Galina Hale

Research Advisor

Risk Modeling Research

International finance, International banking, Capital flows

Galina.b.Hale (at)


Galina Hale, Research Advisor, Federal Reserve Bank San Francisco

Show less Current Unpublished Working Papers

The Rise in Home Currency Issuance
2014-19 | With Jones and Spiegel | October 2014

+ abstract
Using a large sample of private international bond issues, we document a substantial decline in the share of international bonds denominated in major reserve currencies over the last two decades, and an increase in bonds denominated in issuers’ home currencies. These secular trends appear to have accelerated notably after the global financial crisis. Observed increases in home currency foreign bond issuance was larger in countries with stable inflation and lower government debt, and in emerging markets that adopted explicit inflation targeting policies. We then present a model that demonstrates how the global financial crisis could have a persistent impact on home currency bond issuance. Firms that issue for the first time in their home currencies during disruptive episodes, such as the crisis, find their relative costs of issuance in home currencies remain lower after conditions return to normal, due to the increased depth of the home currency market. Empirically, we show that countries with more stable inflation and lower government debt were more likely to benefit from the opportunity to switch to home currency foreign bond issuance presented by the crisis.

The Euro and the Geography of International Debt Flows
2014-10 | With Obstfeld | December 2014

+ abstract
Greater financial integration between core and peripheral EMU members not only had an effect on both sets of countries but also spilled over beyond the euro area. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. We present a stylized model that illustrates possible mechanisms for these developments. We then analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery. Moreover, we present evidence that large core EMU banks’ lending to periphery borrowers was linked to their borrowing from outside of the euro area.

Bank Linkages and International Trade
2013-14 | With Candelaria, Caballero, and Borisov | June 2013

+ abstract
We show that bank linkages have a positive effect on international trade. We construct the global banking network (GBN) at the bank level, using individual syndicated loan data from Loan Analytics for 1990-2007. We compute network distance between bank pairs and aggregate it to country pairs as a measure of bank linkages between countries. We use data on bilateral trade from IMF DOTS as the subject of our analysis and data on bilateral bank lending from BIS locational data to control for financial integration and financial flows. Using gravity approach to modeling trade with country-pair and year fixed effects, we find that new connections between banks in a given country-pair lead to an increase in trade flow in the following year, even after controlling for the stock and flow of bank lending between the two countries. We conjecture that the mechanism for this effect is that bank linkages reduce the risk exporters face and present four sets of results that supports this conjecture.

Show less Published Articles (Refereed Journals and Volumes)

Financial Crises and the Composition of Cross-Border Lending
Forthcoming in Journal of International Money and Finance | With Cerutti and Minoiu

+ abstract
We examine the composition and drivers of cross-border bank lending between 1995 and 2012, distinguishing between syndicated and non-syndicated loans. We show that on-balance sheet syndicated loan exposures, which account for almost one third of total cross-border loan exposures, increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis. Our empirical analysis of the drivers of cross-border loan exposures in a large bilateral dataset leads to three main results. First, banks with lower levels of capital favor syndicated over other kinds of cross-border loans. Second, borrower country characteristics such as level of development, economic size, and capital account openness, are less important in driving syndicated than non-syndicated loan activity, suggesting a diversification motive for syndication. Third, information asymmetries between lender and borrower countries became more binding for both types of cross-border lending activity during the recent crisis.

Persistence of Regional Inequality in China
Forthcoming in Pacific Economic Review | With Candelaria and Daly

+ abstract
Regional inequality in China appears to be persistent and even growing in the last two decades. We study potential explanations for this phenomenon. After making adjustments for the difference in the cost of living across provinces, we find that some of the inequality in real wages could be attributed to differences in quality of labor, industry composition, labor supply elasticities, and geographical location of provinces. These factors, taken together, explain about half of the cross-province real wage difference. Interestingly, we find that inter-province redistribution did not help offset regional inequality during our sample period. We also demonstrate that inter-province migration, while driven in part by levels and changes in wage differences across provinces, does not offset these differences. These results imply that cross-province labor market mobility in China is still limited, which contributes to the persistence of cross-province wage differences.

Productivity Spillovers from FDI in the People’s Republic of China: A Nuanced View
Asian Development Review 31 (2), September 2014, 77-108 | With Long and Miura

+ abstract
Using panel data from the Chinese Industrial Surveys of Medium-sized and Large Firms for 2000–2006, we show that the presence and the magnitude of technological spillovers from FDI in the People’s Republic of China are affected by the source of FDI, by the ownership type of a firm in consideration, as well as by industrial and provincial characteristics. Private firms are more likely to benefit from horizontal spillovers than other domestic firms, but are less likely to benefit from vertical ones. Presence of state-owned firms in the industry impedes technological spillovers in a way that is consistent with diversion of linkages from private to state-owned firms. Finally, horizontal spillovers are larger in industries that are more technologically sophisticated.

