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on International Finance |
| By: | Mr. Philip Barrett |
| Abstract: | We study how Chinese macroeconomic surprises affect global financial markets. Exploiting forecast errors around key data releases and a 60-minute window around the release, we show that positive industrial production (IP) surprises lead to immediate increases in Chinese and Asia-Pacific stock returns, global long-term yields, and commodity prices highly demanded by China. A complementary identification strategy, which builds on different time zones, confirms positive spillovers to international equity markets, with stronger effects in countries more exposed to Chinese trade. Our results highlight the role of both Hedging Premia and Growth Expectations in driving asset price comovement. The findings highlight China’s growing influence in global markets and position it as a driver of the Global Financial Cycle. |
| Keywords: | Spillovers; Global Financial Cycle; China; High-frequency |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/133 |
| By: | Carol Bertaut; Valentina Bruno; Hyun Song Shin |
| Abstract: | We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of US investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates roll-over risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics due to strategic complementarities among mutual fund investors. |
| JEL: | F3 F65 G23 H63 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33816 |
| By: | Hermes, Felix; Schmeling, Maik; Schrimpf, Andreas |
| Abstract: | We analyze the international dimension of repo markets using novel euro area regulatory microdata. Our findings highlight the deep integration of funding markets across the Atlantic and the US dollar’s outsized role. Our paper documents five key facts: (1) US dollar repos by euro area entities account for approximately 40% of total volumes and are comparable in size to euro repos; (2) term repos (with maturities beyond one day) are quantitatively more relevant than commonly thought, especially non-centrally cleared ones; (3) repo markets have become more collateral-driven, involving diverse nonbank financial players and trading motives; (4) banks’ intragroup transactions form a large share of non-centrally cleared volumes; and (5) haircuts, even for riskier collateral, are often zero or negative, especially in euro trades. We show in two empirical applications that US monetary policy shocks spill over to euro repo rates and that negative haircuts arise from market power and collateral demand dynamics. JEL Classification: G12, G14 |
| Keywords: | bank intermediation, haircuts, repo market, US dollar funding |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253065 |
| By: | De Haas, Ralph; Popov, Alexander; Mamonov, Mikhail; Shala, Iliriana |
| Abstract: | How do violent conflicts shape cross-border lending? Using data on syndicated loans by 14, 021 creditors to firms in 179 countries (1989–2020), we document a dual effect: foreign banks reduce overall lending relative to domestic banks but significantly increase financing to military and dual-use sectors during conflicts. This reallocation is stronger among lenders less specialized in the conflict country, more specialized in military lending, and domiciled in politically non-aligned nations. Effects are geographically contained and temporally limited, dissipating post-conflict. Our findings reveal how global banks strategically redirect credit toward military sectors during armed conflicts, despite reducing overall country exposure. JEL Classification: D74, F34, F40, G15, G21 |
| Keywords: | bank specialization, cross-border lending, geopolitical risk, syndicated loans, violent conflict |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253073 |
| By: | Ricardo J. Caballero; Tomás E. Caravello; Alp Simsek |
| Abstract: | Monetary policy transmits through broad financial conditions—interest rates, asset prices, credit spreads and exchange rates—rather than through the policy rate alone. Yet current frameworks remain anchored around r*, the neutral interest rate. We introduce FCI*, the neutral level of financial conditions that closes expected output gaps, within a framework where financial conditions and macroeconomic shocks drive economic activity with inertia. Conceptually, FCI* reflects macroeconomic developments rather than financial market valuations, making it more stable than r*, which responds to both macroeconomic and financial factors. We estimate FCI* using a two-equation model along the lines of Laubach and Williams (2003) with 1990-2024 data. Our empirical estimates reveal three findings. First, estimated FCI* remained stable after the 2008 crisis while r* declined persistently due to asset price declines. Second, since the observed FCI reflects financial market shocks, large FCI gaps emerge especially during recessions. Third, at times of rapid monetary policy changes, FCI gaps more accurately reflect the effective policy stance because FCI is driven by forward-looking markets; for example, FCI gaps correctly identified the 2022 tightening when interest rate measures still suggested accommodation. |
| JEL: | C32 E43 E44 E52 E58 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33952 |
| By: | Juan Sebastián Mariño-Montaña; Daniela Rodríguez-Novoa; Camilo Sánchez-Quinto |
