Financial markets

Filippo Ippolito, Ali K. Ozdagli, Ander Perez, 02 February 2016

Most lending by banks to corporations occurs through loans with floating interest rates. As a result, conventional monetary policy actions are transmitted directly to borrowers via a change in the interest rate paid on existing bank loans. This column argues that the ‘pass-through’ of policy rates to the cost of outstanding bank loans has significant real effects for corporations.

Sam Langfield, Marco Pagano, 01 February 2016

Why is growth in Europe so low? Among the contributing factors, this column highlights the role of financial structure. Intermediation in Europe is heavily bank-based, and the authors' novel empirical findings indicate that such a structure exerts a negative effect on long-run economic growth and exacerbates its response to sharp drops in real estate prices. The findings support policymakers’ efforts to rebalance financial structure towards securities markets.

Nils Herger, Steve McCorriston, 31 January 2016

A key feature of globalisation over the last three decades has been the wave-like growth of foreign direct investment. This column shows that conglomerate cross-border acquisitions, which are closely associated with mispricing in financial markets, play a significant role in explaining these developments.

Barry Eichengreen, Arnaud Mehl, Romain Lafarguette, 22 January 2016

There is ongoing debate about the impact of technological progress on the geography of trade and production. One view is that cheap technology has attenuated the effect of distance, while others argue that location still matters. This column explores the issue in the context of foreign exchange markets. It examines how submarine fibre optic cables that link locations to financial hubs have affected the location of transactions. The findings suggest, on balance, that technological progress has made proximity to a trading centre more important.

Luis Brandao-Marques, Gaston Gelos, 18 January 2016

Concerns about both the level of bond market liquidity and its fragility have risen lately, prompted partly by events such as the October 2014 Treasury bond flash rally in the US, or the April 2015 Bund tantrum in Europe. This column assesses current market liquidity and resilience, discerning several key policy recommendations from the evidence.

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