Gender Ratios at Top PhD Programs in Economics
Economics of Education Review 41, Summer 2014, 55-70 | With Regev

+ abstract
Analyzing university faculty and graduate student data for the top-ten U.S. economics departments between 1987 and 2007, we find that there are persistent differences in gender composition for both faculty and graduate students across institutions and that the share of female faculty and the share of women in the entering PhD class are positively correlated. We find, using instrumental variables analysis, robust evidence that this correlation is driven by the causal effect of the female faculty share on the gender composition of the entering PhD class. This result provides an explanation for persistent underrepresentation of women in economics, as well as for persistent segregation of women across academic fields.

Stock Prices in the Presence of Liquidity Crises: The Effect of Creditor Protection
Economica 81(322), April 2014, 329-347 | With Razin and Tong

+ abstract
We develop a model predicting two channels through which creditor protection enhances the performance of stock prices: (1) The probability of a liquidity crisis leading to a binding investment-finance constraint falls with a strong protection of creditors; (2) The stock prices under the investment-constrained regime increase with better protection of creditors. We find empirical support for both predictions using data on stock market performance, amount and cost of credit, and creditor rights protection for 52 countries over the period 1980-2008. In particular, we find that better creditor protection is correlated across countries with lower average stock market volatility, crises are more frequent in countries with poor creditor protection. Using propensity score matching we also show that during crises stock market returns and investment fall by more in countries with poor creditor protection.

Do Banks Propagate Debt Market Shocks?
Journal of Financial Economic Policy 6(3), April 2014 | With Santos

+ abstract
Recent financial crisis demonstrated that the banking system can be a pathway for shock transmission. In this paper, we analyze how banks transmit shocks that hit the debt market to their borrowers. Our paper shows that when banks experience a shock to the cost of their bond financing, they pass a portion of their extra costs or savings to their corporate borrowers. While banks do not offer special protection from bond market shocks to their relationship borrowers, they also do not treat all of them equally. Relationship borrowers that are not bank-dependent are the least exposed to bond market shocks via their bank loans. In contrast, banks pass the highest portion of the increase in their cost of bond financing to their relationship borrowers that rely exclusively on banks for external funding. These findings show that banks put more weight on the informational advantage they have over their relationship borrowers than on the prospects of future business with these borrowers. They also show a potential side effect of the recent proposals to require banks to use CoCos or other long-term funding.

If You Try, You’ll Get By: Chinese Private Firms’ Efficiency Gains from Overcoming Financial Constraints
In The Evolving Role of China in the Global Economy, CESifo Seminar Series, ed. by Yin-Wong Cheung, Jacob de Haan | MIT Press, 2013 | With Long

+ abstract
In this paper we demonstrate that private firms in China have more difficult access to external finance than state owned firms and argue that they make adjustments to reduce their demand for external funds. In particular, we show that private firms have lower levels of inventory and trade credit and that these levels decrease with the difficulty of obtaining external finance. Nevertheless, we find no evidence that these lower levels of inventory and trade credit lead to lower productivity or profitability.

Currency Composition of International Bonds: The EMU Effect
Journal of International Economics 88(1), September 2012, 134-149 | With Spiegel

+ abstract
We analyze the impact that the launch of the EMU had on the currency denomination of private international bond issues in 1990-2006 using micro-level data. Our stylized model predicts that the introduction of the euro would lead to an increase in the share of euro-denominated debt and a decline in the share of dollar-denominated debt issued by firms located in countries outside both the United States and the euro area. Moreover, our model predicts that the euro effect would be particularly pronounced for nonfinancial firms. Our empirical results are consistent with these predictions. In addition, we find that among nonfinancial firms, the impact on new issuers is larger than on seasoned issuers. Extending the model to allow for differences in issuance volumes across future monetary union countries prior to integration, we also predict larger increases in euro-denominated issuance among firms from smaller monetary union countries. We confirm this prediction for international bond issues by euro-area firms.

