Jarocinski and Karadi (2020) proposed a straightforward method to deconstruct monetary policy surprises into pure monetary policy shocks and central bank information shocks by exploiting the opposite-signed comovement between stock price surprises and the two shocks. They highlighted that the shocks bring about significantly different effects on the economy. Expanding upon their approach, this paper examines and compares a variety of alternative instruments, including New Keynesian- and Fama-French factor-based, for the decomposition of monetary policy surprises. Our results collectively suggest that Fama-French's High-minus-Low factor is a valuable navigator, almost comparable to stock price surprises.

Non-resident portfolio flows into emerging markets are highly concentrated, dominated by a few large institutional investors, known as "investment giants." Using local projection regressions on monthly fund-level data, we demonstrate the substantial influence these giants have on other investors and aggregate market outcomes. Their contrarian investment decisions, measured as their excess growth relative to peers or the market, consistently predict future equity inflows, exchange rate movements, and stock market indices. These findings suggest the potential benefits of monitoring their activities as early indicators of market movements and financial instability in emerging economies.

This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.

This study, building upon theoretical frameworks incorporating portfolio decisions of institutional investors and fund flows, proposes a conditional asset pricing model to explain the cross-section local currency bond returns in emerging markets. We find that bonds whose returns covary positively (negatively) with the returns on foreign investors’ portfolios exhibit higher (lower) average returns. The price of this type of risk increases with capital outflows, and bonds whose returns are higher on average exhibit a higher exposure when the price of risk is high. These results have important implications for the development of the local currency bond market.

This paper investigates the role of global confidence cycles, measured as the common factor across a wide range of business or consumer confidence indicators, played in macroeconomic and financial fluctuations across 39 countries. We employ a factor-augmented vector autoregression model, where global confidence shocks are identified through recursive restrictions. Our results reveal two principal findings. First, the global confidence cycle has acted as a key driver in macroeconomic fluctuations, accounting for more than a quarter of total variation in industrial production and unemployment rates over 1985-2019, based on  median across countries. Second, the transmission of global confidence shocks to domestic variables was significant in most countries although it was more pronounced in advanced economies than in emerging market and developing economies.  

This paper studies the wedge between the interest rate implied by Euler equation and money market rate in five small open economies – Australia, Canada, Finland, Korea, and the U.K. Standard Euler equation predicts strongly positive relationship between the two interest rates. However, data shows significantly large wedge between them, which causes negative correlation. We explore the systemic link between the wedge and two possible influencing factors – monetary policy and net foreign asset position. The empirical results from our analysis deliver the important message that the wedge is closely related to net foreign asset position in open economies, while its relationship to the stance of monetary policy has mixed results.