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on International Finance |
| By: | Artta, Katja (Research Department, Central Bank of Sweden); Nessén, Marianne (Monetary Policy Department, Central Bank of Sweden); Vredin, Anders (Monetary Policy Department, Central Bank of Sweden); Savoia, Ettore (Research Department, Central Bank of Sweden) |
| Abstract: | We examine how central bank foreign exchange (FX) operations affect nominal exchange rates by exploiting two large operations by Sveriges Riksbank: foreign currency purchases during 2021–2022 and domestic Swedish krona (SEK) purchases—that is, FX forward sales— during 2023–2024. Using daily data and local projections, we identify unanticipated operation shocks to the SEK against the euro (EUR) and the U.S. dollar (USD). On average, we observe sign consistency—depreciation during FX purchases and appreciation during SEK purchases. Three main results emerge: (i) effects unfold gradually but fade quickly, becoming statistically insignificant after about ten trading days; (ii) they are regimedependent, with FX purchases inducing larger depreciations and domestic currency purchase yielding smaller, delayed appreciations; and (iii) FX purchases generate long-run (11-60 days) currency-specific effects, with a stronger SEK depreciation against the EUR relative to the USD. However, results are more uniform across currencies in the short run (1–10 days) and throughout the domestic currency purchase period. |
| Keywords: | Foreign exchange operations; Local Projections; exchange rates |
| JEL: | E58 F31 F33 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0456 |
| By: | Della Corte, Pasquale; Gao, Can; Preve, Daniel P. A.; Valente, Giorgio |
| Abstract: | This paper investigates the long-horizon predictive variance of an international bond strategy where a U.S. investor holds unhedged positions in constant-maturity long-term foreign bonds funded at domestic short-term interest rates. Using over two centuries of data from major economies, the study finds that predictive variance grows with the investment horizon, driven primarily by uncertainties in interest rate differentials and exchange rate returns, which outweigh mean reversion effects. The analysis, incorporating both observable and unobservable predictors, highlights that unobservable predictors linked to shifts in monetary and exchange rate regimes are the dominant source of long-term risk, offering fresh insights into international bond investment strategies. |
| Keywords: | Currency risk, Long-term bonds, Predictability, Long-term investments |
| JEL: | F31 G12 G15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:331899 |
| By: | Maria Arakelyan; Tatiana Evdokimova |
| Abstract: | This paper contributes to the relatively limited literature on the impact of political uncertainty on international capital flows to emerging market economies. We incorporate elections as a proxy for political uncertainty into a standard push-pull framework for analyzing capital flows. Using quarterly data for a panel of 38 emerging market economies from 1990 to 2020, we show that periods surrounding elections are associated with a decline in gross private capital inflows. This adverse impact is larger and more persistent when uncertainty extends beyond the election period, for example in the context of uncertain policy priorities following incumbent’s loss. By contrast, higher levels of overall political stability appear to mitigate these adverse effects. We also find evidence that stronger institutions, as reflected in indicators such as regulatory quality and rule of law, help to mitigate the adverse effects of political uncertainty on capital flows. The results remain robust across a range of alternative specifications, including controls for standard economic drivers of capital flows, election characteristics, and model assumptions. |
| Keywords: | Capital flows; political cycles; uncertainty; emerging markets; push and pull factors |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/243 |
| By: | Serkan Arslanalp; Barry Eichengreen; Chima Simpson-Bell |
| Abstract: | We document some underappreciated aspects of the recent evolution of the international reserve system. These include the growing share of gold in global central bank reserves, the continuing emergence of nontraditional reserve currencies, and the stalling share of renminbi in reserves. These trends are consistent with our findings in our earlier papers. In addition we look to the future, pondering the potential implications of dollar-linked stablecoins, the expansion of the BRICS grouping of countries and their de- dollarization plans, the development of blockchain-based platforms such as Project mBridge for the direct exchange of central bank digital currencies, and questions about the dollar’s safe-haven status. |
| JEL: | F0 F33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34478 |
| By: | Kosuke Aoki (Graduate School of Economics, The University of Tokyo, JAPAN); Alan Auerbach (Department of Economics, University of California, Berkeley, U.S.A. and National Bureau of Economic Research, U.S.A.); Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Institute of Social and Economic Research, Osaka University, Asian Growth Research Institute, JAPAN, and National Bureau of Economic Research, U.S.A.); Anil Kashyap (University of Chicago Booth School of Business, U.S.A. and National Bureau of Economic Research, U.S.A.); Tsutomu Watanabe (Graduate School of Economics, The University of Tokyo, JAPAN); David Weinstein (Department of Economics, Columbia University, U.S.A. and National Bureau of Economic Research, U.S.A.) |
