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on International Finance |
| By: | Mikael Juselius; Philip Wooldridge; Dora Xia |
| Abstract: | The depreciation of the US dollar in 2025 has occurred against the backdrop of continued resilience of trade and economic activity in emerging market economies (EMEs). A depreciating dollar affects both borrowers' and foreign investors' balance sheets and tends to loosen financial conditions in EMEs through the risk-taking channel of exchange rates. As EMEs have increasingly become net creditors to the rest of the world, the currency hedging behaviour of EME investors has played a greater role in currency market dynamics in 2025. |
| Date: | 2025–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:114 |
| By: | Beckmann, Joscha; Bettendorf, Timo |
| Abstract: | In this paper, we analyze the effects of uncertainty shocks on portfolio flows in 25 emerging market and 21 advanced economies and shed light on socio-economic characteristics that may be relevant for the country-specific sensitivity towards the shocks. We derive uncertainty shocks from a proxy SVAR model, where the uncertainty shock is identified by changes in the price of gold during selected events. Taking into account the structural shock, we employ local projections of investment fund flows into 25 emerging market and 21 advanced economies for the period 2005M8 to 2023M12. Our results show that uncertainty shocks have much stronger negative effects on capital flows in emerging economies for both bond and equity flows. Our results also show that bond fund flows are much more strongly affected by uncertainty shocks compared to equity flows over both the short and the medium run. Finally, we find that economic characteristics relating to the sensitivity towards the shock differ across advanced economies and emerging markets. |
| Keywords: | Uncertainty, portfolio flows, SVAR, local projections |
| JEL: | E43 E47 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:328246 |
| By: | Mark S Manger (University of Toronto); David Mihalyi (World Bank & Kiel Institute); Ugo Panizza (Geneva Graduate Institute & CEPR); Niccolò Rescia (Global Sovereign Advisory & Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | This paper introduces the African Debt Database (ADD) -a new, comprehensive dataset that traces both domestic and external debt instruments at a granular level. The main innovation is a detailed mapping of Africa's domestic debt markets, drawing on rich, new data extracted from government auction reports and bond prospectuses. The database covers over 50, 000 individual government loans and securities issued by 54 African countries between 2000 and 2024, amounting to a total of USD 6.3 trillion in debt. For each instrument, it provides harmonized micro-level information on currency, maturity, interest rates, instrument type, and creditor. The data reveal the growing dominance of domestic debt in Africa -albeit with substantial cross-country variation. Four stylized facts stand out: (i) the rapid expansion of domestic debt markets, especially in middle-income countries; (ii) the wide dispersion in borrowing costs and real interest rates; (iii) large cross-country differences in maturity structures and associated rollover risks; and (iv) a rising debt-service burden, particularly due to international bonds. Generally, this project shows that debt transparency is both feasible and valuable, even in data-scarce environments. |
| Keywords: | Sovereign Borrowing, public debt, Development Finance, Domestic Markets, Africa |
| JEL: | F34 H63 O55 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2516 |
| By: | Sebastian Horn; Carmen M. Reinhart; Christoph Trebesch |
| Abstract: | This paper provides a comprehensive overview of China’s lending to developing countries—a central feature of today’s international financial system. Building on our previous research and the work of others, we document the scale, destination, and terms of China’s overseas lending boom, as well as the lending bust and defaults that have followed. We compare China’s lending boom to past boom-bust cycles and discuss the implications of China’s rise as an international creditor on recipient countries and sovereign debt markets. The evidence indicates that Chinese state banks are assertive and commercially sophisticated lenders. For recipient countries, however, the jury is still out: it remains to be seen whether the gains from China’s lending—through growth and improved infrastructure—will outweigh the more immediate burdens of debt service or the multifaceted costs of default. |
| JEL: | E3 F34 F65 F68 N2 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34359 |
| By: | Anna Gelpern (Peterson Institute for International Economics); Omar Haddad (Oxford University); Sebastian Horn (University of Hamburg, Kiel Institute for the World Economy); Paulina Kintzinger (Kiel Institute for the World Economy); Bradley C. Parks (AidData, William & Mary); Christoph Trebesch (Kiel University, Kiel Institute for the World Economy) |
| Abstract: | This paper is the first comprehensive analysis of the secured lending practices of Chinese creditors in emerging market and developing economies (EMDEs). The authors present a new dataset and detailed case studies of collateralized public and publicly guaranteed (PPG) loans from Chinese state-owned institutions in EMDEs between 2000 and 2021. Almost half of China's total PPG loan portfolio in EMDEs is effectively collateralized--amounting to $420 billion in collateralized debt across 57 countries. The authors document that Chinese lenders use techniques adapted from export and project finance to build multi-layered legal safety nets, which help ensure that risky EMDE loans will be repaid. As security, they use liquid, easily accessible assets, such as cash in bank accounts located in China. They rarely take infrastructure project assets as collateral, but often rely for repayment on established commodity revenue streams unrelated to the project. Typically, EMDE governments and state-owned enterprises commit to route foreign currency proceeds from commodity sales through bank accounts controlled by the lender. The cash balances in these accounts can be very large; in low-income, commodity-exporting countries, they average more than 20 percent of annual PPG debt service to all external creditors. The same revenue source can secure multiple successive borrowings over many years. The paper's findings reveal a previously undocumented pattern of revenue ring-fencing, where a significant share of commodity export receipts never reaches the exporting countries. Revenues routed overseas secure priority repayment for the creditor; they remain out of public sight and largely beyond the borrower's reach until the secured debts are repaid. These findings raise new concerns about debt transparency, fiscal management, fiscal autonomy, and the quality of macroeconomic surveillance, particularly in commodity-exporting EMDEs. |
