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on International Finance |
By: | Mr. Cian Allen; Mr. Rudolfs Bems; Lukas Boer; Racha Moussa |
Abstract: | US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery. |
Keywords: | Uncovered Interest Parity; International Spillovers; Global Financial Cycle; Commodity Prices |
Date: | 2025–04–04 |
URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/065 |
By: | Stefan Avdjiev; Leonardo Gambacorta; Linda S Goldberg; Stefano Schiaffi |
Abstract: | The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the balance sheet (capital and leverage) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We document that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans to international debt securities was associated with a decline in the risk sensitivity of global liquidity flows to EME borrowers. |
Keywords: | global liquidity, international bank lending, international bond flows, emerging markets, advanced economies |
JEL: | G10 F34 G21 |
Date: | 2025–04 |
URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1262 |
By: | Ingman, Gustav (Stockholm University) |
Abstract: | Recently, there has been increasing research interest in the historical composition of central bank reserves. However, studies in this area is hindered by a lack of data, as such data spanning multiple centuries is only available for a small number of countries. This paper presents an empirical analysis of the development of the Swedish Riksbank’s foreign exchange (FX) reserves from 1823 to 2023. It introduces two new datasets: a monthly time series with the composition of the FX reserve’s components from 1908 to 2023, and an annual dataset providing the distribution of foreign currencies within the FX reserve from 1823 to 2023. This paper offers new insights into the long-run evolution of the central bank reserves of Sweden, contributing to the broader understanding of the trajectory of historical foreign currency reserves. It is published together with an appendix file containing the data. |
Keywords: | Central; bank; balance; sheet;; Reserve; currencies;; Currency; composition |
JEL: | E58 F31 N23 N24 |
Date: | 2025–03–01 |
URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0449 |
By: | Gita Gopinath; Josefin Meyer; Carmen Reinhart; Christoph Trebesch |
Abstract: | Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20 years. We use rich new data to compare high-yield US corporate (“junk”) bonds to high-yield emerging market sovereign bonds 2002-2021. Investor experiences in these two asset classes were surprisingly aligned, with (i) similar average excess returns, (ii) similar average risk-return patterns (Sharpe ratios), (iii) similar default frequency, and (iv) comparable haircuts. A notable difference is that the average default duration is higher for sovereigns. Moreover, the two markets co-move differently with domestic and global factors. US “junk” bond yields are more closely linked to US market conditions such as US stock returns, US stock price volatility (VIX), or US monetary policy. |
Keywords: | sovereign debt and default, default risk, corporate bonds, corporate default, junk bonds, chapter 11, crisis resolution. |
JEL: | F30 G10 F40 |
Date: | 2025 |
URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11799 |
By: | Yang Jiao (Fanhai International School of Finance, Fudan University); Ohyun Kwon (School of Economics, Drexel University) |
Abstract: | This paper investigates firm-level linkage between international finance and trade. Specifically, we present evidence that Korean firms rely more on financing in foreign currency if there is a positive export shock. We address the crucial endogeneity problem by capitalizing on South Korea’s as well as its trading partners’ demand shocks. We further show that global supply chains also play an important role as higher imported intermediate input shares induce lower foreign currency debt shares. Our findings point to a firm-level hedging channel and are pertinent to exchange rate policies that aim to reduce a (developing) country’s vulnerability to exchange rate shocks. |
Keywords: | Trade Shocks, Debt Finance, Currency Composition, Exchange Rate Risk, Global Supply Chains |
JEL: | F14 F31 G32 |
Date: | 2025–04 |
URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202518 |
By: | Eiji Fujii; Xingwang Qian |
Abstract: | This paper investigates the cyclicality of international reserves and their role in macroeconomic stabilization. We challenge two widely held assumptions: (1) central banks typically manage IR counter-cyclically—accumulating reserves during booms and drawing them down during downturns; and (2) such interventionist management is primarily associated with rigid exchange rate regimes. Analyzing data from 179 countries (1972-2022), we find that counter-cyclical IR management is less common than often assumed. However, as a macroprudential policy, counter-cyclical international reserves significantly reduce output volatility, particularly when interacting with de facto flexible exchange rate regimes. This stabilizing effect is especially pronounced in emerging markets between the 1997 Asian financial crisis and the 2008 global financial crisis. |
Keywords: | international reserves, cyclicality, exchange rate regime, macroprudential policy, output volatility. |
JEL: | F34 F31 |
Date: | 2025 |
URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11800 |