|
on International Finance |
| By: | Felipe Benguria; Eugenio I. Rojas; Felipe Saffie |
| Abstract: | Countries borrow in dollars because dollar debt markets are deep and liquid. This paper develops a theory of when that dominance becomes fragile because countries have inherited dollar liabilities but increasingly earn yuan-linked revenues. In the model, countries begin with dollar-denominated sovereign debt. Geopolitical fragmentation raises their yuan revenue share through two channels: higher trade barriers with dollar-linked markets shift exports toward yuan-linked markets, and higher costs of using dollars in that trade make yuan settlement more attractive. Governments then face a choice: repay dollar debt using revenues that are less dollar-linked, default, or restructure into yuan. The paper identifies a liquidity spillover from restructuring: dollar-to-yuan restructurings deepen yuan debt markets, lowering refinancing costs and encouraging additional restructurings. The model shows when fragmentation produces limited restructuring and when it triggers a self-reinforcing shift from dollar debt to yuan debt. A cascade requires the liquidity feedback from yuan restructuring to be stronger than the dispersion in countries’ yuan revenue exposure. |
| JEL: | F36 F55 G15 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35272 |
| By: | Sangyup Choi; Jongho Park; Kwangyong Park |
| Abstract: | What accounts for cross-country heterogeneity in exchange-rate responses to U.S. monetary policy shocks? Using daily data around Federal Open Market Committee (FOMC) announcements for 34 countries from 2001 to 2019, we show that countries with deeper financial markets experience larger currency depreciations following contractionary U.S. monetary policy shocks. This amplification is concentrated in forward-guidance shocks rather than contemporaneous target-rate surprises. The result is robust to alternative measures of financial market depth and to controls for domestic monetary policy responses, broad dollar movements, and various country characteristics. The amplification fades within approximately one month, suggesting that financial market depth matters primarily for high-frequency exchange-rate adjustment. A parsimonious portfolio-adjustment model interprets these empirical patterns by linking market depth to lower rebalancing costs and by treating forward guidance as news about future interest-rate differentials. |
| Keywords: | exchange rates, U.S. monetary policy, portfolio adjustment frictions, forward guidance, event study |
| JEL: | E52 F31 F41 G11 G17 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-43 |
| By: | Friederike Niepmann; Leslie Sheng Shen; Joshua Walker |
| Abstract: | Geopolitical risk has emerged as a central driver of global financial markets, with episodes such as Russia’s invasion of Ukraine and recent conflicts in the Middle East triggering sharp movements in asset prices and increases in market volatility. This brief examines how geopolitical risk affects U.S. bank valuations and which institutions are most vulnerable. Through cross-border lending, foreign subsidiaries, and trading activities, banks face multifaceted exposure to geopolitical risk that can affect their profitability via credit losses, disrupted funding markets, and altered fee income. Banks’ valuations, in turn, influence their funding costs and capital-raising capacity, ultimately affecting credit supply to the real economy. And if geopolitical risk affects some banks more than others, it may create uneven vulnerabilities within the financial system, which would have implications for financial stability. |
| Keywords: | geopolitical risk; Bank valuation; cross-border lending |
| JEL: | G12 G14 G21 |
| Date: | 2026–06–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbcq:103352 |
| By: | Friederike Niepmann; Leslie Sheng Shen; Joshua Walker |
| Abstract: | Geopolitical risk has emerged as a central driver of global financial markets, with episodes such as Russia's invasion of Ukraine and recent conflicts in the Middle East triggering sharp movements in asset prices and increases in market volatility. But not all industries are exposed to such shocks in the same way (Caldara and Iacoviello 2022; Culver, Niepmann, and Shen 2025). |
| Date: | 2026–06–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103377 |
| By: | Celso Brunetti; Christoph Frei |
| Abstract: | We study the rise of nonbank financial intermediation and its implications for systemic risk. We develop a structural network model of banks and nonbank financial institutions (NBFIs) that decomposes intermediation into a capacity channel, driven by bank balance-sheet constraints, and a reliance channel, reflecting NBFI funding reliance. Using U.S. banking confidential supervisory data, we estimate key structural parameters and quantify both channels. We find that fluctuations in bank-NBFI intermediation are primarily explained by the reliance channel, with variation in NBFI fragility emerging as the dominant driver. We show that NBFI intermediation can amplify shocks through funding interconnectedness. |
| Keywords: | bank regulation; nonbank financial intermediation; systemic risk; financial networks; balance-sheet constraints; nonbank financial institution (NBFI) fragility; capacity and reliance channels; supervisory data |
| JEL: | G21 G23 G28 C51 D85 |
| Date: | 2026–05–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103340 |
| By: | Tirupam Goel; Ulf Lewrick; Isha Agarwal |
