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on International Finance |
| By: | Nuwat Nookhwun; Jettawat Pattararangrong; Phurichai Rungcharoenkitkul |
| Abstract: | Under dominant currency pricing, exchange rate swings affect firms' profits in domestic currency rather than price competitiveness. We quantify these valuation effects by constructing firm-specific exchange rates that reflect invoicing currencies and capture cash-flow exposures. These net-invoice-currency-weighted exchange rates (NICER) outperform trade-weighted exchange rates in explaining firm profitability, particularly for smaller exporters. Higher trade dependency amplifies NICER sensitivities, while financial hedging only partially mitigates them. NICER fluctuations also impact firm liquidity and credit conditions, with large exporters offsetting liquidity shocks through external financing. These cash-flow effects, in turn, drive exporters' investment and employment decisions. |
| Keywords: | exchange rates, valuation effects, dominant currency paradigm, firm-level data, firm profitability, invoicing currency, exports, financial hedging |
| JEL: | E44 F31 F41 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1266 |
| By: | Ralf R. Meisenzahl; Friederike Niepmann; Tim Schmidt-Eisenlohr |
| Abstract: | This paper documents a new dollar channel that transmits monetary policy across borders. Exploiting unique features of the syndicated loan market for identification, we show that changes in the euro-dollar exchange rate around ECB monetary policy announcements that are orthogonal to simultaneous changes in euro-area interest rates and stock prices affect U.S. leveraged loan spreads. Specifically, in response to dollar appreciation, investors require higher compensation for risk, and borrowing costs for U.S. firms increase. These findings imply a causal link between the U.S. dollar and investors’ risk appetite. |
| Keywords: | loan pricing; Monetary policy spillovers; Dollar; Institutional investors; risk taking |
| JEL: | F15 G15 G21 G23 |
| Date: | 2025–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:99939 |
| By: | Jean-Pierre Landau (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This Policy Insight examines a set of proposals gaining traction among economists and policymakers aligned with the new US administration, who seek to overhaul the global trading and financial system to better serve US economic interests. Departing from traditional protectionism, this emerging approach embraces tariffs as tools for revenue generation and burden sharing, while framing persistent trade deficits as symptoms of broader macroeconomic imbalances - particularly a chronically overvalued dollar driven by global capital inflows. These inflows, the authors argue, result from both domestic distortions in surplus economies like China and the dollar's role as the world's dominant reserve currency. The proposed remedies include unconventional measures, such as penalising foreign reserve accumulation in dollars, accepting a reduced international role for the currency as a necessary trade-off for revitalising US industry and correcting current account imbalances. Drawing primarily on recent work by Miran (2024) and Pettis and Hogan (2024), the Insight explores the technical underpinnings of the ‘new arrangement' and assesses its implications for the long-term health of the US economy. |
| Keywords: | International Finance, International Trade |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05043295 |
| By: | Uraku Yoshimoto; Kiyotaka Sato; Takatoshi Ito; Junko Shimizu; Yushi Yoshida; Taiyo Yoshimi |
| Abstract: | While Japanese exports are generally considered invoiced mainly in U.S. dollars (USD), this study presents contrary evidence that most Japanese firms choose yen-invoiced exports. Surprisingly, only the top one percent of firms in size tend to choose USD-invoiced exports, based on the Japan Customs export declaration data that was newly made available to researchers. By conducting fixed-effect panel estimation using the granular Japan Customs transaction data, combined with the most comprehensive firm-level data compiled by the Ministry of Economy, Trade and Industry (METI), we demonstrate that the firm size and the intra-firm export share significantly reduce yen-invoiced exports. Smaller firms with few overseas subsidiaries tend to choose yen-invoiced exports to avoid foreign exchange risk. In contrast, larger firms efficiently manage foreign exchange risk arising from USD-invoiced exports, since they tend to export to overseas subsidiaries and benefit from operational hedging that offsets USD-denominated import payments with export revenues within group companies. Smaller firms would continue to choose yen-invoice exports unless they can benefit from operational hedging. |
| JEL: | F30 F31 F37 F41 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33748 |
| By: | Boddin , Dominik (Deutsche Bundesbank); te Kaat, Daniel Marcel (University of Groningen); Roszbach , Kasper (Norges Bank) |
