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Johannes Gräb

27 November 2013
WORKING PAPER SERIES - No. 1618
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Abstract
Existing evidence suggests that protectionist activity since the financial crisis has been muted, raising the question whether the historically well-documented relationship between growth, real exchange rates and trade protectionism has broken down. This paper re-visits this relationship for the time period since 2009. To this end, we use a novel and comprehensive dataset which considers a wide range of trade policies stretching beyond the traditionally considered tariff and trade defence measures. We find that the specter of protectionism has not been banished: Countries continue to pursue more trade-restrictive policies when they experience recessions and/or when their competitiveness deteriorates through an appreciation of the real exchange rate; and this finding holds for a wide array of contemporary trade policies, including
JEL Code
F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
7 August 2015
WORKING PAPER SERIES - No. 1839
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Abstract
During the sovereign debt crisis investors rebalanced out of stressed and into non-stressed euro area countries, thereby contributing to the tensions in euro area financial markets. This paper examines the geographical pattern of this great rebalancing. Specifically, we test whether euro area and non-euro area investors adjusted their holdings of debt securities of euro area stressed and non-stressed countries dis-proportionately relative to benchmarks derived from a standard gravity model for portfolio choice. We find that non-euro area investors under-invested in stressed euro area countries, but did not over-invest in non-stressed euro area countries. As regards intra-euro area flows, we do not find evidence for a disproportionate slowdown of capital flows from non-stressed into stressed euro area countries. Instead, our results suggest that investors in stressed euro area countries disproportionately shifted capital into debt securities of non-stressed euro area countries. Finally, we find that both non-euro area investors' under-investment in stressed countries and stressed euro area investors' over-investment in non-stressed euro area countries ceased after the announcement of the ECB's OMT programme.
JEL Code
F34 : International Economics→International Finance→International Lending and Debt Problems
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G15 : Financial Economics→General Financial Markets→International Financial Markets
13 November 2017
WORKING PAPER SERIES - No. 2109
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Abstract
We use a confidential euro area bank-level data set of close to 250 banks to assess outward and inward spillovers of unconventional monetary policies on bank lending. We find that euro area banks increase lending to the rest of the world in response to non-standard ECB monetary policy accommodation. We also find strong evidence that euro area banks increase lending to the domestic non-financial private sector in response to accommodative unconventional monetary policy measures in the US. Inward and outward spillovers are substantially stronger for euro area banks which are liquidity constrained and which rely more on internal capital markets. This suggests that bank-specific supply effects, stemming from banks’ increased ability to lend following a central bank balance sheet expansion, are a major driver of monetary policy spillovers, providing strong support to the existence of an international bank lending channel that prevails at the effective lower bound.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G01 : Financial Economics→General→Financial Crises
26 February 2018
WORKING PAPER SERIES - No. 2131
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Abstract
We assess the ability of yield curve factors to predict risk premia in short-term interest rates and exchange rates across a large sample of major advanced economies. We find that the same tick-shaped linear combination of (relative) bond yields predicts risk premia in both short-term interest rates and exchange rates at returnforecasting horizons of up to six months for all (but one) countries and currencies in our sample. Our single forecasting factor loads positively on the short and long end of the curve and negatively on the medium-term and is therefore inversely related to Nelson-Siegel’s curvature factor. In line with recent interpretations of the yield curve factors, our findings suggest that the hump of the yield curve bears important information about future short-term interest rates. A relatively high curvature predicts a surprise rise in short-term interest rates beyond expectations and, coincidentally, an appreciation of the home currency in line with uncovered interest rate parity.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
2 May 2018
WORKING PAPER SERIES - No. 2149
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Abstract
Traditional carry trade strategies are based on differences in short-term interest rates, neglecting any other information embedded in yield curves. We derive return distributions of carry trade portfolios among G10 currencies, where the signals to buy and sell currencies are based on summary measures of the yield curve, the Nelson-Siegel factors. We find that a strategy based on the relative curvature factor, the curvy trade, yields higher Sharpe ratios and a smaller return skewness than traditional carry trade strategies. Curvy trades build less upon the typical carry currencies, like the Japanese yen and the Swiss franc, and are hence less susceptible to crash risk. In line with that, standard pricing factors of traditional carry trade returns, such as exchange rate volatility, fail to explain curvy trade returns in a linear asset pricing framework. Our findings are in line with recent interpretations of the curvature factor. A relatively high curvature signals a relatively higher path of future short-term rates over the medium-term putting upward pressure on the currency.
