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The foreign reserves sufficiency is important to maintain macroeconomic stability. The main objective of this paper is to model the behaviour of the central bank in accumulating the foreign reserves in the case of Indonesia. Unlike the previous empirical studies, this paper disaggregates the components of foreign reserves into foreign currency, securities, gold, and special drawing rights. This paper relies on the Almost Ideal Demand System combined with the Error Correction Model. The estimation result for monthly data over the period 2010(1)-2020(12) reveals that the own-price coefficients are negative and statistically significant which is consistent with the standard theory of demand. While the foreign currency-securities pairwise is substitutive, the foreign currency-gold and the foreign currency-special drawing rights pairwise are complementary or even independent. However, the wealth effect is inelastic except for securities reserves. These results imply that the central bank of Indonesia can re-balance its reserves. The securities holding which have the highest proportion of foreign reserve scan be switched to foreign currency, gold, and/or special drawing rights. The rebalancing measures would remain having an optimal level of foreign reserves holding in terms of its opportunity cost. Therefore, the monetary authority can conduct a further macroeconomic stabilisation without substantially losing the returns.

The founders of the Bretton Woods System 60 years ago were primarily concerned with orderly exchange rate adjustment in a world economy that was characterized by widespread restrictions on international capital mobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for the international monetary system. In particular, large gross cross-holdings of foreign assets and liabilities mean that the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional trade balance channel. Accordingly, this paper empirically explores some of the interconnections between financial globalization and exchange rate adjustment and discusses the policy implications.

Using a hand-collected sample of U.S. multinational firms’ foreign and domestic cash holdings, we evaluate the earnings persistence implications of changes in foreign and domestic cash and whether stock prices reflect these implications. Building on the earnings decomposition approach in Dechow, Richardson, and Sloan 2008 Journal of Accounting Research, 46 (3): 537–566, we find that, in the overall sample, changes in foreign cash are as persistent for future earnings as changes in domestic cash. In the cross-section, we find that foreign cash changes have higher persistence when foreign operations offer better growth opportunities and when repatriation taxes are lower. We then examine whether investors correctly price the persistence implications of foreign and domestic cash changes. We find a positive association between current foreign cash changes and one-year-ahead stock returns, suggesting that investors underreact to foreign cash changes or equivalently underestimate the earnings persistence of foreign cash changes. We further document that investors are more likely to misprice foreign cash changes when information processing costs are higher and when firms have poorer information environments. Our study sheds light on a recent paper by Harford, Wang, and Zhang 2017 The Review of Financial Studies 30 (5): 1490–1538, who find that investors discount foreign cash changes, which they attribute to agency costs and investment inefficiencies. Our findings suggest that the discount is more likely due to investor mispricing of foreign cash changes.

Multinational corporations can organize indirect ownership chains with foreign equity holding companies in countries with low taxes and favorable tax treaties. This paper examines the relationship between tax treaty networks, multinational ownership chains, and effective tax rates by combining ownership and accounting data of multinational corporations with a network analysis of tax treaties. Empirical results suggest that multinational corporations organize direct or indirect ownership chains, consistent with the structure of tax-minimizing routes in a treaty network. The existence of a tax-minimizing direct route is estimated to decrease the probability of using a foreign equity holding company in an ownership chain by 6.2 percentage points. The existence of a tax-minimizing indirect route via a country is estimated to increase the probability of locating a foreign equity holding company in the country by 22.0 percentage points. Furthermore, multinational corporations appear to reduce their effective tax rates by using foreign equity holding companies in ownership chains.

We evaluate the change in international reserves in the aftermath of significant external shocks by using a quasi-experimental setup and focusing on earthquakes. Our objective is to understand the macroeconomic dynamics of quake-affected countries ex-post, and their ex-ante disaster risk mitigation strategies. The estimation is done on a panel of 103 countries over the period 1979–2016. We find that in the five years following a large earthquake: (i) Countries exposed to it accumulate reserves ex-post for precautionary reasons, supported by the inflows of foreign assistance and money expansion; (ii) Quake-prone countries tend to hold fewer reserves relative to the non-prone countries, suggested by the richer set of other disaster preventive measures in place for the former; (iii) The patterns of reserves holding post-earthquake vary with a country’s income level and other macroeconomic fundamentals.

This paper presents a new model for studying international capital flows and debt dynamics that emphasizes the role played by expectations concerning future trade flows and returns. I use the model to estimate the drivers of the U.S. external position and capital flows between 1973 and 2008. The estimates show that most of the secular rise in U.S. international indebtedness is attributable to growing optimism about future returns on U.S. holdings of foreign equity and FDI assets. They also show that the transformation of world savings into risky assets by the U.S. had little effect on its external position, but the expected future real depreciation of the dollar allowed the U.S. to sustain a higher level of international debt after the 1990s.

The paper employs various measures of foreign ownership and investigates impact of foreign ownership on value of firms in Australia. We find that both, traditional measure and free float measure of foreign ownership has a positive and significant impact on firm value. We also find that foreign institutional holdings in Australian firms’ have a significant and positive impact on firm value. Results are robust to various econometric estimation techniques. Our results have implications for investors and corporate financial policies.

We construct estimates of external assets and liabilities for 145 countries for the period 1970-2004. We describe our estimation methods and present key features of the data at the country and the global level. We focus on trends in net and gross external positions, and the composition of international portfolios, distinguishing between foreign direct investment, portfolio equity investment, official reserves, and external debt. We document the increasing importance of equity financing and the improvement in the external position for emerging markets, and the differing pace of financial integration between advanced and developing economies. We also show the existence of a global discrepancy between estimated foreign assets and liabilities, and identify the asset categories that account for this discrepancy.