F3 - International Finance

• 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

• The Share of Systematic Variations in the Canadian Dollar—Part III

  Staff Analytical Note 2018-13 Guillaume Nolin, James Kyeong, Jean-Sébastien Fontaine

  We draw a parallel between the dramatic increases of systematic variations in exchange rates and international bank lending. We find that when a country’s currency has a larger share of systematic variations, lending flows by international banks to that country become more sensitive to global lending - they also become more systematic. This parallel is particularly prevalent for large commodity exporters, including Canada. Global financial intermediation may open a new channel between the real economy and exchange rates.

  Content Type(s): Staff research, Staff analytical notes Topic(s): Exchange rates JEL Code(s): F, F3, F31