Table Of ContentKobe University Monograph Series in Social Science Research
Yoichi Matsubayashi
Shigeto Kitano Editors
Global Financial
Flows in the Pre-
and Post-global
Crisis Periods
Kobe University Monograph Series in Social
Science Research
SeriesEditors
YunfangHu,KobeUniversityGraduateSchoolofEconomics,Kobe,Japan
ShigeyukiHamori,KobeUniversityGraduateSchoolofEconomics,Kobe,Japan
EditorialBoard
MasahiroEnomoto,KobeUniversityRIEB,Kobe,Japan
YoshihideFujioka,KobeUniversityGraduateSchoolofEconomics,Kobe,Japan
YukaKaneko,KobeUniversityCenterforSocialSystemsInnovation,Kobe,Japan
KazumiSuzuki,KobeUniversityGraduateSchoolofBusinessAdministration,
Kobe,Japan
KenjiYamamoto,KobeUniversityGraduateSchoolofLaw,Kobe,Japan
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·
Yoichi Matsubayashi Shigeto Kitano
Editors
Global Financial Flows
in the Pre- and Post-global
Crisis Periods
Editors
YoichiMatsubayashi ShigetoKitano
GraduateSchoolofEconomics RIEB
KobeUniversity KobeUniversity
Kobe,Japan Kobe,Japan
ISSN 2524-504X ISSN 2524-5058 (electronic)
KobeUniversityMonographSeriesinSocialScienceResearch
ISBN 978-981-19-3612-8 ISBN 978-981-19-3613-5 (eBook)
https://doi.org/10.1007/978-981-19-3613-5
©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNature
SingaporePteLtd.2022
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Preface
Excessiveexpansionofcross-bordercapitalflowsliesunderneaththeglobalfinan-
cialcrisesthatoccurredinsuccessionintheformofthesubprimemortgagecrisis,
the collapse of Lehman Brothers, and the European debt crisis. Historically, the
integrationoftheinternationalfinancialmarketandthesubsequentincreaseininter-
national capital flow have been studied in terms of current and financial account,
net and gross capital flow, and stocks of net foreign assets within the context of
internationalmacroeconomicsandfinance.Inaddition,itisalsoessentialtoobtain
a broader picture of financial flows—including domestic and international credit
activities of financial institutions around the world—and verify and examine the
factsfromdifferentperspectivessoastocomprehensivelyunderstandtheseriesof
global-scalefinancialcrisesandformulatenewpolicyresponses.Thisbookfulfills
theneedandprovidesanin-depthandup-to-dateintegratedoverviewofthedynamics
oftoday’sglobalizedfinancialmarketsmoreappropriately.Chapter1introducesa
recent concept of global liquidity that sheds a new light on global financial flows
including the related historical overview. Chapters 2–4 discuss the international
capital flow at the global level. Chapters 5 and 6 examine the effect of excess
liquidity on key variables in international financial markets. Chapters 7–9 cover
specificregionssuchasEUandemergingcountries.Moredetailedexplanationson
eachchapterofthebookareasfollows.
Chapter1,byYoichiMatsubayashi,istitled“GlobalLiquidityasaNewTrendin
InternationalCapitalFlows.”Firsttheauthorprovidesanhistoricaloverviewofkey
concepts to understand international capital flows, and then explains the represen-
tative concepts such as international liquidity and dollar liquidity. The author also
explainstherecentconceptofgloballiquidityincludingtworepresentativeindicators.
Chapter 2, by Shingo Iokibe, is titled “Destination of Global Liquidity Before
the Global Financial Crisis: Role of Foreign Bank Presence and the EU Effect.”
Theauthorelucidatesthatduringthegloballiquiditysurgeperiod,globalliquidity
flooded more into countries in which foreign banks had already penetrated their
bankingsystems.Theauthoralsoshowsthatthedestinationofgloballiquidityflows
beforetheglobalfinancialcrisiswashighlyconcentratedinEUmembers’banking
v
vi Preface
systems.Itisalsoshownthatcountrieswithlessstrictlyregulatedbankingsystems
receivedlargerinflows,whichisinlinewiththeregulatoryarbitragehypothesis.
