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on International Finance |
| By: | Horn, Sebastian; Reinhart, Carmen; Trebesch, Christoph |
| Abstract: | States are major international financiers, but their role is poorly understood. We study state-driven cross-border lending over two centuries using a new database covering 1.2 million official loans and grants by 134 governments and 70 multilateral institutions since 1790. We document a dual, state-contingent structure of international credit. In normal times, private creditors dominate cross-border lending. In adverse states of the world, such as wars and financial crises, official creditors step in, at times on a massive scale. These official flows are driven by great powers, are highly subsidized, and are largely absent from canonical models in international macroeconomics. |
| Keywords: | Sovereign debt; Capital flows; Financial crises; Bailouts; War finance; Disaster risk |
| JEL: | E42 F33 F34 F35 F36 G01 G20 N1 N2 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21556 |
| By: | Ahir, Hites; Bettarelli, Luca; Furceri, Davide; Frangiamore, Francesco; Ostry, Jonathan D.; Scianna, Francesco |
| Abstract: | Using bilateral foreign direct investment (FDI) flows data for a panel of 35 host and 243 source countries over 1985–2023 and dynamic gravity-based local projections, we show that trade restrictions and trade policy uncertainty in host countries generate economically significant and persistent declines in bilateral FDI inflows. These effects vary systematically across source- and host-country characteristics. FDI from low- and middle-income countries responds more strongly, consistent with tighter financial constraints. On the host side, adverse effects are mitigated under countercyclical fiscal policy and stable exchange rates but are amplified under greater capital account openness. Bilateral factors also shape transmission: stronger global value chain (GVC) integration amplifies the impact of trade restrictions and uncertainty shocks, while greater geopolitical distance strengthens the effects of trade restrictions but reduces the sensitivity of FDI to trade policy uncertainty, as baseline risk is already higher in more distant relationships. Finally, trade shocks not only reduce average FDI but also increase its uncertainty, raising downside risks. These results are robust across a range of specifications, including instrumental variable and difference-in-differences approaches. |
| Keywords: | Foreign direct investment; Trade policy restrictions; Uncertainty; Local projections; Location-scale approach |
| JEL: | F13 F21 G15 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21524 |
| By: | Chenard, Antonin; Eichengreen, Barry; Monnet, Eric; Morvillier, Florian |
| Abstract: | We analyze an aspect of the international monetary system that has been the subject of little research: the distinction between foreign exchange reserves held as deposits and held as securities. We assemble new data for 109 countries in the period 1950-2022 based on previously unutilized statistics from central bank annual reports. We show that there has been movement since the late 1990s toward holding a larger share of reserves in the form of securities. Securities now account for almost two-thirds of total foreign exchange reserves, up from one-third a quarter century ago. This shift is concentrated in the decade between the emerging market crises of the late 1990s and the 2008 global financial crisis. It is associated with the accumulation of excess reserves, what central bank reserve managers refer to as the †investment tranche†of their reserve portfolios. |
| Keywords: | International monetary system; Foreign exchange reserves |
| JEL: | F30 F31 F33 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21488 |
| By: | Carlos Giraldo (Fondo Latinoamericano de Reservas - FLAR); Iader Giraldo-Salazar (Fondo Latinoamericano de Reservas - FLAR); Jose E. Gomez-Gonzalez (Department of Finance, Information Systems, and Economics, City University of New York – Lehman College); Jorge M Uribe (Universitat Oberta de Catalunya) |
| Abstract: | This paper examines whether bank ownership shapes the international transmission of monetary policy through the bank lending channel. Specifically, it investigates whether foreign subsidiaries respond differently from domestic banks to U.S. monetary policy shocks. Using a large bank-level dataset covering 2, 039 institutions across 116 countries over the period 2001–2020, we combine detailed balance sheet information with an exogenous measure of U.S. monetary policy shocks. Our results indicate that foreign-owned banks seem to adjust their lending more strongly in response to U.S. monetary policy shocks than domestic banks. However, this effect is highly heterogeneous across banks and therefore not statistically significant. These findings hold regardless of whether lending persistence is explicitly modeled or not. Overall, the evidence downplays the role of internal capital markets in driving the international credit channel of monetary policy over yearly horizons. More broadly, results point suggest that foreign ownership appears to play a secondary role relative to broader balance sheet characteristics and exposure to global financial conditions |
| Keywords: | International bank lending channel; Monetary policy spillovers; Foreign bank ownership; Global financial cycle; Bank lending; Cross-border banking |
| JEL: | F34 G21 E52 F42 |
| Date: | 2026–06–04 |
| URL: | https://d.repec.org/n?u=RePEc:col:000566:023051 |
| By: | Denis Gorea; Ding Xuan Ng; Fabrizio Zampolli |
| Abstract: | This paper estimates the macroeconomic and financial effects of fiscal risk shocks using a novel identification from bond yields. We first recover country-specific fiscal risk shocks from a daily Bayesian VAR model in sovereign and safe corporate bond yields, identified via contemporaneous sign restrictions that capture portfolio rebalancing away from government debt toward private safe assets. We then estimate the effects of these shocks using a local-projections framework applied to a monthly panel of twelve economies. Fiscal risk shocks generate stagflationary dynamics. Inflation and inflation expectations rise on impact, while industrial production increases only temporarily before declining persistently. Sovereign yield curves steepen, exchange rates depreciate and equity prices fall. These effects are significantly stronger when monetary policy remains accommodative– leading to persistently negative real interest rates– and when sovereign risk premia are already elevated. |
