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on International Finance |
| By: | Yan Bai; Patrick J. Kehoe; Pierlauro Lopez; Fabrizio Perri |
| Abstract: | Emerging markets face large and persistent fluctuations in sovereign spreads. To what extent are these fluctuations driven by local shocks versus financial conditions in advanced economies? To answer this question, we develop a neoclassical business cycle model of a world economy with an advanced country, the North, and many emerging market economies, the South. Northern households invest in domestic stocks, domestic defaultable bonds, and international sovereign debt. Over the 2008-2016 period, the global cycle phase, the North accounts for 68% of Southern spreads’ fluctuations. Over the whole 1994-2024 period, however, Northern shocks account for less than 20% of these fluctuations. |
| JEL: | F34 F41 F44 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33441 |
| By: | Forbes, Kristin; Jongrim Ha; Ayhan Kose |
| Abstract: | This paper analyzes cycles in policy interest rates in 24 advanced economies over 1970–2024, combining a new application of business cycle methodology with rich time-series decompositions of the shocks driving rate movements. “Rate cycles” have gradually evolved over time, with less frequent cyclical turning points, more moderate tightening phases, and a larger role for global shocks. Against this backdrop, the 2020–24 rate cycle has been unprecedented in many dimensions: it features the fastest pivot from active easing to a tightening phase, followed by the most globally synchronized tightening, and an unusually long period of holding rates constant. It also exhibits the largest role for global shocks—with global demand shocks still dominant, but an increased role for global supply shocks in explaining interest rate movements. Inflation and the growth in output and employment have, on average, largely returned to historical norms for this stage in a tightening phase. Any recalibration of interest rates going forward should be gradual, however, and account for the interactions between increasingly important global factors and domestic circumstances, combined with uncertainty as to whether rate cycles have reverted to pre-2008 patterns. |
| Date: | 2024–08–20 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10876 |
| By: | Swapan-Kumar Pradhan; Viktors Stebunovs; Előd Takáts; Judit Temesvary |
| Abstract: | We use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending. Elevated geopolitical tensions also amplify the international transmission of monetary policies of major central banks, especially when geopolitical tensions coincide with monetary policy tightening. Overall, our results suggest that geopolitics is roughly as important as monetary policy in driving cross-border lending. |
| Keywords: | Monetary policy; Geopolitical tensions; Cross-border claims; Diff-in-diff estimations |
| JEL: | E52 F34 F42 F51 F53 G21 |
| Date: | 2025–02–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1403 |