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on International Finance |
| By: | J. Scott Davis; Kevin X. D. Huang; Zheng Liu; Mark M. Spiegel |
| Abstract: | We document evidence of a U-shaped relationship between financial development and the adjustments of foreign exchange (FX) reserve holdings in response to a U.S. interest rate increase. Countries with intermediate levels of financial development sell reserves aggressively, while those with low or high development adjust little. Domestic interest rate responses are not systematically related to financial development. A model with borrowing constraints and foreign-currency debt rationalizes these findings: the associated pecuniary externality is maximized at intermediate levels of financial development. Calibrated to match the observed leverage and currency composition, the model reproduces the empirical U-shaped relationship under optimal FX reserve policy, and this relation is robust under a range of conventional interest-rate policy regimes. |
| Keywords: | Foreign reserves; financial development; capital flows; optimal policy. |
| JEL: | F32 F38 E52 |
| Date: | 2025–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102100 |
| By: | Gourinchas, Pierre-Olivier; Ray, Walker; Vayanos, Dimitri |
| Abstract: | We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by arbitrageurs with limited capital. Risk premia in our model are time-varying, connected across markets, and consistent with the empirical violations of uncovered interest parity and expectations hypothesis. Through risk premia, large-scale bond purchases lower domestic and foreign bond yields and depreciate the currency, and short-rate cuts lower foreign yields, with smaller effects than bond purchases. Currency returns are disconnected from long-maturity bond returns, and yet the currency market is instrumental in transmitting bond demand shocks across countries. |
| JEL: | E43 E44 E52 F31 G12 G15 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127783 |
| By: | Laura Alfaro; Julian Caballero; Bryan Hardy |
| Abstract: | This paper examines optimal foreign currency (FX) hedging by non-financial corporations globally. Using a cross-country, firm-level dataset, we first document key patterns of FX borrowing across advanced (AEs) and emerging market economies (EMEs). We find that while FX debt is prevalent in both groups, its intensity varies considerably. We assess the optimality of firms' exchange rate exposures using a risk-management framework where hedging serves to minimize the impact of cash flow volatility on firm value. Our results indicate that most firms hedge optimally, as exposures from FX debt are largely offset by other exposures, like foreign revenues and assets. While the distribution of exchange rate risk is broadly similar between AE and EME firms, the EME distribution has thicker tails, revealing a larger concentration of firms with significant, unhedged depreciation risk. |
| Keywords: | foreign currency debt, currency risk, currency hedging |
| JEL: | F31 F34 G30 G32 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1303 |
| By: | Rodrigo Sekkel; Henry Stern; Xu Zhang |
| Abstract: | We provide novel insights into how foreign and domestic monetary policy communications, beyond rate announcements, affect the financial markets of open economies. We construct a high-frequency dataset that documents the impact of Federal Reserve (Fed) and Bank of Canada (BoC) rate announcements, speeches, press conferences and minutes releases to Canadian financial markets between 1997 and 2023. We find that non-rate announcements are a significant source of domestic monetary policy surprises and international spillovers. Across event types, Fed communications are particularly influential for long-term interest rates and stock futures while BoC communications matter more to short-term interest rates. Since BoC communications have little effect on U.S. interest rates, Canadian announcements have a greater impact on the CAD/USD exchange rate by inducing larger changes in the cross-country interest rate differential. |
| Keywords: | Asset pricing; Central bank research; Exchange rates; Financial markets; Interest rates; International financial markets; Monetary policy |
| JEL: | E52 F31 G15 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-33 |
| By: | BBVA Research; Alvaro Ortiz; Tomasa Rodrigo |
| Abstract: | We introduce a novel high-frequency daily panel dataset of both markets and news-based indicators for 42 countries across both emerging and developed markets. We introduce a novel high-frequency daily panel dataset of both markets and news-based indicators for 42 countries across both emerging and developed markets. |
| Keywords: | Shapley values, valores de Shapley, geopolitics, geopolítica, Big Data, Big Data, machine learning, aprendizaje automático, High frequency data, Datos de alta frecuencia, Global, Global, Big Data techniques used, Con técnicas Big Data, Geostrategy, Geoestrategia, Working Paper, Documento de Trabajo |
| JEL: | E44 F51 C53 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bbv:wpaper:2514 |
| By: | Eiji Fujii |
