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on International Finance |
| By: | Iván Weigandi (ODI Global) |
| Abstract: | This paper studies the role of global banks as a source of shocks to global liquidity. Shifts in global liquidity can drive cross-border flows, asset prices, and exchange rates, with implications for financial stability. While the existing literature emphasizes global banks as amplifiers of global shocks, I provide causal evidence that idiosyncratic leverage shocks to these institutions loosen global liquidity conditions. The analysis exploits the high concentration of global banking to construct a Granular Instrumental Variable from the size-weighted sum of bank-level idiosyncratic leverage shocks. These shocks are estimated using Instrumented Principal Component Analysis, using observable bank characteristics (e.g., size, profitability, liquidity, and risk metrics) as instruments to account for bank-specific and time-varying exposures to common global factors. Using the instrument and panel local projections, I estimate the dynamic causal effects of these banks’ leverage shocks on key global liquidity measures for an unbalanced panel of 74 advanced and emerging market economies from 2000Q1 to 2022Q4. Positive shocks to global banks’ leverage significantly appreciate exchange rates against the dollar, reduce US dollar-denominated bond spreads, and increase gross cross-border inflows. Significant effects on total cross-border flows indicate broader spillovers across asset markets. These findings underscore the systemic relevance of G-SIBs in driving global financial conditions and support macro-financial models where financial intermediaries’ leverage is a key state variable influencing risk-taking and asset prices. By showing that global banks can originate, rather than merely transmit, global shocks, this paper adds to the literature on the global financial cycle and the international transmission of financial conditions. |
| Keywords: | Global Banks, Capital Flows, Exchange rates, Emerging Market Bond Index, Granular Instrumental Variables, Instrumented Principal Component Analysis, Local Projections. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:402 |
| By: | Federle, Jonathan-Julian; Greenwood, Robin; Meyer, Josefin; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | We study how wars and military threats affect financial markets. Leveraging more than 300, 000 monthly price observations since 1822, we create an external currency bond index for more than 90 countries - the EXBI. Using the EXBI, we document large effects of wars on returns and borrowing costs. In a global external bond portfolio, a one-standard-deviation war shock lowers returns by five percentage points. At the country level, wars at home generate sharp losses and increase default risk. Military threats depress bond prices in threatened states, but not in threatening ones, highlighting their role as a channel for eoeconomic coercion. |
| Keywords: | sovereign bond returns, war risk, geopolitical risk, militarized disputes, sovereign default, global financial history, conflict and finance, international capital markets |
| JEL: | F34 G15 H56 N20 E44 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:341991 |
| By: | Joshua Aizenman; Jamel Saadaoui; Gazi Salah Uddin; Naoki Yago |
| Abstract: | This paper studies whether countries with larger foreign exchange and gold reserve buffers exhibit smaller exchange-rate responses to US monetary policy surprises. We test a central-bank reserve balance-sheet channel in which large reserve stocks can deter speculative pressure by signaling credible dollar-liquidity capacity, collateral value, and future intervention capacity, even without contemporaneous reserve sales. For identification, we use high-frequency FOMC monetary surprises, minute-level exchange rates, and predetermined reserve holdings for 18 countries. Countries with larger dollar reserves exhibit smaller exchange-rate depreciations after US monetary tightening, while non-dollar reserves do not display the same pattern. Gold reserves are also associated with smaller depreciations. These buffer effects are concentrated in countries without swap and repo lines and are strongest where dollar exposure, especially external dollar liabilities, is larger. The results show that reserve composition and access to dollar liquidity facilities, not only aggregate reserve size, are empirically relevant for exchange-rate resilience. |
| Keywords: | monetary policy spillovers, exchange rates, foreign exchange reserves, gold reserves, dollar liquidity |
| JEL: | E52 E58 F31 F32 F41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-61 |
| By: | Gopinath, Gita; Meyer, Josefin; Reinhart, Carmen; Trebesch, Christoph |
| Abstract: | Theory suggests that corporate and sovereign bonds are fundamentally different, also because sovereign debt has no bankruptcy mechanism and is hard to enforce. We show empirically that the two assets are more similar than you think, at least when it comes to high-yield bonds over the past 20 years. We use rich new data to compare high-yield US corporate (“junk†) bonds to high-yield emerging market sovereign bonds 2002-2021. Investor experiences in these two asset classes were surprisingly aligned, with (i) similar average excess returns, (ii) similar average risk-return patterns (Sharpe ratios), (iii) similar default frequency, and (iv) comparable haircuts. A notable difference is that the average default duration is higher for sovereigns. Moreover, the two markets co-move differently with domestic and global factors. US “junk†bond yields are more closely linked to US market conditions such as US stock returns, US stock price volatility (VIX), or US monetary policy. |
| Keywords: | Chapter 11; Crisis resolution |
| JEL: | F3 G1 F4 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20100 |
| By: | John D. Burger; Francis E. Warnock; Veronica Cacdac Warnock |
| Abstract: | Emerging market economies (EMEs) have historically been vulnerable to external shocks. Recently the global economy has experienced several major shocks yet EMEs have been remarkably resilient. Some of this improved performance can be attributed to prudent policies and stronger economic fundamentals, but the existing literature points to an overperformance mystery by some EMEs with weaker fundamentals. We evaluate an alternative measure of vulnerability based on the concept of a natural level of capital flows (KF*). Specifically, we hypothesize that EMEs are more vulnerable when prior to a large global shock capital flows—portfolio inflows, to be specific—exceed KF*. Results indicate that for major global shocks over the past two decades the pre-shock gap between actual portfolio and KF* has substantial predictive power for the post-shock performance of EMEs. |
