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on International Finance |
| By: | Oscar Botero-Ramírez (Central Bank of Colombia) |
| Abstract: | This paper quantifies how demand and supply shocks transmit to yields in Colombia's sovereign bond market by estimating investor–level demand elasticities and translating them into equilibrium price effects. Using investor–security microdata and two complementary identification strategies, I recover elasticities for major investor groups within a structural demand-system framework. Pension funds and banks absorb a large share of marginal issuance and hold much of the outstanding stock, giving them substantial influence on yields despite their relatively elastic demand. Foreign investors, though absorbing less supply, still exert meaningful price effects. A 1% change in an investor group’s holdings moves yields by roughly 2–5 basis points, while a 1% increase in total debt raises yields by about 37–47 basis points. Applying the estimates to recent dynamics shows that foreign divestment since 2022 generated gradual upward pressure on yields and that absorption capacity has tightened as marginal absorption shifted toward less elastic domestic investors. |
| Keywords: | Capital flows; foreign investment; investor classification; J.P. Morgan GBI-EM index; emerging markets |
| JEL: | F3 F4 G01 G11 G12 G15 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp02-2026 |
| 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. |
| Keywords: | demand shocks, supply shocks, geopolitical risk, oil prices, supply-chain disruptions, global uncertainty, central banks, Federal Reserve, European Central Bank |
| JEL: | E52 E31 E32 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-05 |
| By: | Ece Ozge Emeksiz; Mr. Güneş Kamber; Ms. Julia Otten; Gurnain Kaur Pasricha |
| Abstract: | This paper assesses the transmission of monetary policy using a new state-of-the-art intra-day dataset of monetary policy shocks for 16 advanced economies and emerging markets, the most comprehensive cross-country coverage to date. Using 30-minute windows around policy announcements, we construct target and path factor shocks for a broad sample of countries and assess their transmission to government bond yields, stock prices, and exchange rates. High-frequency identification improves the significance of estimated responses relative to lower-frequency intraday or daily data. Both target and path surprises generate large and consistent effects across asset classes. We find limited evidence of central bank information effects, confirming the validity of high-frequency methods. Post-COVID-19, transmission to yields and equity prices remains stable, but exchange rate responses weaken—likely due to synchronized monetary tightening across countries. The findings underscore the value of high-frequency data for robust identification and cross-country analysis of monetary policy transmission. |
| Keywords: | Monetary Policy; High-Frequency Identification; Asset Prices; Yield Curve; Central Bank Communication; Emerging Markets; Advanced Economies; Quantitative Easing; Post-COVID-19 Inflation; Financial Market Response |
| Date: | 2026–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/018 |
| By: | Philippe Bacchetta; Kenza Benhima; Yannick Kalantzis; Maxime Phillot |
| Abstract: | We build a two-country heterogenous-agent non-Ricardian model featuring asset scarcity and financial frictions in international capital markets. Due to the non-Ricardian nature of our framework, a demand for liquidity emerges and the supply of bonds matters. We show that shocks affecting the supply or demand of assets have very different international spillovers for an economy in a liquidity trap. A decrease in the supply of assets issued abroad leads to an asset shortage domestically. In normal times, the nominal interest rate decreases, stimulating investment and output. In a liquidity trap, deflation hits instead and the currency appreciates, which may cause a recession. |
| Keywords: | International Spillovers, Zero Lower Bound, Liquidity Trap, Asset Scarcity |
| JEL: | E40 E22 F32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1032 |
| By: | Wenjie Li |
| Abstract: | This paper introduces the FinOpen index, a novel measure of capital flow management for 193 countries from 1996 to 2022. Using information from the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), the index is constructed by estimating the level of openness annually and updating it daily by incorporating changes in capital flow management measures (CFMs). Therefore, this index goes beyond the traditional indexes that rely on binary labels that only distinguish between full capital openness and any control. Within the range of [0, 1], the FinOpen index quantifies granular policy intensity and allows comparisons across countries (with higher values indicate greater capital openness). In addition, the dataset extends back to 1960 for 42 emerging and developing countries, and the methodology can be applied to construct long-term series for other countries. |
