The disconnect between the exchange rate and its macroeconomic fundamentals has been extensively discussed in the literature. It nonetheless continues to pose theoretical and empirical challenges in the literature. This study examines the relationship between the exchange rate and its...

Interest rate spreads vary widely across time and countries and are a central driver of business cycles in emerging market economies (EMEs). Since 2008, advanced market economies (AMEs) have exhibited persistently higher and more volatile spreads, alongside increased macroeconomic volatility and...

Effective monetary policy requires maintaining the short-term interbank rate close to the policy rate while limiting its volatility, ensuring smooth transmission, and reducing banks' liquidity and interest rate risks. This paper seeks to identify and explain the drivers of volatility in...

We propose a macro-finance model in which inflation, growth, and the policy rate are driven by unobservable long-run trends and transitory cycles that investors must infer from aggregate data. Their subjective estimates of these trends, and the uncertainty surrounding them, are priced into the...

The smooth functioning of the repo market is essential to financial stability. However, the market has faced repeated episodes of stress in recent years. This paper examines the resilience of the euro-denominated repo market during recent episodes of elevated financial stress, drawing on...

The predictability of monetary policy surprises based on past, public information has been interpreted in two related yet fundamentally different ways. The "Fed information effect" posits that it arises due to markets updating their view of the economy, based on signals implicitly revealed by...

Financial intermediation in Montenegro has been on a declining trend since independence, with domestic credit to the private sector decreasing from a peak of 86.5 percent of GDP in 2008 to 46.4 percent in 2024. Net interest margin (NIM)—a common indicator of intermediation costs—has remained...

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...

The relationship between Credit Default Swaps (CDS) and cash bonds plays a pivotal role in providing market participants with important information which directly affects investment and risk management strategies. Particularly relevant is the CDS-Bond basis, defined as the difference in basis...

The yield curve is widely regarded as a powerful descriptor of the economy and market expectations. A common approach to its statistical representation relies on a small number of factors summarizing the curve, which can then be used to forecast real economic activity. We argue that optimal...

We propose a factor model with time-varying loadings for term structure modeling and fore casting. While maintaining the interpretation of the factors as level, slope, and curvature through explicit identification restrictions, we allow the loadings to take flexible shapes by specifying them as...

This paper uses fractional integration and cointegration methods to examine the persistence and long-run relationship between the S&P 500 index and the nominal yield to maturity of 10-year US Treasury bonds (GS10) over the period from January 1954 to December 2024. The results indicate that both...

Modern financial systems do not exist in isolation but form part of a complex global network of interconnected financial systems. This globalization of financial systems significantly increases the risk of contagion in financial markets, impacting asset prices and other important economic...

Persistent deviations from Uncovered Interest Rate Parity (UIRP) represent a central puzzle in international finance and a key source of currency risk for global investors. This study examines the UIRP puzzle in the JPY/USD market through the lens of financial risk transmission, focusing on how...

Using a novel arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for bond-specific liquidity risk premia, this paper provides estimates of bond investors' inflation expectations and associated inflation risk premia in South African sovereign bonds. The...

The well-known Heath-Jarrow-Morton (HJM) framework provides a universal and efficacious instrument for modeling the stochastic evolution of an entire yield curve by explaining the interest rate dynamics in continuous time under no-arbitrage conditions. Existing implementations involve...

Lack of investable capital has slowed down the development process in many developing nations, including Nigeria, and this has sparked empirical research on the factors affecting foreign capital flow. Therefore, the purpose of this study was to investigate the effects of interest rate...

This study examines the relationship between sovereign spreads and banks in terms of risk transmission, using the seven largest Italian banks as a sample over the period from 2003 to 2023. Our objective is to quantify and compare volatility spillovers, and to investigate whether bank-specific...

This International Finance Corporation (IFC) Research Note analyzes the cost of borrowing for firms in emerging and developing economies, changes in their debt structure, and indicators of indebtedness and profitability. It finds reasons for optimism on their resilience, while noting that...