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on International Finance |
| By: | Jongrim Ha; Daisoon Kim; Inhwan So |
| Abstract: | Does the global financial cycle still dominate capital flows to emerging markets? Lever-aging granular investor-level data, this paper examines a structural shift in the drivers of global equity flows. Using a dynamic factor model to decompose flows into global (push) and country-specific (pull) components, we show that while global factors historically dominated, local factors have emerged as the primary driver of capital allocation, particularly in the post-COVID period. Local projections reveal the mechanism behind this shift as a resurgence of active return chasing: investors have become increasingly sensitive to local excess returns, re-coupling flows to domestic price discovery. We trace this shift to greater portfolio concentration among emerging markets within investors and improved macroeconomic resilience in emerging market economies. Our findings suggest that global investors increasingly differentiate across emerging markets based on local return factors rather than responding uniformly to common global factors. This deepening sensitivity to domestic conditions may expand the scope for domestic policy frameworks and, in turn, enhance the developmental benefits of financial integration by better aligning capital with local investment opportunities in emerging and developing economies. |
| Keywords: | global equity flows, emerging market, excess returns, fund-level data, portfolio management, return-chasing |
| JEL: | F32 G11 G15 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-77 |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Francis E. Warnock |
| Abstract: | Identifying the impact of capital inflows on output is challenging because inflows are forward-looking and respond to expectations about future economic conditions. We develop a new measure of capital inflow shocks using a simple and broadly applicable expectations-based framework that isolates the unexpected component of inflows by purging movements predicted by professional forecasters' expectations. Estimates using the new measure for 27 emerging market economies indicate that capital inflows have sizable expansionary effects on output, operating through stronger domestic consumption and investment and easier financing conditions. Additional analysis indicates that equity-type inflows generate greater and more persistent effects than debt-type inflows, while large inflow reversals result in more pronounced effects than comparable increases in inflows. These results are robust to a wide range of alternative specifications. |
| Keywords: | emerging market economies, FDI, debt flows, expectations, business cycle fluctuations |
| JEL: | E32 F32 F41 G11 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-80 |
| By: | Arisa Chantaraboontha |
| Abstract: | This paper examines the responses of foreign exchange rates to the Federal Reserve’s large-scale asset purchases (LSAP) and forward guidance (FWG) from 2009 to 2022. I confirm heterogeneous responses of examined foreign exchange rates to unconventional shocks, varying by magnitude and duration depending on the type of shock and monetary policy condition. Both shocks led to an appreciation of foreign currencies against the US dollar across all monetary policy regimes, except for the forward guidance (FWG) shock during the monetary policy normalization period, for which no statistically significant effect was observed. Over the course of the response horizon, the FWG shock had a greater impact magnitude on the examined foreign exchange rates than the LSAP shock. The effects of both unconventional shocks were more persistent during periods of zero lower bound (ZLB) on the policy interest rate than during normalization periods of monetary policy. However, the impact of such shocks on foreign exchange rates diminished within a couple of months, contrasting with the literature that finds more persistent effects. The implementation of variance decomposition reveals that the FWG shock had a significantly greater influence on foreign exchange rate variation than the LSAP shock, emphasizing the importance of effective guidance communication to the markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1276r |
| By: | Korhonen, Iikka; Simola, Heli |
| Abstract: | We examine the impact from sanctions on global capital flows. Sanctions can be understood as an extreme version of geopolitical decoupling that affects economic relations, including trade and foreign direct investment. Specifically, we look at how the introduction of wide-ranging financial sanctions has affected foreign portfolio investment, treating Western sanctions packages on Russia in 2014 and 2022 as a natural experiment. Applying a triple-difference setup and using annual portfolio investment data collected by the IMF, our results show that portfolio investment flows into Russia sharply declined from both sanctioning and non-sanctioning countries particularly after 2022. The decline in investment from sanctioning countries was much more severe, however. Unlike with trade, we find little evidence of investment diversion for Russia after imposition of sanctions. |
| Keywords: | sanctions, portfolio investment, emerging economies, Russia |
| JEL: | F02 F2 F51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:343548 |
| By: | Boris Hofmann; Xiaoxi Liu; Ilhyock Shim |
