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on International Finance |
| By: | César M. Ciappa; Eduardo Levy Yeyati; Franco M. Vazquez |
| Abstract: | Emerging markets have accumulated large reserve buffers, but whether these buffers causally affect inward foreign direct investment (FDI) remains an open question. Using an unbalanced panel of emerging market economies over 2001–2020, we estimate twoway fixed-effects models of net inward FDI inflows with a rich set of lagged controls. We address the endogeneity of reserve accumulation by instrumenting lagged reserves with the two-year-lagged log of each country’s commodity import price index—a source of balance-of-payments pressure orthogonal to export-driven profitability shocks, conditional on a country-specific commodity export price index. The IV estimates imply that a 10% increase in reserves raises FDI inflows by about 18.5% (an elasticity of 1.85), more than four times the fixed-effects OLS estimate of 0.4. The effect is amplified during global stress episodes: the IV elasticity is 1.85 in the full sample but falls to 1.34 when crisis years (2008–2009, 2020) are excluded, consistent with reserves functioning as insurance that matters most when downside risks are salient. |
| Keywords: | international reserves; foreign direct investment; emerging markets; commodity prices; instrumental variables. |
| JEL: | F21 F31 F32 E58 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpgobi:wp_gob_2026_08 |
| By: | Elías Albagli; Guillermo Carlomagno; Javier Ledezma; María Teresa Reszczynski |
| Abstract: | We propose a structural framework to uncover the key forces shaping global asset prices and financial conditions. Our approach identifies seven distinct shocks: four U.S.-centric (growth, monetary policy, common risk premium, and a novel dollar-hedging risk), alongside a global hedging risk premium, a China-growth shock and an emerging market-specific risk premium shock. Using daily financial data from 2010–2025, we estimate a Structural VAR to trace how these shocks propagate across advanced and emerging economies. Our contributions are threefold. First, we introduce a real-time monitoring tool that provides structural interpretation and scenario analysis, equipping policymakers with a unified lens to assess asset price dynamics. Second, we improve shock identification through three innovations: (i) incorporating the dollar-hedging risk shock to explain anomalies observed since 2025, (ii) improving U.S. shock identification by leveraging non-U.S. data, and (iii) highlighting the pivotal role of Chinagrowth shocks in shaping emerging-market conditions. Finally, we develop a novel Financial Conditions Index (FCI) grounded in structural shocks, enabling country-specific assessments and enhancing interpretability. Unlike traditional FCIs, our index directly links financial conditions to their economic drivers, improving realtime monitoring and outperforming existing alternatives in nowcasting economic activity. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1080 |
| By: | Kugler, Peter |
| Abstract: | Our econometric (cointegration) analysis of the Swiss franc US dollar exchange rates over the period 1974 – 2025 provides strong evidence for a negative bias of the forward rate as predictor of the spot rate for the years up to 2007, which disappears with data from 2008 onwards. This implies that hedging increased the expected Swiss franc value of dollar investments before 2008. This advantage of hedging disappeared in the last 15 to 20 years and hedged and unhedged dollar investment have the same franc expected value in the long run. |
| JEL: | E43 E44 G15 |
| Date: | 2026–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:bsl:wpaper:2026/02 |
| By: | Fernando Pérez (Banco Central de Reserva del Perú) |
| Abstract: | The increase in uncertainty has harmful effects on both financial markets and the aggregated economy. At a global level, we have observed events that are known to have increased uncertainty and volatility in different indicators, especially the recent announcements associated with changes in trade policies (2025). These shocks generally involve an increase in indicators such as the VIX (volatility), the EPU (economic policy uncertainty), as well as collateral effects in both advanced and emerging financial markets. These effects are generally observed as a supply shock, generating higher inflation and lower economic activity. In this context, we seek to measure the impact of this type of combined shock on Latin American financial markets (measured through the EMBI, the exchange rate, and stock market indexes), as well as on activity and inflation. The countries analyzed are Brazil, Chile, Colombia, Mexico, and Peru, and the sample includes monthly data from January 2004 to September 2025. To quantify these effects, we estimated a Bayesian Hierarchical Panel VAR model, which has an external block that represents global markets and is not affected by shocks in the LATAM block. The global uncertainty shocks are identified through zero and sign restrictions. Results indicate that these shocks produce a favorable effect on the financial markets of the economies under analysis, in terms of a strengthened currency, lower country risk, and a temporary expansion in the stock market. |
| Keywords: | Panel Bayesian Vector Autorregressions, Uncertainty |
| JEL: | C23 E44 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-008 |
| By: | Jennie Bai; Luc Laeven; Yaojun Ke; Hong Ru |
| Abstract: | We study the global footprint and real effects of Chinese overseas corporate ownership. By assembling a comprehensive micro-level dataset of 161, 773 firms across 159 countries (2012–2021), we independently reconstruct multi-layered ownership chains to trace capital through offshore tax havens to its ultimate origin. This approach reveals a global footprint substantially broader than official FDI statistics. Chinese-controlled foreign assets expanded at 20% annually, reaching $2.1 trillion or roughly 3% of global corporate assets by 2021. Chinese investors—particularly state-owned enterprises (SOEs)—strategically target R&D-intensive and supply-chain-linked firms. Following acquisition, target firms increase capital stock and R&D expenditures, yet these inputs fail to generate higher patent output and are accompanied by a significant decline in profitability. We document a novel 'innovation spillback' mechanism: while target innovation remains stagnant, Chinese parent firms experience a sharp acceleration in granted patents following their first developed-economy acquisition. Furthermore, a greater Chinese presence crowds out R&D at non-target peer firms, though aggregate industry-level innovation remains unchanged. China thus represents a distinctively state-driven model of global ownership that accepts weaker near-term performance to internalize technological capacity at home. |
