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on International Finance |
| By: | Stefan Avdjiev; Linda S. Goldberg |
| Abstract: | Global risk conditions, along with monetary policy in major advanced economies, have historically been major drivers of cross-border capital flows and the global financial cycle. So what happens to these flows when risk sentiment changes? In this post, we examine how the sensitivity to risk of global financial flows changed following the global financial crisis (GFC). We find that while the risk sensitivity of cross-border bank loans (CBL) was lower following the GFC, that of international debt securities (IDS) remained the same as before the GFC. Moreover, the changes in risk sensitivities of these flows were related to balance sheet constraints of financial institutions that were intermediating these flows. |
| Keywords: | global liquidity; international bank lending; international bond flows; emerging markets; advanced economies |
| JEL: | G10 G21 F34 |
| Date: | 2025–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101162 |
| By: | Ralf R. Meisenzahl; Friederike Niepmann; Tim Schmidt-Eisenlohr |
| Abstract: | This paper documents a new dollar channel that transmits monetary policy across borders. Exploiting unique features of the syndicated loan market for identification, we show that changes in the euro-dollar exchange rate around ECB monetary policy announcements that are orthogonal to simultaneous changes in euro-area interest rates and stock prices affect U.S. leveraged loan spreads. Specifically, in response to dollar appreciation, investors require higher compensation for risk, and borrowing costs for U.S. firms increase. These findings imply a causal link between the U.S. dollar and investors’ risk appetite. |
| Keywords: | Loan pricing; Monetary policy spillovers; Dollar; Institutional investors; Risk taking |
| JEL: | F15 G15 G21 G23 |
| Date: | 2025–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-46 |
| By: | Mr. Adrian Alter; Khushboo Khandelwal; Thibault Lemaire; Hamza Mighri; Can Sever; Luc Tucker |
| Abstract: | The landscape of external funding flows to sub-Saharan Africa (SSA) has evolved significantly over the past two decades. This paper provides an overview of the non-official external financing sources, emphasizing the trade-offs between foreign and domestic currency-denominated debt. Using data from emerging and developing economies, we assess the likelihood of issuing Eurobonds or borrowing in the syndicated loan market, focusing on the implications for SSA. We also analyze the main drivers of yields at issuance and bond spreads, along with the reliability of credit ratings and the potential existence of an "African risk premium". Our findings suggest that global factors such as the US dollar and interest rates, along with domestic characteristics, including governance and political risk, play an impotant role. Once fundamentals are considered, we find limited evidence of credit rating agencies’ bias against the region and a modest extra risk premium in normal times. As an alternative to external financing, SSA countries have been recently issuing more domestic-currency debt, reducing exchange rate risks but facing challenges in attracting foreign investors due to underdeveloped local debt markets. |
| Keywords: | Sovereign spreads; Risk premium; Syndicated loans; Local-currency bond markets; Africa |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/139 |
| By: | Nadav Ben Zeev (BGU); Noam Ben-Ze’ev; Daniel Nathan (Bank of Israel) |
| Keywords: | Convenience Yield; Monetary Policy Transmission; Covered Interest Parity Arbitrage; Capital Inflow Shock; Foreign Financial Institutions; Policy Interest Rates; Market Interest Rates; Portfolio Rebalancing; Granular Instrumental Variable; Slow-Moving Capital |
| JEL: | E0 F0 F3 G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bgu:wpaper:2503 |
| By: | António Afonso; José Alves; Wojciech Grabowski; Sofia Monteiro |
| Abstract: | We examine the effects of debt distribution characteristics, specifically skewness and maturity concentration, on sovereign yields across OECD countries over the period 1995Q1 to 2020Q4. After computing specific Lorenz curves and Gini coefficients, we find that positive skewness generally exerts a dominant influence. Employing Panel Cointegration Techniques, we show that greater skewness is associated with higher sovereign bond yields and higher short-term interest rates, whether measured in face or market value. In contrast, an increase in debt concentration tends to reduce both sovereign bond yields and short-term interest rates. |
| Keywords: | dsovereign debt concentration, yields, Gini coefficient, skewness, Panel Cointegration, OECD |
| JEL: | C23 C58 G15 E44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11961 |
| By: | Marina Eguchi (Bank of Japan); Tomohiro Okubo (Bank of Japan); Kenta Yamamoto (Bank of Japan); Kazuaki Washimi (Bank of Japan) |
| Abstract: | The total assets of non-bank financial intermediaries (NBFIs) worldwide have been expanding since the global financial crisis. This report assesses the presence of domestic and foreign NBFIs in the domestic financial system and their interconnectedness with banks in Japan, the U.S., and Germany, using various data such as flow of funds and statistics from international organizations. The size of NBFIs varies across countries as the share of financial assets held by NBFIs stands at over 50 percent in the U.S., while it hovers only around 20-30 percent in Japan and Germany. That said, given the presence of foreign NBFIs, data suggest that the assets under management by NBFIs have become sizable in all three countries––particularly in bond and stock markets––, and the interconnectedness measured by mutual exposure between banks and NBFIs has increased. |
| Keywords: | non-bank financial institutions; financial intermediation; government policy and regulation |
| JEL: | G23 G15 G28 |
| Date: | 2025–06–27 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojrev:rev25e07 |
| By: | Pablo Aguilar Perez |
| Abstract: | We study the effect of International Monetary Fund Article IV Public Information Notices on sovereign financing conditions. Using monthly data from 67 emerging market economies between 2004 and 2023, we estimate the causal impact of these surveillance disclosures through a dynamic panel matching framework that accounts for repeated observations. The release of Article IV statements leads to a statistically significant reduction in sovereign bond spreads and is associated with increased debt issuance and reserve accumulation, suggesting improved access to external finance. These effects are more pronounced when the surveillance message is optimistic and among countries more closely aligned geopolitically with major IMF shareholders, underscoring the importance of both tone and credibility context in shaping investor reactions. By isolating the influence of surveillance communications - independent of the Fund’s lending activities - this study contributes to the literature on the informational role of international organizations and the non-financial channels through which they affect sovereign risk and market behavior. |
