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1. Payment vs. Funding: The Law of Reflux for Today

Author:
Perry Mehrling
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The analytical tension in post-Keynesian thought between the theory of endogenous (credit) money and the theory of liquidity preference, brought to our attention by Dow and Dow (1989), can be viewed through the lens of the money view (Mehrling 2013) as a particular case of the balance between the elasticity of payment and the discipline of funding. Further, updating Fullarton’s 1844 “law of reflux” for the modern condition of financial globalization and market- based credit, the same money view lens offers a critical entry point into Tobin’s fateful 1963 intervention “Commercial Banks as Creators of ‘Money’” which established post-war orthodoxy, and also to the challenge offered by so-called Modern Money Theory.
Topic:
Economics, Globalization, Monetary Policy, Economic Theory, Macroeconomics, Keynes, and Credit
Political Geography:
United States

2. Making Enhanced CACs the Rule: A Proposed Amendment of the Foreign Sovereign Immunities Act

Author:
Gregory Makoff
Publication Date:
09-2018
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
The recent rise in sovereign debt litigation in the US Federal Court System is an unintended consequence of the US Foreign Sovereign Immunities Act of 1976 related to an unanticipated shift of the international sovereign debt market from a narrow loan market to a global bond market. Collective action clauses (CACs) — developed in 2003 and “enhanced” in 2014 — are, in theory, an effective contract-based tool to facilitate orderly debt restructurings and control the holdout creditor problem. However, compliance by countries is voluntary and may not be sustained. To assure sustained compliance and to reduce the future incidence of holdout creditor litigation, the US Foreign Sovereign Immunities Act should be amended to provide that only bonds with enhanced CACs will be subject to suit and enforcement in the US courts.
Topic:
Debt, Legal Theory, Credit, and Global Bond Market
Political Geography:
United States and North America

3. Do Fundamentals Explain the International Impact of U.S. Interest Rates? Evidence at the Firm Level

Author:
John Ammer, Clara Vega, and Jon Wongswan
Publication Date:
10-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper analyzes the impact of U.S. monetary policy announcement surprises on U.S. and foreign firm-level equity prices. We find that U.S. monetary policy has important influences on foreign equity prices on average, but with considerable variation across firms. We have found that this differing response reflects a range of factors, including the extent of a foreign firm's exposure to U.S. demand, its dependence on external financing, the behavior of interest rates in its home country, and its sensitivity to portfolio adjustment by U.S. investors. The cross-firm variation in the response is correlated with the firm’s CAPM beta; but it cannot fully explain this variation. More generally, we see these results as shedding some additional light on the nature and extent of the monetary and financial linkages between the United States and the rest of the world. In particular, since we are able to explain differences across foreign firms’ responses through established theories of monetary transmission, our results are consistent with the surprisingly large average foreign response to U.S. rates reflecting fundamentals, rather than an across-the-board behavioral over-reaction.
Topic:
Monetary Policy, Investment, Interest Rates, and Credit
Political Geography:
United States and North America