El movimiento codificador del Derecho internacional de los conflictos armados

Evidence from asset prices and yield in emerging markets specifically is somewhat scant— many studies concerning the effect of UMP on bond yields and asset prices focus on the US and on advanced economies. Still, examining the degree to which advanced economy bond yields are affect by UMP gives us some insight as to the international channels that might be in operation elsewhere. For example, Neely (2015) and Bauer and Neely (2012) find significant and sizable ef- fects of the Feds LSAP on sovereign bond yields in a small sample of other advanced economies. Using an event study approach on bond yields from Australia, Canada, Japan, Germany and the UK, Neely (2015) finds that buy events (Fed purchase of long-term assets) are usually associated with large reductions in long-term US interest rates, while sell events did not strongly or consis- tently affect US yields. Further, LSAP buy announcements were associated with large changes in nominal foreign bond yields. Results for control sums (FOMC announcements with no LSAP news) are mostly positive, reflecting generally rising bond yields as the economy had recovered and flight to safety reversed. Neely also finds that the US dollar fell 3.54 - 7.76 per cent cumu- latively (depending on the currency pair) over the eight LSAP buy + sell days, which is large compared with randomly chosen days. Furthermore, equity and oil prices do not appear to support the hypothesis that bond yields fell because policy announcements reduced expected real growth

(i.e., that UMP operated through a confidence channel). Rather, the Fed appears to have influ- enced long rates by decreasing expected future short rates and through the term premium. Neely parameterizes a portfolio balance model with standard values of risk aversion and historical return moments to examine whether an LSAP announcement can generate quantitatively important ef- fects. According to Neely, “the model cannot definitively prove [portfolio balance] effects or rule out other channels, [but] comparing the magnitude of the models [portfolio balance] effects to the observed asset price changes suggests the importance of that mechanism in the data’(108).

Bauer and Neely (2012) use dynamic term structure models (DTSM) combined with an event study approach to uncover to what extent signaling and portfolio balance channels caused declines in international bond yields during QE episodes.As in Neely (2015), this paper analysis bond yields in the US, Canada, Germany, Australia and Japan. The authors estimate the importance of the signaling channel by examining the changes in short-rate expectations around LSAP events. As alluded earlier, changes in short-rate expectations should be viewed as conservative estimates of the importance of the signaling channel for two reasons: First, a successful monetary policy action aimed at easing financial conditions stimulates future growth and would raise short-rate ex- pectations for the more distant future, counteracting the decreases in expectations due to signaling effects. Second, signaling near-zero policy rates would tend to lower interest rate risk and the term premium, even without any portfolio balance effects. The authors identify term premium effects using affine term structure models, which have the advantage that they parsimoniously model the entire yield curve with a small number of risk factors. The observed decrease in long-term yields is a measure of the importance of the signaling and portfolio balance channels together, as discussed above. Considering the two sets of results together, according to the authors, shows the relative importance of the portfolio balance and signaling channels.

For the U.S. and Canada, the evidence supports the view that LSAPs had substantial signaling effects. In both countries, changes in expected future policy rates contributed significantly to lower long-term yields in those two countries. For Australian and German yields, signaling effects were present but likely more moderate. In these countries, portfolio balance effects probably played a

relatively larger role than they did for the U.S. and Canada. Portfolio balance effects were small for Japanese yields and signaling effects basically nonexistent. These findings about LSAP channels are consistent with predictions based on interest rate dynamics during normal times: Signaling effects tend to be large for countries with strong yield responses to conventional U.S. monetary policy surprises, and portfolio balance effects are consistent with the degree of substitutability across international bonds, as measured by the covariance between foreign and U.S. bond returns. A very weak signaling channel parallels the weak reaction of Japanese yields to conventional U.S. monetary policy and the small portfolio balance effects are consistent with the relatively weak covariance between Japanese and U.S. long bond returns.

