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.
The Spread of Manufacturing to the Poor Periphery 1870‐2007
This is joint work with Kevin O’Rourke and Jeffrey Williamson. It is published in the Open Economies Review 26(1): 1-37, January 2015
Abstract: This paper documents industrial output growth around the poor periphery (Latin America, the European periphery, the Middle East and North Africa, Asia, and sub-Saharan Africa) between 1870 and 2007. We find that although the roots of rapid peripheral industrialization stretch into the late 19th century, the high point of peripheral industrialization was the 1950–1973 period, which saw widespread import-substituting industrialization. This period was also the high point of unconditional industrial catching up, defined as the tendency of less industrialized countries to post higher per capita manufacturing growth rates, and which occurred between 1920 and 1990.
Fiscal Shocks and The Real Exchange Rate
This is joint work with Philip Lane and published in the International Journal of Central Banking 9(3):1-32, September 2013.
Abstract: We estimate the real exchange rate impact of shocks to government spending for a panel of member countries of the euro area. Our key finding is that the impact differs across different types of government spending, with shocks to public investment generating larger and more persistent real appreciation than shocks to government consumption. Within the latter category, we also show that the impact of shocks to the wage component of government consumption is more persistent than that of shocks to the non-wage component. Finally, we highlight the different exchange rate responses between this group and a group of countries with floating exchange rates.
Fiscal Cyclicality and EMU
This is joint work with Philip Lane.
Abstract: For the set of EMU member countries, we examine cyclical patterns in fiscal outcomes. We find that there is significant time variation in fiscal cyclicality, with an improvement in the wake of the Maastricht Treaty but a deterioration after the creation of EMU. Furthermore, we show that the fiscal cycle is affected by the financial cycle in addition to the output cycle. The lessons for the current reforms of European economic and fiscal governance are manifest.
This paper can be downloaded from here.
The Spread of Manufacturing to the Periphery 1870-2007: Eight Stylized Facts
This is a joint paper with Kevin H. O’Rourke and Jeffrey G. Williamson.
Abstract: This paper documents industrial output growth around the poor periphery ( Latin America, the European periphery, the Middle East and North Africa, Asia, and sub-Saharan Africa] between 1870 and 2007. We provide answers to the following questions: When and where did rapid industrial growth begin in the periphery? When and where did peripheral growth rates exceed those in the industrial core? When was the high-point of peripheral industrial growth? When and where did it become widespread? When was the high-point of peripheral convergence on the core? How variable was the growth experience between countries? And how persistent was peripheral industrial growth?
How Housing Slumps End
This is a joint paper with Barry Eichengreen and Kevin H. O’Rourke commissioned by Economic Policy. It will be presented in the Economic Policy Fifty-Fourth Panel Meeting in Warsaw.
Abstract: We construct a simple probit model of the determinants of real house price slump endings. We find that the probability of a house price slump ending is higher, the smaller was the pre-slump house price run-up; the greater has been the cumulative house price decline; the lower are real mortgage interest rates; and the higher is GDP growth. Slumps are longer, other things being equal, where housing supply is more elastic, but shorter the more developed are financial institutions. For slumps of a given size, shorter sharper slumps are associated with worse macroeconomic performance in the short run, but with better performance in the long run. This suggests that for sufficiently low discount rates, policy makers should not impede the decline in real house prices, and this conclusion is reinforced by the finding that after a certain duration, house price slumps can become self-reinforcing. On the other hand, we also find evidence that during downturns, falling house prices can lead to lower private sector credit flows. Policy makers thus face a delicate balancing act. While they should not intervene to artificially prop up overvalued house prices, they should ensure that their macroeconomic and banking policies are such as to make a bottoming-out more likely. This suggests that they should keep real interest rates low, and ensure that banks are well-capitalised.
The Cyclical Conduct of Irish Fiscal Policy
This paper is joint work with Philip Lane prepared for the Irish Economy conference at Lehigh University.
Abstract: This paper provides an overview of the cyclical conduct of fiscal policy in Ireland both before and during the crisis. It shows that fi scal policy has been procyclical, with financial shocks amplifying the fi scal cycle. In addition, it highlights the importance of institutional reform and outlines the case for a formal scal framework.
The paper can be downloaded from here.
Financial Cycles and Fiscal Cycles
This is a joint work with Philip Lane prepared for the EUI-IMF conference “Fiscal Policy, Stabilization and Sustainability“.
Abstract: There is a huge literature on the behaviour of fiscal variables in relation to the output cycle. In this paper, we show that fiscal variables also co-vary with the financial cycle, as captured by fluctuations in the current account balance and credit growth. These financial factors affect fiscal outcomes, over and above their influence on the output cycle. We argue that fiscal surveillance and the design of fiscal rules should pay close attention to the interaction between the financial cycle and the fiscal cycle.
The full paper can be downloaded from here.
Fiscal Shocks and Real Wages
Abstract: This paper studies the impact of fiscal shocks in a panel of eleven euro area member countries. It contributes to the existing literature by providing new empirical evidence on the effects of different types of spending shocks on real wages. The main finding is that an increase in government spending raises the real wage. However, its magnitude depends on the spending type. Shocks to government investment and to the number of public employees generate responses that are at the extremes of the wage response spectrum. The former produces the greatest effect, while the latter has zero impact.
