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Papers by Carlos Velmovitsky van Hombeeck

Social Science Research Network, 2020

We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new ... more We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new dataset on Individual Liquidity Guidance (ILG), which was enacted in the UK from 2000 to 2015 and is similar to the Basel III Liquidity Coverage Ratio. A one percentage point increase in liquidity requirements to total assets reduces UK resident banks' cross-border lending growth by around 0.6 percentage points and both bank and non-bank lending are affected. But quality matters: an increase in the holdings of High Quality Liquid Asset (HQLA) qualifying sovereign debt offsets some of the reduction in total cross-border lending growth. Furthermore, the strongest reduction is driven by foreign subsidiaries from countries where sovereigns do not issue HQLA; in contrast subsidiaries from countries issuing HQLA are able to protect their lending to unrelated entities and cut their intragroup lending instead. Banks with a higher deposit share as a consequence of established retail operations, such as those headquartered in the UK, are also able to offset the effects of increases of liquidity requirement on cross-border lending.

Social Science Research Network, 2015

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to... more Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.

Social Science Research Network, 2020

This paper studies the sudden stop in capital flows that emerging markets experienced throughout ... more This paper studies the sudden stop in capital flows that emerging markets experienced throughout the first months of the pandemic. First, we find that the sudden stop in capital flows was strongly affected by lower portfolio investments by non-bank financial intermediaries: for many emerging markets, the magnitude of the sudden stop exceeded that of the Global Financial Crisis. Second, we show that emerging markets adopted expansionary fiscal and monetary policies to deal with the sudden stop and the resultant recession; moreover, the use of macroprudential measures and unconventional monetary policy are part of a wider policy toolkit, compared with other crises. Third, we estimate the adequacy of current IMF resources if emerging markets were hit by a systemic sudden stop. We find that the IMF's resources are adequate in the event of a moderate sudden stop; in the event of a more severe scenario, the financing needs of emerging markets could go beyond the IMF's lending capacity, even after the other layers of the global financial safety net have been deployed.

IMF Economic Review, Mar 20, 2017

Low-income countries (LICs) are typically characterized by intermittent and very modest access to... more Low-income countries (LICs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to these economies this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows to LICs. Concentrating on LICs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LICs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows to LICs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LICs are on average much lower than those to EMs, we show that gross non-FDI inflows to the top quartile of LICs are comparable to those of the median EM and converging to the top quartile of EMs.

Social Science Research Network, 2017

IMF Working Papers, 2015

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to... more Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.

Social Science Research Network, Dec 15, 2017

Topical article The global role of the US dollar and its consequences Source: Bank calculations.

SSRN Electronic Journal, 2020

We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new ... more We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new dataset on Individual Liquidity Guidance (ILG), which was enacted in the UK from 2000 to 2015 and is similar to the Basel III Liquidity Coverage Ratio. A one percentage point increase in liquidity requirements to total assets reduces UK resident banks' cross-border lending growth by around 0.6 percentage points and both bank and non-bank lending are affected. But quality matters: an increase in the holdings of High Quality Liquid Asset (HQLA) qualifying sovereign debt offsets some of the reduction in total cross-border lending growth. Furthermore, the strongest reduction is driven by foreign subsidiaries from countries where sovereigns do not issue HQLA; in contrast subsidiaries from countries issuing HQLA are able to protect their lending to unrelated entities and cut their intragroup lending instead. Banks with a higher deposit share as a consequence of established retail operations, such as those headquartered in the UK, are also able to offset the effects of increases of liquidity requirement on cross-border lending.

IMF Working Papers, 2015

Low-income countries (LIDCs) are typically characterized by intermittent and very modest access t... more Low-income countries (LIDCs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to LIDCs this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows in LIDCs. Concentrating on LIDCs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LIDCs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LIDCs are on average much lower than those to EMs, we show that the LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converging to the EM top quartile inflow.

IMF Economic Review, 2017

Low-income countries (LICs) are typically characterized by intermittent and very modest access to... more Low-income countries (LICs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to these economies this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows to LICs. Concentrating on LICs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LICs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows to LICs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LICs are on average much lower than those to EMs, we show that gross non-FDI inflows to the top quartile of LICs are comparable to those of the median EM and converging to the top quartile of EMs.

SSRN Electronic Journal, 2017

The exorbitant privilege literature analyses the positive returns differential on net foreign ass... more The exorbitant privilege literature analyses the positive returns differential on net foreign assets enjoyed by the United States in the last quarter of the twentieth century as the issuer of the global reserve currency. In the first age of international financial integration (1871-1914), the global reserve currency was the British pound sterling. Whether the United Kingdom enjoyed a similar privilege is analysed with a new dataset, encompassing microdata on railroad and government financial securities. The use of microdata avoids the flaws that have plagued the US studies, particularly the use of incompatible aggregate variables. A monthly proxy for the British international investment position is constructed and estimates for capital gains and dividend yields obtained. The estimation points to an average privilege of 8.3% of GDP, with high variation. The finding supports the claim that in part exorbitant privilege is a general characteristic of the issuer of the global reserve currency and not unique to the late twentieth century US. Nonetheless, a decomposition of returns shows that there were fundamental differences between prewar Britain and the late twentieth century US investment patterns and their response to the advantage presented by exorbitant privilege.