| Abstract: | Using firm-bank linked data for 10 Asian emerging market economies (EMEs) over 2005–2021, we study the domestic and cross-border implications of zombie firms. We document three main findings. First, the number of zombie firms in emerging Asia has increased significantly over the past 15 years, sustained by evergreening practices from weak banks. Second, zombie prevalence domestically depresses firm performance, crowds out healthy firms, and depresses inflation and GDP growth. Third, the macroeconomic effects of zombie firms extend across borders: expo sure to zombie firms in Asian EMEs significantly reduces inflation and growth in advanced economies. These spillover effects operate mainly through global value chains (GVCs) and an intermediate goods import price channel, while cross-border bank linkages do not play any major role. |
| Keywords: | zombie firms, evergreening, global value chains, cross-border spillovers, disinflation, financial stability |
| JEL: | E31 F14 F36 G21 G33 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1375 |
| By: | Colin Weiss |
| Abstract: | In 2025, world international reserves held in gold surpassed foreign official holdings of U.S. Treasury securities (figure 1), a fact drawing attention from media and policymakers (Nangle, 2025; European Central Bank, 2026; Storbeck and Hook, 2026, for example). Should this be interpreted as gold overtaking U.S. Treasury securities in its appeal as a reserve asset? I argue that the answer is no, as a comparison of world gold reserves and aggregate foreign official holdings of U.S. Treasury securities is problematic for a couple reasons. |
| Date: | 2026–09–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103747 |
| By: | Per Asberg-Sommar; Mathias Drehmann; Denise Hansson; Vatsala Shreeti |
| Abstract: | What determines banks' demand for holding reserves at the central bank overnight? This has become a critical question for central banks that are shrinking their balance sheets. We exploit the unique operational framework in Sweden and quantify the factors that drive banks' demand to hold excess reserves at the central bank. Using granular data, we document significant fragmentation in interbank markets with a set of banks that never trade in interbank markets (inactive banks) and others that do (active banks). Active banks' excess reserves increase with their payment flow volatility and the cost of borrowing in interbank markets. Furthermore, excess reserve holdings shrink when aggregate interbank activity is high. Inactive banks' excess reserves also increase with their payment flow volatility but show greater persistence over time, underlining their passivity. Our findings not only shed light on the bank-level drivers of excess reserve demand but also on likely dynamics in untested demand-driven floors. |
| Keywords: | excess reserves, reserve demand, interbank markets, demand-driven floor |
| JEL: | E41 E58 E52 G21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1376 |
| By: | Blake Jackson; Ilya A. Strebulaev |
| Abstract: | We study human capital in venture capital (VC) using a new dataset covering over 100, 000 professionals affiliated with U.S. VC firms. Investment success is extremely concentrated: fewer than 40% of VCs with any investments are ever credited with a successful investment, and 90% of investment profits are generated by 5% of VCs. Differences in education, prior work experience, and demographics predict career progression and investment outcomes, consistent with persistent investor-specific skills. Quasi-experimental variation from marginal inclusions on the Forbes Midas List shows that achieving superstar status increases access to highly-valued startups, complementing other human capital and contributing to concentration. |
| JEL: | G2 G23 G24 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35501 |
| By: | Aydan Dogan; Ozgen Ozturk |
| Abstract: | We study how the financing of innovation shapes the transmission of monetary policy to productivity. Using US firm balance-sheet data matched to loan contracts, we show that contractionary monetary policy shocks reduce cash flow similarly across firms but lower R&D more among those without access to cash flow-based borrowing, where credit is extended against earnings rather than collateral. In a New Keynesian endogenous growth model with heterogeneous access to external finance, we show that a 25 basis point tightening lowers output persistently by 0.12%. Extending access to all firms reduces this loss by one third. The loss falls disproportionately on firms without access, which are younger and produce more and higher-quality patents. |
| JEL: | E22 E32 E44 E52 G32 |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023581 |
| By: | Barbon, Andrea; Barthélemy, Jean; Nguyen, Benoît |
| Abstract: | Does the Federal Reserve’s monetary policy influence the rates on USD-pegged stablecoins? While major stablecoin issuers do not pay interest, investors can earn returns by depositing stablecoins in Decentralized Finance (DeFi) protocols. We document unusually large and persistent spreads between traditional short-term interest rates and DeFi deposit rates, as well as a weak and unstable transmission of policy rate changes. We show that, in the short run, monetary policy shocks can move stablecoin rates in the opposite direction of policy rates, delaying a convergence that occurs only over the medium run. Both the sign of the short-run effect and the speed of convergence depend on the intensity of deleveraging induced by crypto-price reactions relative to the standard interest-rate arbitrage channel — an effect shaped by investors’ limited ability to bridge traditional and decentralized finance. JEL Classification: G14, G23, G29 |
| Keywords: | crypto, DeFi, stablecoin |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263280 |