| Abstract: | We model a stablecoin issuer that optimises capital, cash and bond holdings under persistent stablecoin flows. Absent regulation, the issuer holds little capital and favours interest-bearing but less-liquid bonds over cash. This exposes coin-holders to default risks and poses systemic spillovers via price impact of bond fire-sales. How can regulation mitigate these risks? We consider capital and liquidity thresholds as usable buffers. They can be breached in stress but discipline issuers by triggering additional redemptions, thus endogenising stablecoin flows. The thresholds work through asymmetric channels. While the liquidity threshold only raises cash holdings, the capital threshold increases both capital and cash. Both thresholds mitigate default and spillover risks, suggesting they are substitutes. However, they are complements for regulators targeting both risks. Using stablecoin flows and US Treasury market depth, we calibrate a two-way mapping that enables regulators to recover capital-liquidity threshold combinations implied by chosen risk targets (and vice-versa). |
| Keywords: | capital regulation, liquidity regulation, stablecoins, crypto, money market funds, financial stability, buffer usability |
| JEL: | G2 G28 C6 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1355 |
| By: | Emanuele Colonnelli; Marcio Cruz; Mariana Pereira-Lopez; Tommaso Porzio; Chun Zhao |
| Abstract: | We build new data on startups in Africa to study which types of financing these firms demand, how financing is allocated in practice, and the implications for startup creation and the composition of the sector. We combine a continent-wide founder survey, an incentive-compatible experiment estimating financing preferences, and venture capital (VC) deal records matched to founders’ education and work histories. We find that startups strongly prefer equity over debt, but equity is supplied mainly by foreign investors and flows disproportionately to foreign-connected founders. About 80 percent of VC deals involve a foreign investor, and more than 60 percent of funded founders have studied or worked outside Africa. A simple accounting framework shows that this foreignness reflects three main forces: scarce local equity capital, a thin pool of local entrepreneurs able to access startup finance, and frictions limiting local entrepreneurs’ access to foreign investors. Together, these forces reduce startup creation and tilt the sector toward foreign investors and foreign-connected founders. |
| JEL: | F0 G0 O10 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35261 |
| By: | Allayioti, Anastasia; Garratt, Anthony |
| Abstract: | Using a recent and comprehensive data set covering nine of the most actively traded currencies on a monthly basis from 1995 to 2024, this paper explores the presence and potential drivers of herding behaviour in foreign exchange rate forecasts. The dataset features an average of 40–50 forecasters per currency, representing a broader range of currencies, a longer time frame, and a larger cross section of forecasters than is commonly found in the FX herding literature. Our results provide mixed evidence on herding, where the balance tends towards anti-herding conclusions.While some revision-based tests suggest herding when current consensus forecasts are used, this evidence weakens considerably when lagged information is employed. In contrast, forecast-error based tests, Bernhardt et al. statistics, and over-reaction regressions more often point to anti-herding, particularly at longer horizons. Overall, we interpret the findings as suggesting thatdifferences among forecasters are largely attributable to heterogeneous views, noise, or idiosyncratic error rather than systematic convergence toward the consensus. When alternative explanations for expectation formation or revisions are considered, the main findings remain unchanged across a wide range of measures, including different types of uncertainty and FX predictors such as the forward premium, the real exchange rate, and the depreciation rate. JEL Classification: C10, C22, F31, F47, G17 |
| Keywords: | anti-herding, consensus forecasts, exchange rates, herding, individual forecasts, panel estimation |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263243 |
| By: | Sriya Anbil; Sebastian Infante; Zeynep Senyuz |
| Abstract: | In an ample-reserves framework, administered rates anchor money markets but suppress information from unsecured interbank trading. We recover that information by isolating the small interbank segment of the federal funds market. Using high-frequency bank-level data, we employ deposit shocks as an instrument for bank borrowing demand. Our analysis reveals that non-bank lenders, such as Federal Home Loan Banks, supply funds elastically, whereas bank lenders exhibit price inelasticity, which intensifies as their reserve balances decline, particularly for bankers’ banks. This interbank segment highlights distributional frictions in the federal funds market that emerge well before aggregate reserves become scarce and provides new evidence on monetary policy transmission in an ample-reserves regime. |
| Keywords: | monetary policy implementation; balance sheet policy; central bank reserves; federal funds market |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103338 |
| By: | Edward P. Herbst; Scott R. Konzem; Cristina Scofield |
| Abstract: | We comprehensively document 1, 265 Federal Reserve staff alternative scenarios presented to the Federal Open Market Committee in publicly released materials from 1968 to 2020. Scenarios grew in frequency and sophistication, typically spanning a range of outcomes around the baseline. We construct a taxonomy with six categories: aggregate demand, aggregate supply, external risks, financial conditions, fiscal policy, and expectation shifts. Staff qualitative risk assessments complemented the scenario composition. Comparing scenario forecasts to realized outcomes, the most accurate scenarios often anticipated major macroeconomic developments even when magnitudes were missed, revealing the value and limits of scenario analysis for central bank risk management. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103343 |