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In global financial centers, short-term market rates are effectively determined in the pledged collateral market, where banks and other financial institutions exchange collateral (such as bonds and equities) for money. Furthermore, the use of long-dated securities as collateral for short tenors—or example, in securities-lending and repo markets, and prime brokerage funding—impacts the risk premia (or moneyness) along the yield curve. In this paper, we deploy a methodology to show that transactions using long dated collateral also affect short-term market rates. Our results suggest that the unwind of central bank balance sheets will likely strengthen the monetary policy transmission, as dealer balance-sheet space is now relatively less constrained, with a rebound in collateral reuse.

Collateralized debt obligations. --- CDOs (Collateralized debt obligations) --- Credit derivatives --- Accounting --- Banks and Banking --- Investments: General --- Industries: Financial Services --- Investments: Bonds --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- International Monetary Arrangements and Institutions --- Corporation and Securities Law --- General Financial Markets: Government Policy and Regulation --- International Financial Markets --- Central Banks and Their Policies --- Public Administration --- Public Sector Accounting and Audits --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Banking --- Financial reporting, financial statements --- Investment & securities --- Collateral --- Central bank balance sheet --- Financial statements --- Securities --- Financial institutions --- Central banks --- Public financial management (PFM) --- Bonds --- Loans --- Finance, Public --- Banks and banking --- Financial instruments --- United States

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Cross-border capital flows are important for South Africa. They fund the nation’s relatively large external financing needs and have important financial stability implications evidenced by the large capital outflows and asset price selloffs during the COVID-19 pandemic. This paper adds to the literature on the drivers of South Africa’s capital flows by applying the ‘at-risk’ framework––which differentiates between the likelihood of “extreme” inflows (surges) and outflows (reversals) and of “typical” flows––to both nonresident and resident capital flows. Estimated results show that among nonresident flows, the portfolio debt component is most sensitive to changes in external risk sentiment particularly during reversals. This applies to flows to the sovereign sector. Nonresident equity flows, both portfolio and FDI, are most sensitive to domestic economic activity especially during surges. This applies to flows to the corporate and banking sectors. Results also suggest that resident flows, in particular the FDI component, tend to offset nonresident flows, thus acting as buffers against funding withdrawal during periods of global risk aversion.

Macroeconomics --- Economics: General --- Exports and Imports --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- International Investment --- Long-term Capital Movements --- Foreign Exchange --- Current Account Adjustment --- Short-term Capital Movements --- International Financial Markets --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Finance --- Capital flows --- Balance of payments --- Foreign direct investment --- Portfolio investment --- Capital outflows --- Capital inflows --- Currency crises --- Informal sector --- Economics --- Capital movements --- Investments, Foreign --- Portfolio management --- South Africa

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Cross-border capital flows are important for South Africa. They fund the nation’s relatively large external financing needs and have important financial stability implications evidenced by the large capital outflows and asset price selloffs during the COVID-19 pandemic. This paper adds to the literature on the drivers of South Africa’s capital flows by applying the ‘at-risk’ framework––which differentiates between the likelihood of “extreme” inflows (surges) and outflows (reversals) and of “typical” flows––to both nonresident and resident capital flows. Estimated results show that among nonresident flows, the portfolio debt component is most sensitive to changes in external risk sentiment particularly during reversals. This applies to flows to the sovereign sector. Nonresident equity flows, both portfolio and FDI, are most sensitive to domestic economic activity especially during surges. This applies to flows to the corporate and banking sectors. Results also suggest that resident flows, in particular the FDI component, tend to offset nonresident flows, thus acting as buffers against funding withdrawal during periods of global risk aversion.

South Africa

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Sustainable finance has become a key focus area for global investors and policy makers. Last year proved to be a breakout year for emerging markets (EMs), with sustainable debt issuance in 2021 surging to almost $200 billion. This working paper, the first comprehensive study in the literature, analyzes the evoluiton of EM sustainable finance markets, including differences with advanced economies. The analysis shows how sustainable finance in EMs is growing fast not just in aggregate but importantly across many dimensions. The paper also identifies key development areas for EMs and policies to strengthen the resilience of sustainable finance markets.

Macroeconomics --- Economics: General --- Environmental Economics --- Corporate Governance --- Finance: General --- Investments: Bonds --- Environment and Development --- Environment and Trade --- Sustainability --- Environmental Accounts and Accounting --- Environmental Equity --- Population Growth --- Environmental Economics: General --- Corporate Culture --- Diversity --- Social Responsibility --- General Financial Markets: General (includes Measurement and Data) --- Climate --- Natural Disasters and Their Management --- Global Warming --- Economic & financial crises & disasters --- Economics of specific sectors --- Green finance / sustainable finance --- Corporate governance --- role & responsibilities of boards & directors --- Finance --- Investment & securities --- Climate change --- Climate finance --- Environment --- Corporate social responsibility --- Economic sectors --- Emerging and frontier financial markets --- Financial markets --- Bonds --- Financial institutions --- Currency crises --- Informal sector --- Economics --- Climatic changes --- Financial services industry --- China, People's Republic of