International financial markets
-
9 June 2016 Large Canadian Public Pension Funds: A Financial System Perspective
The authors review the eight largest public pension funds in Canada. These funds are an important source of retirement income for Canadians. They are also significant investors, with net assets under management of over $1 trillion. The authors outline the investment strategies of the funds and how they interact with financial institutions and participate in financial markets. They also discuss the ways in which the funds’ risk-management frameworks could contribute to financial system stability and how they minimize potential vulnerabilities. -
The Dynamics of Capital Flow Episodes
This paper proposes a novel methodology for identifying episodes of strong capital flows based on a regime-switching model. In comparison with the existing literature, a key advantage of our methodology is to estimate capital flow regimes without the need for context- and sample-specific assumptions. -
Limits to Arbitrage and Deviations from Covered Interest Rate Parity
We document an increase in deviations from short-term covered interest rate parity (CIP) in the first half of 2015. Since the Swiss National Bank’s (SNB) decision to abandon its minimum exchange rate policy, both the magnitude and volatility of deviations from CIP have increased across several currency pairs. The effect is particularly pronounced for pairs involving the Swiss franc. -
Tractable Term-Structure Models and the Zero Lower Bound
We greatly expand the space of tractable term-structure models. We consider one example that combines positive yields with rich volatility and correlation dynamics. Bond prices are expressed in closed form and estimation is straightforward. -
Foreign Flows and Their Effects on Government of Canada Yields
Foreign investment flows into Government of Canada (GoC) bonds have surged since the financial crisis. Our empirical analysis suggests that foreign flows of $150 billion lowered the 10-year GoC bond yield by 100 basis points between 2009 and 2012. -
Domestic and Multilateral Effects of Capital Controls in Emerging Markets
Using a novel data set on capital control actions in 17 emerging-market economies (EMEs) over the period 2001–11, we provide new evidence on domestic and multilateral (or spillover) effects of capital controls. -
A Wake-Up-Call Theory of Contagion
We propose a novel theory of financial contagion. We study global coordination games of regime change in two regions with an initially uncertain correlation of regional fundamentals. -
Euro Area Government Bonds—Integration and Fragmentation During the Sovereign Debt Crisis
The paper analyzes the integration of euro area sovereign bond markets during the European sovereign debt crisis. It tests for contagion (i.e., an intensification in the transmission of shocks across countries), fragmentation (a reduction in spillovers) and flight-to-quality patterns, exploiting the heteroskedasticity of intraday changes in bond yields for identification. -
What Drives Bank-Intermediated Trade Finance? Evidence from Cross-Country Analysis
Empirical work on the underlying causes of the recent dislocations in bank-intermediated trade finance has been limited by the poor availability of hard data. This paper analyzes the key determinants of bank-intermediated trade finance using a novel data set covering ten banking jurisdictions. -
Does Financial Integration Increase Welfare? Evidence from International Household-Level Data
Despite a vast empirical literature that assesses the impact of financial integration on the economy, evidence of substantial welfare gains from consumption risk sharing remains elusive. While maintaining the usual cross-country perspective of the literature, this paper explicitly accounts for household heterogeneity and thus relaxes three restrictive assumptions that have featured prominently in the past.