G15 - International Financial Markets

• The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility

  Staff Analytical Note 2018-39 Adam Albogatchiev, Jean-Sébastien Fontaine, Jabir Sandhu, Reginald Xie

  We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Exchange rates, Financial markets, Monetary Policy JEL Code(s): E, E4, E44, F, F3, F31, G, G1, G10, G12, G14, G15

• Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability?

  Staff Working Paper 2018-55 Toni Ahnert, Kristin Forbes, Christian Friedrich, Dennis Reinhardt

  Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Exchange rates, Financial Institutions, Financial system regulation and policies, International financial markets JEL Code(s): F, F3, F32, F34, G, G1, G15, G2, G21, G28

• Assessing Vulnerabilities in Emerging-Market Economies

  Staff Discussion Paper 2018-13 Tatjana Dahlhaus, Alexander Lam

  This paper introduces a new tool to monitor economic and financial vulnerabilities in emerging-market economies. We obtain vulnerability indexes for several early warning indicators covering 26 emerging markets from 1990 to 2017 and use them to monitor the evolution of vulnerabilities before, during and after an economic or financial crisis.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): International topics, Monetary and financial indicators, Recent economic and financial developments JEL Code(s): C, C8, C82, F, F3, F34, G, G0, G01, G1, G15

• The Size and Destination of China’s Portfolio Outflows

  Staff Discussion Paper 2018-11 Rose Cunningham, Eden Hatzvi, Kun Mo

  The size of China’s financial system raises the possibility that the liberalization of its capital account could have a large effect on the global financial system. This paper provides a counterfactual scenario analysis that estimates what the size and direction of China’s overseas portfolio investments would have been in 2015 if China had had no restrictions on these outflows.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Balance of payments and components, Econometric and statistical methods, International topics JEL Code(s): C, C2, C23, F, F2, F21, F3, F32, G, G1, G15

• The BoC-BoE Sovereign Default Database Revisited: What’s New in 2018?

  Staff Working Paper 2018-30 David Beers, Jamshid Mavalwalla

  Until recently, there have been few efforts to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada’s Credit Rating Assessment Group (CRAG) has developed a comprehensive database of sovereign defaults posted on the Bank of Canada’s website that now is updated in partnership with the Bank of England.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Debt Management, Development economics, Financial stability, International financial markets JEL Code(s): F, F3, F34, G, G1, G10, G14, G15

• Uncovered Return Parity: Equity Returns and Currency Returns

  Staff Working Paper 2018-22 Edouard Djeutem, Geoffrey R. Dunbar

  We propose an uncovered expected returns parity (URP) condition for the bilateral spot exchange rate. URP implies that unilateral exchange rate equations are misspecified and that equity returns also affect exchange rates. Fama regressions provide evidence that URP is statistically preferred to uncovered interest rate parity (UIP) for nominal bilateral exchange rates between the US dollar and six countries (Australia, Canada, Japan, Norway, Switzerland and the UK) at the monthly frequency.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Exchange rates, International financial markets JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G15

• A Barometer of Canadian Financial System Vulnerabilities

  Staff Analytical Note 2017-24 Thibaut Duprey, Tom Roberts

  This note presents a composite indicator of Canadian financial system vulnerabilities—the Vulnerabilities Barometer. It aims to complement the Bank of Canada’s vulnerabilities assessment by adding a quantitative and synthesized perspective to the more granular (distributional) analysis presented in the Financial System Review.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Econometric and statistical methods, Financial stability, Monetary and financial indicators JEL Code(s): C, C1, C14, C4, C40, D, D1, D14, E, E3, E32, E6, E66, F, F0, F01, G, G0, G01, G1, G15, G2, G21, H, H6, H63

• Optimal Estimation of Multi-Country Gaussian Dynamic Term Structure Models Using Linear Regressions

  Staff Working Paper 2017-33 Antonio Diez de los Rios

  This paper proposes a novel asymptotic least-squares estimator of multi-country Gaussian dynamic term structure models that is easy to compute and asymptotically efficient, even when the number of countries is relatively large—a situation in which other recently proposed approaches lose their tractability.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing, Econometric and statistical methods, Exchange rates, Interest rates JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15

• How to Predict Financial Stress? An Assessment of Markov Switching Models

  Staff Working Paper 2017-32 Benjamin Klaus, Thibaut Duprey

  This paper predicts phases of the financial cycle by using a continuous financial stress measure in a Markov switching framework. The debt service ratio and property market variables signal a transition to a high financial stress regime, while economic sentiment indicators provide signals for a transition to a tranquil state.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Financial markets, Financial stability, Financial system regulation and policies, Monetary and financial indicators JEL Code(s): C, C5, C54, G, G0, G01, G1, G15

• Detecting Scapegoat Effects in the Relationship Between Exchange Rates and Macroeconomic Fundamentals

  Staff Working Paper 2017-22 Lorenzo Pozzi, Barbara Sadaba

  This paper presents a new testing method for the scapegoat model of exchange rates that aims to tighten the link between the theory on scapegoats and its empirical implementation. This new testing method consists of a number of steps.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Econometric and statistical methods, Exchange rates, International financial markets JEL Code(s): C, C3, C32, F, F3, F31, G, G1, G15