| Keywords: | IMF Surveillance; Dynamic Panel Matching; Geopolitical Alignment; Sentiment Analysis; Sovereign Risk |
| JEL: | C23 F33 G15 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-32 |
| By: | Joseph Abadi; Jesús Fernández-Villaverde; Daniel R. Sanches |
| Abstract: | We present a micro-founded monetary model of the world economy to study international currency competition. Our model features both “unipolar” equilibria, with a single dominant international currency, and “multipolar” equilibria, in which multiple currencies circulate internationally. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt. A large economy has a natural advantage in ensuring its currency becomes dominant, but if it lacks the fiscal capacity to absorb the global demand for liquid assets, the multipolar equilibrium emerges. |
| Keywords: | Dominant Currency; International Monetary System; Interest-Rate Policy; Fiscal Capacity |
| JEL: | E42 E58 G21 |
| Date: | 2025–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:101163 |
| By: | Tamim Bayoumi (King's College); Joseph E. Gagnon (Peterson Institute for International Economics) |
| Abstract: | The United States has run significant external deficits for half a century and the associated net international liabilities have been growing, especially recently. Yet, in contrast to earlier periods when the deficit was rising, few economists have expressed concerns about external sustainability lately. This paper explores the drivers and risks associated with the deficits. The most persistent driver of US deficits is the attractiveness of US financial assets to foreign investors owing to the central role of the dollar in international transactions and to the perceived safety and creativity of US financial markets. Although it is likely that the US net liability position is overstated, it is clearly on an unsustainable path. President Donald Trump's tariff war is raising uncertainty and frightening investors, a combination that may indeed reduce the trade deficit by slowing US economic growth and depreciating the dollar. However, this strategy puts at risk the longstanding ability of the United States to finance external debt at low cost, increasing the burden on future generations. |
| Keywords: | Current account, exorbitant privilege, reserve currency, safe asset shortage, net international investment position |
| JEL: | F21 F32 F34 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iie:wpaper:wp25-14 |
| By: | Patrick Honohan (Peterson Institute for International Economics) |
| Abstract: | Twenty or more of the world's most significant central banks have seen their equity position (or capital and reserves) go negative in the last few years. This novel situation does not fundamentally challenge the ability of these institutions to deliver on their mandate, but it does raise some interesting policy and communications issues. Central banks are incurring losses for two main reasons. The first is the impact of rising interest rates on their maturity mismatched portfolios. The second is losses on foreign exchange reserves accumulated in the attempt to avoid currency overvaluation. Comparing the experience of different central banks is not, however, straightforward. The lack of uniformity in their accounting practice makes it difficult to make comparisons. Indeed, if put on a common marked-to-market basis, Honohan finds that some central banks that report positive net equity are really under water, while (in sharp contrast) others report a negative equity figure that neglects sizable unrealized capital gains. |
| Keywords: | Central bank accounting, central bank capital, quantitative easing |
| JEL: | E58 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:iie:wpaper:wp25-15 |
| By: | Camelia Minoiu; Andrés Schneider; Min Wei |
| Abstract: | We show that the slope of the yield curve affects bank lending and economic activity through an "expected bank profitability channel." Using detailed banking data and term premium shocks identified via instrumental variables or event studies, we show that a steeper yield curve—when driven by higher term premiums rather than higher expected short rates—increases bank profits and loan supply. Intuitively, a higher term premium raises the expected returns from maturity transformation—a core banking activity—thereby incentivizing bank lending. This effect is more pronounced for banks with higher leverage. We interpret these findings using a simple bank portfolio model. |
| Keywords: | predictive power of the yield curve; term spread; term premium; bank lending; bank profitability; interest rate risk |
| JEL: | E44 E52 E58 G2 |
| Date: | 2025–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:101197 |
| By: | Stephen G. Cecchetti; Jeremy C. Kress; Kermit L. Schoenholtz |
| Abstract: | In 2023, US regulators proposed the “Basel Endgame, ” a long-awaited overhaul of bank capital requirements. The proposal aimed to bring the United States into compliance with international standards established by the Basel Committee on Banking Supervision in response to the 2008 Global Financial Crisis. However, fierce industry opposition to what banks viewed as a costly increase in capital requirements effectively killed the proposal. In this essay, we describe the purpose of bank capital and the history of international standard-setting in bank regulation. We then highlight the most important aspects of the Basel Endgame, as well as the arguments for and against adopting the rule. We show that the debate unnecessarily conflated two distinct questions: (1) whether the United States should comply with international regulatory standards, and (2) whether the United States should raise large banks’ capital requirements. While there are strong grounds to answer both questions in the affirmative, they need not be addressed together. That is, the United States can implement international standards in a capital-neutral manner to preserve global cooperation in bank regulation, leaving the separate question of raising capital requirements for another day. |
| JEL: | G21 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33982 |
| By: | Yao Amber Li; Lingfei Lu; Shang-Jin Wei; Jingbo Yao |
| Abstract: | We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical “spill-back” pattern differs from the predictions of typical open-economy macro models. We also document a new empirical "spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel—their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions. |
| JEL: | E3 E5 F14 F40 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33811 |