Monetary Policy, Capital Flows and Globalization
Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Linda Goldberg, Federal Reserve Bank of New York
How Does the Interaction of Macroprudential and Monetary Policies Affect Cross-Border Bank Lending
AbstractWe study the interaction between monetary policy and macroprudential policy in international bank lending. We combine the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with macroprudential databases from the IBRN and the IMF. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant positive policy interaction. This implies that tighter macroprudential policy mitigates the lending impact of monetary policy – whereas easier macroprudential policy amplifies it. The results are also economically significant and therefore policy relevant.
Impact of Foreign Official Purchases of U.S. Treasuries on the Yield Curve
AbstractForeign governments went from owning a tenth of publicly available US Treasury notes and bonds in 1985 to over half in 2008. Recently, foreign governments have reduced their Treasury positions. I find foreign official purchases have depressed medium-term yields, despite conventional wisdom pointing towards the long end of the yield curve. To examine effects over the entire yield curve, I embed a structural vector autoregression of macroeconomic variables into an affine term structure model. With segments of the yield curve increasingly determined by international financial markets, it may be more difficult for the Federal Reserve to implement its interest rate policy.
U.S. Housing as Global Safe Haven Asset: Evidence from China Shocks
AbstractThis paper examines the causal impact of international capital flows from China on one of the least accurately measured and understood global safe haven assets: U.S. residential real estate. We demonstrate using aggregate capital flows data that the recent rise in unrecorded inflows in the U.S. balance of payments is likely attributable to inflows being used to purchase U.S. residential properties, mainly to inflows originating from China. We then exploit a novel, direct measure of Chinese demand for U.S. residential properties at the local level by using a web traffic dataset from a real estate listing website that specializes in marketing foreign residential properties to users based in Mainland China. With a difference-in-difference matching framework, we find that house prices in China-exposed areas of major U.S. cities have on average grown seven percentage points faster than in similar neighborhoods with low exposure to Chinese buyers over the period 2010-2016, when the U.S. experienced two episodes of surges in safe haven flows from China. We then show that the time variation in the average excess price growth in China exposed-areas comoves closely with macro-level measures of U.S. capital inflows from China. Following periods of economic stress in China, inflows from China to the U.S. jump and the price growth gap widens, suggesting that Chinese households view U.S. housing as a safe haven asset.
- F2 - International Factor Movements and International Business
- E1 - General Aggregative Models