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on International Finance |
| By: | Torsten Ehlers; Mathias Hoffmann; Alexander Raabe |
| Abstract: | House prices co-move considerably across countries. We show how non-US global banks and their exposure to US dollar funding conditions help explain this comovement. When the dollar appreciates, mortgage lending and house prices decrease more in borrower countries whose non-US creditor banks are more exposed to dollar funding conditions. As US dollar funding conditions vary, borrowing country pairs with higher joint exposure to US dollar funding conditions via their non-US creditor banks exhibit a higher synchronization of mortgage credit and house price growth. We capture the exposure to dollar funding conditions by the bilateral treasury basis between the currency of the non-US global creditor banks' nationality and the US dollar, a choice that we motivate in a simple value-at-risk model. Our results identify a novel international spillover channel of US dollar funding conditions. Because it works through heterogenous dollar funding exposures among creditors, this new channel is neither linked to common-lender exposures nor to currency mismatches on borrower countries' balance sheets, typically associated with the financial channel of the exchange-rate. |
| Keywords: | house prices, synchronization, US dollar funding, dollar cycle, US treasury basis, convenience yield, capital flows, global banks, global banking network |
| JEL: | F34 F36 G15 G21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1332 |
| By: | Joseph Abadi; Jesús Fernández-Villaverde; Daniel Sanches |
| Abstract: | We present a micro-founded monetary model of the world economy to study international currency competition. Our model features "unipolar'' equilibria, with a single dominant international currency, and "multipolar'' equilibria, in which multiple currencies circulate internationally. Long-run equilibria are highly history-dependent and tend towards the emergence of a dominant currency. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt, but large economies have a natural advantage in ensuring the dominance of their currencies. We calibrate the model to assess the quantitative importance of these mechanisms and study the international monetary system's dynamics under several counterfactual scenarios. |
| JEL: | E42 E58 G21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34817 |
| By: | Kristin Forbes; Jongrim Ha; M. Ayhan Kose |
| Abstract: | Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through” their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks—particularly global supply shocks—have significant implications for modeling monetary policy and designing central bank frameworks. |
| JEL: | E31 E32 E52 F41 F42 F44 F47 F62 G15 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34806 |
| By: | Bruno Cavani; Christopher Clayton; Amanda Dos Santos; Matteo Maggiori; Jesse Schreger |
| Abstract: | This paper uses microdata on U.S. mutual fund and ETF portfolios from SEC Form NPORT to study American investment in Chinese Renminbi (RMB)–denominated bonds. We show that, even as total foreign holdings of Chinese bonds rebounded in 2024, U.S. holdings of RMB bonds fell sharply and that most of this decline reflects funds exiting RMB positions entirely. These patterns point to a shift in the composition of China’s foreign investor base away from U.S. institutional investors and illustrate how publicly available microdata can inform work on international currency use. |
| JEL: | F3 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34792 |
| By: | Fernando Broner; Juan J. Cortina; Sergio L. Schmukler; Tomas Williams |
| Abstract: | This paper examines how shifts in investor demand influence firm financing and investment decisions. For identification, the paper exploits a large-scale MSCI methodological reform that mechanically redefined the stock weights in major international equity benchmark indexes, changing the portfolio allocation of 2, 508 firms across 49 countries. Because benchmark-tracking investors closely follow these indexes, the rebalancing constituted a clean shock to equity demand. The results show that portfolio rebalancing by benchmark-tracking investors generated significant capital inflows and outflows at the firm level. Firms experiencing larger inflows increased equity issuance, even more so debt financing, and real investment. The paper complements the empirical analysis with a simple model of firm financing in which a decline in the cost of equity increases the value of equity and relaxes borrowing constraints. Higher equity valuations allow firms to expand borrowing even without issuing substantial new equity, so debt financing responds more strongly than equity issuance. |
| Keywords: | Asset managers, benchmark indexes, corporate debt, equity, investment, institutional investors, issuance activity |
| JEL: | F33 G00 G01 G15 G21 G23 G31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:upf:upfgen:1938 |
| By: | Leonardo Gambacorta; Enisse Kharroubi; Aaron Mehrotra; Livia Pancotto |
