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Purpose: Credit rating agencies (CRAs) are perceived as highly influential in the financial system since their announcements can affect several players in the financial markets, from big private financial and non-financial companies and their financial markets experts to sovereign states. In this sense, this study investigates whether sovereign credit news issued by CRAs (measured by comprehensive credit rating (CCR) variables) affect the uncertainties about the exchange rate in the future (captured by the disagreement about exchange rate expectations). The study is relevant once there is evidence indicating that CRAs' assessments are responsible for affecting international capital flows and, thus, sovereign rating changes can affect the expectations formation process regarding the exchange rate. In addition, there is evidence indicating that the disagreement about exchange rate expectations affects the disagreement about inflation expectations, which brings consequences to policymakers. Design/methodology/approach: The dependent variables are the disagreement in expectations about the Brazilian exchange rate for different forecast horizons, 12, 24 and 36 months ahead and the first principal component of theses series. On the other hand, the CCR variables are built upon the long-term foreign-currency Brazilian bonds ratings, outlooks and credit watches provided by the main CRAs. Estimates are obtained using ordinary least squares (OLS) and generalized method of moments (GMM); a dynamic analysis is performed using vector-autoregressive (VAR) through impulse-response functions. Findings: Negative (positive) sovereign credit news, given by a rating downgrade (upgrade) and/or a negative (positive) outlook/watch status, increase (decrease) the disagreement about exchange rate expectations. This result holds for all disagreement and CCR variables. Practical implications: The study brings practical implications to both private agents (mainly financial market experts) and policymakers. An important practical implication of the study concerns the ability of CRAs to affect the expectations formation process of financial market experts regarding the future behavior of the exchange rate. When a CRA issues a signal of improvement in a country's sovereign rating, this signal reflects the perception of improvement in macroeconomic fundamentals and reduction of uncertainties about the country's ability to honor its financial obligations, which therefore, facilitates the expectations formation process, causing a reduction in the disagreement about the exchange rate expectations. With respect to the consequences for policymakers, they will have more difficulty in guiding expectations in a country with a worse sovereign risk rating, where agents have difficulties in forming expectations and the disagreement in expectations is greater. Originality/value: The study is the first to analyze the impact of CRAs' announcements on the disagreement about exchange rate expectations. Moreover, it connects the literature that investigates the effects of sovereign credit news on the economy with the literature that examines the main determinants of disagreement in expectations about macroeconomic variables. [ABSTRACT FROM AUTHOR]

The chapter first emphasizes the aspects which Steuart (1767), Thornton (1802), Tooke (1844, 1838-1857), and Keynes (1923) have in common about the relation between the exchange rate and the short-term rate of interest: they all considered a temporary unfavorable foreign balance caused by an asymmetrical exogenous shock, which called for a discretionary policy favoring international short-term capital inflows to overcome the consequences of the deficit. These aspects draw an unorthodox genealogy on this issue between the four authors, contrary to the tradition originating in Hume and developed later by the British monetary orthodoxy. Secondly, the chapter shows that there was an analytical progress from Steuart (1767) to Keynes (1923), which however faced a limit: if it reinforced an unorthodox genealogy, it did not integrate the modern idea according to which international short-term capital movements may themselves be a source of external disequilibrium. The origin of this limit was probably in the question raised, which was the adjustment to an exogenous asymmetrical shock. [ABSTRACT FROM AUTHOR]

Purpose: This study empirically examines the effect of capital controls on the volume and composition of capital flows at aggregated as well as at disaggregated level by different asset classes such as debt, FDI, equity, and derivatives. Design/methodology/approach: Several dynamic panel SYS-GMM models are employed on two sets of unique data on cross-border capital flows and capital control index along with control variables at aggregated and disaggregated level by different asset classes during 1995–2015 for a sample of 31 Asian economies. Findings: Econometric findings suggest that higher capital controls effectively reduce gross capital flows. The reduction in gross capital flows is largely found to be on account of effectiveness of controls on equity flows. However, the impact of controls on overall debt and derivative flows is found to be insignificant. Further, it was found that an increase in direct capital controls disaggregated by inflow and outflow categories significantly reduced the inflow of debt and equity + FDI flows and outflow of equity + FDI and derivative flows. Finally, the study did not find any substitution effect (due to indirect controls) and net effect on capital flows. Practical implications: Results of such empirical examination may enable governments in respective countries to pursue prudent and rational capital controls as a shield against capital flight and shock transmission. Social implications: Preventing capital flight through effective controls has macroeconomic benefits such as maintaining stability in income, growth, interest rate, exchange rate, and employment levels for the society. Originality/value: The primary contribution of the study is the analysis of effectiveness of capital controls disaggregated by different asset categories such as debt, equity, FDI, and derivatives using two unique recent data sets for a large sample of Asian economies. [ABSTRACT FROM AUTHOR]

Purpose - To test the Feldstein-Horioka hypothesis that the investment-to-output ratio moves one-for-one with the saving-to-output ratio, suggesting international capital mobility. Design/methodology/approach - The paper uses the econometric framework developed by Fisher and Seater, interpreting the Feldstein-Horioka hypothesis as a long-run phenomenon, and paying particular attention to the integration properties of the data, since meaningful tests critically depend on these properties. The paper also investigates the power of the long-horizon regression tests, using the inverse power function of Andrews. Findings - The paper tests the Feldstein-Horioka hypothesis for 15 European countries, as well as for the USA and Japan, using annual data for the period from 1960 to 2002. Evidence is found against the Feldstein and Horioka hypothesis of low international capital mobility. Originality/value - Although the findings are in contrast to those of Feldstein and Horioka, they are consistent with neoclassical growth theory according to which there is no reason to expect a relation between saving and investment if there are no barriers to capital movements. [ABSTRACT FROM AUTHOR]