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The USD asset share of non-U.S. banks captures the demand for dollars by these investors. An instrumental variable strategy identifies a causal link from the USD asset share to the USD exchange rate. Cross-sectional asset pricing tests show that the USD asset share is a highly significant pricing factor for carry trade strategies. The USD asset share forecasts the dollar with economically large magnitude, high statistical significance, and large explanatory power, both in sample and out of sample, pointing towards time varying risk premia. It takes 2-5 years for exchange rate risk premia to normalize in response to demand shocks.

Banks and Banking --- Econometrics --- Foreign Exchange --- Money and Monetary Policy --- Accounting --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Estimation --- Public Administration --- Public Sector Accounting and Audits --- Currency --- Foreign exchange --- Monetary economics --- Banking --- Econometrics & economic statistics --- Financial reporting, financial statements --- Exchange rates --- Currencies --- Exchange rate adjustments --- Estimation techniques --- Money --- Econometric analysis --- Financial statements --- Public financial management (PFM) --- Banks and banking --- Econometric models --- Finance, Public --- United States

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This paper studies the effect of transport infrastructure on the real exchange rate (RER) and reaches two relatively strong conclusions. First, while the list of robust determinants of the RER is not long, transport infrastructure belongs to that list. Many other potential determinants proposed in the literature, such as net foreign asset position or terms of trade, turn out to be not robust. Second, in terms of economic significance, the infrastructure effect follows closely the well-known Balassa-Samuelson effect and is one of the most important explanatory variables for RER movements, especially in developing countries.

Zonder onderwerpscode: economie

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Sector-specific macroprudential regulations increase the riskiness of credit to other sectors. Using firm-level data, this paper computed the measures of the riskiness of corporate credit allocation for 29 advanced and emerging economies. Consistently across these measures, the paper finds that during credit expansions, an unexpected tightening of household-specific macroprudential tools is followed by a rise in riskier corporate lending. Quantitatively, such unexpected tightening during a period of rapid credit growth increases the riskiness of corporate credit by around 10 percent of the historical standard deviation. This result supports early policy interventions when credit vulnerabilities are still low, since sectoral leakages will be less important at this stage. Further evidence from bank lending standards surveys suggests that the leakage effects are stronger for larger firms compared to SMEs, consistent with recent evidence on the use of personal real estate as loan collateral by small firms.

Denmark --- Macroeconomics. --- Financial institutions --- Corporate debt. --- Government policy. --- Denmark. --- Economics: General. --- Money and Monetary Policy. --- Corporate Finance. --- Foreign Exchange. --- Informal Economy. --- Underground Econom. --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General. --- Financial Markets and the Macroeconomy. --- Corporate Finance and Governance: General. --- Economic & financial crises & disasters. --- Economics of specific sectors. --- Monetary economics. --- Ownership & organization of enterprises. --- Credit. --- Money. --- Macroprudential policy. --- Financial sector policy and analysis. --- Bank credit. --- Macroprudential policy instruments. --- Corporate sector. --- Economic sectors. --- Currency crises. --- Informal sector. --- Economics. --- Economic policy. --- Business enterprises. --- Bank credit --- Business enterprises --- Corporate Finance and Governance: General --- Corporate Finance --- Corporate sector --- Credit --- Currency crises --- Economic & financial crises & disasters --- Economic policy --- Economic sectors --- Economics of specific sectors --- Economics --- Economics: General --- Financial Markets and the Macroeconomy --- Financial sector policy and analysis --- Foreign Exchange --- Informal Economy --- Informal sector --- Macroeconomics --- Macroprudential policy instruments --- Macroprudential policy --- Monetary economics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Money and Monetary Policy --- Money --- Ownership & organization of enterprises --- Underground Econom

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We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.

Financial risk. --- Business risk (Finance) --- Money risk (Finance) --- Risk --- Financial Risk Management --- Macroeconomics --- Money and Monetary Policy --- Financial Markets and the Macroeconomy --- Money and Interest Rates: Forecasting and Simulation --- Financial Crises --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial Institutions and Services: Government Policy and Regulation --- 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 --- Business Fluctuations --- Cycles --- Monetary economics --- Economic & financial crises & disasters --- Credit --- Financial conditions index --- Credit booms --- Bank credit --- Financial crises --- Money --- Financial sector policy and analysis --- Business cycles --- United States

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Leading up to the global financial crisis, US dollar activity by global banks headquartered outside the United States played a crucial role in transmitting shocks originating in funding markets. Although post-crisis regulation has improved banking systems’ resilience, US dollar funding remains a global vulnerability, as evidenced by strains that reemerged in March 2020 in the midst of the COVID-19 crisis. We show that shocks to US dollar funding costs lead to financial stress in the home economies of these global non-US banks, and to spillovers to borrowers, especially emerging economies. US dollar funding vulnerability amplifies these negative effects, while some policy-related factors act as mitigators, such as swap line arrangements between central banks and international reserve holdings. Thus, these vulnerabilities should be monitored and, to the extent possible, controlled.

United States --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Foreign Exchange --- Financial Crises --- International Financial Markets --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Financial Institutions and Services: Government Policy and Regulation --- Portfolio Choice --- Investment Decisions --- Monetary Policy --- Banking --- Monetary economics --- Financial services law & regulation --- Finance --- Commercial banks --- Currencies --- Liquidity requirements --- Liquidity indicators --- Financial institutions --- Money --- Liquidity management --- Asset and liability management --- Financial regulation and supervision --- International reserves --- Central banks --- Banks and banking --- State supervision --- Liquidity --- Economics --- Foreign exchange reserves