| Abstract: | Countries routinely participate in intergovernmental forums such as the G7, G20, BRICS, and MIKTA. These informal institutions—unlike formal bodies such as the EU and WTO—lack permanent administrative structures, operate through rotating presidencies, and do not issue legally binding commitments. Although often overlooked as drivers of global trade, their formation and evolution embody underlying structural shifts in the world economy. Using data for over 200 countries spanning 1994-2023, this study introduces informal institutions as a distinct determinant of trade within the gravity framework. We find that BRICS exerts trade-facilitating effects comparable to those of formal agreements such as regional trade agreements and WTO accession. This highlights a novel channel of international integration beyond legal commitments. |
| Keywords: | informal institutions, international trade, gravity model, BRICS, MIKTA, G20, G7 |
| JEL: | F10 F13 F14 O19 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12268 |
| By: | Aoki, Kosuke; Auerbach, Alan; Horioka, Charles Yuji; Kashyap, Anil; Watanabe, Tsutomu; Weinstein, David |
| Abstract: | Takatoshi Ito, who passed away in September 2025, was a leading scholar of macroeconomics and international finance. This column, written by a group of friends and colleagues, outlines his many contributions in a lifetime of research, teaching and policy-making in Japan, the United States and around the world. His work is particularly notable for challenging the widespread perception that standard economic analysis is somehow ill- suited for understanding the Japanese economy. Indeed, using the discipline's rigorous tools, he illuminated challenges that Japan faced earlier and more acutely than other countries - including population decline and ageing, ballooning government debt, the zero lower bound and unconventional monetary policies, real estate bubbles and their collapse, and the banking sector's problem of non-performing loans. |
| Keywords: | Asian economies, exchange rate fluctuations, foreign exchange intervention, inflation targeting, international finance, , invoicing currency, Japanese economy, macroeconomics, monetary policy, Takatoshi Ito, zero interest rate policy |
| JEL: | E52 E58 F14 F31 G15 O53 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:agi:wpaper:02000256 |
| By: | Régis Barnichon; Aayush Singh |
| Abstract: | In this paper we exploit 150 years of tariff policy in the US and abroad to estimate the short-run effects of tariff shocks on macro aggregates. A careful review of the major changes in US tariff policy since 1870 shows no systematic relation between the state of the cycle and the direction of the tariff changes, as partisan differences on the effects and desirability of tariffs led to opposite policy responses to similar economic conditions. Exploiting this quasi-random nature of tariff variations, we find that a tariff hike raises unemployment (lowers economic activity) and lowers inflation. Using only tariff changes driven by long-run considerations—a traditional narrative identification—gives similar results. We also obtain similar results if we restrict the sample to the modern post World War II period or if we use independent variation from other countries (France and the UK). These findings point towards tariff shocks acting through an aggregate demand channel. |
| Keywords: | tariff; inflation; unemployment; narrative approach; political |
| JEL: | F41 F13 E31 N10 E52 |
| Date: | 2025–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102099 |
| By: | Alain P. Chaboud; Michael J. Fleming; Ellen Correia Golay; Yesol Huh; Frank M. Keane; Or Shachar |
| Abstract: | In this article, we study trading activity and liquidity of off-the-run U.S. Treasury securities. Off-the-run Treasuries are seasoned securities, account for about 98 percent of all Treasuries outstanding, and played a central role in the pandemic-fueled dash-for-cash in March 2020. Understanding these securities better can improve thinking around how market resilience might be improved. We document and discuss the evolution of trading activity and liquidity for these securities and how these attributes differ from on-the-run securities. We also consider several potential market structure changes that could improve the liquidity of off-the-run Treasuries, including debt buybacks, expanded central clearing, and increased data transparency. |
| Keywords: | Treasury market; market structure; off-the-run; liquidity; trading |
| JEL: | G12 G18 G20 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:102080 |
| By: | Michael J. Fleming |
| Abstract: | In 2025, the Federal Reserve has cut interest rates, trade policy has shifted abruptly, and economic policy uncertainty has increased. How have these developments affected the functioning of the key U.S. Treasury securities market? In this post, we return to some familiar metrics to assess the recent behavior of Treasury market liquidity. We find that liquidity briefly worsened around the April 2025 tariff announcements but that its relation to Treasury volatility has been similar to what it was in the past. |
| Keywords: | Treasury market; liquidity; volatility; tariffs |
| JEL: | G12 G14 |
| Date: | 2025–11–12 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:102093 |