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on International Finance |
| By: | Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); J. Scott Davis (Federal Reserve Banks - Federal Reserve Bank of Dallas); Eric van Wincoop (University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)) |
| Abstract: | Global non-US banks have significant dollar exposure both on and off their balance sheet. We develop a model to analyze their adjustment to dollar funding shocks, whether from reduced direct lending or external dollar shortages. The model provides insight into banks' responses through borrowing, lending, and FX swap positions, as well as the impact on their net worth, their probability of default and CIP deviations. Implications of the model are confronted with data on the response of non-US global banks to major dollar funding shocks. We examine the benefits from buffering these shocks through central bank dollar swap lines or local currency lending by the central bank. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2565 |
| By: | Johanna Tiedemann; Olivier Bizimana; Shant Arzoumanian |
| Abstract: | This paper assesses the stance of monetary policy in eleven Sub-Saharan African (SSA) emerging and frontier market economies. We estimate neutral real interest rates using a range of methodologies, and find a broadly declining trend in most economies since the Global Financial Crisis, consistent with patterns observed in advanced and major emerging market economies. We document significant heterogeneity in monetary policy stances—measured by the interest rate gap—even during common global shocks. We also examine the consistency between signals from the intended monetary policy stance and broader financial conditions. To this end, we construct financial conditions indices (FCIs) and analyze their relationship with interest rate gaps. We find that this relationship strengthens during periods of highly accommodative or restrictive monetary stances, particularly in economies that have adopted or are transitioning to inflation-targeting frameworks. Moreover, contractionary monetary shocks tighten financial conditions more in these economies than in those operating under other regimes. |
| Keywords: | Neutral Interest Rate; Monetary Policy Stance; Financial Conditions; Monetary Policy Transmission; SSA |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/160 |
| By: | Theodore Kapopoulos (Athens University of Economics and Business - Department of Accounting and Finance); Dimitrios Anastasiou (Athens University of Economics and Business - Department of Business Administration); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Athanasios Sakkas (Athens University of Economics and Business - Department of Accounting and Finance) |
| Abstract: | We investigate the relationship between global geopolitical risk and bank deposit flows across a wide panel of European countries. Motivated by the pivotal role of deposit stability for financial intermediation and systemic resilience, we explore whether geopolitical shocks alter depositors' portfolio choices. Using quarterly country-level data and employing the Geopolitical Risk Index (GPR) of Caldara and Iacoviello (2022) along with its sub-indices (GPR Acts and GPR Threats), we document that rising global geopolitical risk significantly increases aggregate bank deposits. Specifically, a one-standard-deviation increase in geopolitical risk is associated with an average rise of €13.3 billion in household deposits and €5.6 billion in corporate deposits, highlighting the sizable financial reallocation triggered by global uncertainty. This positive effect is channelled through a reallocation from riskier assets to deposits, with a stronger reaction observed among households compared to firms. Our findings suggest that bank deposits act as a safe-haven asset in periods of heightened global tensions, complementing the flight-to-safety phenomenon documented in sovereign bond markets. The results have important implications for financial stability analysis, monetary policy transmission and banks' liquidity risk management under geopolitical stress. |
| Keywords: | bank deposit flows, geopolitical risk, financial instability |
| JEL: | G4 G21 F51 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2564 |
| By: | Daniele Ballinari; Jessica Maly |
| Abstract: | We enhance sentiment analysis in the foreign exchange (FX) market by fine-tuning large language models (LLMs) to better understand and interpret the complex language specific to FX markets. We build on existing methods by using state-of-the-art open source LLMs, fine-tuning them with labelled FX news articles and then comparing their performance against traditional approaches and alternative models. Furthermore, we tested these fine-tuned LLMs by creating investment strategies based on the sentiment they detect in FX analysis articles with the goal of demonstrating how well these strategies perform in real-world trading scenarios. Our findings indicate that the fine-tuned LLMs outperform the existing methods in terms of both the classification accuracy and trading performance, highlighting their potential for improving FX market sentiment analysis and investment decision-making. |
