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Using a panel vector autoregression and a novel measure of export-intensity-adjusted final demand, this note studies spillovers from China’s economic transition on export growth in 46 advanced and emerging market economies. The analysis suggests that a 1 percentage point shock to China’s final demand growth reduces the average country’s export growth by 0.1–0.2 percentage point. The impact is largest in Emerging Asia, where an export-growth-accounting exercise suggests that China’s economic transition has reduced average export growth rates by 1 percentage point since early 2014. Other countries linked to China’s manufacturing sector, as well as commodity exporters, are also significantly affected. This suggests that trading partners need to adjust to an environment of weaker external demand as China completes its transition to a more sustainable growth model.

Emerging and frontier financial markets --- Export performance --- Exports and Imports --- Exports --- Finance --- Finance: General --- Financial markets --- Financial services industry --- General Financial Markets: General (includes Measurement and Data) --- International economics --- International trade --- Trade: General --- China, People's Republic of

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April 2000 - Debt-equity ratios do not tend to increase after financial liberalization, but there is a shift from long-term to short-term debt. Globalization has uneven effects for firms with and without access to international capital markets. Countries with deeper domestic financial markets are less affected by financial liberalization. Schmukler and Vesperoni investigate whether integration with global markets affects the financing choices of firms from East Asia and Latin America. Using firm-level data for the 1980s and 1990s, they study how leverage ratios, the structure of debt maturity, and sources of financing change when economies are liberalized and when firms gain access to international equity and bond markets. The evidence shows that integration with world financial markets has uneven effects. On the one hand, debt maturity for the average firm shortens when countries undertake financial liberalization. On the other hand, domestic firms that actually participate in international markets get better financing opportunities and extend their debt maturity. Moreover, firms in economies with deeper domestic financial systems are affected less by financial liberalization. Finally, they show that leverage ratios increase during times of crisis. In an appendix, they analyze the previously unstudied case of Argentina, which experienced sharp financial liberalization and was hit hard by all recent global crises. This paper - a product of Macroeconomics and Growth, Development Reseach Group - is part of a larger effort in the group to understand financial development and financial integration. The authors may be contacted at sschmukler@worldbank.org or vesperon@wam.umd.edu.

Banks and Banking Reform --- Bond --- Bond Markets --- Debt --- Debt Markets --- Debt Maturity --- Debt-Equity --- Economic Development --- Emerging Economies --- Emerging Markets --- Equity --- Finance and Financial Sector Development --- Financial Liberalization --- Financial Markets --- Financial Structure --- Financial Systems --- Globalization --- International Bond --- International Financial Markets --- International Markets --- Maturity Structure --- Private Sector Development --- Share --- World Financial Markets

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Given the prospects of asynchronous monetary conditions in the United States and the euro area, this paper analyzes spillovers among these two economies, as well as the implications of asynchronicity for spillovers to other advanced economies and emerging markets. Through a structural vector autoregression analysis, country-specific shocks to economic activity and monetary conditions since the early 1990s are identified, and are used to draw implications about spillovers. The empirical findings suggest that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous. The results also point to significant spillovers among them, in particular since early 2014—with spillovers from the euro area to the United States being particularly large. Against the backdrop of asynchronous conditions in these two economies, spillovers from real and money shocks to emerging markets and non-systemic advanced economies could be dampened.

Capital movements --- Monetary policy --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Banks and Banking --- Foreign Exchange --- Investments: Bonds --- Macroeconomics --- Money and Monetary Policy --- Forecasting and Other Model Applications --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Financial Markets and the Macroeconomy --- Monetary Policy --- Studies of Particular Policy Episodes --- International Policy Coordination and Transmission --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Externalities --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Currency --- Investment & securities --- Monetary economics --- Finance --- Spillovers --- Exchange rates --- Bond yields --- Unconventional monetary policies --- Yield curve --- Financial sector policy and analysis --- Financial institutions --- Financial services --- Bonds --- Interest rates --- United States

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We document the behavior of macro and credit variables during episodes of capital inflows reversals in economies with different degrees of exchange rate flexibility. We find that exchange rate flexibility is associated with milder credit growth during the boom but, even though smaller than in more rigid regimes, it cannot shield the economy from a credit reversal. Furthermore, we observe what we dub as a recovery puzzle: credit growth in economies with more flexible exchange rate regimes remains tepid well after the capital flow reversal takes place. This results stress the complementarity of macro-prudential policies with the exchange rate regime. More flexible regimes could help smoothing the credit cycle through capital surchages and dynamic provisioning that build buffers to counteract the credit recovery puzzle. In contrast, more rigid exchange rate regimes would benefit the most from measures to contain excessive credit growth during booms, such as reserve requirements, loan-to-income ratios, and debt-to-income and debt-service-to-income limits.

Capital movements --- Foreign exchange rates --- Credit --- Borrowing --- Finance --- Money --- Loans --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- Business Fluctuations --- Cycles --- International Investment --- Long-term Capital Movements --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Currency --- International economics --- Monetary economics --- Exchange rate arrangements --- Capital inflows --- Exchange rate flexibility --- Bank credit

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The prospects of expansionary monetary policies in the advanced countries for the foreseeable future have renewed the debate over policy options to cope with large capital inflows that are, at least partly, driven by low interest rates in the financial centers. Historically, capital flow bonanzas have often fueled sharp credit expansions in advanced and emerging market economies alike. Focusing primarily on emerging markets, we analyze the impact of exchange rate flexibility on credit markets during periods of large capital inflows. We show that bank credit grows more rapidly and its composition tilts to foreign currency in economies with less flexible exchange rate regimes, and that these results are not explained entirely by the fact that the latter attract more capital inflows than economies with more flexible regimes. Our findings thus suggest countries with less flexible exchange rate regimes may stand to benefit the most from regulatory policies that reduce banks' incentives to tap external markets and to lend/borrow in foreign currency; these policies include marginal reserve requirements on foreign lending, currency-dependent liquidity requirements, and higher capital requirement and/or dynamic provisioning on foreign exchange loans.

Capital movements --- Foreign exchange rates --- Monetary policy --- Exports and Imports --- Foreign Exchange --- Money and Monetary Policy --- Financial Markets and the Macroeconomy --- Monetary Policy --- International Monetary Arrangements and Institutions --- International Lending and Debt Problems --- International Investment --- Long-term Capital Movements --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- International economics --- Monetary economics --- Capital inflows --- Exchange rate arrangements --- Exchange rate flexibility --- Domestic credit --- Currencies --- Balance of payments --- Money --- Credit --- United States