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on International Finance |
| By: | Bippus, B.; Lloyd, S.; Ostry, D. |
| Abstract: | Using data on the external positions of global banks in the world's largest banking hub, the UK, and a granular international-banking model, we show that large banks' idiosyncratic net flows into USD debt influence exchange-rate dynamics. UK-resident banks' USD demand is, on average, price-elastic, whereas their counterparties' USD supply is price-inelastic. We document a structural shift—from banks' being price-inelastic before the Global Financial Crisis to price-elastic afterwards—linked to a marked rise in banks' hedging on-balance-sheet USD net exposures via FX derivatives. This change may help explain the tighter link between exchange rates and macroeconomic fundamentals since the crisis. |
| Keywords: | Capital Flows, Exchange Rates, FX Derivatives, International Banking |
| JEL: | F31 F32 F41 G15 G21 |
| Date: | 2026–03–10 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2359 |
| By: | Benjamin Born (University of Bonn, CEPR, CESifo, & ifo Institute); Gernot J. Müller (University of Tübingen, CEPR, & CESifo); Johannes Pfeifer (University of the Bundeswehr Munich); Susanne Wellmann (Unternehmer Baden-Württemberg) |
| Abstract: | Interest rate spreads vary widely across time and countries and are a central driver of business cycles in emerging market economies (EMEs). Since 2008, advanced market economies (AMEs) have exhibited persistently higher and more volatile spreads, alongside increased macroeconomic volatility and stronger co-movement with EMEs. We document six facts showing that AMEs have become more similar to EMEs along key dimensions. We interpret these patterns through a small open economy model and uncover a stark dichotomy: higher spreads reflect greater indebtedness and lower debt tolerance, whereas greater macroeconomic volatility and co-movement are driven by stronger global shocks. |
| Keywords: | Country spreads, debt, interest rate shocks, business cycle, financial frictions |
| JEL: | F41 G15 E32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:403 |
| By: | Kaaresvirta, Juuso; Kerola, Eeva; Nuutilainen, Riikka |
| Abstract: | This paper examines recent developments in the internationalisation of the Chinese yuan, focusing on trade and portfolio flows, foreign exchange markets, cross-border payments, and official reserve holdings. The promotion of the yuan's global role has been a deliberate policy objective for Chinese authorities over the past two decades. The use of the yuan in China's own cross-border trade and portfolio flows has increased in recent years. Still, broader international adoption of the yuan remains very small compared to the US dollar and the euro and has not increased markedly in recent years. Under the current Chinese economic and financial framework-characterized by constrained capital account openness and an emphasis on market and exchange rate stability- the scope for a substantial increase in global yuan use remains limited. |
| Keywords: | China, yuan, currency, internationalisation |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:340029 |
| By: | Imbierowicz, Björn; Loeffler, Axel; Ongena, Steven; Vogel, Ursula |
| Abstract: | We examine how foreign macroprudential tightening transmits through multinational firms' internal capital markets. Using subsidiary exposure to countercyclical capital buffer (CCyB) increases, we find that while bank credit to subsidiaries falls 10 percent, parents fully substitute this via internal debt. Parents refinance this internal support by increasing borrowing from domestic banks and nonbanks, meeting the substitution needs of their subsidiaries. As a result, foreign CCyB tightening increases the exposure and risk borne by the parent's home jurisdiction. These findings reveal an unintended spillover: tightening in one country raises credit exposure and thereby borrower risk borne by lenders elsewhere through proactive internal financial redistributions within multinational corporations. |
| Keywords: | multinational corporation, internal capital market, countercyclical capital buffer, banks, nonbanks |
| JEL: | F23 F34 F36 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:340012 |
| By: | Cory Baird; Jonathan Benchimol; Wook Sohn; Vira Vyshnevska; Iegor Vyshnevskyi |
| Abstract: | This study introduces the Monetary Policy Statement Database (MPSD), comprising 6, 693 statements from 51 central banks worldwide (1990-2024). We develop a reproducible pipeline combining standard natural language preprocessing with large language model (LLM) tools for cross-country analysis. Four key findings emerge. First, statements lengthened substantially after the Global Financial Crisis while readability improved modestly. Second, inflation references comove across countries during global inflation episodes. Third, LLM-based question answering and aspect-based sentiment reveal that central banks attribute global financial conditions primarily to broad U.S. macroeconomic developments rather than to Federal Reserve policy actions specifically. Fourth, using a benchmark dictionary-based sentiment index and LLM-derived aspect-based sentiment indicators, Granger causality tests suggest that statement sentiment predicts the Global Financial Cycle rather than merely responding to it. The MPSD and accompanying codebase support reproducible research on monetary policy communication and international transmission. |
| Keywords: | central bank communication, large language models, text analysis, generative database, machine learning |