This paper is forthcoming in International Journal of Finance & Economics.
An early view of the paper is available here.
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.
International Differences in Fiscal Policy During the Global Crisis
This is a joint paper with Philip Lane.
Abstract: We examine the cross-country dispersion in fi scal outcomes during 2007-2009. In principle, international diff erences in fi scal policy may be related to differences in optimal fi scal positions, funding constraints, political economy factors and fiscal control problems. We fin d that the decline in the overall and structural fi scal balances have been larger for those countries experiencing larger increases in unemployment and where credit growth during the pre-crisis period was more rapid. However, there is no systematic co-variation between fiscal outcomes and a larger number of other macroeconomic variables and country characteristics.
This paper can be downloaded from here.
Fiscal Shocks and The Sectoral Composition of Output
This is joint work with Philip Lane.
Abstract: We study the impact of shocks to different types of government spending on the sectoral composition of output for a panel of EMU member countries. We find that fiscal shocks lead to an increase in the relative size of the nontraded sector, with the impact varying across the different spending categories. There is typically no significant impact on the level of production in the tradables sector but the level of imports increases and the level of exports declines in most cases. Overall, the results show that fiscal shocks matter not only for aggregate variables but also for the sectoral composition of output. The sectoral output results are consistent with previous work concerning the impact of fiscal shocks on the real exchange rate and the relative price of nontradables.
This paper is published in Open Economies Review, 21(3): 335-350. It can be downloaded from here.
How housing slumps end
This is a VOXEU column together with Barry Eichengreen and Kevin H. O’Rourke.
Abstract: The world’s current economic problems started when housing bubbles burst in several advanced economies. Economic recovery without housing market recovery is unlikely to be sustained. This column presents new research on the probability of housing slumps ending. There is at least a one-in-eight chance of housing slumps in the three big economies (US, Japan and Germany) ending imminently, but there is nothing approaching the same probability elsewhere. If things turn out as projected here, we may be about to have a test of the locomotive theory – whether the big economies can pull along their smaller brethren – both for housing markets and generally.
This column can be found here.
From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons
This is a joint work with Miguel Almunia, Barry Eichengreen, Kevin O’Rourke and Gisela Rua.
Abstract: The Great Depression of the 1930s and the Great Credit Crisis of the 2000s had similar causes but elicited strikingly different policy responses. While it remains too early to assess the effectiveness of current policy, it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for 27 countries in the period 1925–39. The results suggest that monetary and fiscal stimulus was effective — that where it did not make a difference it was not tried. They shed light on the debate over fiscal multipliers in episodes of financial crisis. They are consistent with multipliers at the higher end of those estimated in the recent literature, and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound.
This paper is published in Economic Policy 62: 219-265. It can be downloaded from here.
The Impact of Government Spending Shocks on The Irish Economy
This is joint work with Philip Lane.
Abstract: We study the short-run effects of shocks to government spending on Ireland’s output and its real exchange rate. We show that the impact of government spending shocks critically depend on the nature of the fiscal innovation. Our main finding is that there are important differences between shocks to public investment and shocks to government consumption. Moreover, within the latter category, shocks to the wage and non-wage components also have dissimilar effects.
This paper is published in The Economic and Social Review 40(4): 407-434. It can be downloaded from here.
The effectiveness of fiscal and monetary stimulus in depressions
This is a VOXEU column together with Miguel Almunia, Barry Eichengreen, Kevin H. O’Rourke and Gisela Rua.
There is one important source of information on the effectiveness of monetary and fiscal stimulus in an environment of near-zero interest rates, dysfunctional banking systems and heightened risk aversion that has not been fully exploited: the 1930s. This column gathers data on growth, budgets and central bank policy rates for 27 countries covering the period 1925-39 and shows that where fiscal policy was tried, it was effective.
Find the rest of this column 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.
Fiscal Shocks and The Real Exchange Rate
This is a joint paper with Philip Lane.
Abstract: We estimate the real exchange rate impact of shocks to government spending for a panel of member countries of the euro area. Our key finding is that the impact differs across different types of government spending, with shocks to public investment generating larger and more persistent real appreciation than shocks to government consumption. Within the latter category, we also show that the impact of shocks to the wage component of government consumption is larger than for shocks to the non-wage component. Finally, we highlight the different exchange rate responses between this group and a group of countries with floating exchange rates.
This paper 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
- Tenure Status in Census 2022
- Are all economists just focused on growth?
- Revenue Annual Report and Research Papers
- Speech by President Higgins at a Reception for TASC (Think-Tank for Action on Social Change)
- National Income: 2 – From Production Value to Added Value – Getting to GDP
- Irish Economic Association Annual Conference 2023 (Updated)
- National Income: 1 – From Turnover to Production Value
- Professor Christopher Whelan, RIP
- Barrington Prize, 2022/2023
- Online Event: Reconstructing the Economy of Ukraine
Agustín Bénétrix 