Chapter3,byKimikoSugimotoandMasahiroEnya,istitled“GlobalLiquidity
andReallocationofDomesticCredit.”Thechaptertacklesaninterestingbutchal-
lengingproblemofanalyzinghowgloballiquidityexpansionaffectstheallocation
of domestic credits in the recipient countries of capital inflows. For example, they
examinethefollowingproblem:whencapitalinflowintobankingsectorsincreases,
doesitincreasedomesticbankcredittobusinessorhouseholdsectorintherecipient
countries? Their result suggests that there exists a heterogeneity among advanced
andemergingcountries.
Chapter 4, by Takeshi Hoshikawa and Kazuyuki Inagaki, is titled “Global
Financial Crisis and Demand for the US Dollar as an International Currency.” As
thetitlesays,thechapterfocusesondemandofforeignfinancialinstitutionsforthe
USdollarasaninternationalcurrency.AlthoughthereexistmanystudiesontheUS
currency demand function, few have specifically examined the demand of foreign
countries. This differs the chapter from the previous related studies. The authors’
analysis shows that global trade volume, US interest rates, appreciation of the US
dollar, and financial market tightness are key variables for explaining the demand
fortheUSdollarasaninternationalcurrency.
Chapter5,byMasahiroInoguchi,istitled“SovereignCreditDefaultSwapsand
U.S.EconomicPolicyUncertaintyAftertheGlobalFinancialCrisis.”Thechapter
focuses onsovereign creditdefaultswap(CDS) spreads.The author explores how
thesovereignCDSspreadsareaffectedbyglobalfactorssuchasUSeconomicpolicy
uncertaintyandUSfinancialmarketaswellasdomesticfactors,comprehensively.
Theauthor’sanalysissuggeststhattheUSfinancialmarketismoreimportantasa
globalfactorininfluencingthesovereigncreditriskinemergingeconomiescompared
totheUSeconomicpolicyuncertainty.
Chapter6,byYukioFukumoto,istitled“GlobalLiquidityandUncoveredInterest
RateParityPuzzle.”Thechapter investigates howgloballiquidityisrelatedtothe
uncoveredinterestrateparity(UIP)puzzle,whichisoneofthemostimportanttopics
ininternationalfinance.Theauthor’sanalysissuggeststhattheremightbeastronger
relationshipbetweengloballiquidityandtheUIPindevelopedcountriesratherthan
developing countries. It also implies that the relationship might be stronger when
globalliquidityishigher.
Chapter 7, by Agata Wierzbowska and Yoichi Matsubayashi, is titled “Bank
Profitability in Europe Before and After the Global Financial Crisis: Leverage,
ForeignClaims,andMonetaryPolicy.”ThechapterfocusesonEuropeanbanksthat
playedanimportantroleintheoriginationandchannelingoftheglobalgrosscapital
flowsandtheboomincreditconditionspriortotheglobalfinancialcrisis.Against
the background of the banks’ heavy exposures to US assets prior to the crisis, the
authorsanalyzethedeterminantsofprofitabilityofEuropeanbanksbeforeandafter
the global financial crisis. One of their interesting findings is that post-crisis bank
deleveragingcontributestohigherbankprofitability,whichimpliestheimportance
of the sound balance sheet and strong capital position for bank profitability in
Europeinthepost-crisisworld.
Preface vii
Chapter8,byShugoYamamoto,istitled“OffshoreBondIssuanceandNoncore
LiabilityinBRICsCountries.”InBRICscountries,tocircumventcapitalrestrictions,
the use of offshore affiliates as financing vehicles for accumulating low-yield US
dollarliabilityhasbecomewidespread.Againstthisbackground,thechapteranalyzes
whethertheincreaseofoffshorebondissuancebyoffshoreaffiliatescanbeasourceof
theboomofnoncoreliability,whichisanindicatoroffinancialsystemvulnerability.
