Wednesday, November 18, 2009

The Financial Crisis and U.S. Cross-Border Financial Flows

Carol C. Bertaut and Laurie Pounder of the Federal Reserve's International Division have put together some great data on cross border flows during the financial crisis.

Clearly the financial crisis caused significant changes in the composition of U.S. cross-border financial flows, especially in the fall of 2008, when the crisis intensified.

Their article details three major channels through which financial flows and associated portfolio positions were affected:

(1) “flight to safety” shifts away from riskier securities and toward investments in safe and liquid markets, particularly U.S. Treasury securities

(2) unusual flows through the banking system resulting from a shortage of dollar liquidity abroad and a breakdown in interbank markets

(3) a pullback from cross-border positions during the crisis.

These are the initial and obvious conclusions from the paper, but this is really the inside data. For academics and serious traders there is apt to be some real hidden gems of information in this report.There is a lot to look at here.

Here it is. Enjoy

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