| Abstract: | This paper provides novel microlevel evidence that cross-border bank flows are an important means for households to access credit, not only in emerging markets but also in advanced economies. Using supervisory bank-level data alongside household credit and consumption data from Germany, we study how lending to households was impacted by the influx of cross-border bank funding following the European Central Bank’s implementation of nonconventional monetary policy in 2014 and 2015. Regional banks that were highly exposed to fluctuations in foreign capital inflows increased consumer lending to riskier, lower-income households by 50% more than other banks. Rising deposit inflows from non-euro area banks induced less-capitalized banks to expand their lending on the extensive margin. The analysis concludes that Improved access to credit enables lower-income customers of exposed banks to increase nondurable consumer spending. Data from a larger group of euro area countries confirm that conclusion. |
| Keywords: | cross-border bank flows; households; bank lending; risk-taking; credit booms; funding shocks |
| JEL: | F30 G20 G50 |
| Date: | 2025–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0779 |
| By: | Minetti, Raoul; Murro, Pierluigi; Rowe, Nick |
| Abstract: | Banks differ in specialization. We study the aggregate and distributive effects of financial development in a heterogeneous-firm model where firms can produce for domestic and foreign markets and banks specialize in monitoring firms’ domestic or foreign activities. Internationally oriented banks promote the growth of larger incumbent exporters. Locally specialized banks enable financially vulnerable firms to enter foreign markets but induce incumbent exporters to focus on domestic markets and lower their export intensities, fragmenting the export sector. The quantitative analysis reveals that financial development boosts total output, moderates inter-firm inequalities driven by internationalization, but may reduce aggregate trade. The predictions are supported by evidence from a major Italian banking deregulation. |
| Keywords: | Financial Development, Banking Specialization, International Trade, Credit |
| JEL: | E44 F4 G21 G28 O16 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124370 |
| By: | Ajovalasit, Samantha; Consiglio, Andrea; Pagliardi, Giovanni; Zenios, Stauros Andrea |
| Abstract: | Political risk is a significant determinant of sovereign debt dynamics. We estimate the sensitivity of bond yields and economic growth to a country-level broad proxy of political risk and develop a stochastic debt sustainability analysis optimization model with both yields and growth channels to show that political risk can render debt unsustainable, triggered by changes in the political rating level, volatility, or both. In contrast, existing models that neglect political risk would incorrectly predict sustainability. Importantly, we uncover political risk effects in developed countries, going beyond the emerging markets of earlier literature. We establish a positive predictive relation of structural reforms to political ratings, and benchmark reforms against a large-scale quantitative easing program and find them comparably effective, highlighting their significance in restoring debt sustainability. We also establish the effect of political risk on the optimal choice of debt financing maturities. We validate the model out-of-sample on the Italian 2014-2019 reforms, showing that it would have predicted the country's debt more accurately than existing models. Likewise, a simulation of the French 2024 snap elections finds a much higher risk of debt unsustainability than that estimated if the political shock is omitted. |
| Keywords: | Debt management, debt sustainability, political risk, structural reforms |
| JEL: | E52 E62 F30 F34 G15 G18 H62 H63 H68 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eabhps:317786 |
| By: | Ana Maria Santacreu |
| Abstract: | The U.S. NIIP is the difference between U.S.-owned foreign assets and foreign-owned U.S. assets. Why has the NIIP become more negative in recent years? |
| Keywords: | international investments; trade |
| Date: | 2025–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:fip:l00001:99982 |
| By: | Joshua Aizenman; Hiro Ito; Donghyun Park; Jamel Saadaoui; Gazi Salah Uddin |
| Abstract: | The Global Financial Crisis and the COVID-19 pandemic were two major shocks to the world economy in the 21st century. In this study, we analyze the patterns of recessions and recoveries of 101 advanced and developing economies. We identify the turning points of recessions and expansions between 1990 and 2022, and perform cross-country analysis of domestic and external drivers of economic recovery. In addition to the standard independent variables, we include institutional development, political stability, the extent of democracy, and trade restrictions indexes, and explore their roles in explaining recessions and recovery patterns. For the whole sample, we find that deeper recessions are followed by stronger recoveries, in line with Friedman’s plucking model of the business cycle. However, the empirical evidence for the plucking model becomes weaker if institutional development is limited and trade restrictions are high. We show that recessions that create conflict and trade tensions differ sharply from those that do not, a highly relevant finding in the current global climate of heightened trade tensions and geopolitical uncertainty. Finally, since developing countries tend to have weaker institutions and higher trade barriers, our evidence suggests that if policy-makers seek to cushion global shocks, they will need to rely on countercyclical monetary and fiscal policy. Implementation of such policies is generally facilitated by robust and credible monetary and fiscal policy frameworks. |
| JEL: | E62 E63 E65 F32 F41 F43 F45 G01 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33757 |