| Abstract: | Takatoshi Ito, who passed away in September 2025, was a leading scholar of macroeconomics and international finance. This column, written by a group of friends and colleagues, outlines his many contributions in a lifetime of research, teaching and policy-making in Japan, the United States and around the world. His work is particularly notable for challenging the widespread perception that standard economic analysis is somehow ill-suited for understanding the Japanese economy. Indeed, using the discipline's rigorous tools, he illuminated challenges that Japan faced earlier and more acutely than other countries – including population decline and ageing, ballooning government debt, the zero lower bound and unconventional monetary policies, real estate bubbles and their collapse, and the banking sector's problem of non-performing loans. |
| Keywords: | Asian economies; Exchange rate fluctuations; Foreign exchange intervention; Inflation targeting; International finance; Invoicing currency; Japanese economy; Macroeconomics; Monetary policy; Takatoshi Ito; Zero interest rate policy |
| JEL: | E52 E58 F14 F31 G15 O53 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-29 |
| By: | José Aurazo; Rafael Guerra; Pablo Tomasini; Alexandre Tombini; Christian Upper |
| Abstract: | This paper examines the impact of environmental factors on international capital flows – specifically portfolio, bank, and foreign direct investment (FDI) inflows – to emerging market economies (EMEs). Using two complementary approaches, we first analyse how recipient country factors influence capital flows for 21 EMEs, finding that EMEs with lower exposure to extreme weather events, a greener energy mix, more and stronger climate-related policies tend to attract greater capital inflows. Second, using bilateral data for FDI and bank flows, we explore the role of sending country factors (advanced economies, AEs) in determining capital inflows to EMEs. The results suggest that stricter environmental regulations in AEs lead to increased capital inflows to EMEs with weaker green regulations. This suggests an "emission shifting" effect. At the same time, though, they also route more investment to EMEs with a greener energy mix. These findings underscore the significance of environmental factors in shaping international capital flows. |
| Keywords: | environmental factors, capital flows, emerging markets, energy mix |
| JEL: | F21 F23 F64 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1308 |
| By: | Wenli Cheng (Department of Economics Monash University) |
| Abstract: | This paper extends the classical Ricardian model from a barter system to a monetary framework which emphasizes the pivotal role of the banking system in facilitating production and exchange. It studies international trade under three different monetary systems: (1) the Euro system, where a single currency facilitates both domestic and international trade; (2) the Bancor system, which relies on a supranational currency for trade between nations; and (3) the Dollar system, where one country’s national currency serves as the international media of exchange. The model preserves the Ricardian insight that specialization based on comparative advantage enhances global wealth, and identifies distinct features arising from different monetary systems. It shows that neither the Euro nor the Bancor system inherently generates trade imbalances. In contrast, the Dollar system imposes an asymmetric demand for the national currency used to conduct global trade. Since the currency demanded must be earned through net exports, trade imbalances are an intrinsic feature of the Dollar system. |
| Keywords: | : Ricardian model, the Euro sy |
| JEL: | F10 F33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:mos:moswps:2025-19 |
| By: | Sylvérie Herbert; Paul Hubert; Mathias Lé |
| Abstract: | This paper investigates when monetary policy announcements matter for asset price dynamics. We identify a fundamental heterogeneity in FOMC statements based on the underlying nature of information conveyed about future policy. Using a simple but novel classification, we identify meetings that convey substantial information about uncertainty surrounding future policy. These statements – one-third of the total – drive most, if not all, of the effects of monetary policy on long-term interest rates and account for a large fraction of their variation on these days. In contrast, directional statements about the policy stance – half of all meetings – have no effect on long-term rates but do affect short-term rates and stock prices. The strong effects on long-term rates stem from term premium adjustments rather than expected future short-term rates, consistent with investors’ updating their assessment of higher-order moments of future policy developments. Our classification resolves why policy announcements explain little variance in long-term rates despite driving their dynamics over time. |
| Keywords: | Monetary Policy Surprises, Term Structure, Identification, Policy Signals |
| JEL: | E43 E52 E58 G12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1017 |
| By: | Cavani, Bruno; Maggiori, Matteo (Stanford University); Schreger, Jesse |
| Abstract: | We construct representative security-fund-level longitudinal data for the United States using regulatory filings of portfolio holdings from Form N-PORT. We validate our dataset by comparing coverage and composition to official statistics from the Federal Reserve's Financial Accounts of the United States (formerly known as the Flow of Funds) and Treasury International Capital (TIC) System, and to micro-level commercial datasets such as Morningstar. We showcase an application by replicating and updating Maggiori, Neiman and Schreger (2020) findings on home currency bias using N-PORT instead of commercial fund holdings data. Our results confirm that N-PORT data offer a comprehensive, reliable, and public alternative to commercial datasets for research in macroeconomics and finance. We make all the security-level data on holdings available in a public repository of the GCAP Lab and provide code for updating the data. |
| Date: | 2025–11–11 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:ex4vb_v1 |