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on International Finance |
| By: | Marina Azzimonti; Vincenzo Quadrini |
| Abstract: | The rise of the Digital Economy has the potential to reshape international financial markets and the role of traditional reserve assets such as the US dollar. While the creation of Stablecoins may increase the demand for safe dollar-denominated instruments due to reserve backing requirements, they may also serve as substitutes, reducing the global demand for traditional reserve assets. We develop a multicountry model featuring the US, the rest of the world, and a distinct Digital Economy to quantify the impact of the potential expansion of the digital economy. Our results show that, in the long run, the reserve demand effect dominates the substitution effect, leading to lower US interest rates and greater US foreign borrowing. We also find that the expansion of the Digital Economy increases idiosyncratic consumption volatility in the US, while reducing it in the rest of the world. |
| JEL: | F30 F40 G51 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34066 |
| By: | Kenta Yamamoto (Bank of Japan); Tomohiro Okubo (Bank of Japan); Nobuhiro Abe (Bank of Japan); Yukio Minoura (Bank of Japan) |
| Abstract: | In recent years, the rising share of NBFIs (Non-Bank Financial Intermediaries) in the global financial system has been accompanied by an increase in the presence of foreign open-end funds in Japan's financial markets. This paper first documents the fund flows into equity, bond, and real estate open-end funds investing in Japanese financial assets, as well as their buying and selling behavior, using granular data sets. Similar to the findings by existing studies, we find there are significant outflows from foreign open-end funds investing in Japanese financial assets occurred during events such as the global financial crisis and the COVID-19 pandemic, as well as during episodes of rising policy interest rates abroad. These funds sell their assets, including their Japanese assets, in response to redemption requests. Next, we estimate the sensitivity of asset prices in Japan's stock and REIT markets to asset sales by market participants to understand the impact of trading by foreign open-end funds on Japan's financial markets. The estimated sensitivity is statistically significantly positive and its magnitude is found to be close to estimates for the United States reported in the literature. These findings together imply that outflows from foreign open-end funds could affect asset prices in Japan’s financial markets through asset sales during periods of stress originating abroad or when uncertainty in domestic financial markets rises. |
| Keywords: | global investment funds, NBFIs, fund flows, price impact |
| JEL: | G01 G11 G12 G15 G23 |
| Date: | 2025–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp25e08 |
| By: | Andreas Uthemann; Rishi Vala; Jun Yang |
| Abstract: | Trading flows affect Government of Canada bond prices. Our estimates suggest a sale of 1% of the available supply of bonds typically lowers bond prices by 0.2%. From 2000 to 2025, demand from institutional investors, such as Canadian pension funds and foreign investors, explains 69% of quarterly price variation, with the remainder explained by changes in the supply of bonds. |
| Keywords: | Asset pricing; Debt management; Econometric and statistical methods; Financial institutions; Financial markets; Financial stability; Market structure and pricing; Sectoral balance sheet |
| JEL: | C0 C01 C3 C36 C5 C58 D5 D53 E6 E62 G1 G11 G12 G2 G23 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:25-20 |
| By: | Elba Gomez Navas Acevedo; Thomas Thorn |
| Abstract: | We share insights about non-bank financial intermediation in Canada in 2023. These data were collected as part of the Bank of Canada’s contribution to the Financial Stability Board’s Global Monitoring Report on Non-Bank Financial Intermediation. |
| Keywords: | Financial institutions; Sectoral balance sheet |
| JEL: | G2 G21 G22 G23 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:25-19 |
| By: | Miguel Acosta-Henao (CENTRAL BANK OF CHILE); María Alejandra Amado (BANCO DE ESPAÑA); Montserrat Martí (CENTRAL BANK OF CHILE); David Pérez-Reyna (UNIVERSIDAD DE LOS ANDES) |
| Abstract: | This paper investigates the granular transmission of U.S. monetary policy shocks to deviations from the uncovered interest rate parity (UIPDs) in emerging economies. Using a comprehensive dataset from Chile that accounts for firm-bank relationships and the time-variant characteristics of both firms and banks, we uncover several key findings: (1) Shocks to the federal funds rate (FFR) increase banks’ costs of foreign borrowing. (2) These higher credit costs disproportionately affect small firms, raising their UIPDs more than for large firms. (3) This size-differentiated impact stems from the relatively higher interest rates on domestic currency loans faced by small firms. (4) In contrast, interest rates on dollar-denominated loans respond homogeneously across all firms. (5) We find no differential effect on loan quantities, suggesting an active role of credit supply and demand. We rationalize these findings with a small open economy model of corporate default that incorporates heterogeneous firms borrowing from domestic banks in both foreign and domestic currencies. In our model, a higher FFR reduces the marginal cost of defaulting on domestic-currency debt for small firms more than for large firms. |
| Keywords: | uncovered interest rate parity, U.S. monetary policy, bank lending, firm financing, firm heterogeneity |
| JEL: | E43 E44 F30 F41 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2530 |
| By: | Mikel Bedayo (BANCO DE ESPAÑA); Eva Valdeolivas (BANCO DE ESPAÑA); Carlos Pérez |
| Abstract: | The paper provides an in-depth analysis of the development of and stabilizing factors behind foreign claims for international banking groups. It focuses on the headquarters locations of the 76 banking groups that participated in the assessment exercise for global systemically important banks at the end of 2020, examining the behavior of their banking systems’ foreign claims (assets) from 2000 to 2022. The study finds that during systemic crises, banking systems with a higher reliance on local claims in local currency (claims booked by foreign branches or subsidiaries vis-à-vis their own residents in the country’s currency) experience a significantly smaller decline in foreign claims. Specifically, a one standard deviation increase in the ratio of local claims in local currency to foreign claims reduces the decline in foreign claims by 0.11 standard deviations during a crisis. Additionally, the paper provides evidence that a high proportion of local claims in local currency mitigates the variation in foreign claims when the country hosting the banking system’s headquarters is experiencing economic growth or stock market volatility. |