| Keywords: | fiscal risk, sovereign yields, safe assets, Bayesian VAR, local projections, monetary–fiscal interactions |
| JEL: | E31 E52 E62 G12 H63 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1364 |
| By: | Drechsel, Thomas; Miura, Ko |
| 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. |
| Keywords: | Federal Reserve; Bank regulation; Macroprudential policy; High-frequency identification; Sign restrictions |
| JEL: | E44 E51 E52 E58 G28 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21371 |
| By: | Drechsel, Thomas; Tenreyro, Silvana; McLeay, Michael; Turri, Enrico Duilio |
| Abstract: | We show that the optimal monetary policy and exchange rate framework depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions may vary with the commodity cycle. Stabilizing domestic prices is optimal for commodity exporters, in line with standard open-economy policy prescriptions. But for economies that use commodities as inputs in production, optimal policy largely ‘looks through’ the direct and indirect effects of commodity shocks on domestic prices; this contrasts with some earlier findings and policy practice (which only ‘looks through’ the direct effect). Exchange-rate pegs perform better for commodity importers because they stabilize wages and employment, though it is not a robustly optimal policy. In emerging and developing economies, where financial conditions are more tied to the commodity cycle, trade-offs are starker and implementing the optimal policy may be challenging, since it requires enough credibility to keep inflation expectations anchored amidst greater volatility in some nominal variables. |
| Keywords: | Monetary policy; Exchange rates; Inflation targeting; Commodity prices; Small open economy |
| JEL: | E31 E52 E58 F41 Q02 Q30 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21518 |
| By: | Eichengreen, Barry; Mehl, Arnaud; Vansteenkiste, Isabel |
| Abstract: | This paper assesses whether recent global developments have created an opportunity for the euro to expand its international role. Progress in the euro’s internationalization has been mixed — falling short of optimists’ hopes of dethroning the dollar while exceeding skeptics’ predictions of failure. Though the euro has not surpassed the combined global share of its legacy currencies, it has outperformed earlier challengers to the dollar, such as the Deutsche mark and Japanese yen at their peak internationalization in the 1990s, and it remains significantly ahead of the renminbi today. Recent developments in the U.S — concerns over its economic stability, growth prospects, and reliability as a global partner — have intensified scrutiny of the dollar’s safe haven status, potentially creating an opportunity for the euro to gain ground globally. To capitalize on this opening, Europe must strengthen its economic foundations, conclude new trade agreements and enhance its cross-border payment infrastructure with key trading partners, so as to bolster trade invoicing in euro. Fostering pan-European markets for equities, corporate bonds, and securitizations would boost liquidity and scale, enhancing the euro’s appeal as a global financing and investment currency. And establishing a unified euro-denominated safe asset to finance public goods such as defense, while bolstering Europe’s geopolitical credibility, would be critical to achieving these goals. |
| Keywords: | International monetary system; Geoeconomics |
| JEL: | F30 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21265 |
| By: | Bondarenko, Yevheniia; Kang, Nayeon; Lewis, Vivien; Rottner, Matthias; Schüler, Yves |
| Abstract: | Geopolitical risk is a major concern for the euro area, yet widely used measures largely reflect a US perspective. We introduce a geopolitical risk indicator tailored to the euro area using local European news sources. Shocks to this index have significant recessionary and inflationary consequences in the euro area, effects that would be missed when relying on the corresponding US-based measure. We estimate that the Russo-Ukrainian War imposed substantial output losses and inflationary pressures on the euro area in 2022. Combining structural scenario analysis with end-of-sample nowcasting, we show that euro area prospects are highly sensitive to future developments in geopolitical risk. We complement these analyses with two news-based measures of sanctions intensity and shortages for the euro area. |
| Keywords: | Euro area; geopolitical risk; Inflation; Sanctions; Shortages |
| JEL: | E32 F42 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21409 |
| By: | Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Adalid, Ramon; Fortes, Roberta; Maruhn, Franziska |
| Abstract: | This paper studies the effects of stablecoin adoption — crypto-assets designed to maintain a stable value relative to a reference asset — on bank intermediation and the transmission of monetary policy. Using evidence from the rapid expansion of stablecoins combined with confidential granular data on euro area banks and their individual borrowers, we document three main findings. First, stablecoin adoption induces a deposit-substitution mechanism, whereby funds shift from retail bank deposits to digital assets. This reallocation increases banks’ reliance on wholesale funding and can ultimately constrain their intermediation capacity. Second, we show that stablecoins affect the pass-through of policy rates to bank funding costs and lending conditions, potentially strengthening bank-based monetary policy transmission while making it less predictable. These effects are nonlinear and depend critically on the scale of stablecoin adoption, their design features, use cases, and regulatory treatment. Third, we document a potential risk associated with the growing prevalence of foreign-currency-denominated stablecoins. Their diffusion is likely to increase banks’ reliance on foreign-currency wholesale funding. We show that banks with greater exposure to this source of funding exhibit a weaker loan-supply response to domestic monetary policy shocks, indicating a weakening of monetary policy transmission and a potential erosion of monetary sovereignty. |
| Keywords: | Stablecoins |
| JEL: | E52 E44 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21321 |