto Ramos, and Patrice Robitaille
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Revisions to GDP announcements in many countries are often large, and Faust, Rogers, and Wright (2003) have found that G-7 GDP revisions are predictable to varying degrees. In this paper, we extend FRW to study revisions to Brazilian GDP announcements. We document that revisions to Brazilian GDP are large relative to those of G-7 countries. Brazilian GDP revisions are also predictable, which is consistent with the view that GDP revisions correct errors in preliminary GDP rather than reflect news. However, GDP revisions are far from being entirely predictable. Although GDP revisions are largest only one year following the initial GDP release, those revisions are nearly unpredictable.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
Brazil and South America

72. The Effect of Exchange Rate Fluctuations on Multinationals' Returns

Author:
Jane Ihrig and David Prior
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
<p>This paper examines if the type of exchange rate used or size of the movement in the exchange rate matters in estimating exchange-rate exposure of U.S. nonfinancial multinationals. We find that switching from a broad trade-weighted exchange rate to a 2-digit SIC industry exchange rate increases the number of significantly exposed firms in a simple Jorion (1990) regression by 60 percent. Then separating crisis from non-crisis months we find additional evidence of exposure. Although the value of exposure does not change with the size of the exchange rate movement, we find some firms have significant exposure only in crisis periods while others have significant exposure only during normal fluctuations in exchange rates. All told, we find about 1 in 4 firms' returns is significantly affected by movement in the exchange rate between 1995 and 1999. </p><blockquote><p> </p> </blockquote><p> </p><p> </p>
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

73. Loans to Japanese Borrowers

Author:
David C. Smith
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines the characteristics of loans to Japanese borrowers using a relatively unexplored, contract-specific data set. I find that Japanese banks charge less on loans to Japanese borrowers than do foreign banks, holding constant many of the risk characteristics of the borrower. Moreover, Japanese banks vary pricing less across these risks than do foreign banks, suggesting that Japanese banks tend not to distinguish good risks from bad. Taken together, the results suggest that problems at Japanese banks stem from the behavior of the banks themselves, not simply from poor economic conditions. I also document a significant shortening in the maturity structure of Japanese loans in the late 1990s.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
Japan and Israel

74. U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis

Author:
Francis E. Warnock and Hali J. Edison
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze a unique data set and uncover a remarkable result that casts a new light on the home bias phenomenon. The data are comprehensive, security-level holdings of emerging market equities by U.S. investors. We document, as expected, that at a point in time U.S. portfolios are tilted towards firms that are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing effect is striking. In contrast to the well-documented underweighting of foreign stocks, emerging market equities that are cross-listed on a U.S. exchange are incorporated into U.S. portfolios at full international CAPM weights. Our results suggest that information asymmetries play an important role in equity home bias and that the benefits of international risk sharing are limited to select firms.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

75. Cross-Border Listings, Capital Controls, and Equity Flows to Emerging Markets

Author:
Francis E. Warnock and Hali J. Edison
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross-border listings, while controlling for traditional global (push) and country-specific (pull) factors. Two important results emerge. First, the cross-listing of an emerging market firm on a U.S. exchange is an important but short-lived capital flows event, suggesting that the cross-listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls were binding. Among the standard push and pull factors, global factors are important—slack U.S. economic activity is associated with increased flows to emerging markets—and U.S. investors appear to chase expected, but not past, returns.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

76. IT Investment and Hicks' Composite-Good Theorem: The U.S. Experience

Author:
Jaime Marquez and Shing-Yi B. Wang
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study whether aggregation residuals in U.S. private investment in information technology (IT) exhibit a predictable pattern that is consistent with Hicks' composite-good theorem and that may be used for forecasting. To determine whether one can extract such a pattern, we apply the general-to-specific strategy developed by Krolzig and Hendry (2001). This strategy combines ordinary least squares with a computer-automated algorithm that selects a specification based on coefficients' statistical significance, residual properties, and parameter constancy. Then, we derive the testable implications from Hicks' theorem and evaluate them with econometric formulations; we find qualified support for these implications. Having obtained these formulations, we evaluate their ex-post predictive accuracy and compare it to that of an autoregressive model. The key finding is that ignoring movement in relative prices results in a loss of information for predicting aggregation residuals.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

77. Distance, Time, and Specialization

Author:
Carolyn Evans and James Harrigan
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Time is money, and distance matters. We model the interaction of these truisms, and show the implications for global specialization and trade: products where timely delivery is important will be produced near the source of final demand, where wages will be higher as a result. In the model, timely delivery is important because it allows retailers to respond to fluctuating final demand without holding costly inventories, and timely delivery is only possible from nearby locations. Using a unique dataset that allows us to measure the retail demand for timely delivery, we show that the sources of US apparel imports have shifted in the way predicted by the model, with products where timeliness matters increasingly imported from nearby countries.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

78. Net Foreign Assets and Imperfect Pass-through: The Consumption Real Exchange Rate Anomaly

Author:
Jorge D. Selaive and Vicente Tuesta
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We assess the importance of financial frictions in this issue by constructing an incomplete market model with stationary net foreign assets (NFA) and imperfect pass-through (IPT). In this paper, there is a cost of bond holdings that allows us to incorporate the dynamics of NFA into the risk-sharing condition. On theoretical grounds, our results suggest that the dynamics of NFA may account for the lack of risk-sharing across countries. In addition, the IPT mechanism, by closing the current account channel, does not help to explain this feature of the data. On empirical grounds, we test the risk-sharing condition derived in the paper, and we find that growth factors of consumption and real exchange rates behave in a manner that may be consistent with a significant role for the net foreign asset position.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States

79. An Empirical Analysis of Inflation in OECD Countries

Author:
Jaime Marquez and Jane Ihrig
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
One of the most remarkable macroeconomic developments of the past decade has been the widespread decline in inflation despite declines in unemployment rates. For the United States, these seemingly contradictory developments have been reconciled in terms of three factors: (1) an acceleration in productivity, (2) structural changes in labor markets that lowered the natural unemployment rate (NAIRU), and (3) improved credibility of monetary policy. Here we ask whether comparable factors were at work in foreign industrial countries. To address this question, we empirically characterize the relationship between inflation, the unemployment rate, and structural factors using an extended Phillips curve model with quarterly data through 1994. By undertaking counterfactual simulations from 1995 to 2001, we quantify the separate contributions of unemployment-rate movements, labor-market reforms (that affected the NAIRU), and productivity developments on inflation. In line with previous work on the United States, we find that productivity advancements were the main structural factor reducing inflation in the United States. For foreign countries, persistent labor-market slack was the main factor exerting downward pressure on inflation. This persistence stemmed, in part, from structural reforms that lowered the NAIRU while the unemployment rate was declining.
Topic:
International Relations, Development, Economics, and International Trade and Finance
Political Geography:
United States

80. Putting 'M' Back in Monetary Policy

Author:
Eric M. Leeper and Jennifer E. Roush
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Money demand and the stock of money have all but disappeared from monetary policy analyses. Remarkably, it is more common for empirical work on monetary policy to include commodity prices than to include money. This paper establishes and explores the empirical fact that whether money enters a model and how it enters matters for inferences about policy impacts. The way money is modeled significantly changes the size of output and inflation effects and the degree of inertia that inflation exhibits following a policy shock. We offer a simple and conventional economic interpretation of these empirical facts.
Topic:
Conflict Resolution, International Relations, Economics, and International Trade and Finance