| Abstract: | We provide the first comprehensive analysis of the flow-performance relation in Colombian open-end investment funds. We employ a rich dataset containing weekly information at the fund level, including balance sheets, portfolio holdings, liquidity indicators, capital flows, and returns, from January 2018 to December 2023. By analyzing fixed and variable-income funds separately, our empirical findings indicate that performance is relevant for the sensitivity of flows only in fixed-income funds. For these, outflows are more sensitive to poor performance than inflows to good performance. However, macro-financial variables significantly influence investing decisions for both fixed and variable-income funds. *****RESUMEN: Este documento presenta el primer análisis de la relación entre los aportes netos de capital (aportes menos retiros) y la rentabilidad en los fondos de inversión colectiva abiertos sin pacto de permanencia en Colombia. Utilizamos un conjunto de datos detallado que contiene información semanal a nivel de fondo, incluyendo balances, composición del portafolio de inversiones, aportes y retiros de capital, indicadores de liquidez y rentabilidad, desde enero de 2018 hasta diciembre de 2023. Analizamos por separado los fondos que invierten principalmente en renta fija y en renta variable. Encontramos una alta sensibilidad de los aportes netos a la rentabilidad únicamente en los fondos de renta fija. En estos, las rentabilidades negativas se asocian con una fuerte caída en los aportes netos, posiblemente explicada por un aumento en los retiros de capital. No obstante, las variables macrofinancieras parecen influir de manera significativa en las decisiones de aportar o retirar capital tanto en fondos de renta fija como de renta variable. |
| Keywords: | flow-performance relation, investor redemptions, open-end funds, Relación aportes-rentabilidad, retiros de capital de inversionistas, fondos de inversión abiertos sin pacto de permanencia |
| JEL: | G01 G11 G23 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1323 |
| By: | Kanelis, Dimitrios; Siklos, Pierre L. |
| Abstract: | We combine modern methods from Speech Emotion Recognition and Natural Language Processing with high-frequency financial data to precisely analyze how the vocal emo- tions and language of ECB President Mario Draghi affect the yields and yield spreads of major euro area economies. This novel approach to central bank communication reveals that vocal and verbal emotions significantly impact the yield curve, with effects varying in magnitude and direction. Our results reveal an important asymmetry in yield changes with positive signals raising German, French, and Spanish yields, while negative cues increase Italian yields. Our analysis of bond spreads and equity mar- kets indicates that positive communication influences the risk-free yield component, whereas negative communication affects the risk premium. Additionally, our study contributes by constructing a synchronized dataset for voice and language analysis. |
| Keywords: | Artificial Intelligence, Asset Prices, Communication, ECB, High-Frequency Data, Speech Emotion Recognition |
| JEL: | E50 E58 G12 G14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:320429 |
| By: | Iñaki Aldasoro; Matteo Aquilina; Ulf Lewrick; Sang Hyuk Lim |
| Abstract: | Stablecoins' linkages with the traditional financial system are growing, which raises policy challenges ranging from preserving financial integrity to mitigating financial stability risks. Broader use of foreign currency-denominated stablecoins could raise concerns about monetary sovereignty and, in some jurisdictions, erode the effectiveness of existing foreign exchange regulations. The principle of "same risks, same regulation" faces limitations in the context of stablecoins, highlighting the need for tailored regulatory approaches that address the nature and specific features of stablecoins. |
| Date: | 2025–07–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:108 |
| By: | Bettendorf, Timo |
| Abstract: | This paper investigates the effects of uncertainty shocks on selected U.S. financial asset prices by decomposing a traditional uncertainty shock into its supply-side and demand-side components. Following the approach by Piffer and Podstawski (2018), we identify uncertainty shocks using the price of gold and enhance this strategy by introducing the price of oil as a second variable. By examining daily price changes during significant events that trigger uncertainty, we provide evidence suggesting that despite an increase in gold prices, supply-side uncertainty shocks (e.g. armed conflicts or natural disasters) tend to result in higher oil prices, while demand-side uncertainty shocks (e.g. political and economic events) lead to declining oil prices. By exploiting this information with help of sign restrictions, we create two proxy variables and estimate Bayesian Vector Autoregression (BVAR) models to identify supply-side and demand-side uncertainty shocks. Our findings indicate that while gold prices alone can identify uncertainty shocks for most variables, the inclusion of oil prices reveals an additional dimension. The effects of these shocks differ in their impact on inflation expectations and may thus be a potential source of price puzzles if only the price of gold is considered. |
| Keywords: | uncertainty, proxy VAR, sign restrictions |
| JEL: | E43 E47 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:319620 |
| By: | Li, Xiang; Ongena, Steven |
| Abstract: | We investigate how global banks' macroeconomic expectations for borrower countries influence their credit supply. Utilizing granular data on varying expectations among banks lending to the same firm at the same time, combined with an instrumental variable approach, we find that more optimistic GDP growth expectations for a borrower country are strongly linked to increased credit supply. Specifically, a one standard deviation increase in a lender's GDP growth expectation for the borrower's country corresponds to an increase of 8.46 percentage points in the loan share, equivalent to approximately 0.75 standard deviations of the loan share and $75.35 million in loan amount. In contrast, global banks' short-term inflation expectations do not show a significant impact on their credit supply. |
| Keywords: | asymmetric information, credit supply, expectation, global banks |
| JEL: | E32 F34 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:319911 |