Bank Relationships, Business Cycles, and Financial Crises
Journal of International Economics 88(2), January 2012, 312-325

+ abstract
The importance of information asymmetries in the capital markets is commonly accepted as one of the main reasons for home bias in investment. The effects of such asymmetries may potentially be reduced through relationships between banks established through bank-to-bank lending. To analyze the dynamics of formation of such relationships during 1980-2009, I construct a global banking network of 7938 banking institutions from 141 countries. I find that recessions and banking crises tend to have negative effects on the formation of new connections and that these effects are not the same for all countries or all banks. I also find that the global financial crisis of 2008-09 had a large negative impact on the formation of new relationships in the global banking network, especially by large banks, which were previously immune to effects of banking crises and recessions.

Did Foreign Direct Investment Put an Upward Pressure on Wages in China?
IMF Economic Review 59(3), November 2011, 404-430 | With Long

+ abstract
In this paper we study the extent to which foreign direct investment (FDI) could have contributed to recent increase in wages in China. Using a World Bank survey data set of 1500 Chinese enterprises conducted in 2002, we find that the presence of FDI has both direct and indirect effects on wages of skilled workers, while it does not appear to affect wages of production workers. Moreover, we find that the indirect effect of the FDI presence on wages of skilled workers is limited to private firms. We further find that observed quality of skilled workers in state owned enterprises (SOEs) declines in the presence of FDI in the same industry and region. We discuss potential reasons for such discrepancy in the FDI effects on private firms’ and SOEs’ labor practices. These findings highlight the relevance of labor market institutions in determining FDI spillovers.

Are There Productivity Spillovers from Foreign Direct Investment in China?
Pacific Economic Review 16(2), Spring 2011, 135-153 | With Long

+ abstract
We review previous literature on productivity spillovers of foreign direct investment (FDI) in China and conduct our own analysis using a firm-level data set from a World Bank survey. We find that the evidence of FDI spillovers on the productivity of Chinese domestic firms is mixed, with many positive results largely due to aggregation bias or failure to control for endogeneity of FDI. Attempting over 6000 specifications which take into account forward and backward linkages, we fail to find evidence of systematic positive productivity spillovers from FDI in China.

What Are the Sources of Financing for Chinese Firms?
In The Evolving Role of Asia in Global Finance, 9, ed. by Guonan Ma, Vikas Kakkar, and Yin-Wong Cheung | Emerald Group Publishing, 2011 | With Long

+ abstract
Despite China’s rapid economic growth in the past three decades, many of the reforms have not yet reached the financial sector. It is common knowledge that external financing in China is mostly limited to state-owned enterprises (SOEs) and is hard to obtain for smaller private firms. In this paper we take a closer look at internal and external, formal and informal, financing sources of Chinese firms during the period of rapid economic reform from 1997 to 2006. To this end we analyze balance-sheet data from the Chinese Industrial Surveys of Medium-sized and Large Firms for 2000-2006 and survey data from the Large-Scale Survey of Private Enterprises in China conducted in 1997, 2000, 2002, 2004, and 2006. The following stylized facts emerge from our analysis: (1) State-owned firms continue to enjoy significantly more generous external finances than other types of Chinese firms. (2) Chinese private firms have resorted to various ways of overcoming financial constraints, including reliance on the increasingly more mature informal financial markets, cost savings through lower inventory and other working capital requirements, and greater reliance on retained earnings. (3) There are substantial variations in financial access among private firms, while the small private firms face more financial constraints, the more established large private firms seem to have access to finances that are more equal to their SOE counterparts. (4) Although not as accessible as for SOEs, the Chinese formal financial sector does provide Chinese private firms with substantial financial resources, especially for their short-term needs during daily operations. And, (5) the most pressing financial constraint facing Chinese private firms is their limited ability to secure long-term funds to invest for growth, and resolving this issue should be one of the top goals of financial reforms in China.

Foreign Direct Investment and Incentives to Innovate and Imitate
Scandinavian Journal of Economics 111(4), December 2009, 835-861 | With Brambilla and Long

+ abstract
We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm-level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.

Currency Crises and Foreign Credit in Emerging Markets: Credit Crunch or Demand Effect?
European Economic Review 53(7), October 2009, 758-774 | With Arteta

+ abstract
Currency crises of the past decade highlighted the importance of balance-sheet effects of currency crises. In credit-constrained markets such effects may lead to further declines in credit. Controlling for a host of fundamentals, we find a systematic decline in foreign credit to emerging market private firms of about 25% in the first year following currency crises, which we define as large changes in real value of the currency. This decline is especially large in the first five months, lessens in the second year and disappears entirely by the third year. We identify the effects of currency crises on the demand and supply of credit and find that the decline in the supply of credit is persistent and contributes to about 8% decline in credit for the first two years, while the 35% decline in demand lasts only five months.