In a recent paper presented at the IMF, Gilchrist, Yue and Zakrajsek (2014) compare the ef- fects of conventional U.S. monetary policy on foreign government bond yields with those of the unconventional UMP using intraday changes in the 2-year Treasury yield within a narrow window surrounding FOMC and other policy announcements. Monetary policy in both the conventional and unconventional periods is identified using Gertler and Karadi’s (2014) approach, described above. The paper involves two sets of estimations. In the first, the authors analyze the response of shorter- and longer-term interest rates on sovereign bonds denominated in local currencies to an unanticipated change in the stance of U.S. monetary policy for a set of 10 advanced foreign economies and a group of six emerging market economies. The results suggest that conventional U.S. monetary policy appears to have relatively little systematic effect on yields of sovereign securities—denominated in local currencies—issued by the emerging market economies. How- ever, longer-term interest rates for all of the EMEs responded significantly to the unconventional U.S. monetary policy actions, supporting the idea that UMP incentivizes substitution into EME bonds, flattening the local currency yield curve. The second set of empirical results focuses on sovereign debt denominated is U.S. dollars. The authors treat cross-sectional heterogeneity by constructing sovereign bond portfolios, conditional on whether a country falls into a speculative- or investment-grade portion of the credit quality spectrum. The hope is to quantify how the ef- fects of U.S. monetary policy on sovereign bond yields (and spreads) differs across high and low

perceived-risk countries. The results here indicate that during the conventional U.S. monetary policy regime, the yields on speculative-grade sovereign bonds decline more than one-for-one in response to an unanticipated easing of U.S. monetary policy, implying a significant narrowing of sovereign credit spreads for riskier countries. By contrast, during the unconventional policy regime, the response of speculative-grade sovereign bond yields to U.S. monetary policy shocks is one-to-one.

Thus, the literature on the effect of UMP on foreign bond yields indicate rather strongly that QE and forward guidance have lowered yields in both advanced and emerging economies. In the next section, I will discuss the literature pertaining to capital flows themselves, which often provides a more straight-forward look at channels of transmission.

1.4.4 Direct evidence on UMP: data on flows

Evidence from emerging markets regarding capital flows is more plentiful. Many such studies use EPFR data, due to its high frequency and good fit with BOP data. For example, Fratzscher, Lo Duca and Straub (2014) use daily data on portfolio equity and bond investment flows from EPFR in a dynamic panel with fixed effects, focusing on net injections into funds (which abstracts from valuation changes), aggregated at the country level. These reflect, according to the authors, active decisions of investors about whether or not to add or reduce investment in a particular fund class. To identify monetary policy shocks, Fratzscher et al use both announcement dummies and operations. Their reasoning for using both when announcements should be considered (rationally) sufficient is two-fold. First, markets may have been less efficient during this time; many Fed poli- cies were undertaken precisely because markets were not functioning. Second, market participants may have formed accurate assessments about the timing and size of operations, but may not have accurately forecast the effectiveness of such operations in. In a baseline panel estimation that ac- counts for country fixed effects, lagged variables reflecting financial shocks, risk and global market conditions (such as the VIX, the 10-year T- bond yield in the US, the liquidity spread6) and lagged returns of the domestic market return, the authors find that QE1 announcements triggered mainly

inflows into US equities and, to a lesser extent, bonds, emulating a flight to safety, and lending support for a confidence channel of transmission. On the other hand, QE2 policies induced a port- folio rebalancing out of US equities and bonds, and partly into EME equities. This holds for both QE2 announcements as well as for the Feds Treasury purchases. Moreover, Treasury purchases by the Fed also induced a portfolio rebalancing across asset classes, as bond funds in all regions — US, EMEs and other advanced economies, experienced net outflows and EME equity funds net inflows.

In a separate exercise, Fratzscher, Lo Duca and Straub divide their observations into three groups (US, AE and EME ) to test for heterogeneous effects of LSAPs:.

yit =Eit−1[yit] +βiM Pt+it (1.5)

To test for within group and across group heterogeneity, the following specification is used:

yit=Eit−1[yit] + (γ0+γ1Di)M Pt+it (1.6)

whereDi = 1if a in country is in a high group, and zero otherwise.

