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on International Finance |
| By: | Torsten Ehlers; Mathias Hoffmann; Alexander Raabe |
| Abstract: | Non-US global banks are an important driver of the international synchronization of house price growth. A loosening (tightening) of US dollar funding conditions leads non-US global banks to expand (contract) their international lending, which is largely denominated in US dollars. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of house price growth. Borrowing country pairs whose joint exposure to US dollar funding conditions via their non-US creditor banks (dollar co-dependence) is higher, exhibit a higher synchronization of house price growth. Our results identify a novel international spillover channel of US dollar funding conditions, which is not related to common-lender exposures. We show theoretically and empirically that the exposure of non-US global banks to dollar funding conditions is captured by the bilateral treasury basis between the currency of the non-US global creditor banks’ headquarters and the US dollar. As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more exposed to US dollar funding variations exhibit higher house price synchronization. |
| Keywords: | House prices, synchronization, US dollar funding, global US dollar cycle, US treasury basis, convenience yield, global imbalances, capital flows, global banks, global banking networks |
| JEL: | F34 F36 G15 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:zur:econwp:480 |
| By: | Santiago Camara; Jeanne Aublin |
| Abstract: | This paper studies the spillovers of European Central Bank (ECB) interest rate shocks into the Canadian economy and compares them with those of the U.S. Federal Reserve (Fed). We combine a VAR model and local projection regressions with identification strategies that explicitly purge information effects around policy announcements. We find that an ECB rate hike leads to a depreciation of the Canadian dollar and a sharp contraction in economic activity. The main transmission channel is international trade: ECB shocks trigger a decline in oil prices and exports, while leaving domestic financial conditions largely unaffected. By contrast, Fed shocks tighten Canadian financial conditions significantly, with more limited effects on trade flows. These findings show that Canada is exposed to foreign monetary policy both directly and indirectly, through its integration in global financial and trade markets. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.13578 |
| By: | Aaron B. Flaaen; Ali Hortaçsu; Felix Tintelnot; Nicolás Urdaneta; Daniel Xu |
| Abstract: | This paper examines the effects of tariffs along the supply chain using product-level data from a large U.S. wine importer in the context of the 2019-2021 U.S. tariffs on European wines. By combining confidential transaction prices with foreign suppliers and U.S. distributors as well as retail prices, we trace price impacts along the supply chain, from foreign producers to U.S. consumers. Although pass-through at the border was incomplete, our estimates indicate that U.S. consumers paid more than the government received in tariff revenue, because domestic markups amplified downstream price effects. The dollar margins per bottle for the importer contracted, but expanded for distributors/retailers. Price effects emerge gradually along the chain, taking roughly one year to materialize at the retail level. Additionally, we find evidence of tariff engineering by the wine industry to avoid duties, leading to composition-driven biases in unit values in standard trade statistics. |
| JEL: | F13 F14 L66 L81 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34392 |
| By: | Karina Lima |
| Abstract: | This paper challenges the prevailing view in the sovereign debt literature by arguing that sovereign debt markets, in many respects, behave similarly to other credit markets. These markets are hierarchical rather than flat, inherently hybrid in nature, blending elements of public order and private markets, and regularly suffer from liquidity stress. Therefore, sovereigns, similarly to private actors in the market, are subject to liquidity stress and insolvency crises in a way that is integral to the global financial architecture. Critically, the legal and institutional design of the international monetary system exacerbates this stress. Structural asymmetries, notably the uneven distribution of monetary power, lead to liquidity stress being more pronounced in the periphery than at the apex or core of the system, rendering the former inherently more vulnerable to sovereign debt crises. The paper argues that such considerations should assume a central role in global policy discussions concerning the most appropriate mechanisms for addressing sovereign debt crises. It advocates for a reformed global financial architecture, emphasizing the necessity of a legally binding framework for sovereign debt restructuring that draws upon principles of corporate restructuring law, with the UK Companies Act 2006 (CA 2006) providing relevant analogies. This approach aims to ensure timely, equitable, and efficient restructuring processes, thereby confronting the challenges posed by the current ad hoc and often inequitable sovereign debt restructuring processes. Originally issued as EDI Working Paper No. 17, March 2024. |
| Keywords: | Sovereign Debt; Monetary Sovereignty; Monetary Power; Currency Hierarchy; Sovereign Debt Restructuring; International Monetary System; International Financial Architecture; Debt Service Suspension Initiative; Common Framework; Paris Club; China; Insolvency; Standstill; Cramdown; Moratorium |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1068 |
| By: | Ugo Albertazzi; Lorenzo Burlon; Tomas Jankauskas; Nicola Pavanini |
