The financial channel of exchange rates operates through changes in risk-taking by investors and is reflected in the response of financial conditions to exchange rate movements. We show that stock returns also reflect the financial channel of exchange rates, with higher local currency stock...

In emerging market economies, currency appreciation goes hand in hand with compressed sovereign bond spreads, even for local currency sovereign bonds. This yield compression comes from a reduction in the credit risk premium. Crucially, the relevant exchange rate involved in yield compression is...

Currency appreciation against the US dollar is associated with the compression of emerging market economy (EME) sovereign yields. We find that this yield compression is due to reduced risk premiums rather than expectations of interest rates already priced into forward rates. We explore a model...

We assess the effectiveness of macroprudential policies in 12 Asia-Pacific economies, using comprehensive databases of capital flow measures (CFMs) and domestic macroprudential measures. We show that banking sector CFMs and bond market CFMs are effective in slowing down banking inflows and bond...

Open-end mutual funds face redemptions by investors, but the sale of the underlying assets depends on the portfolio decision of asset managers. If asset managers use their cash holding as a buffer to meet redemptions, they can mitigate fire sales of the underlying asset. If they hoard cash in...

This paper provides a comparative assessment of the effectiveness of macroprudential policies in 12 Asia-Pacific economies, using comprehensive databases of domestic macroprudential policies and capital flow management (CFM) policies. We find that banking sector CFM polices and bond market CFM...