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

46 Pages Posted: 25 Apr 2017

See all articles by Julián Caballero

Julián Caballero

Inter-American Development Bank (IDB)

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: May 2016

Abstract

Recent work suggests non-financial firms have acted like financial intermediaries particularly in emerging economies. This paper corroborates these findings but then asks "why?" The results indicate evidence for carry-trade activities, but they are focused on countries with higher levels of capital controls, particular controls on inflows. There is little evidence for such activities given other potential motives. It is posited that this phenomenon is due more to the reaction of countries in the face of low global interest rates, quantitative easing and strong capital inflows than incomplete markets or the retreat of global banks due to impaired balance sheets or tighter regulations.

Keywords: Corporate finance, Bond issuance, Currency mismatch, Carry trade, Capital controls

JEL Classification: E51, F30, F33

Suggested Citation

Caballero, Julián and Panizza, Ugo and Powell, Andrew P. and Powell, Andrew P., The Second Wave of Global Liquidity: Why are Firms Acting Like Financial Intermediaries? (May 2016). IDB Working Paper No. IDB-WP-641, Available at SSRN: https://ssrn.com/abstract=2956681 or http://dx.doi.org/10.2139/ssrn.2956681

Julián Caballero (Contact Author)

Inter-American Development Bank (IDB)

1300 New York Avenue NW
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United States

Ugo Panizza

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

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Geneva, 1202
Switzerland

CEPR ( email )

London
United Kingdom

Andrew P. Powell

Universidad Torcuato Di Tella - School of Business ( email )

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Argentina
+5411 4787-9349 (Phone)
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Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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

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