Archive
Automatic for the (tax) people: information sharing and cross-border investment in tax havens
Abstract: This paper examines the impact of international automatic exchange of information (AEOI) treaties on cross-border investments in tax havens. Using a restricted version of the BIS Locational Banking Statistics we find that AEOIs significantly reduced cross-border deposits. A sectoral breakdown assessment reveals that households were the key driving force behind this contraction. Analysing other forms of cross-border investment, we observe that tax havens’ portfolio and direct investment assets in non-haven countries fell significantly after AEOI introduction, indicating a reduction of round-tripping investments. However, we also document evidence of households’ deposits shifting to non-AEOI haven countries. Moreover, we observe larger FDI positions and deposits by non-bank financial institutions between tax haven countries, suggesting an increased use of shell corporation networks since AEOI introduction.
The shock absorbing role of cross-border investments: net positions versus currency composition
Joint work with Beren Demirölmez and Martin Schmitz
Abstract: We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix, Gautam, Juvenal, and Schmitz (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs’ external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks.
Corporate Taxation and International Financial Integration: U.S. evidence from a consolidated perspective
Joint work with André Sanchez Pacheco
Abstract: We document a robust relation between corporate tax differentials and U.S. international financial integration (IFI). While this is the case for traditional IFI based on cross-border positions, the positive link also emerges for its larger consolidated-by-nationality version. The gap between these IFI measures, the key outcome variable in our analysis, exhibits a strong positive correlation with tax differentials too. This is in part due to consolidated assets of multinational enterprises being more strongly correlated with tax differentials than their cross-border counterpart. We interpret this as indirect evidence of U.S. multinationals taking advantage of tax differentials in ways that go beyond what is captured by traditional Balance of Payments procedures.
Uncertainty Shocks and the Cross-Border Funding of Banks: Unmasking Heterogeneity
Joint work with Michael Curran
Abstract: This paper looks at the relation between uncertainty shocks and cross-border funding of banks through the lens of a new dataset. Our key innovation is to study the impact of uncertainty measures based on volatility, newspapers, and professional forecast surveys. We provide a comprehensive assessment of how cross-border liabilities in different banking systems respond to the uncertainty type, funding sector, country, and period. We show that the contraction of bank funding can be large and quite different along these dimensions. Volatility-based uncertainty and non-bank funding display the strongest results, with news-based uncertainty mattering most outside the Global Financial Crisis
Downloads: TEP0920, short version (May 2021), data, appendix
Cross-Border Currency Exposures. New evidence based on an enhanced and updated dataset
Joint work with Deepali Gautam, Luciana Juvenal and Martin Schmitz.
Abstract: This paper provides a dataset on the currency composition of the international investment position for a group of 50 countries for the period 1990-2017. It improves available data based on estimates by incorporating actual data reported by statistical authorities and refining estimation methods. The paper illustrates current and new uses of these data, with particular focus on the evolution of currency exposures of cross-border positions.
- Download options: Trinity College Dublin, ECB, IMF
- Data file
Financial deglobalisation in banking?
This is joint work with Robert McCauley, Patrick McGuire and Goetz von Peter and published in the Journal of International Money and Finance: 94(C): 116-131, 2019.
Abstract: This paper argues that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending (“financial deglobalisation”). We show that BIS international banking data organised by the nationality of ownership (“consolidated view”) provide a clearer picture of international financial integration than the traditional balance-of-payments measure. On the consolidated view, what appears to be a global shrinkage of international banking is confined to European banks, which uniquely responded to credit losses after 2007 by shedding assets abroad – in particular, reducing lending – to restore capital ratios. Other banking systems’ global footprint, notably those of Japanese, Canadian and even US banks, has expanded since 2007. Using a global dataset of banks’ affiliates (branches and subsidiaries), we demonstrate that the who (nationality) accounts for more of the peak-to-trough shrinkage of foreign claims than does the where (locational factors). These findings suggest that the contraction in global lending can be interpreted as cyclical deleveraging of European banks’ large overseas operations, rather than broad-based financial deglobalisation.
