Essays on international macroeconomics and finance

Abstract

This thesis consists of two independent chapters on international macroeconomics and finance.

In Chapter 1, I study how changes in U.S. monetary policy affect the bond issuance activities of firms and consequently influence investment outcomes. Using issuance-level and firm-level data from 30 countries, I provide cross-country empirical evidence supporting the existence of a novel "International Bond Issuance Channel" for U.S. monetary policy transmission. In response to a 100 bps decrease in the U.S. interest rate, firms increase the issuance amount of newly issued bonds by approximately 16% and extend the duration by a year. This effect spills over to other countries and is not limited to dollar-denominated bonds, but local currency-denominated bonds are less affected by such shocks. The changes in issuance characteristics subsequently impact firms' investment decisions. Those that issue larger or longer bonds become less responsive to monetary policy.

In Chapter 2, we examine how the comovement of sovereign bond spreads with the global risk factors depends on the holding of different types of foreign institutional investors. We constructed a new database of foreign investor base for sovereign bonds from 45 countries, and documented that 10% higher ex-ante insurance companies and pension funds (ICPF) ownership can reduce the impact of global risk factor on government bond yields by 37%. Additionally, we identified exogenous changes in the investor base through an event study framework, with seven inclusion and exclusion events in the JPM GBI-EM index. Our finding shows that inflows from investment funds into the event country result in an increased sensitivity to global risk factors following these shocks. Consequently, foreign long-term institutional investors play a crucial role in safeguarding global financial stability by insulating government borrowing costs from global risks.