Dummies are used to measure the elasticity of the effect of LSAPs with respect to the exchange rate flexibility, central bank activism, fiscal policy activism, institutional quality, and capital ac- count openness. In the final analysis, the authors find that institutions are the most important factor in influencing the sensitivity of an economy to spillovers from UMP and that an active monetary policy stance leads to smaller spillovers. By contrast, there is no evidence that having a pegged exchange rate regime or a less open capital account helped countries insulate themselves from QE policy spillovers; conversely, they might have amplified the pro-cyclical impact of Fed policies. This lends further credence to the hypothesis that the portfolio rebalancing effects of Fed QE poli- cies are at least in part explained by risk and a flight-to-safety phenomenon, but that pull factors

contribute to the amplitude of these spillovers.

Using panel data (with fixed effects and a trend) on gross flows from 60 developing countries (2000Q1 - 2013Q2), Lim, Mohapatra and Stocker (2014), attempt to identify a lower bound for the effect of QE on capital flows in the following manner.7 _{Rather than ascribe a specific, quantitative}

estimate to the total effect of QE, the authors’ strategy is to begin by accounting for potential QE spillover effects through standard transmission channels—namely via liquidity, portfolio balanc- ing, and confidence—and then seek to establish whether QE episodes saw any additionaleffects on financial inflows attributable to unobservables. To the extent that QE affected the fundamentals, there is evidence that its transmission occurred along each of the portfolio balance, signaling and liquidity channels, as proxied by the three-month T-Bill and M2 (for liquidity); the yield curve, interest rate differential and growth differential (for portfolio balance); and the VIX (for confi- dence/signaling). Even with variables included in the regression to account for these channels, QE episode indicators enter the regression with statistically and economically significant coefficients: a combined QE episode indicator, for instance, suggests that the QE period saw an increase in gross financial inflows to developing countries of approximately 5 percent, over and above the effects that QE may have had on observable channels, such as a reduction in the VIX due to im- proved confidence, or the flattening of the yield curve as investors rebalanced their portfolios. When QE episodes are included in the regressions one at a time into the three separate variables, these measures of QE display a diminishing effect for each episode: the magnitude of the coeffi- cient decreases from the first and second QE interventions, and is actually insignificant for QE3 in extended specifications. Comparing portfolio with loan flows, the latter responds more to the unobservable effect of QE (the coefficient on the indicator variable is 0.021 versus 0.018), suggest- ing that more so than for the other flows, QE operated through channels other than the modeled channels to boost bank lending. In contrast, measurable transmission channels for QE are routinely larger for portfolio flows.

7_{IFS for gross portfolio and FDI flows plus bank lending data from the Locational Bank Statistics dataset collected}

Ahmed and Zlate (2014) attempt to ascertain the effect of UMP on capital flows in regressions including capital controls and three different LSAP measures, although they make no additional identifying assumptions to attempt to separate the channels of transmission. The first QE variable is an indicator equal to 1 for quarters when QE programs were first announced, using the standard announcement dates documented by the literature (see Gagnon et al 2011; Krishnamurthy and Vissing-Jorgensen 2011), while the second measure is the yield on 10-year U.S. treasury bonds. The third measure is net asset purchases by the Federal Reserve from 2003Q1 to 2013Q2 used as an instrumental variable to try to isolate more directly the change in Treasury yields that could be attributed to unconventional U.S. monetary policy, and then examine its effect on EME flows. Using net flows, and controlling for growth differentials, interest rate differentials, VIX and a time trend, the binary LSAP indicator is positive and significant only for portfolio net inflows, the 10- year yield is positive and significant only for portfolio net inflows in a fixed effects specification and the instrument IV has no effect. Interestingly, using an interaction variable linking the 10- yeary yield and a crisis dummy indicates a structural break—the effect of the US 10 year bond yield is higher in the post-crisis period. Running the same exercise with gross flows, indicator and yields indicate positive, significant effect of UMP on gross flows and 10 year bond yields have a stronger effect on gross flows than for net, consistent with the idea that gross capital flows are overall more vulnerable to push factors.

