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on International Finance |
| By: | Nils Gornemann; Eugenio I. Rojas; Felipe Saffie |
| Abstract: | We document that rising volatility in U.S. interest rates, a key dimension of global financial risk, notably depresses the trend of economic activity in emerging market economies (EMEs) but not in advanced economies (AEs). Using a panel state-space model, we show that a one standard- deviation shock to U.S. monetary policy uncertainty permanently lowers the level of GDP in EMEs by about 25 basis points after three years, with negligible effects in AEs. We rationalize this fact in a small open economy model where firms borrow against future profits to finance innovation. Higher volatility compresses firm values, tightens collateral constraints, and endogenously slows productivity growth, especially when financial frictions are severe. |
| JEL: | F32 F41 G15 O16 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34595 |
| By: | Marie-Claude Beaulieu (Département de finance, assurance et immobilier, Université Laval and research fellow at CRREP (Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques), Holder of Chaire RBC en innovations financières); Marie-Hélène Gagnon (Département de finance, assurance et immobilier, Université Laval and research fellow at CRREP (Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques)); Céline Gimet (Sciences Po Aix, Aix Marseille Univ, CNRS, AMSE, Marseille, France) |
| Abstract: | This paper studies the main determinants of bilateral financial flows in the euro area to achieve sustainable and fair financing opportunities. We revisit the modern theory of the optimal currency area considering the impact of heterogeneity in inequality measures, within and across countries, on crossborder financial flows. To do so, we introduce financial and social fragmentation in gravity models of European capital flows. We use data from 19 Eurozone countries from 2000 to 2021 and show how fragmentation impacts capital flows, namely foreign direct investment, cross-border loans as well as portfolios, equity and bond flows. Since capital is, in principle, free to flow in the Eurozone, our analysis directly identifies the roles of potential sources of fragmentation: social inequalities, lack of market openness, and domestic regulations such as macroprudential controls. Overall, our results show that financial integration in Europe entails more capital flows of any type while social fragmentation across European countries is detrimental to capital flows, no matter which type. This is strong evidence of the importance of financial and social fragmentation in the Eurozone on the distribution of capital. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2531 |
| By: | Mark A. Aguiar; Oleg Itskhoki; Dmitry Mukhin |
| Abstract: | We revisit whether global output is (Pareto) efficiently distributed across countries over time. The efficient allocation of goods across regions requires that the relative marginal utilities of consumption across countries comoves with the relative costs of the country-specific consumption bundles. Standard approaches to evaluating this property exploit the Welfare Theorems and equate the observed real exchange rate with the social relative costs of consumption. Given the large literature documenting the disconnect between exchange rates, relative prices faced by consumers in a given market, and relative quantities consumed, we develop a methodology that measures relative costs that is robust to this disconnect. We find that relative consumption growth across regions is significantly more correlated with our computed shadow prices than it is with observed real exchange rates, suggesting an allocation closer to efficient risk sharing. Moreover, we provide a decentralization that matches observed prices and quantities, enabling us to rationalize the better implied risk sharing with the failure of the standard correlations. The decentralization involves a combination of segmented foreign exchange markets and pricing-to-market behavior in goods markets. The model implies that consumption allocations are insulated from excess fluctuations in the exchange rate via the equilibrium pricing behavior of exporters. |
| JEL: | F3 F4 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34587 |
| By: | Pereira da Silva, Luiz Awazu |
| Abstract: | The transition to net zero cannot be won without a massive redirection of global capital towards emerging markets and developing economies (EMDEs) – encompassing both mitigation and adaptation finance. These countries face annual external financing needs in the order of US$1.3 trillion by 2035, yet international flows remain a fraction of that. This discussion paper sets out a comprehensive, sequenced and politically ambitious agenda of regulatory, policy and institutional reforms to help close that gap. The author outlines a set of reforms to overcome the impediments limiting the flow of climate finance into developing countries. |
| JEL: | N0 F3 G3 E6 |
| Date: | 2025–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130729 |
| By: | Ambrocio, Gene; Fungáčová, Zuzana; Heikkinen, Joni; Kerola, Eeva; Korhonen, Iikka; Norring, Anni |
| Abstract: | We construct a geopolitical risk indicator for Finland using local, Finnish language news media - FinnGPR. We compare FinnGPR to global and country-specific measures of geopolitical risk derived from Anglo-Saxon media. We show that in the case of Finland, local geopolitical risk perceptions based on local news media differ from global attention on geopolitical risk in Finland as reflected in the global media. We study the effects of FinnGPR on the Finnish economy and find that the Finnish economy tends to be resilient to geopolitical risk shocks. Nevertheless, we find that geopolitical risks can represent a threat to Finnish financial market stability. |
| Keywords: | geopolitical risk, local perceptions, geopolitical attention, news-based index, macroeconomic stability, financial stability |
