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on International Finance |
| By: | forbes, Kristin; Ha, JONGRIM; Kose, M. Ayhan |
| Abstract: | Business cycles are increasingly driven by global shocks, rather than the domestic demand shocks prominent in earlier decades, posing challenges for central banks seeking to meet domestic mandates and communicate their policy decisions. This paper analyzes the evolving influence and characteristics of global and domestic shocks in advanced economies from 1970-2024 using a new FAVAR model that decomposes movements in interest rates, inflation, and output growth into four global shocks (demand, supply, oil, and monetary policy) and three domestic shocks (demand, supply, and monetary policy). We find that the role of global shocks has increased sharply over time and that their characteristics differ from those of domestic shocks across multiple dimensions. Compared to domestic shocks, global shocks have a larger supply component, higher variance, more persistent effects on inflation, and are more asymmetric (contributing more to tightening than to easing phases of monetary policy). As global supply shocks have become more prominent, central banks have also been less willing to “look through” their effects on inflation than for comparable domestic shocks. The distinct characteristics and rising influence of global shocks—particularly global supply shocks—have significant implications for modeling monetary policy and designing central bank frameworks. |
| Keywords: | Demand shocks; supply shocks; geopolitical risk; oil prices; supply-chain disruptions; global uncertainty, central banks, Federal Reserve; European Central Bank |
| JEL: | E31 E32 E52 Q43 |
| Date: | 2026–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127928 |
| By: | Marco Graziano; Marius Koechlin; Andreas Tischbirek |
| Abstract: | We study the spillovers of large-scale asset purchases (LSAPs) in the U.S. on financial intermediation in the euro area using bank-level supervisory data and high-frequency identified policy surprises. Our detailed panel data permit us to trace the impact of LSAPs through bank balance sheets. We find that the Federal Reserve affects credit provision in the euro area through a channel that we refer to as the "international bank capital channel" of unconventional monetary policy. In response to an LSAP shock that leads to a steepening of the U.S. Treasury yield curve, the Treasury positions of euro area banks shrink, capital ratios worsen, and banks that are less well capitalized contract their lending relative to banks that are better capitalized. Our results are consistent with an important role of revaluation effects, imperfect risk hedging, and credit as an adjustment margin for banks in the proximity of regulatory capital constraints. |
| Keywords: | large-scale asset purchases, international spillovers, global financial cycle, credit channel of monetary policy, U.S. treasury yield curve, exchange rates |
| JEL: | E52 F42 F44 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12409 |
| By: | Manuel Adelino; Miguel A. Ferreira; Sujiao Zhao |
| Abstract: | Adjustable-rate mortgages (ARMs) transmit monetary policy less directly than often assumed. We exploit quasi-experimental variation in ARM rate reset timing in Portugal—where over 92% of mortgages are indexed to Euribor—around the ECB’s 2022–2023 tightening cycle to estimate responses to mortgage payment shocks. After reset dates, mortgage renegotiations increase by 10 percentage points, lender switching by 4, partial prepayments by 5, and full prepayments by 3, offsetting about 17% of the payment increase implied by policy rates. Responses occur only immediately after resets, consistent with selective inattention, and are largest among younger, more educated, and higher-balance borrowers. Supply-side factors amplify these effects: as rates rise and bank competition intensifies, households at more flexible banks renegotiate, switch lenders, and prepay more, while greater broker presence further increases lender switching. Our findings suggest that monetary policy pass-through in ARM-dominated markets depends on borrower behavior, market frictions, and sticky deposit rates. |
| JEL: | D14 E44 E52 G21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34824 |
| By: | Juan Michelsen |
| Abstract: | This paper studies the macroeconomic effects of global risk shocks (GRS) in a small open economy and their implications for the identification of monetary policy shocks. I construct a novel proxy for GRS based on unexpected daily innovations in the VIX and employ it as an external instrument in a proxy-SVAR for Canada. The advantage of this proxy is that, by exploiting the safe-haven role of the U.S. dollar, it identifies the effects of GRS using only domestic endogenous variables, without imposing restrictions or relying on global aggregates or narratively selected events. GRS that depreciate the Canadian dollar, tighten financial conditions, reduce asset prices, output, and prices, inducing an expansionary monetary policy response. I provide evidence that high-frequency (HF) monetary policy surprises partly reflect endogenous, risk-driven deviations between policy actions and market expectations. Ignoring GRS can lead to an overestimation of monetary policy effects obtained using HF identification. |
| Keywords: | global risk shocks, small open economy, proxy-SVAR, monetary policy surprises |
| JEL: | E52 F41 F42 F44 |
| Date: | 2026–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0093 |
| By: | Adrien Concordel; Phuong Ho; Christopher R. Knittel |
| Abstract: | This paper compares the impacts of critical mineral price and oil price on an economy in a unified neoclassical growth model. Unlike oil price shocks, which affect the cost of utilizing existing capital (e.g., cars), critical mineral price shocks influence the cost of creating new capital (e.g., electric vehicles) without altering the cost of existing capital. We find that both types of shocks ultimately reduce output and welfare. However, oil-price increases are systematically more contractionary for the economy. Mineral-price increases generate comparatively larger adjustments in investment, capital, and external borrowing but smaller and more gradual losses in output and welfare, and in capital-rich economies can slightly raise long-run employment. These results imply that oil-price shocks remain the more serious threat to aggregate activity and welfare, whereas mineral-price shocks call for policies that smooth investment and external-balance-sheet adjustment (e.g., macroprudential tools and precautionary reserves or fiscal buffers). |