| JEL: | C55 C63 E52 E58 G15 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-25 |
| By: | Bryan Hardy; Felipe Saffie; Ina Simonovska |
| Abstract: | We study how U.S. dollar fluctuations transmit through domestic supply chains in emerging markets. Large firms borrow in foreign currency and extend trade credit to domestic partners, exposing the supply chain to exchange rate risk. We develop a model where financially constrained suppliers pass through shocks to buyers, while unconstrained firms absorb them. Using quarterly firm-level data from 19 emerging markets, we provide empirical evidence consistent with the model's predictions. We find that even highly exposed firms reduce trade credit only modestly following a depreciation, while accepting large profit losses, suggesting that firm-to-firm credit relationships partially shield downstream firms from financial shocks. |
| Keywords: | trade credit, financial constraints, supply chains, financial linkages, dollar |
| JEL: | F31 F34 G21 G32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12598 |
| By: | Hunter L. Clark; Jeffrey B. Dawson; Julian Gonzalez-Murphy |
| Abstract: | A succession of shocks to the global economy in recent years has focused attention on the improved economic and financial resilience of emerging market economies. For some of these economies, this assessment is well-founded and highlights the fruits of deep, structural economic reforms since the 1990s. However, for a much larger universe of countries, the ability to weather shocks is still mixed and many remain vulnerable. In this post, we explore the divide between the two sets of countries and focus on the effects of recent economic shocks, including the ongoing conflict in the Middle East. |
| Keywords: | emerging markets; China; capital flows; international economics |
| JEL: | F0 E0 |
| Date: | 2026–04–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103022 |
| By: | Röder, Jana; Tillmann, Peter; Winker, Peter; Yun, Jinyeong |
| Abstract: | German government debt is considered a safe asset in times of turbulence. We estimate the impact of changes in the risk appetite of global investors on weekly investment fund flows into the German sovereign bond market. Our key contribution is to allow the impact of such shocks to depend on the extent of disagreement about the path of fiscal policy, which we measure from the texts of all speeches delivered in the German Bundestag. An increase in global risk causes strong inflows into German government bonds if the coalition government is united, but only small and short-lived inflows if disagreement within the government is high. In contrast, disagreement between the government and the opposition has no moderating effect on fund inflows. We also find that the dependence of safe-haven flows on the prevailing level of fiscal disagreement is higher for actively managed funds and for funds domiciled abroad. |
| Keywords: | capital flows, disagreement, policy uncertainty, safe asset, text analysis |
| JEL: | F41 G15 H30 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:340020 |
| By: | Huixin Bi; Maxime Phillot; Sarah Zubairy |
| Abstract: | Historically high debt-to-GDP levels in the United States have raised concerns about future financial market stability and fiscal sustainability. We use high-frequency data and consider Treasury futures price changes within narrow windows around auction announcements to identify two distinct Treasury supply shocks: debt expansion shocks that capture changes in the level of public debt, and maturity extension shocks that reflect changes in the maturity structure. We find that debt expansion shocks raise yields across the curve by increasing term premia, leading to tighter financial conditions. These shocks crowd out private sector activity by reducing investment and production, particularly during periods of rapid debt growth. In contrast, maturity extension shocks steepen the yield curve while lowering credit risk premia and fiscal uncertainty. By reducing risk premia, these shocks stimulate near-term investment and production, even as higher long-term borrowing costs weigh on longer-horizon investment. We also show that the Treasury debt management policy can either reinforce or offset the Federal Reserve’s asset purchase programs. |
| Keywords: | Treasury supply; shocks; debt maturity; term premium |
| JEL: | E44 E63 H63 |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:103021 |
| By: | Thomas Drechsel; Ko Miura |
| Abstract: | Bank regulation supports financial stability, but might constrain economic activity. This paper estimates the macroeconomic effects of bank regulation using a high-frequency identification approach. We measure market surprises in a bank stock price index during a narrow time window around Federal Reserve speeches that discuss the US banking system and its regulation. We then develop a sign restriction procedure to elicit the variation in these market surprises that can be interpreted as news about bank regulation. News that bank regulation will be tighter than expected mitigates risk in the banking sector, but reduces economic activity by increasing banks' funding costs and tightening loan supply. A 10 basis point regulation-induced peak reduction in bank risk premiums is accompanied by a 15 basis point peak increase in the unemployment rate. Compared to previous studies, these magnitudes suggest a relatively high macroeconomic cost of tightening bank regulation, at least in the short run. |
| JEL: | E44 E51 E52 E58 G28 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35071 |