No abstract

This paper examines the impact of macroeconomic and financial sector policy announcements in the United States, the United Kingdom, the euro area, and Japan during the recent crisis on interbank credit and liquidity risk premia. Announcements of interest rate cuts, liquidity support, liability guarantees, and recapitalization were associated with a reduction of interbank risk premia, albeit to a different degree during the subprime and global phases of the crisis. Decisions not to reduce interest rates and bail out individual banks in an ad hoc manner had adverse repercussions, both domestically and abroad. The results are robust to controlling for the surprise content of announcements and using alternative measures of financial distress.

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper examines how emerging bond markets react to macroeconomic announcements. Global bond spreads respond to rating actions and changes in global interest rates rather than domestic data and policy announcements. All announcements affect market volatility. Data and policy announcements reduce uncertainty and stabilize the trading environment, while rating actions cause greater volatility. Results are broadly robust to country-specific and panel analyses, assuming conditional variance and controlling for the surprise content of news. In subsamples, announcements are found to matter less for countries with more transparent policies and higher credit ratings. In a crisis, rating actions become less important, and investors focus more on simple and timely indicators, like CPI.

Globalization can be characterized as the rapid increase in international trade spurred by advances in technology that have decreased the cost of trade. As costs have declined, so too, it would seem, should the estimated distance coefficient in the gravity model of bilateral trade. But a standard empirical result is that these estimated coefficients have been broadly stable, a result that might be called the “missing globalization puzzle.” In contrast to results from the literature, we find evidence of globalization reflected in the estimated coefficients on distance in both cross-section and panel data. Our estimation procedures fully incorporate the information contained in observations where bilateral trade is zero and hence do not suffer from the potential estimation bias when observations where bilateral trade is zero are arbitrarily excluded from the sample. IMF Staff Papers (2007) 54, 34–58. doi:10.1057/palgrave.imfsp.9450003

This paper considers the effect of exchange and capital controls on trade in the gravityequation framework, in which bilateralI n 1944, the Bretton Woods conference recognized the fundamental link between exchange and capital controls 1 and international trade. One of the purposes of the International Monetary Fund, which was created at the conference, was to assist in "the elimination of foreign exchange restrictions which hamper the growth of world trade." 2 However, the maintenance of capital controls was not viewed as inconsistent with this objective, partly because capital controls were considered necessary for supporting the system of fixed exchange rates and thus fostering trade. More than 50 years