| Keywords: | Large language models, Sentiment analysis, Fine-tuning, Text classification, Natural language processing, Foreign exchange, Financial markets |
| JEL: | F31 G12 G15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:snb:snbwpa:2025-11 |
| By: | Pierre L Siklos; Dora Xia; Hongyi Chen |
| Abstract: | This paper provides new estimates of the neutral interest rate, or r*, with a frequency domain approach using quarterly data from China, Japan, Korea, and the US. Utilizing band spectrum regressions, we estimate two types of neutral rates, which hold over the business cycle and the financial cycle respectively. To account for uncertainty around estimates of r*, we derive confidence bands via a thick modelling approach. Our estimates share a few common features with existing published estimates. Consistent with prior research, a downward trend in r* is observed, although the trend becomes less obvious when uncertainty bands are factored in. Meanwhile, our findings offer novel perspectives on the neutral rate in the four countries examined. For individual countries, our estimates for the two types of r* do not always track each other, suggesting that central banks face trade-off between business versus financial cycle considerations when setting the policy rate. Across countries, we identify significant positive spillovers from the US to the three East Asia countries, as well as spillovers from China to Kora and Japan. |
| Keywords: | China, Japan, Korea, neutral real rate, time series and frequency domain modeling, band spectrum regression, financial cycle |
| JEL: | E58 E32 E42 E43 C54 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1285 |
| By: | Juan Francisco Gomez (UBA); Eduardo Levy Yeyati (UTDT); Patricio Temperley (UTDT) |
| Abstract: | We develop a novel balance-of-payments (BoP) classification to distinguish reserves accumulated via public external borrowing (a precautionary "self-insurance" motive) from those built up through private capital inflows (sterilized "leaning-against-the-wind" of capital flows (or LAW interventions) to estimate the impact of reserve changes on sovereign spreads and financial stress according to their source of finance. We find that increases in reserves funded by private inflows significantly compress sovereign credit spreads and reduce the probability of a financial-stress episode, whereas reserves changes due to external debt issuance have a much weaker or a statistically insignificant effect. These findings hold in pre- and post- global financial crisis subsambles and robustness checks. |
| Keywords: | Sovereign spreads, international reserves, balance-of-payments, "leaning against the wind" interventions |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:370 |
| By: | Degryse, Hans; De Jonghe, Olivier; Laeven, Luc; Zhao, Tong |
| Abstract: | This paper studies the role of collateral using the euro area corporate credit registry, Ana-Credit. We document key facts about the importance, distribution, and composition of collateral, including its presence, types, and values. On average, 70% of credit amounts are collateralized. Real estate and financial assets are the most pledged, while physical movable assets and other intangible assets are less present. In addition, we show that the aggregate collateral value pledged to the banking sector is substantial, driven mainly by real estate in most countries. For the first time, we examine the collateral channel in bank credit using the actual value of individual collateral. By exploiting within-firm and within-bank variations for newly issued secured loans, we find that the elasticity of collateral value to loan commitment amounts is around 0.7-0.8. This collateral value elasticity exhibits substantial country and time heterogeneity, which can be explained by legal, financial, and macro conditions. JEL Classification: E32, G21, G33 |
| Keywords: | bank credit, collateral channel, corporate financing, secured debt |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253095 |
| By: | Ms. Nan Li; Sergii Meleshchuk; Qiuyan Yin; Dennis Zhao; Robert Zymek |
| Abstract: | This paper introduces the Bilateral Trade in Services (BiTS) database. It draws on a range of sources to provide the broadest-possible, consistent coverage of bilateral services trade for the period 1985-2023. The database covers bilateral trade across 12 major services categories, 9 of which are further disaggregated into 26 distinct subcategories, all harmonized under a consistent BPM6 classification standard. While historical data is only available for some advanced economies and emerging markets, the bilateral flows contained in BiTS capture most of global services trade from 2000 onwards. We illustrate the uses of this data through two research applications. The first shows that "gravity forces" have become less powerful in explaining services trade patterns over time, due to a shift in the composition of trade towards less distance-sensitive services. The second documents that overall services trade remains resilient to growing geopolitical fissures, but that modern services appear more sensitive to geopolitical alignment than traditional services. |
| Keywords: | bilateral trade; services; gravity; distance elasticity; geoeconomic fragmentation |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/163 |