Research - Capital Flows

Cross-Border Investment in Europe: From Macro to Financial Data

with J. Adams-Kane and J. Wilhelmus, Milken Institute report, December 2016.     International capital flows and cross-border financial integration remain omnipresent in the European political debate as countries struggle with low and divergent GDP growth, new European financial regulation and the anticipation of Brexit. In such a shifting environment, this report first identifies some of the more recent patterns in the landscape of European gross cross-border investment followed by a closer look at banking and portfolio investments.

2016 Global opportunity Index, Beyond FDI

Chinese version published in Financial Market Research, NAFMII, March 2017

with J. Adams-Kane and J. Wilhelmus, Milken Institute report, September 2016.     Based on the 2016 edition of the Milken Institute Global Opportunity Index, the report assesses the attractiveness of Asian countries to foreign investors and provides a closer look at the composition of Asia’s capital inflows. The region is strong when compared to the rest of the world, especially in terms of business perception, but would benefit from a harmonization in the financial infrastructure and from a deepening of its financial markets. There is significant potential for capital flows, FDI and portfolio flows, to play a greater role in financing investment, but this will depend on financial integration of the region’s peripheral markets.

Trade Finance: A Catalyst for Asian Growth

Working paper version        Chinese version published in Financial Market Research, NAFMII, Nov. 2015

with S. Lin and J. Wilhelmus, Milken Institute report, August 2015.     This report first assesses the state of trade finance market in Asia, then it identifies the latest trend. Finally it provides a synopsis of the necessary steps that will help sustain trade growth in emerging Asia and insure its impact on GDP growth.

Do Real Exchange Rate Appreciations Matter for Growth?

VOXeu Blog

with M. Bussiere et C. Tille , Economic Policy, 30 (81), 5-45, 2015.     While the impact of exchange rate changes on economic growth has long been an issue of key importance in international macroeconomics, it has received renewed attention in recent years, owing to weaker growth rates and the debate on “currency wars”. However, in spite of its prevalence in the policy debate, the connection between real exchange rates and growth remains an unsettled question in the academic literature. We fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies. We assess the impact of appreciations, productivity booms and capital inflows surges using a propensity-score matching approach to address causality issues. We show that appreciations associated with higher productivity have a larger impact on growth than appreciations associated with capital inflows. Furthermore, the appreciation per se tends to have a negative impact on growth. We provide a simple theoretical model that delivers the contrasted growth-appreciation pattern depending on the underlying shock. The model also implies adverse effects of shocks to international capital flows, so concerns about an appreciation are not inconsistent with concerns about a depreciation. The presence of an externality through firms’ destruction leads to inefficient allocations. Nonetheless, addressing them does not require a dampening of exchange rate movements.

Remittances, Inflation and Exchange Rate Regimes in Small Open Economies                     

with C. Ball, and J. Reyes, The World Economy, 36(4), 487-504, 2013.    Remittances are private monetary transfers. Yet the rapidly growing literature on the subject often ignores the role that exchange rate regimes play in determining the effect remittances have on a recipient economy. This paper uses a theoretical model and panel vector autoregression techniques to explore the role exchange rate regimes play in understanding the effect of remittances. The analysis considers yearly and quarterly data for seven Latin American countries. Our theoretical model predicts that remittances should temporarily increase inflation and generate an increase in the domestic money supply under a fixed regime, but temporarily decrease inflation and generate no change in the money supply under a flexible regime. These differences are borne out in the data. This adds to our understanding of the true effect of remittances on economies and suggests that other results in the literature that do not control for regimes may be biased.

Equilibrium Exchange Rate and Competitiveness within the Euro Area   

with C. Durand, Bulletin de la Banque de France, 28, 87-100, 2012.     Shifts in exchange rates may indicate macro-economic imbalances. However, estimating equilibrium exchange rates is problematical and several different approaches are described in the economic literature. The application of these methods to euro area countries as of 2000 shows that analysis of this indicator remains a highly useful exercise within a monetary union.