Mr. Torbjorn I. Becker, Mr. Anthony J. Richards, and Mr. Yunyong Thaicharoen
Many official groups have endorsed the wider use by emerging market borrowers of contract clauses which allow for a qualified majority of bondholders to restructure repayment terms in the event of financial distress. Some have argued that such clauses will be associated with moral hazard and increased borrowing costs. This paper addresses this question empirically using primary and secondary market yields and finds no evidence that the presence of collective action clauses increases yields for either higher- or lower-rated issuers. By implication, the perceived benefits from easier restructuring are at least as large as any costs from increased moral hazard.
This paper analyzes asymmetries in direct investment positions reported in the
Coordinated Direct Investment Survey (CDIS) following a top down approach.
First, it examines asymmetries at global level; second, it examines asymmetries between
CDIS reported and derived data for individual economies; and third, the paper analyzes
data at bilateral economy level.
Then, the paper explores seven main reasons for asymmetries, including those arising
even when economies follow international standards.
Finally, the paper includes a section on addressing bilateral asymmetries and concludes
with specific planned actions to reduce asymmetries, including initiatives led by
Katharina Bergant, Michael Fidora, and Martin Schmitz
We analyse euro area investors' portfolio rebalancing during the ECB's Asset Purchase
Programme at the security level. Our empirical analysis shows that euro area investors (in
particular investment funds and households) actively rebalanced away from securities
targeted under the Public Sector Purchase Programme and other euro-denominated debt
securities, towards foreign debt instruments, including `closest substitutes', i.e. certain
sovereign debt securities issued by non-euro area advanced countries. This rebalancing
was particularly strong during the first six quarters of the programme. Our analysis also
reveals marked differences across sectors as well as country groups within the euro area,
suggesting that quantitative easing has induced heterogeneous portfolio shifts.
Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen
Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with
enormous inward and outward investment positions. This paper uses several new data
sources, both macro and micro, to estimate the global FDI network while disentangling real
investment and phantom investment and allocating real investment to ultimate investor
economies. We find that phantom investment into corporate shells with no substance and no
real links to the local economy may account for almost 40 percent of global FDI. Ignoring
phantom investment and allocating real investment to ultimate investors increases the
explanatory power of standard gravity variables by around 25 percent.
Ruud A. de Mooij, Dinar Prihardini, Antje Pflugbeil, and Mr. Emil Stavrev
Luxembourg receives ample investment from multinational corporations, in part due to some attractive features in its international tax rules. Around 95 percent of these foreign investments pass through Luxembourg via companies performing holding and/or intra-group financing activities. While their contribution to Luxembourg’s economy is modest relative to their large overall balance sheets, they still generate around 3 percent of GDP in tax revenue, create almost 4500 direct jobs, and spend almost 3 percent of GDP on salaries and purchases of business services. Ongoing changes in the international corporate tax framework pose risks to these economic contributions, which this paper attempts to quantify. It also discusses options for reforms in Luxembourg’s tax system that could help offset adverse revenue and economic effects.
Swing pricing allows a fund manager to transfer to redeeming or subscribing investors the costs associated with their trading activity, thus potentially discouraging large flows. This liquidity management tool, which is already used in major jurisdictions, may also help mitigate systemic risk. Here we develop and apply a methodology to investigate whether swing pricing does in fact help dampen flows out of funds, especially during periods of market stress. Drawing on evidence of first-mover advantage within a group of ‘swinging’ corporate bond funds, we provide policy considerations for enhancing the tool’s effectiveness as a systemic risk mitigant.
Ms. Yevgeniya Korniyenko, Manasa Patnam, Rita Maria del Rio-Chanon, and Mason A. Porter
This paper studies the interconnectedness of the global financial system and its susceptibility
to shocks. A novel multilayer network framework is applied to link debt and equity
exposures across countries. Use of this approach—that examines simultaneously multiple
channels of transmission and their important higher order effects—shows that ignoring the
heterogeneity of financial exposures, and simply aggregating all claims, as often done in
other studies, can underestimate the extent and effects of financial contagion.The structure of
the global financial network has changed since the global financial crisis, impacted by
European bank’s deleveraging and higher corporate debt issuance. Still, we find that the
structure of the system and contagion remain similar in that network is highly susceptible to
shocks from central countries and those with large financial systems (e.g., the USA and the
UK). While, individual European countries (excluding the UK) have relatively low impact on
shock propagation, the network is highly susceptible to the shocks from the entire euro area.
Another important development is the rising role of the Asian countries and the noticeable
increase in network susceptibility to shocks from China and Hong Kong SAR economies.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.