| Abstract: | The productivity and growth effects of artificial intelligence (AI) vary widely across countries, reflecting differences in sectoral composition and in the capacity to adopt and deploy AI. While advanced economies (AEs) are generally better positioned to reap the benefits of AI in the near term, substantial heterogeneity exists within emerging market economies (EMEs). AI preparedness – covering digital infrastructure, skills and institutional capacity – is a key determinant of overall gains, amplifying productivity effects where it is strong and constraining them where gaps persist, particularly in many EMEs. Closing AI preparedness gaps can support long-term convergence, as stronger infrastructure, human capital and institutions would enable EMEs to harness AI more effectively, help mitigate labour market risks through reskilling and retraining policies, and narrow growth differences with AEs. |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:121 |
| By: | Bouillot, Roland (Maastricht University); Candelon, Bertrand (Université catholique de Louvain, LIDAM/LFIN, Belgium); Kool, Clemens (Maastricht University) |
| Abstract: | Accurate forecasting constitutes a central objective for policymakers. This paper examines the application of advanced machine-learning techniques to predict the 10-year sovereign bond spreads vis-à-vis the German bund, employing a novel high-dimensional dataset covering 10 European countries over the period 2007−2025. An exhaustive comparison of predictive performance, both in-sample and out-of-sample, demonstrates that XGBoost delivers the highest degree of accuracy. Building on these forecasts, we construct fragmentation matrices that capture the extent of asymmetry across Euro area sovereign bond markets. Prior to the COVID-19 crisis, results confirm the well-documented clustering between core and peripheral countries. However, since 2021 this segmentation appears to have weakened, as French and Belgian spreads exhibit a synchronous trajectory. Thesefindingscontribute totheliterature on financialintegrationand fragmentation within the Euro area, offering new insights into the evolving dynamics of sovereign bond markets. |
| Keywords: | Machine learning ; Financial fragmentation risk ; XGBoost ; Sovereign spreads |
| Date: | 2025–11–30 |
| URL: | https://d.repec.org/n?u=RePEc:ajf:louvlf:2025004 |
| By: | Andrea Ferrero; Ambrogio Cesa-Bianchi; Martin Wolf; Luca Fornaro |
| Abstract: | We provide a framework that connects industrial policies to global imbalances and technological hegemony, and describe some empirical facts consistent with our model. We study the international spillovers triggered by industrial policies promoting high-tech sectors. Since high- tech goods and services are typically traded internationally, these policies boost the supply of tradable goods. Moreover, industrial policies lead to trade surpluses if the government pursues an unbalanced policy mix, such that domestic demand does not rise as much as supply. These surpluses are absorbed by the rest of the world, which in response runs trade deficits. Absent policy interventions, trade deficits reduce the competitiveness of the domestic tradable sector, stifling innovation and productivity growth. Innovation policies can help the rest of the world to mitigate these negative spillovers. |
| Keywords: | Capital flows, China shock, endogenous growth, high-tech, innovation, international spillovers, productivity, tariffs, trade imbalances |
| JEL: | E21 E22 E23 E44 F32 F43 O31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1558 |
| By: | Ambrogio Cesa-Bianchi; Andrea Ferrero; Luca Fornaro; Martin Wolf |
| Abstract: | We provide a framework that connects industrial policies to global imbalances and technological hegemony, and describe some empirical facts consistent with our model. We study the international spillovers triggered by industrial policies promoting high-tech sectors. Since high-tech goods and services are typically traded internationally, these policies boost the supply of tradable goods. Moreover, industrial policies lead to trade surpluses if the government pursues an unbalanced policy mix, such that domestic demand does not rise as much as supply. These surpluses are absorbed by the rest of the world, which in response runs trade deficits. Absent policy interventions, trade deficits reduce the competitiveness of the domestic tradable sector, stifling innovation and productivity growth. Innovation policies can help the rest of the world to mitigate these negative spillovers. |
| Keywords: | trade imbalances, productivity, international spillovers, tariffs, innovation, high-tech, China shock, endogenous growth, capital flows |
| JEL: | E21 E22 E23 E44 F32 F43 O31 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:upf:upfgen:1939 |
| By: | Victor Baccarini; Lorenzo Garlanda-Longueville; Guillaume Jeny; Grégory Vaslier |
| Abstract: | The BIS snapshot compiled in April 2025, which is the only independent, comprehensive study of over-the-counter foreign exchange and derivatives markets, shows that transaction volumes have grown sharply in Paris, in line with other financial centres. However, Paris benefited slightly less from the rise in hedging needs last April, which was sparked by the uncertainty shock linked to US trade tariff announcements. <p> La photographie réalisée par la BRI en avril 2025, seule étude indépendante d’envergure réalisée sur le marché des changes et des dérivés de taux de gré à gré, indique que Paris enregistre, comme les autres places financières, une forte croissance des volumes. Mais elle a un peu moins profité du besoin de couverture accru suscité en avril dernier par le choc d’incertitude lié aux annonces américaines sur les droits de douane. |
| Date: | 2026–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:430 |