Do Banks Price Their Informational Monopoly?
Journal of Financial Economics 93(2), August 2009, 185-206 | With Santos

+ abstract
Modern corporate finance theory argues that although bank monitoring is beneficial to borrowers, it also allows banks to use the information they gain through monitoring to “hold-up” borrowers for higher interest rates. In this paper, we seek empirical evidence for this information hold-up cost. Since new information about a firm’s creditworthiness is revealed at the time of its first issue in the public bond market, it follows that after firms undertake their bond IPO, banks with an exploitable information advantage will be forced to adjust their loan interest rates downwards, particularly for firms that are revealed to be safe. We test this hypothesis by comparing banks’ loan pricing policies before and after borrowers gain access to public bond market. To isolate the information hold-up cost we further compare the change in the loan policies between borrowers that already had a credit rating at the time of their bond IPO and borrowers that get their first credit rating at that time. Our findings show that firms are able to borrow at lower interest rates after their bond IPO and that these savings are larger for safer firms. We also find that, among safe firms, those that get their first credit rating at the time of their bond IPO benefit from larger interest rate savings than those that already had a credit rating. These findings provide support for the hypothesis that banks price their informational monopoly. Finally, we find that while entering the public bond market may reduce these informational rents, it is also costly to firms because they have to pay higher underwriting costs on their IPO bond.

The Decision to First Enter the Public Bond Market: The Role of Firm Reputation, Funding Choices, and Bank Relationships
Journal of Banking and Finance 32(9), September 2008, 1928-1940 | With Santos

+ abstract
This paper uses survival analysis to investigate the timing of a firm’s decision to issue for the first time in the public bond market. We find that firms that are more creditworthy and have higher demand for external funds issue their first public bond earlier. We also find that issuing private bonds or taking out syndicated loans is associated with a faster entry to the public bond market. According to our results, the relationships that firms develop with investment banks in connection with their private bond issues and syndicated loans further speed up their entry to the public bond market. Finally, we find that a firm’s reputation has a “U-shaped” effect on the timing of a firm’s bond IPO. Consistent with Diamond’s reputational theory, firms that establish a track record of high creditworthiness as well as those that establish a track record of low creditworthiness enter the public bond market earlier than firms with intermediate reputation.

Sovereign Debt Crises and Credit to the Private Sector
Journal of International Economics 74(1), January 2008, 53-69 | With Arteta

+ abstract
We use micro-level data to analyze emerging markets’ private sector access to international debt markets during sovereign debt crises. We find that these crises are systematically accompanied by a decline in foreign credit to domestic private firms, both during debt renegotiations and for over two years after restructuring agreements are reached. This decline is large, statistically significant, and robust. We find that this effect is concentrated in the nonfinancial sector and is different for firms in the exporting and in the non-exporting sectors. We also find that the magnitude of the effect depends on the type of debt restructuring agreement.

Bonds or Loans? The Effect of Macroeconomic Fundamentals
The Economic Journal 117, January 2007, 196-215

+ abstract
The costs of debt crises are not invariant to the foreign debt instrument composition: bank loans or bonds. The lending boom of the 1990s witnessed considerable variation over time and across countries in the debt instrument used by emerging market (EM) borrowers. This paper tests how macroeconomic fundamentals affect the composition of international debt instruments used by EM borrowers. Analysis of micro-level data using ordered probability model shows that macroeconomic fundamentals explain a significant share of variation in the ratio of bonds to loans for private borrowers, but not for the sovereigns.

Rating Agencies and Sovereign Debt Rollover
Topics in Macroeconomics 6(2) Article 8, September 2006 | With Carlson

+ abstract
In order to explore how credit ratings may affect financial markets, we analyze a global game model of debt roll-over in which heterogeneous investors act strategically. We find that the addition of the rating agency has a non-monotonic effect on the probability of default and the magnitude of the response of capital flows to changes in fundamentals. We also establish that introducing a rating agency can bring multiple equilibria to a market that otherwise would have a unique equilibrium.

