IMF Economic Review. September 2024. Vol 72, Issue 4: 1279-1319.
with Christiane Kneer, Bank of England Working Paper (804)
This paper examines how UK banks channel foreign capital to the individual sectors of the domestic economy and to overseas residents. Information about the source countries of foreign funds deposited with UK banks allows us to construct a novel Bartik instrument for capital flows. Our results suggest that foreign inflows boost bank lending to the domestic economy. This is driven by the positive effect of foreign inflows on bank lending to non-financial firms and to other domestic financial institutions. We find that banks do not channel capital inflows to households or the public sector. Much of the foreign capital is also channeled back abroad, reflecting the role of the UK as a global financial center.
Media coverage: Bank Underground, Yale School of Management
with Daniel te Kaat and Yuanjie Tian, ADB Working Paper (754), 2024
Industrial policies greening the economy aim to accelerate the transition to net zero. We show that the US Inflation Reduction Act improved the supply of climate finance globally. Using granular data on global investment funds, we identify a novel international spillover channel of industrial policies. Sustainable global investment funds received more inflows upon the act announcement, in turn increasing their cross-border portfolio investments worldwide. Recipient countries better prepared to address climate change benefited most from sustainable global funds’ additional investments. Non-US domiciled sustainable funds investing outside of the US account for most of the spillovers. The results are robust to a rich set of controls and fixed effects, absorbing recipient countries’ demand for foreign funds. Thus, global investment funds have become an important conduit for the international spillover of climate policies.
Media coverage: ADB blog, ADBI webinar series on the Economics of Climate Change
with Daniel te Kaat, ADB Working Paper (forthcoming), 2025
How do international investors adjust portfolios in response to biodiversity risk? Using monthly data on investment fund portfolios, we show that the 2021 Kunming Declaration led fund managers to reallocate portfolios from high-biodiversity risk countries to less risky ones, while ultimate fund investors remained unresponsive. Fund managers reduced exposures to extremely high biodiversity risk without seizing low biodiversity risk as an opportunity for profit, characterizing biodiversity as downside risk factor. Investment funds drive cross-country spillovers as the reallocation triggers significant capital flows benefiting countries in the same geographic region, but outside of a fund’s hitherto established portfolio. Using a novel measure of legal action to protect nature, we demonstrate that countries taking more legal acts are partially shielded from funds reducing their exposure to high-biodiversity risk countries. Policies only indirectly related to nature conservation, such as mitigating climate change and strengthening macroeconomic fundamentals, do not provide insurance against funds’ withdrawals. Results are robust to a rich set of controls and fixed effects, absorbing demand for funds' investments.
with Torsten Ehlers and Mathias Hoffmann, BIS Working Paper (897), 2020
We show that US net capital inflows drive the international synchronization of house price growth through the topography of the global banking network. US net capital inflows improve US dollar funding conditions of non-US and specifically European global banks, allowing them to increase leverage by borrowing in US dollars and to expand foreign interbank lending to borrowing countries. This induces a synchronization of lending across borrowing countries, which translates into a synchronization of mortgage credit growth and ultimately house price growth. Importantly, this synchronization is driven by non-US global banks' common but heterogeneous exposure to US dollar funding conditions, not by the common exposure of borrowing countries to non-US global banks. Our results therefore identify a novel channel of international transmission of US dollar funding conditions: As these conditions vary over time, borrowing country pairs whose non-US global creditor banks are more dependent on US dollar funding exhibit higher house price synchronization.
Media coverage: BCC blog, Central Banking, Graduate Institute Geneva
Trade policy uncertainty and portfolio investment flows, with Gabriele Ciminelli and Matteo Lanzafame
Paying for biodiversity loss: how biodiversity risk drives sovereign yields, with Dhruv Patel
Scaling up sustainable finance through environmental risk disclosures, with Daniel te Kaat
Weak banks make you feel the heat: how non-performing loans delay the green transition, with Jiancong Liu
Timing the market: when to issue debt after disasters
How to stimulate private development finance: Catalytic effects of MDBs, with Jiancong Liu and Marcin Wolski
Forecasting economic crises: a machine learning approach, with Mattia Bevilacqua