| JEL: | F3 G32 G34 O3 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35106 |
| By: | Xin Tian; Jan P.A.M. Jacobs; Jakob de Haan; J. Paul Elhorst; Jan Jacobs |
| Abstract: | Although financial market fluctuations that move together are often interpreted as evidence of a global financial cycle, driven by macroeconomic and financial shocks, they may also result from spillover effects generated by local financial linkages and interdependencies among countries. This study is among the first to jointly test the impact of global common factors and local spatial spillover effects by integrating both mechanisms into a unified dynamic spatial panel data model. The global common factors are determined not only by means of a latent dynamic factor derived from a large panel of monthly data on financial variables, but also by means of cross-sectional averages of the dependent variable. Local spatial spillover effects are determined by means of spatial lags determined by neighboring countries through different metrics of proximity. Using quarterly data on national financial cycles in credit and equity markets in 25 countries over the period 1997-2019, along with four distance matrices and two control variables, we find that the dependence between countries in national financial cycles stems from a combination of all the proposed model elements. In addition, geographic distance appears to be the best performing representation of the local spillover effects between national credit cycles and economic distance between national equity cycles. |
| Keywords: | global financial cycle, national financial cycle, dynamic spatial panel model, cross-sectional dependence, spillovers |
| JEL: | C13 E44 F32 F36 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12622 |
| By: | Lissette Briones; Matías Solorza |
| Abstract: | We study the macroeconomic responses of Chilean regions to extreme weather shocks —floods and wildfires— using local projections and novel administrative data. Our results show persistent GDP losses, temporary declines in consumption, and a delayed rebound in investment, accompanied by rising employment but falling wages and effective hours. These patterns contrast with U.S. county-level evidence on natural disasters, highlighting the role of disaster size, and institutional and financial factors in shaping recovery in emerging markets. We interpret the dynamics through four mechanisms: destruction of productive capital, tighter financial conditions that constrain rebuilding, reallocation of production, and household wealth losses that depress consumption while fueling lowwage reconstruction employment. Embedding these insights into a real business cycle framework with financial frictions, we show that financial constraints amplify disaster impacts and slow recovery. Our findings underscore the importance of targeted financial and reconstruction policies to prevent long-term economic scarring. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1062 |
| By: | Piero Garcia (Banco Central de Reserva del Perú) |
| Abstract: | This paper studies how exogenous liquidity shocks transmit from central bank balance-sheet operations to bank contract pricing. Using real-time liquidity forecasts from the Central Reserve Bank of Peru (BCRP), I identify reserve-supply shocks from forecast errors in the calibration of daily open market operations. The main analysis quantifies how these shocks affect financial conditions in the banking sector by estimating the dynamic response of lending and deposit spreads relative to safe yields of comparable maturity. I find that a positive liquidity shock to financial institutions generates a sizable and persistent compression of spreads, driven by declines in bank credit and deposit rates while safe yields respond little, consistent with a reduction in the liquidity premia embedded in bank contracts. The results are robust across alternative maturities, liquidity measures, model specifications, and alternative approaches to the measurement of liquidity shocks. These findings imply that balance-sheet and liquidity management policies can influence the effective stance of monetary policy not only through the level of short-term rates, but also through the pricing of liquidity risk that shapes bank spreads and borrowing costs. |
| Keywords: | liquidity premium, monetary policy, non-conventional policy, interbank market, interest rates |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-015 |
| By: | Felipe Córdova; Francisco Pinto; Mauricio Salas |
| Abstract: | This study provides the first loan-level climate transition risk stress test for Chile’s banking sector, combining granular credit data with NGFS short-term scenarios stem-ming from a general equilibrium framework. We estimate credit losses under orderly and disorderly transition pathways, integrating sectoral shocks with firm-level probabilities of default and addressing uncertainty through resampling. Results show that despite a gradual decline in exposure to carbon-intensive sectors, banks remain vul-nerable: losses under a disorderly transition could nearly double and rapidly approach levels seen during the Global Financial Crisis, with significant heterogeneity across institutions. These findings highlight the systemic and institution-specific nature of transition risks and underscore the need to embed climate risk into supervisory stress testing and capital planning to safeguard financial stability. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1070 |
| By: | Carlos A. Medel |
| Abstract: | This note decomposes Economic Policy Uncertainty (EPU) indices for 28 countries into domestic and global components, using state-space estimates to evaluate the recent influence of the global factor, particularly that originating from the US. The findings show that, in most countries, the global component has contributed more to overall EPU levels since late 2024 than during the 2007-08 Global Financial Crisis or the Covid-19 pandemic. Additionally, global synchronisation has reached record levels, as indicated by mean phase coherence, while multivariate wavelet coherence confirms alignment across both high- and low-frequency cycles. These results suggest a subdued global outlook, as a reversal of trade-restrictive policies is unlikely to restore prior economic conditions. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1052 |