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on International Finance |
| By: | Ferreira, Alex; Mullen, Rory; Ricco, Giovanni; Viswanath-Natraj, Ganesh; Wang, Zijie |
| Abstract: | We study the impact of foreign exchange interventions during periods of tight credit constraints. Expanding on the Gabaix and Maggiori (2015) model, we predict that long-lived spot interventions have larger effects on exchange rates than shortlived swaps, unanticipated interventions are more impactful, and tighter credit constraints amplify effects. Using high-frequency data on Brazilian Central Bank interventions from 1999 to 2023, we find that unanticipated spot sales of USD reserves lead to significant domestic currency appreciation and reduced covered interest parity deviations. Spot interventions outperform swaps, especially when global intermediaries are constrained, and enhance market efficiency by lowering USD borrowing costs. |
| Keywords: | Interventions |
| JEL: | E44 E58 F31 G14 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19556 |
| By: | Fredy Gamboa; Jose Vicente Romero |
| Abstract: | This study examines how geopolitical risk (GPR) transmits to sovereign credit risk in emerging market economies (EMEs), using monthly data on the 5-year sovereign credit default swap (SCDS) and the J.P. Morgan Emerging Markets Bond Index (EMBI) spread for 13 EMEs over the period of January 2005–October 2025. Using fixed-effects panel local projections, the framework is extended to allow for state-dependent transmission. Differences in impulse responses across states are attributed to specific macrofinancial fundamentals. Three main findings are identified. First, an increase in the GPR index raises both SCDS and EMBI spreads. Second, disaggregating the index into its subcomponents reveals a larger response to threats than to acts, consistent with the possibility of anticipation effects in sovereign credit markets. Third, evaluating the state-dependent impulse response around the Russian invasion of Ukraine yields substantially different responses, with the post-invasion configuration increasing the sovereign risk premia response. Our findings show the importance of modeling the state-dependent transmission of geopolitical shocks and provide a useful tool for incorporating geopolitical scenarios into sovereign risk analysis. |
| Keywords: | sovereign risk, credit default swaps, EMBI, emerging markets, geopolitical risk, panel local projections, state-dependent transmission |
| JEL: | C23 C54 F34 G15 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1368 |
| By: | Cristian Alonso; Tristan Hennig; Henry Hoyle; Haibo Li; Monica Petrescu; Ying Xu; Yizhi Xu |
| Abstract: | Asia-Pacific has undergone a profound transformation over the past few decades, increasing its share in global trade and GDP. This paper assesses to what extent Asia-Pacific’s role in global finance has expanded commensurately and whether it has become more integrated by systematically analyzing crossborder financial data. We combine descriptive analyses of past trends in financial positions with network analysis to understand how inter- and intra- regional financial linkages have evolved for economies in the region. We find that Asia-Pacific’s role in global finance still significantly lags its role in global trade and that there is considerable heterogeneity within the region. Advanced economies in the region are well integrated into global financial markets, whereas most emerging markets exhibit more limited integration. Financial integration within the region is also low but diverges significantly by instrument. Intra-regional financial integration is advancing in foreign direct investment (FDI) and cross-border banking (the latter from low levels), but has remained limited in foreign portfolio investment (FPI). Gravity model analysis indicates a significant association between trade and FDI, but not between trade and FPI. We conclude the paper with policy recommendations to promote resilient financial integration in Asia-Pacific. |
| Keywords: | Financial integration; Foreign direct investment (FDI); Foreign portfolio investment (FPI); Cross-border banking; Gravity models; Network analysis |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/154 |
| By: | Davenport, Margaret; Sá, Filipa; Wieladek, Tomasz |
| Abstract: | Macroprudential instruments have been increasingly used by advanced economics and emerging markets, especially since the global financial crisis. This paper looks at how macroprudential policy can help reduce the risks associated with capital flows. We start by examining different types of macroprudential policy tools and their usage in different countries over time. We revisit the research on the link between capital inflows shocks and house prices and ask whether this link may have been weakened by the more extensive use of macroprudential instruments post global financial crisis. We review the empirical evidence on the effect of macroprudential policies on capital flows volatility and on the transmission of capital flows shocks to the real economy. We discuss the factors that may reduce the effectiveness of macroprudential policies in dealing with potential risks associated with capital flows, particularly leakages and spillovers. We conclude with open questions for policy and research. |
| Keywords: | Macroprudential policy; International capital flows |
| JEL: | F32 E60 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19723 |
| By: | Boris Hofmann; Aaron Mehrotra; Jan Paulick |
| Abstract: | The emergence of stablecoins has created a new channel to access US dollar liquidity in emerging market and developing economies (EMDEs), similar to the historical role of foreigncurrency deposits, or "deposit dollarisation". This has raised concerns about the possible implications for monetary control in EMDEs. Drawing on data on foreign currency deposits and dollar-pegged stablecoin inflows for more than 130 economies, we compare the dynamics and drivers of "stablecoin dollarisation" with those of conventional deposit dollarisation. We document that historical deposit dollarisation and recent stablecoin flows are both associated with similar macro-financial drivers, including the strength of exchange rate pass-through and sovereign or banking crises. We further document significant persistence in both deposit and stablecoin dollarisation, suggesting that dollarisation is hard to reverse once established. Unlike deposit dollarisation, stablecoin flows seem to be largely unaffected by either broad or specific capital flow restrictions. This likely occurs because stablecoins are partly circulating outside the regulatory perimeter. The historical record also suggests that moderate deposit dollarisation has been associated with somewhat higher inflation risks, although there is little evidence of significant impacts on monetary policy transmission. |
