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on International Finance |
| By: | Hélène Rey; Vania Stavrakeva |
| Abstract: | We study the anatomy of the international portfolio finance network. As global financial linkages have become denser over time, cross-border portfolio equity positions have grown in importance relative to debt for Emerging markets and Advanced economies. Using the framework developed by Stavrakeva and Rey (2024), we construct a novel proxy of daily foreign investor holdings in both equity and long-term sovereign debt markets across 32 currency areas. Leveraging an instrumental variable strategy, we identify an effect of foreign equity ETF inflows on exchange rates and local stock market prices. Our high-frequency proxy enables us to interpret episodes of turbulence in international finance. It should prove useful to assess how persistent the current shocks to the international financial system are likely to be. |
| JEL: | F3 F32 G15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34409 |
| By: | Torsten Ehlers; Mathias Hoffmann; Alexander Raabe |
| Abstract: | Non-US global banks are an important driver of the international synchronization of house price growth. A loosening (tightening) of US dollar funding conditions leads non-US global banks to expand (contract) their international lending, which is largely denominated in US dollars. This induces a synchronization of lending across borrowing countries, which translates into an international synchronization of house price growth. Borrowing country pairs whose joint exposure to US dollar funding conditions via their non-US creditor banks (dollar co-dependence) is higher, exhibit a higher synchronization of house price growth. Our results identify a novel international spillover channel of US dollar funding conditions, which is not related to common-lender exposures. We show theoretically and empirically that the exposure of non-US global banks to dollar funding conditions is captured by the bilateral treasury basis between the currency of the non-US global creditor banks' headquarters and the US dollar. As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more exposed to US dollar funding variations exhibit higher house price synchronization. |
| Keywords: | house prices, synchronization, US dollar funding, global US dollar cycle, US treasury basis, convenience yield, global imbalances, capital flows, global banking network |
| JEL: | F34 F36 G15 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-56 |
| By: | Mark S. Manger (University of Toronto); David Mihalyi (World Bank and Kiel Institute); Ugo Panizza (Geneva Graduate Institute (International Economics) and CEPR,); Niccolò Rescia (Global Sovereign Advisory and Aix Marseille Univ, CNRS, AMSE, Marseille, France); Christoph Trebesch (Kiel Institute and CEPR); Ka Lok Wong (N Economic Commission for Africa) |
| Abstract: | This paper introduces the African Debt Database (ADD) - a new, comprehensive dataset that traces both domestic and external debt instruments at a granular level. The main innovation is a detailed mapping of Africaâs domestic debt markets, drawing on rich, new data extracted from government auction reports and bond prospectuses. The database covers over 50, 000 individual government loans and securities issued by 54 African countries between 2000 and 2024, amounting to a total of USD 6.3 trillion in debt. For each instrument, it provides harmonized micro-level information on currency, maturity, interest rates, instrument type, and creditor. The data reveal the growing dominance of domestic debt in Africa â albeit with substantial cross-country variation. Four stylized facts stand out: (i) the rapid expansion of domestic debt markets, especially in middle-income countries; (ii) the wide dispersion in borrowing costs and real interest rates; (iii) large cross-country differences in maturity structures and associated rollover risks; and (iv) a rising debt-service burden, particularly due to international bonds. Generally, this project shows that debt transparency is both feasible and valuable, even in data-scarce environments. |
| Keywords: | Sovereign Borrowing; Public Debt; Development Finance; Domestic Markets; Africa |
| JEL: | F34 H63 O55 |
| Date: | 2025–10–20 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2025 |
| By: | Soumya Bhadury; Bhanu Pratap; Jay Surti |
| Abstract: | This paper empirically examines the dynamic linkages between financial conditions and economic growth across 18 major emerging market economies over the last two decades and the role that fiscal and trade balances play in shaping such associations. Using a reduced-form multivariate autoregressive state-space model, we document two opposing forces – growth-enhancing and growth-inhibiting linkages – that characterize macro-financial dynamics in these countries. Easing of domestic financial conditions is associated with stronger near-term GDP growth, a growth-enhancing link, albeit this acceleration in growth is followed by a tightening of financial conditions that can adversely impact future growth outcomes, a growth-inhibiting link. Both linkages are statistically significant at high frequencies for nearly half of the countries in our sample and appear to be driven by a weak twin-balance sheets condition of high public debt and external imbalances. External factors, notably the global financial cycle, are shown to play a crucial role in amplifying this feedback loop between economic growth and financial conditions. |
| Keywords: | Macro-financial linkages; emerging markets; twin-deficits; financial conditions; MARSS model; Kalman filter |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/216 |
| By: | Carol C. Bertaut; Ruth A. Judson |
| Abstract: | As we have noted in the past, understanding the effects of capital flows across countries depends critically on accurate and comprehensive data. For the U.S., data on cross-border securities holdings and transactions are collected through the TIC (Treasury International Capital) data system. |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-10-15-3 |
| By: | McLeay, Michael; Tenreyro, Silvana |
| Abstract: | Has the dominance of the dollar in global trade rendered monetary policy ineffective? An emerging view contends that if a country invoices its exports in dollars, exchange rates cannot stabilize economic activity, as the classical expenditure-switching channel is muted. This view rests on the premise that export prices are sticky in dollars, breaking the link between export demand and depreciations. But this assumption is not borne out by the data: goods priced in dollars tend to have more flexible prices, along with higher elasticities of substitution. We propose a model with more realistic assumptions and show that even with dollar pricing, depreciating the currency by loosening monetary policy can still boost exports and activity materially. The limit to any expansion is not demand, but supply capacity. We also show that low exchange-rate pass-through to dollar prices is not informative about price stickiness. The price response to exchange rates is small when demand elasticities are high, even with flexible prices: low pass-through is an equilibrium result, not evidence of a nominal friction. |