Social Science Research Network, 2020

We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new ... more We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new dataset on Individual Liquidity Guidance (ILG), which was enacted in the UK from 2000 to 2015 and is similar to the Basel III Liquidity Coverage Ratio. A one percentage point increase in liquidity requirements to total assets reduces UK resident banks' cross-border lending growth by around 0.6 percentage points and both bank and non-bank lending are affected. But quality matters: an increase in the holdings of High Quality Liquid Asset (HQLA) qualifying sovereign debt offsets some of the reduction in total cross-border lending growth. Furthermore, the strongest reduction is driven by foreign subsidiaries from countries where sovereigns do not issue HQLA; in contrast subsidiaries from countries issuing HQLA are able to protect their lending to unrelated entities and cut their intragroup lending instead. Banks with a higher deposit share as a consequence of established retail operations, such as those headquartered in the UK, are also able to offset the effects of increases of liquidity requirement on cross-border lending.

Social Science Research Network, 2015

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to... more Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.

Social Science Research Network, 2020

This paper studies the sudden stop in capital flows that emerging markets experienced throughout ... more This paper studies the sudden stop in capital flows that emerging markets experienced throughout the first months of the pandemic. First, we find that the sudden stop in capital flows was strongly affected by lower portfolio investments by non-bank financial intermediaries: for many emerging markets, the magnitude of the sudden stop exceeded that of the Global Financial Crisis. Second, we show that emerging markets adopted expansionary fiscal and monetary policies to deal with the sudden stop and the resultant recession; moreover, the use of macroprudential measures and unconventional monetary policy are part of a wider policy toolkit, compared with other crises. Third, we estimate the adequacy of current IMF resources if emerging markets were hit by a systemic sudden stop. We find that the IMF's resources are adequate in the event of a moderate sudden stop; in the event of a more severe scenario, the financing needs of emerging markets could go beyond the IMF's lending capacity, even after the other layers of the global financial safety net have been deployed.

IMF Economic Review, Mar 20, 2017

Low-income countries (LICs) are typically characterized by intermittent and very modest access to... more Low-income countries (LICs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to these economies this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows to LICs. Concentrating on LICs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LICs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows to LICs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LICs are on average much lower than those to EMs, we show that gross non-FDI inflows to the top quartile of LICs are comparable to those of the median EM and converging to the top quartile of EMs.

Social Science Research Network, 2017

IMF Working Papers, 2015

Using a newly developed dataset this paper examines the cyclicality of private capital inflows to... more Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.

Social Science Research Network, Dec 15, 2017

Topical article The global role of the US dollar and its consequences Source: Bank calculations.

SSRN Electronic Journal, 2020

We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new ... more We examine how banks' cross-border lending reacts to changes in liquidity regulation using a new dataset on Individual Liquidity Guidance (ILG), which was enacted in the UK from 2000 to 2015 and is similar to the Basel III Liquidity Coverage Ratio. A one percentage point increase in liquidity requirements to total assets reduces UK resident banks' cross-border lending growth by around 0.6 percentage points and both bank and non-bank lending are affected. But quality matters: an increase in the holdings of High Quality Liquid Asset (HQLA) qualifying sovereign debt offsets some of the reduction in total cross-border lending growth. Furthermore, the strongest reduction is driven by foreign subsidiaries from countries where sovereigns do not issue HQLA; in contrast subsidiaries from countries issuing HQLA are able to protect their lending to unrelated entities and cut their intragroup lending instead. Banks with a higher deposit share as a consequence of established retail operations, such as those headquartered in the UK, are also able to offset the effects of increases of liquidity requirement on cross-border lending.

IMF Working Papers, 2015

Low-income countries (LIDCs) are typically characterized by intermittent and very modest access t... more Low-income countries (LIDCs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to LIDCs this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows in LIDCs. Concentrating on LIDCs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LIDCs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows in LIDCs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LIDCs are on average much lower than those to EMs, we show that the LIDC top quartile gross non-FDI inflow is comparable to the EM median inflow and converging to the EM top quartile inflow.

IMF Economic Review, 2017

Low-income countries (LICs) are typically characterized by intermittent and very modest access to... more Low-income countries (LICs) are typically characterized by intermittent and very modest access to private external funding sources. Motivated by recent developments in private flows to these economies this paper makes two contributions: First, it constructs a new comprehensive dataset on gross private capital flows with special focus on non-FDI flows to LICs. Concentrating on LICs and more specifically on gross non-FDI private flows is intentionally aimed at closing a gap in existing datasets where country coverage of developing economies is limited mainly to emerging markets (EMs). Second, using the new data, it identifies several shifting patterns of gross non-FDI private inflows to LICs. A surprising fact emerges: since the mid 2000's periods of surges in gross non-FDI private inflows to LICs are broadly comparable to those of EMs. Moreover, while gross non-FDI inflows to LICs are on average much lower than those to EMs, we show that gross non-FDI inflows to the top quartile of LICs are comparable to those of the median EM and converging to the top quartile of EMs.

SSRN Electronic Journal, 2017

The exorbitant privilege literature analyses the positive returns differential on net foreign ass... more The exorbitant privilege literature analyses the positive returns differential on net foreign assets enjoyed by the United States in the last quarter of the twentieth century as the issuer of the global reserve currency. In the first age of international financial integration (1871-1914), the global reserve currency was the British pound sterling. Whether the United Kingdom enjoyed a similar privilege is analysed with a new dataset, encompassing microdata on railroad and government financial securities. The use of microdata avoids the flaws that have plagued the US studies, particularly the use of incompatible aggregate variables. A monthly proxy for the British international investment position is constructed and estimates for capital gains and dividend yields obtained. The estimation points to an average privilege of 8.3% of GDP, with high variation. The finding supports the claim that in part exorbitant privilege is a general characteristic of the issuer of the global reserve currency and not unique to the late twentieth century US. Nonetheless, a decomposition of returns shows that there were fundamental differences between prewar Britain and the late twentieth century US investment patterns and their response to the advantage presented by exorbitant privilege.