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Emerging markets (EMs) often respond to shocks by intervening in foreign exchange (FX) markets and thus preventing full exchange rate adjustment. This response can serve to dampen the effect of shocks and increase monetary policy space but may also incentivize economic participants to increase risk taking and take on more FX debt. This paper empirically analyzes the role of exchange rate flexibility in affecting such risk taking, by using rolling correlations and difference-in-difference estimations. The results suggest that a shift towards greater exchange rate flexibility often coincides with a decline in external FX debt. The findings also highlight the importance of using complementary policies to deal with financial stability issues related to the exchange rate, such as FX-specific macroprudential policies and policies aimed at promoting financial development.

Exports and Imports --- Foreign Exchange --- Monetary Policy --- Central Banks and Their Policies --- International Lending and Debt Problems --- Macroeconomic Aspects of International Trade and Finance: General --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Foreign exchange --- International economics --- Exchange rate flexibility --- Exchange rate arrangements --- External debt --- Exchange rates --- Debts, External --- Chile

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Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0–2.4 basis points at maturities of 2–3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5–1.8 basis points.

Banks and Banking --- Exports and Imports --- Investments: General --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Central Banks and Their Policies --- International Policy Coordination and Transmission --- Globalization: Macroeconomic Impacts --- International Financial Markets --- Monetary Policy --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Banking --- International economics --- Investment & securities --- Finance --- Capital flows --- Securities --- Reserves accumulation --- Yield curve --- International reserves --- Balance of payments --- Financial institutions --- Central banks --- Financial services --- Foreign exchange reserves --- Capital movements --- Financial instruments --- Interest rates --- United States

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We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe marketstress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads.

Bonds. --- Markets. --- Public markets --- Commerce --- Fairs --- Market towns --- Bond issues --- Debentures --- Negotiable instruments --- Securities --- Debts, Public --- Stocks --- Banks and Banking --- Finance: General --- Financial Risk Management --- Interest Rates: Determination, Term Structure, and Effects --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Finance --- Economic & financial crises & disasters --- Emerging and frontier financial markets --- Securities markets --- Financial crises --- International liquidity --- Yield curve --- Financial markets --- Asset and liability management --- Financial services --- Financial services industry --- Capital market --- International finance --- Interest rates --- United States

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This paper applies network analysis to assess the extent of systemic vulnerabilities in the ECCU banking system. It includes two sets of illustrative stress tests. First, solvency and liquidity shocks to each individual bank and the impact on other banks in the network through their biltareal net asset exposures. Second, country and region-wide tail shocks to GDP affecting capital and liquidity of all banks in the shocked jurisdictions, followed by the rippling effects through the regional network. The results identify systemic institutions that merit hightened attention by the regulator, as determined by the degree of connectivity with the rest of the system, and the extent to which they are vulnerable to the failure of other banks.

Banks and Banking --- Industries: Financial Services --- Money and Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Finance --- Financial services law & regulation --- Monetary economics --- Commercial banks --- Nonperforming loans --- Distressed institutions --- Market risk --- Financial institutions --- Credit --- Money --- Financial regulation and supervision --- Banks and banking --- Loans --- Financial services industry --- Financial risk management --- Dominica

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Is Digitalization Driving Domestic Inflation?.

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