Flight to Quality: Investor Risk Tolerance and the Spread of Emerging Market Crises
In International Financial Contagion, ed. by Classens & Forbes | Kluwer, 2001 | With Eichengreen and Mody

World Experience in Fighting High Inflation
Vestnik Moscow State University 3, 1996, (in Russian)

Show less Books

Foreign Direct Invesment in China: Winners and Losers
2012 | World Scientific | Hale Long

Show less FRBSF Publications

Home Currency Issuance in Global Debt Markets
Economic Letter 2014-24 | August 18, 2014 | With Jones and Spiegel

Balance of Payments in the European Periphery
Economic Letter 2013-01 | January 14, 2013

Pricey Oil, Cheap Natural Gas, and Energy Costs
Economic Letter 2012-23 | August 6, 2012 | With Nechio

Are U.S. Corporate Bonds Exposed to Europe?
Economic Letter 2012-17 | June 4, 2012 | With Marks and Nechio

Commodity Prices and PCE Inflation
Economic Letter 2012-14 | May 7, 2012 | With Hobijn and Raina

Emerging Asia: Two Paths through the Storm
Economic Letter 2012-09 | March 26, 2012 | With Kennedy

The U.S. Content of “Made in China”
Economic Letter 2011-25 | August 8, 2011 | With Hobijn

Could We Have Learned from the Asian Financial Crisis of 1997-98?
Economic Letter 2011-06 | February 28, 2011

What Is China’s Capital Seeking in a Global Environment?
Economic Letter 2010-09 | March 22, 2010 | With Alon and Santos

Bank Relationships and the Depth of the Current Economic Crisis
Economic Letter 2009-38 | December 14, 2009 | With Caballero and Candelaria

Interprovincial Inequality in China
Economic Letter 2009-13 | April 10, 2009 | With Candelaria and Daly

The EMU Effect on the Currency Denomination of International Bonds
Economic Letter 2008-30 | September 26, 2008 | With Spiegel

Did Large Recalls of Chinese Consumer Goods Lower U.S. Imports from China?
Economic Letter 2008-17 | June 13, 2008 | With Candelaria

Do Monetary Aggregates Help Forecast Inflation?
Economic Letter 2007-10 | April 13, 2007 | With Jorda

Prospects for China’s Corporate Bond Market
Economic Letter 2007-07 | March 16, 2007

Show more Other Works

Book review: “Size, Risk, & Governance in European Banking” by J. Hagendorff, K. Keasey and F. Vallascas
Forthcoming in The Social Science Journal

Macroeconomics of low-income countries: new perspectives
Pacific Economic Review 20(1), February 2015, 45-48 | With Minoiu

+ abstract
This is an introduction to the special issue of PER that we guest-edited.

Comment on “Forecasting Systemic Impacts in Financial Networks” by N. Hautsch, J. Schaumburg, and M. Schienle
International Journal of Forecasting 30(3), September 2014, 795-796

How the Euro Changed the Pattern of International Debt Flows, 2014 | With Obstfeld

+ abstract
Large flows of bank lending from core countries in the Eurozone to the periphery lead to large financial imbalances. This column explains what motivated such financial flows. With the advent of the Eurozone, banks in core countries gained relative advantage in lending to the periphery, making such lending very attractive. They also served as intermediaries for financial flows from outside the Eurozone to the periphery. Now – five years since the start of the euro crisis – Eurozone financial markets remain segmented.

Capital Raisings
In The Evidence and Impact of Financial Globalization, ed. by G. Caprio | Elsevier, 2012. 145-154

Comment on “What Accounts for the Rising Sophistication of China’s Exports?” by Wang and Wei
In China’s Growing Role in World Trade, ed. by R. Feenstra and S. Wei | Chicago: University of Chicago Press, 2010

Review of “China’s Financial Transition at a Crossroads” by C. Calomiris (ed.)
In Journal of International Economics, 79, 2009. 171-172

Does Creditor Protection Mitigate the Likelihood of Financial Crises and Their Effect on the Stock Market?, 2009 | With Razin

+ abstract
Finding reliable indicators that predict the likelihood and severity of crises across countries has been a frustrating quest for economists. This column suggests that countries with better creditor protection suffer less when a crisis hits.

Beggar-thy-neighbor; Currency; Currency appreciation and depreciation; Currency devaluation and revaluation; Dirty float; Elasticity; Static expectations; Overshooting; Foreign reserves; Economic sterilization; Discounted present value; Stocks and flows
In International Encyclopedia of the Social Sciences, 1, 2nd edition, ed. by W.A. Darity, Jr. | Detroit: Macmillan Reference U.S.A., 2008

Book Review: Sound Policies for Emerging Markets’ Financial Stability
In International Finance, 10(1), 2007. 101-114

Lessons from Russian 1998 Financial Crisis
Center for Slavic and East European Studies Newsletter 18(1), Spring 2001

Russian Foreign Trade: Influence of Ruble Real Exchange Rate and Regulations
Master’s thesis, New Economic School, August 1996

Real Exchange Rate: Meanings, Ways of Measurement
Moscow State University Young Scholar’s Conference Proceedings (in Russian), March 1996