The Second Wave of Global Liquidity: Why are Firms Acting Like Financial Intermediaries?

41 Pages Posted: 12 Nov 2015

See all articles by Julián Caballero

Julián Caballero

Inter-American Development Bank (IDB) - Research Department

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Date Written: November 2015

Abstract

Recent work suggests that non-financial firms have acted like financial intermediaries particularly in emerging economies. We corroborate these findings but then ask why? Our results indicate evidence for carry-trade activities but focused in countries with higher levels of capital controls, particular controls on inflows. We find little evidence for such activities given other potential motives. We posit that this phenomenon is due more to the reaction to low global interest rates and strong capital inflows than to incomplete markets or the retreat of global banks due to impaired balance-sheets or tighter regulations.

Keywords: bond issuance, capital controls, carry-trade, corporate finance, currency mismatches

JEL Classification: E51, F30, F33

Suggested Citation

Caballero, Julian and Panizza, Ugo and Powell, Andrew P. and Powell, Andrew P., The Second Wave of Global Liquidity: Why are Firms Acting Like Financial Intermediaries? (November 2015). CEPR Discussion Paper No. DP10926, Available at SSRN: https://ssrn.com/abstract=2689148

Julian Caballero (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR ( email )

London
United Kingdom

Andrew P. Powell

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina
+5411 4787-9349 (Phone)
+5411 4783-3220 (Fax)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

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