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The second wave of global liquidity: Why are firms acting like financial intermediaries?

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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 infl‡ows. 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 infl‡ows than to incomplete markets or the retreat of global banks due to impaired balance-sheets or tighter regulations.

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  • Julian Caballero & Ugo Panizza & Andrew Powell, 2015. "The second wave of global liquidity: Why are firms acting like financial intermediaries?," IHEID Working Papers 21-2015, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp21-2015
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    More about this item

    Keywords

    Corporate finance; bond issuance; currency mismatches; carry-trade; capital controls;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F30 - International Economics - - International Finance - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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