| JEL: | E22 E32 F41 Q41 Q43 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34847 |
| By: | António Afonso; Eduardo Rodrigues |
| Abstract: | Savings play a critical role in both individual financial well-being and economic development. This article examines the impact of financial literacy, income, educational level, and age on saving decisions across 136 countries, using data from the Global Financial Inclusion Database (2021) and employing Generalized Structural Equation Modelling (GSEM). Financial literacy is conceptualized as a latent variable, based on five indicators related to financial knowledge, financial behavior, and financial attitudes, aligned with the Organization for Economic Co-operation and Development (OECD) pillars. The analysis demonstrates that financial literacy is a fundamental driver for saving in the short and long term. Education level and income are consistent predictors of savings, while age exhibits distinct effects depending on the savings objective. Regional differences emerge, with Latin American countries showing the strongest link between financial literacy and savings, whereas in high-income economies, its influence is less pronounced. These findings underscore the multifaceted role of financial literacy in shaping saving decisions and highlight its implications for tailored public policies. |
| Keywords: | financial literacy, savings, Generalized Structural Equation Modelling, behavioral economics, global survey |
| JEL: | D14 G53 I22 C38 O16 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12400 |
| By: | Tamar den Besten; Diego R. Känzig |
| Abstract: | We study the macroeconomic effects of tariff policy using U.S. historical data from 1840–2024. We construct a narrative series of plausibly exogenous tariff changes – based on major legislative actions, multilateral negotiations, and temporary surcharges – and use it as an instrument to identify a structural tariff shock. Tariff increases are contractionary: imports fall sharply, exports decline with a lag, and output and manufacturing activity drop persistently. The shock transmits through both supply and demand channels. Prices rise in the full sample but fall post-World War II, a pattern consistent with changes in the monetary policy response and with stronger international retaliation and reciprocity in the modern trade regime. |
| JEL: | E30 F13 F14 F41 H20 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34852 |
| By: | Yang Jiao; Ting Lan; Yang Liu; Xinrui Zhao |
| Abstract: | This paper examines the inflationary effects of shipping delays. We construct a novel measure of port-to-port shipping time using real-time AIS maritime data and link it with granular port-level trade and item-level price data. We document substantial heterogeneity in goods imports across ports and regions, variation in exposure to delays, and aggregate price responses to congestion shocks. Exploiting cross-product variations in exposure, we estimate both the average and dynamic effects of shipping delays on consumer prices, finding that a 100-hour delay raises inflation by roughly 0.5 percentage points at its five-month peak. |
| Keywords: | Supply Chain Disruption; Port Congestion; Inflation; Price Dynamics |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/026 |
| By: | Nicolas Crouzet; Janice C. Eberly |
| Abstract: | Investment in equipment and structures is one of the most cyclical components of GDP, a fact often associated with a negative response to heightened uncertainty in recessions. R&D investment, by contrast, is only mildly procyclical. We show that this difference could arise because of a positive response of R&D investment to uncertainty - promoting more research, development, and experimentation - a feature of most recessions but most notably during COVID. Both effects are distinct manifestations of real options, one in which costly reversibility delays investment, and the other in which investment enhances resolution of uncertainty. |
| JEL: | D25 E22 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34838 |
| By: | António Afonso; José Alves; João Tovar Jalles; Sofia Monteiro |
| Abstract: | Climate change is reshaping sovereign risk and macroeconomic stability by amplifying fiscal and external fragilities. This paper develops a unified framework to assess how climate vulnerability and resilience jointly influence fiscal–external solvency. We construct a market-based sustainability index that integrates time-varying fiscal and external reaction coefficients – estimated using Schlicht’s (2021) method-weighted by sovereign yields. Using a global panel of more than 60 economies (1981–2024), we document four key findings. First, structural vulnerability exerts a large and persistent drag on sustainability, even after controlling for macro fundamentals, as higher exposure magnifies expected losses and tightens financing conditions. Second, resilience does not display a strong unconditional effect but significantly mitigates the adverse impact of vulnerability, acting as a state-contingent stabilizer. Third, local projections with smooth transition (LP-STAR) reveal sharp nonlinearities: identical climate shocks trigger modest, short-lived effects in low-vulnerability or high-resilience regimes but cause deep and persistent deterioration when vulnerability is high and resilience weak. Fourth, these dynamics generate an “adaptation trap” – a self-reinforcing cycle where vulnerability raises yields, yields compress fiscal space, and limited adaptation perpetuates vulnerability. Policy implications are clear: resilience investment yields sizable macro-financial returns by reducing expected losses and compressing climate risk premia, while delaying adaptation risks entrenching fragility. Our results highlight the need to embed climate parameters into debt sustainability analyses and sovereign risk frameworks, particularly for emerging markets facing tighter financing constraints. |
| Keywords: | climate vulnerability, climate resilience, fiscal sustainability, external sustainability, sovereign risk premia |
| JEL: | C33 E62 F34 H63 Q54 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12389 |