| JEL: | E31 E52 F41 Q30 |
| Date: | 2025–10–17 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128085 |
| By: | Grey Gordon; Pablo Guerrón-Quintana |
| Abstract: | Hard sovereign defaults—defaults with large haircuts—are associated with deeper recessions, longer durations, and, as we show, larger devaluations than soft defaults. We rationalize these regularities by developing a single-proposer noise bargaining game and embedding it in a two-sector sovereign default model. Creditors weigh the sovereign's haircut offers against likely future offers and idiosyncratic valuation shocks. In short-lived recessions, creditors tend to reject large proposed haircuts, anticipating better terms as the economy recovers—endogenously correlating default intensity with adverse outcomes. Two years after default, our decomposition attributes nearly 80% of the observed output differentials to selection on different shock realizations. |
| Keywords: | Default; Sovereign; Debt; Growth; Haircuts |
| JEL: | F34 C78 E32 |
| Date: | 2025–10–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:101987 |
| By: | Gert Peersman; (-) |
| Abstract: | This paper employs a joint SVAR-IV model for the United States and the euro area to estimate the pass-through of energy and food commodity cost shocks to inflation. Exogenous commodity cost shocks—such as those triggered by the Russian invasion of Ukraine—had only a modest impact on inflation during the post-pandemic period. However, counterfactual analyses based on the pass-through estimates indicate that overall commodity cost fluctuations—including their endogenous responses to macroeconomic conditions—can almost fully account for the rise and subsequent decline of energy, food, and core CPI inflation over this period. These findings highlight that commodity costs constitute a key transmission channel through which macroeconomic developments affect inflation. Estimates of a standard Phillips Curve specification, including its slope, are shown to be severely biased when this channel is ignored. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1123 |
| By: | Mr. Rabah Arezki; Patrick A. Imam; Mr. Kangni R Kpodar; Dao Le-Van |
| Abstract: | We study how sovereign bond markets respond to earthquakes in emerging markets, using data from 96 countries between 2012 and 2023. While earthquakes raise spreads on average, the effect depends critically on state capacity. In low-capacity countries, spreads rise sharply and persist; in high-capacity states, they remain stable or fall. These effects appear immediately, last several months, and are robust to multiple controls and placebo tests. Our findings suggest that markets interpret disasters not simply as economic shocks but as institutional stress tests, penalizing fragile states. Institutional quality, in this context, acts as disaster insurance. |
| Keywords: | Earthquakes; Sovereign Bond Spread; State Capacity |
| Date: | 2025–10–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/218 |
| By: | Nina Biljanovska; Eduardo Espuny Diaz; Amir Kermani; Rui C. Mano |
| Abstract: | This paper examines how housing market overvaluation—measured by the price-to-rent ratio and its deviations from long-term trends—affects the transmission of monetary policy. Using U.S. metropolitan-level data and three measures of monetary policy shocks, we find that house prices respond more strongly to policy rate changes in overvalued markets. Examining buyer heterogeneity, we show that investor demand, proxied by non-owner-occupied purchases, declines more sharply after monetary tightening in these markets. These results are consistent with models of extrapolative beliefs and suggest that monetary policy can serve a stabilizing role during housing booms. |
| JEL: | D84 E52 R31 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34404 |
| By: | Vadim Elenev; Tim Landvoigt; Stijn Van Nieuwerburgh |
| Abstract: | We introduce a new indicator of fiscal capacity—the “austerity threshold”: the debt-to-GDP level above which the government must raise fiscal surpluses to ensure debt safety. In a model with realistic risk premia, nominal rigidities, and an intermediary sector, calibrated to the U.S., we estimate this threshold at 189%. We highlight the roles of safety premia and intermediation-driven convenience yields. The threshold varies with the source of surpluses: spending cuts reduce inflation and allow low interest rates, while tax increases distort labor supply and raise inflation. Uncertainty over the austerity regime—spending cuts or tax increases—sharply lowers fiscal capacity. The expected austerity regime affects asset prices and macro outcomes even when debt-to-GDP is well below the threshold. |
| JEL: | E10 E40 E60 G12 G18 G2 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34397 |
| By: | Alex Haag |
| Abstract: | Global competition in artificial intelligence (AI) has intensified in recent years. Some assessments emphasize US exceptionalism, while others argue that China is eroding US dominance. By contrast, the progress of other advanced foreign economies (AFEs) receives far less attention. |
| Date: | 2025–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-10-06 |
| By: | Sina Molavipour; Alireza M. Javid; Cassie Ye; Bj\"orn L\"ofdahl; Mikhail Nechaev |
| Abstract: | Robust yield curve estimation is crucial in fixed-income markets for accurate instrument pricing, effective risk management, and informed trading strategies. Traditional approaches, including the bootstrapping method and parametric Nelson-Siegel models, often struggle with overfitting or instability issues, especially when underlying bonds are sparse, bond prices are volatile, or contain hard-to-remove noise. In this paper, we propose a neural networkbased framework for robust yield curve estimation tailored to small mortgage bond markets. Our model estimates the yield curve independently for each day and introduces a new loss function to enforce smoothness and stability, addressing challenges associated with limited and noisy data. Empirical results on Swedish mortgage bonds demonstrate that our approach delivers more robust and stable yield curve estimates compared to existing methods such as Nelson-Siegel-Svensson (NSS) and Kernel-Ridge (KR). Furthermore, the framework allows for the integration of domain-specific constraints, such as alignment with risk-free benchmarks, enabling practitioners to balance the trade-off between smoothness and accuracy according to their needs. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.21347 |