| JEL: | F30 G1 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35463 |
| By: | Avdjiev, Stefan; Gambacorta, Leonardo; Goldberg, Linda S.; Schiaffi, Stefano |
| Abstract: | The period after the Global Financial Crisis (GFC) was characterized by a considerable risk migration within global liquidity flows, away from cross-border bank lending towards international bond issuance. We show that the post-GFC shifts in the risk sensitivities of global liquidity flows are related to the tightness of the balance sheet (capital and leverage) constraints faced by international (bank and non-bank) lenders and to the migration of borrowers across funding sources. We document that the risk sensitivity of global liquidity flows is higher when funding is provided by financial intermediaries that are facing greater balance sheet constraints. We also provide evidence that the post-GFC migration of borrowers from cross-border loans to international debt securities was associated with a decline in the risk sensitivity of global liquidity flows to EME borrowers. |
| Keywords: | Global liquidity |
| JEL: | G10 F34 G21 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20098 |
| By: | O'Rourke, Kevin; Vicquery, Roger |
| Abstract: | We present a new global index indicating how fixed are the world’s exchange rates. Our index measures the probability of two units of GDP, randomly selected anywhere in the world, of being involved in a fixed exchange rate arrangement. This approach is invariant to alternative classifications of the Eurozone and is able to account for both direct and indirect exchange rate linkages between countries. In contrast to the “New Consensus†view, which posits a continuity in exchange rate arrangements from the Bretton Woods era to the present, our index restores the conventional account of international monetary history over the last 70 years. Our findings indicate that global exchange rate fixity is now nearly three times smaller than prior to the 1971 Nixon shock, when major anchor currencies were pegged to each other. Furthermore, our measure partially puts into perspective the view that dollar dominance is now stronger than ever: we find that global anchoring to the US dollar was significantly more prevalent during Bretton Woods, particularly when accounting for indirect links. |
| Keywords: | Exchange rates; Fixed exchange rates; Floating exchange rates; Bretton Woods |
| JEL: | F31 F33 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20138 |
| By: | Müller, Karsten; Xu, Chenzi; Lehbib, Mohamed; Chen, Ziliang |
| Abstract: | The Global Macro Database is an open-source, continuously updated dataset of macroeconomic statistics that unifies and extends existing resources. By harmonizing and integrating data from 32 major contemporary sources—including the IMF, World Bank, and OECD—with historical records from 78 additional datasets, we construct comprehensive annual time series for 46 variables across 243 countries. This database covers global macroeconomic trends from the origins of modern data collection to projected estimates for 2030. Using this extensive database, we study the long-run output losses of financial crises and global temperature shocks, two applications in which historical time series are a crucial input. Our findings show that financial crises are associated with statistically detectable contractions in real GDP for five decades into the future, which are considerably larger than previously estimated. Temperature shocks also predict real GDP contractions up to 30 years ahead, especially in emerging economies. |
| JEL: | E01 G01 F44 N10 Q54 O47 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19937 |
| By: | Altavilla, Carlo; Gürkaynak, Refet; Kind, Thilo; Laeven, Luc |
| Abstract: | We empirically examine the role of both official monetary policy announcements and policymakers’ speeches in the transmission of monetary policy to financial markets and the real economy in the euro area. Using intraday data covering a broad cross-section of financial assets, we construct the Euro Area Extended Monetary Policy Event-Study Database (EA-EMPD). We refine the identification of monetary policy surprises by exploiting granular, quote-level data on individual participants’ bid and ask submissions. This novel dataset expands the set of identifiable policy events by an order of magnitude relative to databases based solely on scheduled rate-setting meetings. Our analysis yields three main findings. First, speeches by euro area policymakers exert statistically and economically significant effects on asset prices across maturities, with magnitudes comparable to those observed following official policy announcements. Second, the transmission of speech-induced short-rate changes to the real economy closely mirrors that of policy decisions and combining both types of surprises significantly enhances the precision of statistical inference. Finally, when speeches are included in the measurement of policy surprises, the share of real-economy variance attributable to monetary policy increases fivefold, although its absolute magnitude remains relatively modest. |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20196 |
| By: | de Groot, Oliver; Skok, Yevhenii |
| Abstract: | On February 24, 2022, as Russia invaded, the National Bank of Ukraine switched from a flexible to a fixed exchange rate regime. Was this policy response optimal? To answer this, we develop an open-economy model with both nominal rigidities and frictions in borrowing on international financial markets. We find that the carefully calibrated model can rationalize the NBU’s decision: the optimal response to small shocks is to allow exchange rate flexibility, whereas in response to large shocks—such as an invasion—currency depreciation is suboptimal. For robustness, we consider tradable endowment, risk-premium, and non-tradable supply shocks, and add subsistence consumption. |
| Keywords: | Currency crises; Exchange rates; Monetary policy; Emerging markets |
| JEL: | E44 E52 F31 F41 G01 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20001 |