| JEL: | D80 E44 F50 G0 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:334518 |
| By: | Cândida Ferreira |
| Abstract: | This study advances the discussion on the impact of financial integration on economic growth by analysing an unbalanced panel dataset covering 193 countries from 1960 to 2021. Financial integration data were obtained from the Global Financial Development Database, while macroeconomic control variables came from the World Development Indicators. Fixed effects and dynamic Generalised Method of Moments (GMM) panel estimations highlight the critical influence of macroeconomic conditions. The analysis reveals that financial integration significantly fosters economic growth, though the magnitude and direction of the effect depend on how financial integration is measured. In particular, indicators reflecting greater access to and depth of financial institutions and markets are positively associated with per capita Gross Domestic Product (GDP) growth. Conversely, higher bank concentration and increased bank efficiency—as measured by the bank lending-deposit spread and the bank cost-to-income ratio—show negative relationships with economic growth. The study also finds mixed evidence regarding financial stability indicators: a rise in liquid assets relative to deposits and short-term funding corresponds with slower economic growth, while improvements in financial stability—as measured by the bank Z-score and the ratio of bank credit to bank deposits— are linked to stronger per capita GDP growth. Drawing on these findings, the paper offers policy implications and recommendations concerning financial integration. |
| Keywords: | financial integration, economic growth, global markets, panel estimations. |
| JEL: | F36 F65 G15 G21 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03992025 |
| By: | Samuel Martinez; Daniel Ventosa-Santaulària (Aix-Marseille Univ., CNRS, AMSE, Marseille, France) |
| Abstract: | Exchange rate pass-through (ERPT) is a key channel through which external shocks affect domestic inflation in open emerging market economies (EMEs). This paper estimates ERPT for Mexico using local projections with an instrumental-variable strategy to trace the cumulative effects of peso-dollar depreciations on consumer prices. The results indicate a relatively high degree of pass-through–higher than most estimates reported in the existing literature–suggesting that Mexican inflation responds more strongly to exchangerate movements than commonly assumed. Although price subcomponents display the expected heterogeneity (with goods showing the highest sensitivity and services the lowest), the main implication is clear: exchange-rate fluctuations remain a powerful driver of inflation dynamics, underscoring the policy relevance of monitoring currency volatility in open EMEs such as Mexico. |
| Keywords: | Inflation, Exchange rate pass-through, ERPT, EMEs, Mexico, Local projections |
| JEL: | E31 F14 F31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2536 |
| By: | Jettawat Pattararangrong; Wisarut Suwanprasert |
| Abstract: | How rapidly can firms re-time international shipments when faced with sudden changes in trade policy? We provide new evidence on this high-frequency adjustment margin using the United States’ Liberation Day tariffs (LDT) as an unexpected policy shock, together with confidential daily customs data from Thailand. Our identification strategy exploits a novel shift–share exposure measure, the "LDT gap, " which captures product-level variation at the HS6 level in relative tariff increases faced by Thai exporters. We find that exporters adjust within days: products with higher LDT gaps experience increases in export values and quantities, with no statistically significant change in export prices, and these responses are mainly concentrated in the announcement period. The effects are stronger for agricultural than for manufacturing products. Across product use categories, the strongest responses are observed among consumer goods. The paper provides the first daily-frequency evidence on rapid shipment reallocation under sudden policy shocks and introduces a transparent exposure measure for identifying heterogeneous effects. |
| Keywords: | TradeWar; Liberation Day; Reciprocal Tariffs; Trade Policy Uncertainty; Thailand |
| JEL: | F1 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:244 |
| By: | Kosuke Aoki; Alan Auerbach; Charles Yuji Horioka; Anil Kashyap; Tsutomu Watanabe; David Weinstein |
| 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. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1298 |
| By: | Anusha Chari; Peter Blair Henry; Yanru Lee; Paolo Mauro |
| Abstract: | Despite the scarcity of infrastructure in emerging-market and developing economies (EMDEs), in the absence of readily accessible data on the historical performance of EMDE infrastructure as an asset class, private investors are reluctant to finance infrastructure projects in these countries. We begin to fill this information gap by computing the financial returns from equity investments in primarily unlisted firms in EMDEs made by the International Finance Corporation, the private-sector arm of the World Bank Group. The public market equivalent of 266 equity investments in core infrastructure by the IFC, with starting dates from 1961 to March 2020, was 1.17 using the S&P 500 as a benchmark, and 1.26 using the MSCI Emerging Markets Index. On average, over the past six decades, equity stakes in emerging-market infrastructure backed by the IFC thus delivered higher returns than investments in portfolios of publicly listed equities. Data from the full sample of IFC equity investments reveal that, on average, a diversified portfolio of investments in infrastructure-related sectors, and indeed, in all sectors more generally, generated significant positive financial returns, albeit with variation across decades. |
| JEL: | F21 G11 G24 H54 O16 O19 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34537 |