| Keywords: | : foreign claims, local claims in local currency, systemic crises, BIS CBS |
| JEL: | F21 F23 F44 G15 G21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2447 |
| By: | Marwil J. Davila-Fernandez; Serena Sordi |
| Abstract: | Behavioural finance offers a valuable framework for examining foreign exchange (FX) market dynamics, including puzzles such as excess volatility and fat-tailed distributions. Yet, when it comes to their interaction with the `real' side of the economy, existing scholarship has overlooked a critical feature of developing countries. They cannot trade in their national currencies and need US dollars to access modern production techniques as well as maintain consumption patterns similar to those of wealthier societies. To address this gap, we present a novel heterogeneous agents model from the perspective of a developing economy that distinguishes between speculative and non-speculative sectors in the FX market. We demonstrate that as long as non-speculative demand responds to domestic economic activity, a market-clearing output growth rate exists that, in steady-state, is equal to the ratio between FX supply growth and the income elasticity of demand for foreign assets, i.e., a generalised dynamic trade-multiplier. Numerical simulations reproduce key stylised facts of exchange rate dynamics and economic growth, including distributions that deviate from the typical bell-shaped curve. Data from a sample of Latin American countries reveal that FX fluctuations exhibit similar statistical properties. Furthermore, we employ time-varying parameter estimation techniques to show that the dynamic trade-multiplier closely tracks observed growth rates in these economies. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.02252 |
| By: | Giancarlo Corsetti; Banu Demir; Beata Javorcik; Banu Demir Pakel; Beata Smarzynska Javorcik |
| Abstract: | Geopolitical fragmentation triggers complex dynamics in international trade. This paper examines the effects of sanctions through the lens of a stylized model and the empirical analysis of Türkiye’s exports to Russia in the aftermath of Western measures imposed on Russia following its invasion of Ukraine in 2022. As sanctions force many exporters to discontinue or reduce their sales in the target country, firms responding to profit opportunities in that market face (i) a rise in the risk of nonpayment, (ii) higher costs of established trading practice, such as making payments in international currencies through international circuits and (iii) reputational risks and the threat of punitive measures, if their trading with the sanctioned country is exposed. We show that, in response to Western sanctions, Turkish firms sharply raised their exports to Russia, charging higher markups and prices, but also increased their reliance on cash- in-advance transactions and invoicing in Turkish liras instead of dollars. In contrast, Turkish affiliates of Western MNCs responded significantly less, if at all, suggesting a desire to avoid reputational costs. For these firms, a back-of-the-envelope calculation points to annualized foregone revenues of $50 million, with a reputational-risk effect equivalent to tariffs of up to 376%. |
| Keywords: | sanctions, trade diversion, dominant currency pricing, producer currency pricing, cash in advance |
| JEL: | F13 F14 F51 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12021 |
| By: | C S Mohapatra (National Council of Applied Economic Research); Manu Prathap (National Council of Applied Economic Research); Depannita Ghosh (National Council of Applied Economic Research) |
| Abstract: | Unclaimed property (UP), including dormant financial and tangible assets, remains an overlooked area in global financial systems due to weak enforcement, fragmented regulations, and low public awareness. However, its growing volume and economic implications have prompted many countries to reform legal frameworks to enhance transparency and recovery. This cross-country study investigates the administrative and legal structures governing UP across selected systemically important jurisdictions, including India, the US, Canada, the UK, Australia, and emerging economies. The research examines dormancy periods, statutory provisions, post-dormancy procedures, and claim settlement processes, revealing a stark contrast between centralised, digital frameworks in developed economies and fragmented, often manual systems in developing ones. Unclaimed assets represent significant idle capital, which if reintegrated, could boost economic productivity and individual financial well-being. The study highlights the urgent need for harmonised legal standards, proactive due diligence, digital claim infrastructure, and targeted awareness campaigns. These steps are essential not only for efficient asset recovery but also for reducing financial opacity, improving institutional accountability, and fostering inclusive economic growth. |
| Keywords: | Dormancy Period, Escheatment, Financial Regulation, Claim Settlement, Digital Infrastructure, Institutional Framework, Financial Inclusion, Asset Recovery, Public Finance. |
| JEL: | G18 G21 K23 H55 O57 H26 |
| Date: | 2025–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:nca:ncaerw:184 |
| By: | Fungáčová, Zuzana; Solanko, Laura; Weill, Laurent |
| Abstract: | We extend our previous work on bank lending around elections in Russia's electoral autocracy (Fungáécová et al., 2023) by considering the most recent data on bank lending and 2024 presidential election. Unlike the elections held between 2004 and 2019, our findings show no systematic evidence of increased bank lending ahead the 2024 presidential election. This reduced political interference in pre-election lending since the invasion of Ukraine in 2022 may reflect a tendency towards traditional autocracy in Russia. |
| Keywords: | bank, lending, politics, Russia, electoral autocracy, war |
| JEL: | G21 P3 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:323945 |