| Keywords: | Capital flows management measures; Capital Control; Capital Openness |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/021 |
| By: | Cavani, Bruno; Clayton, Christopher; Dos Santos, Amanda; Maggiori, Matteo (Stanford University); Schreger, Jesse |
| Abstract: | This paper uses microdata on U.S. mutual fund and ETF portfolios from SEC Form N- PORT 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 the geopolitics of international currency use. |
| Date: | 2026–01–23 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:anxmr_v1 |
| By: | Marco Graziano; Marius Koechlin; Andreas Tischbirek |
| Abstract: | We study the spillovers of large-scale asset purchases (LSAPs) in the U.S. on financial intermediation in the euro area using bank-level supervisory data and high-frequency identified policy surprises. Our detailed panel data permit us to trace the impact of LSAPs through bank balance sheets. We find that the Federal Reserve affects credit provision in the euro area through a channel that we refer to as the ``international bank capital channel'' of unconventional monetary policy. In response to an LSAP shock that leads to a steepening of the U.S. Treasury yield curve, the Treasury positions of euro area banks shrink, capital ratios worsen, and banks that are less well capitalized contract their lending relative to banks that are better capitalized. Our results are consistent with an important role of revaluation effects, imperfect risk hedging, and credit as an adjustment margin for banks in the proximity of regulatory capital constraints. |
| Keywords: | U.S. Treasury securities; Monetary policy transmission; Capital requirements; Asset purchase operations |
| JEL: | E52 F42 F44 G21 |
| Date: | 2026–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102399 |
| By: | Jamel Saadaoui |
| Abstract: | This paper constructs a new identification method to quantify bilateral geopolitical shocks-geopolitical turning points- i.e., abrupt, unforeseen state-to-state political turning points. Geopolitical shocks are captured by the second difference of the Political Relationship Index (Δ²PRI), a monthly narrative-based index constructed from Chinese government and media coverage. Unlike conventional global geopolitical risk indicators, Δ²PRI separates sudden departures from bilateral diplomatic paths so causal estimation is possible in a comparative cross-national context. Quantile instrumental variable local projections (IV-LP) are applied in the paper to estimate the dynamic and asymmetric geopolitical shock impact on world oil prices. It is estimated that US-China relational improvements lower oil prices by 0.2% in the short run and increase them by 0.3% in the medium run, with larger effects at the distribution boundaries of oil prices. Replication from Japan-China data establishes external validity. The paper adds a replicable analysis framework to explain how political shocks for dyads with heterogeneous institutional history and strategic rivalry spill over into global economic instability. |
| Keywords: | geopolitical risk, oil prices, quantile local projections, instrumental variables |
| JEL: | C26 C32 F51 Q41 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-08 |
| By: | Fernando Broner; Juan Cortina; Sergio 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:gwc:wpaper:2026-002 |
| By: | Irma Alonso-Alvarez (BANCO DE ESPAÑA); Ekaterina Bukina (BANCO DE ESPAÑA); Marina Diakonova (BANCO DE ESPAÑA); Nino Khitarishvili (BANCO DE ESPAÑA); Javier J. Pérez (BANCO DE ESPAÑA); Pedro Piqueras (BANCO DE ESPAÑA) |
| Abstract: | This paper presents a comprehensive database of geopolitical risk (GPR) indices for 34 countries, constructed using a standardized textual analysis methodology applied to national news sources. Building on the framework introduced in Alonso-Alvarez et al. (2025), we calculate both general and bilateral GPR indices that reflect the intensity and origin of geopolitical tensions as perceived in domestic media narratives. The indices are derived from a dictionary-based approach applied to press articles accessed via the Factiva platform, with queries translated into 15 languages to ensure linguistic and cultural relevance. Bilateral indices focus on four key regions – Russia, China, the Middle East and North Africa (MENA), and the Western Bloc – capturing how each country perceives external geopolitical threats. The resulting high-frequency dataset is validated through statistical robustness checks and narrative analysis of index peaks. Our work contributes to the literature by offering a scalable, globally representative tool for analyzing geopolitical risk, complementing existing measurements such as the Caldara-Lacoviello GPR index and enabling new empirical applications in macroeconomics, finance and international relations. |
| Keywords: | geopolitical risk, geopolitical tensions, textual analysis |
| JEL: | C43 E32 F51 F52 H56 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2603e |