Cross-country Exposures to the Swiss Franc
This is joint work with Philip Lane published as a book chapter in International Currency Exposure, Edited by Yin-Wong Cheung and Frank Westermann MIT Press, 2017.
Abstract: This paper first documents the foreign currency exposures of Switzerland in the 2002-2012 period. We find that the large scale of the Swiss international balance sheet means that movements in the Swiss Franc generate large cross-border valuation effects. Second, we examine the Swiss Franc holdings of the rest of the world and highlight differences in exposures between advanced and emerging economies.
International Currency Exposures, Valuation Effects and the Global Financial Crisis
This is joint work with Philip Lane and Jay Shambaugh and published in the Journal of International Economics, 96: 98-109, January 2015
Abstract: We examine the evolution of international currency exposures, with a particular focus on the 2002–12 period. During the run up to the global financial crisis, there was a widespread shift towards positive net foreign currency positions, such that relatively few countries exhibited the archetypal emerging-market “short foreign currency” position on the eve of the global financial crisis. During the crisis, the upheaval in currency markets generated substantial currency-generated valuation effects — much of which were not reversed. There is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre-crisis net foreign asset positions.
International Risk Sharing and the Irish Economy
This paper was written during my IRCHSS postdoctoral fellowship.
Abstract: This paper studies international risk sharing in Ireland focusing on the 1970-2007 period. To this end, we assess how consumption and national income have been affected by idiosyncratic output shocks. The study of the former shows that private consumption was partially insulated from output shocks and that risk sharing was invariant over time. The analysis of national income provides further evidence for international risk sharing. Here, we find that national income fluctuations were not fully affected by output shocks and that income risk sharing improved as Ireland became more integrated with the international financial system.
The current version of this paper can be downloaded from here.
The Anatomy of Large Valuation Episodes
Abstract: We examine cases in which there is a large shift in a country’s net foreign asset position due to the re-valuation of its foreign assets and/or foreign liabilities. We highlight the differences in large valuation shocks between countries characterized by large gross stocks of foreign assets and foreign liabilities and countries exhibiting large net external positions. Finally, we analyze macroeconomic dynamics in the neighborhood of large valuation episodes.
Paper published in Review of World Economics 145(3): 489-511, October 2009. It can be downloaded from here.
Indicators of Regional Financial Integration
This is a joint work with Sébastien Wälti.
Abstract: International financial integration has increased significantly over the last decades, both at the regional level and at the global level. A greater degree of financial integration carries important implications for academic researchers, central bankers, financial regulators and international investors. For example, financial institutions monitor closely the degree of international comovement among bond and equity markets since this comovement determines the size of the benefits from international portfolio diversification. Financial regulators seek to understand the sources of shocks for domestic financial institutions, while central banks assess the impact of greater financial integration on the transmission of monetary policy. As a result, there is a significant demand for indicators of financial integration that are relatively easy to construct and interpret, based on publicly available data, and available for many countries and regions over time. This chapter reviews some of these indicators, describes the underlying datasets, and presents some illustrative evidence.
This paper is published in the handbook “The Regional Integration Manual Quantitative and Qualitative Methods”. The first draft of the paper can be downloaded from here. The full book can be bought here.
From The Irish Economy blog
- IEA 2024 Conference Programme
- European Economic Convergence: Ireland and Poland
- Education, higher and otherwise
- Irish Economic Association Annual Conference 2024 – Call for Papers
- Prof. Donal O’Neill R.I.P
- Dublin Industry at EEC Accession
- Industry & policy in Independent Ireland, 1922-1972
- Call for Papers: Economics Winter Workshop, Central Bank
- Tenure Status in Census 2022
- Are all economists just focused on growth?
Agustín Bénétrix 