Public Safe Assets Determination

2020

JES

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PurposeThe author studies the role of safe assets accumulation in shaping the pattern of international capital flows.Design/methodology/approachThe author combines a theoretical model and the empirical analysis. The model is a two-country open economy, while the evidence is based on a fixed-effect regression on a panel of 19 countries of the eurozone.FindingsIn an open two-country economy, a positive productivity shock raises both mean and variance of wealth accumulation rate, then, leading to a greater holding of safe assets for risk-sharing motivation. Upon financial integration, the shock can induce the outflows of net total capital. The evidence of 19 eurozone countries confirms the theory and also uncovers that the safe assets (bonds) are the dominant driver of cross-border capital flows within the eurozone.Research limitations/implicationsThe model can be extended to account for the impact of safe assets on the economic growth, then, analyzes the role of safe assets within financial globalization. Taking into account the impact of safe assets on the open-economy economic growth can be the next step to approach the issue.Practical implicationsThe paper also provides important policy implication. Since a higher productivity level can raise the outflows of net total capital through the accumulation of foreign safe assets, an economy needs to increase its supply of safe asset along with upgrading its domestic productivity level. This combination is important for the long-run capital accumulation and economic growth of an economy with an increasing path of the productivity level.Originality/valueThe paper seeks a balance between theory and evidence on international capital flows. Moreover, the paper bridges the gap between the literature on international capital flows and the literature on safe assets. And the paper also focuses on the economies of the eurozone.

Section: Introductionmentioning

confidence: 99%

International capital flows with safe assets accumulation

2020

JES

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External Debts and Economic Growth when Debt Rating Matters

J. Intl Econ. Comm. Policy.

2021

The paper investigates the dependence pattern of economic growth on external debt supply by accounting for the safety of debts, measured by the sovereign debt rating. The method of cross-section regression is based on a sample of 145 advanced and developing economies with averaged data over the 1990–2019 period. The pattern of economic growth follows a U-shaped curve, for which the growth rate is first decreasing and then increasing on the external debt supply. A possible explanation can rely on the sovereign debt rating. For low supply of external debts, more supply of debts reduces the debt rating, which, in turn, lowers the economic growth rate. But for high enough supply of debts, more debts raise their rating, improving the growth rate. These results are robust on controlling for various determinants of economic growth and on the fixed effect panel regression.

International Debts Flows

J. Intl Econ. Comm. Policy.

Thi

Tri³

2022

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This paper analyzes the dependence pattern of net debts inflows on the sovereign debts rating and the fiscal balance, on accounting for the productivity growth rate. The cross-section evidence on a sample of 149 economies for the period from 1990 to 2019 uncovers that a higher sovereign debts rating, a lower fiscal balance or a higher productivity growth is associated with more net debts inflows. Thus, the debts flows are underlined by the store of wealth accumulation across economies. Moreover, there exists a nonlinearity on the pattern of debts flows, for which the fiscal balance determines the impact of sovereign debts rating on the net debts inflows. The results are robust for panel data regression as well as case study of three economies including Japan, Thailand and Vietnam.