Specifically, the author examines the relationship between offshore bond issuance
andshadowbankinginChina,andpointsoutpotentialbutcriticalrisksrelatedtoit.
Chapter9,byShigetoKitanoandKenyaTakaku,istitled“RecentDevelopments
intheAdoptionofCapitalControlsinEmergingEconomies:TheoryandPractice.”
The large-scale quantitative easing measures implemented by developed countries
aftertheglobalfinancialcrisisleadstoarapidsurgeincapitalinflowstoemerging
economies. In this context, policymakers and researchers have begun to discuss
capital control policies—an option that attracted little attention in the past—as a
real policy alternative for emerging economies to regulate capital flows properly.
Thischapterexplainsrecenttrendsintheoreticalresearchonthesepolicies,andalso
outlineshowemergingeconomiesareusingcapitalcontrolpolicies.
WearegratefultoAkiraKohsaka forhisinsightfulcomments andsuggestions,
whichwouldsurelymakealltheauthors’futureresearchmorefruitful.
Kobe,Japan YoichiMatsubayashi
ShigetoKitano
Contents
1 GlobalLiquidityasaNewTrendinInternationalCapitalFlows .... 1
YoichiMatsubayashi
2 DestinationofGlobalLiquidityBeforetheGlobalFinancial
Crisis:RoleofForeignBankPresenceandtheEUEffect ........... 19
ShingoIokibe
3 GlobalLiquidityandReallocationofDomesticCredit ............. 67
KimikoSugimotoandMasahiroEnya
4 Global Financial Crisis and Demand for the US Dollar
asanInternationalCurrency .................................... 99
TakeshiHoshikawaandKazuyukiInagaki
5 SovereignCreditDefaultSwapsandU.S.EconomicPolicy
UncertaintyAftertheGlobalFinancialCrisis ..................... 113
MasahiroInoguchi
6 GlobalLiquidityandUncoveredInterestRateParityPuzzle ....... 143
YukioFukumoto
7 Bank Profitability in Europe Before and After the Global
FinancialCrisis:Leverage,ForeignClaims,andMonetary
Policy ......................................................... 153
AgataWierzbowskaandYoichiMatsubayashi
8 Offshore Bond Issuance and Noncore Liability in BRICs
Countries ...................................................... 169
ShugoYamamoto
9 Recent Developments inthe Adoption of Capital Controls
inEmergingEconomies:TheoryandPractice ..................... 183
ShigetoKitanoandKenyaTakaku
Index ............................................................. 222
ix
Editors and Contributors
AbouttheEditors
YoichiMatsubayashiisaprofessorofeconomicsatKobeUniversityinJapan,where
he received his Ph.D. His main research interest is international macroeconomics,
especiallyexternalimbalancesintherecentworldeconomy.Hehaspublishedmany
papersinrefereedjournals,suchastheJapaneseEconomicReviewandJapanandthe
WorldEconomy.Heisalsotheco-authorofFinancialGlobalizationandRegionalism
inEastAsia(Routledge2013).
ShigetoKitanoisaprofessorofeconomicsatKobeUniversity.HereceivedhisPh.D.
fromNagoyaUniversityinJapan.Hismainresearchinterestisinternationalmacroe-
conomics.Hehaspublishedmanypapersinrefereedjournals,suchastheJournal
ofMacroeconomics,EconomicInquiry,OpenEconomiesReview,PacificEconomic
Review, International Review of Economics and Finance, Review of Development
Economics,InternationalJournalofEconomicTheory,JournalofEconomics,and
AppliedEconomicsLetters.
Contributors
EnyaMasahiro Faculty of Economics and Management, Kanazawa University,
Kanazawa,Japan
FukumotoYukio Department of Economics, Osaka University of Economics,
Osaka,Japan
HoshikawaTakeshi Faculty of Economics, Kindai University, Higashi-Osaka,
Japan
InagakiKazuyuki DepartmentofEconomics,NanzanUniversity,Nagoya,Japan
xi
