How does U.S.Monetary Policy Affect Extreme Cross Border Credit Flows?——Revisited Based on the Asymmetry of Exchange Rate Regimes
This paper is the first to examine the asymmetric role of the exchange rate regime on extreme cross-bor-der credit flows at different stages of U.S.monetary policy.A theoretical model combining nominal wage rigidity and collateral constraints shows that there is a world interest rate threshold below which the exchange rate regime does not affect cross-border credit inflows;countries with floating exchange rate regimes are more prone to extreme capital flows when world interest rates are above this threshold.An empirical analysis based on 146 quarters of cross-border bank credit data for 39 emerging economies finds that the probability of a sudden drop in capital inflows is significantly higher in countries with floating exchange rate regimes during periods of dollar interest rate hikes;the exchange rate re-gime has no significant effect on the probability of the occurrence of extreme cross-border capital flows during periods of dollar interest rate cuts.Heterogeneity analysis shows that the asymmetric adjustment effect of a floating exchange rate regime is further amplified in countries with higher debt burdens,higher capital account openness and lower for-eign exchange reserves.Therefore,when a country chooses a floating exchange rate regime,a higher level of foreign exchange reserves and a certain degree of capital control policies can effectively reduce the risk of extreme cross-border capital flows.
extreme cross-border capital flowsexchange rate systemfloating exchange rate systemUS dollar
NETL
NSTL
万方数据