In a model that seeks a more comprehensive vision of the effect of US monetary policies on EMs, Dedola, Rivolta and Stracca (2015) estimate a Bayesian VAR with sign restrictions based on Gertler and Karadi’s (2015) findings. In so doing, the authors test in their specification mone- tary policy that includes shocks to forward guidance. Then, following the literature (e.g. Romer and Romer 2004), the authors obtain impulse responses by estimating, for each realization of the series of shocks, simple autoregressive models for each variable in each country in their sample, including also contemporaneous and lagged values of the shocks. Finally, the authors aggregate the resulting impulse responses across countries according to characteristics such as income lev- els (advanced and emerging economies), exchange rate regime, financial and trade openness, and

finally dollar exposure. Key differences emerge from the responses of housing prices, domestic credit and bank and portfolio inflows to a contraction in US monetary policy: while these vari- ables are barely or even positively affected in advanced countries, they fall substantially and quite persistently in emerging economies in response to a US monetary tightening. The only similarity between advanced and emerging economies is that capital outflows by domestic residents increase across the board in response to tightening. Distinguishing between countries with floating ver- sus managed currencies, domestic credit and banking inflows are much more affected in countries with pegged exchange rates, which experience a sustained credit crunch associated with banking outflows. Foreign banks instead channel funds into floating EMEs, on average. Finally, the more financially open (according to a division of countries above and below the median of the Chinn- Ito index of financial openness) emerging economies seem to display larger responses in most variables, but confidence bands are also wider. More to the point, portfolio and banking inflows display statistically significant, opposite patterns: they retrench persistently in more financially closed economies, while quickly stabilizing and even turning positive in open ones. Therefore, it seems that capital controls mainly allow domestic interest rates to decouple more from US ones, but are not very effective in affecting capital flows per se. Overall, these results qualify and ex- tend those in Rey (2014). A floating exchange rate together with a low level of financial openness dampens the effects of US monetary policy on macroeconomic and financial variables in emerging economies.

Moore, Nam, Suh and Tepper (2013) study the impact of changes in longer-term US treasury yields and LSAP announcements on 10 EMEs for which data is available on foreign participation in local currency government bond markets is available. Although this study does not address capital flows as such, foreign participation in local currency bond markets is a direct consequence of increased capital flows (although only a portion of the increase would be investment in local- currency bonds), and is of interest because the literature on financial sector development suggests that foreign participation in local currency bond markets help spur their development insofar as debt issued in local currency decreases the risk government faces. The analysis is conducted in

two stages. The first regresses the share of foreign investors’ in holdings in EME bond markets on 10-year US Treasury yields, with yield-related variables and risk factors as controls. 8 In the second stage, the authors analyze the impact of foreign investment on EME government bond yields, controlling for expected future short rates (proxied by inflation), CDS spreads, the ratio of fiscal balance to GDP and foreign share in government bond markets. The dependent variable is the 10-year government bond yield of each nation. Finally, they estimate the cumulative changes in each country’s ten-year yield and eight-year yield two years forward on LSAP event days in an alternative event study approach. Each of these steps is conducted with sub-samples for exchange rate flexibility, financial openness, and a measure exposure the US. The results suggest, overall, that a 10-basis-point reduction in long-term U.S. Treasury yields results in a 0.4 percentage point increase in the foreign ownership share of emerging market debt. This, in turn, is estimated to reduce government bond yields in EMEs by approximately 1.7 basis points. Here, among push factors, the US 10 year treasury yield has a significant, negative effect on foreign share in every specification. Surprisingly, the VIX is only significant for countries grouped as financially open and with low financial exposure the to the US as a percent of total assets and liabilities and high exposure to the US in percent of GDP. In terms of pull factors, inclusion in the WGBI and AMI routinely and positively has a statistically significant effect on capital flows, as does the domestic