| Keywords: | China, collateral, sovereign debt and default, lending, Belt and Road Initiative |
| JEL: | F34 G15 H63 H81 K12 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:iie:wpaper:wp25-20 |
| By: | William Ginn (Labcorp, Coburg University of Applied Sciences); Jamel Saadaoui (University Paris 8); Evangelos Salachas (University of the Aegean) |
| Abstract: | This paper examines how U.S. monetary policy shocks influence asset price bubbles under different inflation regimes. Using data from 1998–2023, we show that the transmission of policy is neither constant nor time-invariant. Standard local projection (LP) estimates suggest modest average effects, but including the COVID-19 period reveals that these relationships weaken. Employing time-varying local projections (TVP-LP), we document sharp shifts in transmission during the Global Financial Crisis and the pandemic, motivating a nonlinear approach. Nonlinear VAR-LP estimates uncover clear asymmetries: in high-inflation states, monetary tightening deflates bubbles by raising financing costs and constraining risk-taking; in low-inflation states, the same shocks amplify bubbles by raising expected inflation, narrowing credit spreads, and boosting equity returns. We interpret this inversion as evidence of a state-contingent speculative signaling channel, whereby tightening is perceived as a signal of stronger demand or implicit accommodation, encouraging further speculation. This mechanism highlights that safeguarding financial stability requires more than interest rate adjustments alone—it demands explicit attention to the inflationary environment and investor perceptions. |
| Keywords: | Financial stability, asset prices, booms and busts, local projections |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.17 |
| By: | Robin Brooks; Eswar S. Prasad |
| Abstract: | The dominant currency paradigm posits that dollar invoicing reduces the potency of exchange rate depreciations in boosting export volumes. This implies that export elasticities with respect to the exchange rate are small, rendering even large depreciations ineffectual in the short term. We incorporate two innovations versus existing work. First, we allow for nonlinearities, permitting large depreciations to disproportionately lift exports. Second, we control for banking crises, which accompany many depreciations. Our baseline export elasticity—without nonlinearities or banking crisis controls—is -0.3, consistent with prevailing “elasticity pessimism.” This elasticity rises to between -0.5 and -0.8 within two years for depreciations above 20 percent without banking crises. |
| JEL: | F14 F41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34371 |
| By: | Patricia Gomez-Gonzalez; Maximiliano Jerez-Osses; Vida Maver; Jorge Miranda-Pinto; Jean-Marc Natal |
| Abstract: | Commodities play a central yet often underappreciated role in shaping macroeconomic fluctuations across both advanced economies (AEs) and emerging market and developing economies (EMDEs), with the latter exhibiting greater volatility. This paper examines how the domestic interconnectedness of the commodity sector conditions the transmission of commodity price shocks. Rather than focusing only on sectoral size, we emphasize production linkages, measured by the network-adjusted value-added share (NAVAS) of the commodity sector. Using panel local projections for OECD countries, we show that greater interconnectedness amplifies the positive effects of terms-of-trade gains on consumption while mitigating the negative effects of declines. To interpret these results, we develop a small open economy model with production networks. The model highlights how commodity interconnectedness strengthens wealth channels but dampens real wage channels, shaping the overall macroeconomic response. Our findings underscore the importance of network structures in explaining commodity shock propagation and the heightened volatility observed in EMDEs. |
| Keywords: | Production Networks; Commodity Prices; Network-Adjusted Value- Added Share; Advanced Economies and Emerging Markets |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/208 |
| By: | Patrick Fève; Alban Moura |
| Abstract: | We propose to measure business cycles using vector autoregressions (VARs). Our method builds on two insights: VARs automatically decompose the data into stable and unstable components, and variance-based shock identification can extract meaningful cycles from the stable part. This method has appealing properties: (1) it isolates a well-defined component associated with typical fluctuations; (2) it ensures stationarity by construction; (3) it targets movements at business-cycle frequencies; and (4) it is backward-looking, ensuring that cycles at each date only depend on current and past shocks. Since most existing filters lack one or more of these features, our method offers a valuable alternative. In an empirical application, we show that the two shocks with the largest cyclical impact effectively capture postwar U.S. business cycles and we find a tighter link between real activity and inflation than previously recognized. We compare our method with standard alternatives and document the plausibility and robustness of our results. |
| Keywords: | business cycles, detrending, filtering, shocks, vector autoregressions. |
| JEL: | C32 E32 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp201 |
| By: | Alexander Chudik; Cameron M. Ellis; Johannes G. Jaspersen |
| Abstract: | To avoid endogeneity, financial economists often construct regressors and/or instruments using values from other observations, with lagged and leave-out variables being common examples. We examine the use of such variables in common settings with fixed effects and show that it can induce bias and distort inference. We illustrate the severity of this problem via simulations and with patent examiner data. Even when scrambling the patent examiners, thus removing any instrument validity, the bias leads to a first-stage F-statistic over 1, 000. General and case-specific solutions are provided. |
| Keywords: | lagged regressors; leave-out instruments; fixed effects; weak exogeneity bias; patents |
| JEL: | C13 C36 D22 K0 |
| Date: | 2025–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:101895 |