| Keywords: | dollarisation, capital flows, stablecoins, monetary control, EMDEs |
| JEL: | E44 E58 F32 F38 G15 G23 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1370 |
| By: | Younes Takki Chebihi; Naoya Kato; Maxwell Kushnir; Andreja Lenarcic; Yinhao Sun; Mr. Bilal Tabti |
| Abstract: | Frontier Market (FM) status serves as a steppingstone for Low-Income Countries (LICs) aspiring to become Emerging Markets (EMs). Since the concept first emerged over three decades ago, FMs have gained substantial investment appeal, particularly after the 2008 Global Financial Crisis. At the same time, the recent series of global shocks starting with the COVID-19 pandemic highlighted the countries’ persistent vulnerabilities. This paper seeks to deepen our understanding of FMs by offering new analysis on the determinants of frontier market status and, using a dynamic country sample, examining the factors that help LICs attain and lose FM status. It finds that building robust macroeconomic fundamentals and ensuring good governance are critical for becoming an FM. In addition, the paper identifies flexible exchange rates, substantial official reserve buffers, and relatively low public debt and deficit levels as key contributors to lessening the sensitivity of FMs’ sovereign spreads to changes in global financial conditions. |
| Keywords: | Frontier Markets; Sovereign Spreads; Market Access; U.S. Monetary Policy Spillovers |
| Date: | 2026–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/140 |
| By: | Huy Nguyen; Celine Thevenot |
| Abstract: | Fuel and food constitute significant portions of consumer baskets, yet their prices are highly volatile. The renewed energy price shock in March 2026, driven by geopolitical disruptions and supply constraints, has highlighted the macroeconomic and distributional importance of how international price shocks transmit to domestic markets. Spikes in these prices can have major social, political, and economic implications. The conventional policy approach is to allow domestic retail prices to align with international prices while protecting the most vulnerable. However, many countries intervene in price settings to shield their domestic markets from global fluctuations. This paper provides a comprehensive assessment of the passthrough from global to domestic retail prices for four commodities: gasoline, diesel, wheat, and rice over the past two decades in many countries. We employ a dynamic model of local projections building on the work of Kpodar and Abdallah (2017). Our findings indicate that average passthrough is incomplete, with fuel exhibiting higher and faster passthrough than food. The extent of passthrough varies by period, region, and between commodity exporters and importers. We also examine asymmetric responses to global price shocks and find evidence of a ratchet effect: price increases are more likely to be passed through than decreases. |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/148 |
| By: | Bazot, Guillaume; Monnet, Eric; Morys, Matthias |
| Abstract: | We study how central banks have used their balance sheet to absorb international monetary shocks since the late 19th century, thereby regaining some monetary policy autonomy in a context of financial openness. If the uncovered interest rate parity does not hold, an increase in the leading international interest rate may push up domestic interest rates in both fixed and floating exchange rate regimes. Central banks can partially insulate domestic short-term interest rates from this increase by expanding domestic assets. With a fixed exchange rate, this is in addition to the sterilization of foreign exchange interventions. Accounting for the response of central bank balance sheets to an exogenous international shock sheds light on some puzzling behavior of interest rates and exchange rates across international monetary regimes in history. This study is based on a new monthly dataset of central bank balance sheets, macroeconomic, and financial variables for 23 countries since 1891. |
| Keywords: | Gold standard; International spillovers; Global financial cycle; Bretton Woods; Trilemma; Foreign exchange interventions |
| JEL: | E4 E5 F3 F4 N1 N2 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19646 |
| By: | Bertaut, Carol; Curcuru, Stephanie E.; Faia, Ester; Gourinchas, Pierre-Olivier |
| Abstract: | We provide new estimates of the return on US external claims and liabilities using confidential, high-quality, security-level data. The excess return is positive on average, since claims are relatively more tilted toward higher-return equities. The excess return is large and positive in normal times and large and negative during global crises, reflecting the global insurance role of the US external balance sheet. With an increased frequency of global crises, the excess return has declined over the recent period. When controlling for issuer’s nationality, US investors have larger exposure to equity issued by Asia-headquartered corporations than reported in aggregate statistics. Equity portfolios are concentrated in ’superstar’ firms, but for US liabilities foreign holdings are less concentrated than the overall market. |
| Keywords: | Excess returns |
| JEL: | E F O |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19709 |
| By: | Hasan Cetin; Mr. Sanan Mirzayev |
| Abstract: | We examine market entry and post-entry debt dynamics in Frontier Economies by grouping countries based on durability of market access using a two-step framework combining first Eurobond issuance with the reliance on private external creditors, validated through an unsupervised K-mean clustering. A discrete-time event LOGIT model finds that favorable global liquidity conditions and investor appetite open issuance windows for countries, but domestic pull factors—income, institutions, growth, and reserve buffers—ultimately determine success of market entry. Post-entry, Frontier Economies shift rapidly toward market borrowing, with looser fiscal stance as new financing source is unlocked. Along increased exposure to rollover and global financial cycle risks, debt decomposition exercise shows a worsening interest–growth differential and rising debt, driven mainly by primary deficits and higher interest burdens. Results underscore the need for credible medium-term fiscal frameworks, stronger debt management, and reserve buffers to manage the transition to market financing. |
| Keywords: | Market Access; Frontier Economies; Debt Dynamics; Debt Sustainability; Debt Sustainability Framework |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/153 |