JEL Code
C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
14 November 2018
WORKING PAPER SERIES - No. 2197
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Abstract
We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-à-vis the US dollar by a 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
JEL Code
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 : International Economics→International Finance
Network
Research Task Force (RTF)
29 November 2018
FINANCIAL STABILITY REVIEW - BOX
Financial Stability Review Issue 2, 2018
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Abstract
This box describes a simple structural Bayesian vector autoregression (BVAR) model that uses sign restrictions to determine the relative importance of distinct economic and financial shocks in shaping the co-movement of key global financial variables. The model provides intuitive and economically plausible interpretations of gyrations in key US and global asset markets over the past six months. The model ascribes them to a multitude of factors, including strong nominal US demand, heightened investor risk aversion as well as the prospect of higher US inflation and tighter monetary conditions.
6 August 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 5, 2019
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Abstract
This article discusses the hypothesis that part of the decline in exchange rate pass-through to import prices has been the result of the rise of global value chains.
JEL Code
F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F14 : International Economics→Trade→Empirical Studies of Trade
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
6 November 2019
WORKING PAPER SERIES - No. 2327
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Abstract
This paper draws a causal link between the rise of global value chain participation and the decline of exchange rate pass-through to import prices over the last decades. We first present a structural two-country model in order to illustrate how participation in global value chains can impact exchange rate pass-through to import prices. In the model, the sensitivity of an economy's domestic-currency production costs to exchange rate changes rises as it participates more in global value chains by importing a larger share of its intermediate inputs. The increased sensitivity of the economy's domestic-currency production costs to exchange rate changes translates into a higher sensitivity of its domestic-currency export prices. The latter implies a reduction of the sensitivity of the economy's foreign-currency export prices – i.e. its trading partner's local-currency import prices – to exchange rate changes. Hence, an increase in the economy's global value chain participation implies a fall in its trading partner's exchange rate pass-through to import prices. We then provide empirical evidence in a cross-country panel dataset for the time period from 1995 to 2014 that is consistent with the mechanisms spelled out in the structural model. In particular, the data suggest that exchange rate pass-though to export prices is higher in economies which participate more in global value chains, and that exchange rate pass-though to import prices is lower in economies whose trading partners participate more in global value chains. Quantitatively, our estimates imply that the rise in global value chain participation can account for about 50% of the decline in exchange rate pass-through to import prices since the mid-1990s.
JEL Code
F32 : International Economics→International Finance→Current Account Adjustment, Short-Term Capital Movements
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
F62 : International Economics→Economic Impacts of Globalization→Macroeconomic Impacts
6 February 2020
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2020
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Abstract
The inversion of the US yield curve during the summer of 2019 increased speculation about the possibility of a US recession. However, standard yield curve-based recession probability models ignore factors such as the impact of quantitative easing measures that can distort the signals derived from the current yield curve. This box presents alternative models to deal with these possible distortions. In particular, measures of the term spread that account for asset purchases in the United States, spillovers from euro area purchases to US yields and the effect of foreign official reserve holdings on long-term US yields are constructed. US recession probability models that account for asset purchases predict significantly lower recession probabilities than those implied by standard yield curve models, pointing to a somewhat more benign outlook for the US economy.
JEL Code
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
20 October 2020
RESEARCH BULLETIN - No. 76
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Abstract
What does quantitative easing (QE) really mean for the exchange rate? This article explains how the relevant effects can be estimated using a statistical methodology derived from theory. The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance, reflecting the “signalling channel” of monetary policy, also affect how the USD/EUR exchange rate responds to QE.
JEL Code
F41 : International Economics→Macroeconomic Aspects of International Trade and Finance→Open Economy Macroeconomics
1 February 2021
ECONOMIC BULLETIN - BOX
Economic Bulletin Issue 1, 2021
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Abstract
Using a database on vaccine probability events dating back to April 2020, this box assesses the impact of a broad range of COVID-19 vaccine-related news on global financial markets. It finds that positive vaccine news leads to a rotation back towards assets hardest hit by the pandemic, disproportionately benefits lagging economies and has a positive net effect on financial conditions.
JEL Code
F30 : International Economics→International Finance→General
G15 : Financial Economics→General Financial Markets→International Financial Markets