| Abstract: | After the Great Financial Crisis, the European Central Bank (ECB) extended its monetary policy toolbox to include the use of long-term loans to banks at interest rates close to zero or even negative. These central bank interventions were aimed at supporting the transmission of expansionary monetary policy and likely played a crucial role in bolstering the financial stability of the euro area, namely by reducing the chance of bank runs. However, quantitative evidence on the effects of these interventions on financial stability remains scant. In this post, we quantify the effectiveness of central bank lending programs in supporting financial stability through the lens of a novel structural model discussed in this paper. |
| Keywords: | central bank policies; bank runs; Imperfect Competition; structural estimation |
| JEL: | E44 E52 E58 G01 G21 L13 |
| Date: | 2025–10–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101970 |
| By: | Olegs Tkacevs (Latvijas Banka); Karsten Staehr (Eesti Pank) |
| Abstract: | This paper examines the effects of macroeconomic and budget balance shocks on public debt trajectories in the euro area. Country-specific SVAR models are used to identify various shocks, which are subsequently incorporated into local projection models that use panel data to estimate the impulse responses. The analysis indicates that a positive GDP shock leads to a persistent decline in the debt-to-GDP ratio, while a positive GDP deflator shock reduces the debt ratio only temporarily. A positive interest rate shock results in a substantial and lasting increase in the debt ratio. A positive primary balance shock, reflecting discretionary austerity, lowers the debt ratio considerably, albeit with a lag of around one year. We find evidence of statedependent and non-linear effects. Fiscal austerity is more effective in reducing debt after periods of economic expansion than after recessions, and more effective when the initial public debt is low than when it is high. Moreover, a positive GDP shock reduces the debt stock to a larger extent when the debt stock is large than when it is low. Finally, the response of debt to a positive budget balance shock is more persistent and statistically significant when the shock is large. |
| Keywords: | public debt; fiscal policy; macroeconomic shocks; euro area |
| JEL: | H6 H63 E62 |
| Date: | 2025–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202508 |
| By: | Patrick C. Higgins |
| Abstract: | Although there have been a range of studies investigating the role and importance of global supply and demand shocks in US inflation developments during and since the pandemic, this study uses a heretofore unused dataset for this purpose: a quarterly panel of professional forecasts from Consensus Economics. We use real-time data with daily vintage snapshots since 2005 from the Federal Reserve Board of Governors FAME database to disentangle forecast errors from revisions and to exploit the monthly frequency and partial availability of CPI inflation and industrial production. Our measures of global demand and supply shocks account for nearly 60 percent, and 20 percent, respectively, of the total variability of the five global factors we identify. The global demand shock accounts for a greater share of unanticipated US economic activity growth and inflation than the global supply shock both prior to the pandemic and during and after 2020. Since 2020, however, global demand and global supply shocks have accounted for similar shares of the nowcast errors for US inflation. |
| Keywords: | global shocks; professional forecasts; inflation |
| JEL: | C32 E31 E37 F47 |
| Date: | 2025–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:101965 |
| By: | Leo C.H. Lam; Ana Maria Santacreu |
| Abstract: | We study when unilateral export controls are optimal by quantifying how geopolitical rivalry reshapes trade in ideas. Empirically, cross-border technology flows are far more sensitive than goods trade to geopolitical distance, especially where IPR is weak, and these penalties intensify after 2017. Motivated by this evidence, we build a growth–trade model in which geopolitical distance raises breach risk in licensing; firms partially reprice risk via higher royalties but cannot fully insure quantities. In a consumption-only benchmark, a permanent rise in US–China geopolitical distance yields modest net gains for the United States, implying no benchmark motive for controls. Once governments place weight on national security, measured as relative technological leadership, controls can be welfare-improving despite efficiency costs. When the probability of Chinese retaliation rises with control tightness, the optimal policy is strictly interior (tighter than laissez-faire yet below a full ban). |
| Keywords: | geopolitics; international trade; strategic rivalry; technology transfer |
| JEL: | F63 O14 O33 O34 |
| Date: | 2025–10–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101980 |
| By: | Araujo, Luis; Minetti, Raoul; Moherdaui, Gustavo; Tomarchio, Alessandro |
| Abstract: | Financial specialization shapes the impact of financial institutions on the real economy. We study the determinants and real sector consequences of banks’ specialization in an economy where banks’ access to liquidity depends on investors’ information on the quality of banks’ assets. When choosing their sectoral specialization, banks trade off the benefits of sectoral expertise on borrowers’ investments with the incentive to maintain opacity on shocks to loan portfolios. The model generates a distribution of banks by size and specialization in which small banks specialize more, and lend to more informationally opaque firms, than larger banks. We show that regulations that promote financial disclosure enhance banks’ specialization, increasing welfare, while bank size regulations can distort banks’ specialization downward. The predictions of the model are consistent with evidence from granular matched bank-firm data from Peru. |
| Keywords: | Financial Specialization, Banking Structure, Information, Shocks, Financial Regulation |
| JEL: | D83 E44 G21 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126320 |