The study finds that increases in public debt tend to reduce bank capital, but the size and timing of the adjustment depend on institutional quality. In strong regulatory systems the impact is immediate and later reverses, while in weaker environments the adjustment is slower.
On May 16, 2025, the 9th Joint RFA Research Seminar took place in Medellín, co-organized by FLAR, AMRO, and ESM.
The event brought together experts from international financial organizations, central banks, finance ministries, and academia to discuss the impact of climate change on macroeconomic stability, financial system resilience, and public finances and sovereign risk.
This blog post shares the story behind our recent working paper on how Colombia’s unique Gross Leverage Position in foreign exchange derivatives helped prevent a housing bubble from bursting and what emerging economies can learn from it.
Housing prices are among the most crucial determinants of a country’s financial and macroeconomic stability. As a key macroeconomic indicator, they significantly influence both consumption and investment, shaping economic and financial cycles. Given that housing represents a substantial share of household wealth, price fluctuations have far-reaching effects on consumption, savings, and labor market decisions.
In the first quarter of 2025, economic conditions in the United States reflect a labor market showing mixed signals, alongside persistent inflationary pressures. This context may limit the Federal Reserve’s (Fed) room to cut its policy rate, suggesting a scenario of higher international interest rates for a prolonged period.
The global economy is undergoing a reconfiguration process that is characterized by growing geoeconomic fragmentation, which is defined as the tendency for trade, investment, and global value chains to divide into geopolitically aligned blocs.
We examine the relationship between a country’s level of investment in research and development (R&D) and financial stability. Our findings emphasize the importance of a balanced fiscal strategy that reconciles the urgency of short-term fiscal consolidation with the pursuit of long-term economic growth and productivity.
Fiscal policy can significantly impact the rate of inflation in Latin American countries. Governments in the region have historically implemented procyclical fiscal policies, increasing spending and borrowing during periods of economic growth and tightening policies during recessions.
In recent years, fiscal matters have taken center stage in both academic research and economic policy debates. This heightened focus is largely a consequence of the significant rise in public debt levels observed across advanced and emerging economies in the aftermath of the COVID-19 pandemic. At the same time, the sharp increase in inflation experienced in many countries led central banks to implement substantial hikes in policy interest rates.
Latin America faced a mixed economic outlook in 2024 amid a slight global economic slowdown driven by geopolitical tensions and uneven performance among major global economies. The region’s economic growth outpaced initial projections (2.3% compared to 1.8% forecasted), supported by resilient external capital flows, robust financial systems, and monetary policies that helped bring inflation closer to target levels.
The financial landscape in Latin America is undergoing a transformative shift with the growing adoption of Fast Payment Systems (FPS). These systems, which facilitate real-time or near-real-time financial transactions 24/7, offer numerous advantages over traditional payment methods, such as cash and cards. With features like low transaction costs, accessibility, and immediate availability of funds, FPS is poised to revolutionize how payments are conducted.
Throughout the year, the global economy has experienced a slight deceleration in growth compared to 2023, accompanied by inflation rates aligning more closely with target levels. This trend has enabled central banks in the Eurozone and the United States to initiate reductions in interest rates. For Latin America, this development has led to a decline in the prices of most commodities—although they remain elevated—while external financing costs have gradually decreased, particularly in the second half of the year.
In the past three months, Latin America has faced reduced external and domestic financing constraints, supported by lower interest rates driven by easing inflation in most countries. This context has enabled us to revise the region’s annual growth projection to 2.1% for 2024. However, inflation remains above target in several countries, and public debt continues to rise as a percentage of GDP, underscoring the need for greater fiscal consolidation efforts.
The 9th High-level Regional Financing Arrangements (RFAs) Dialogue was held on 23 October 2024 in Washington DC at a time when the global economic outlook is improving but remains weak amid a complex geoeconomic environment and elevated policy uncertainty. The heightened volatility observed in global financial markets over the summer rea rmed the importance of having a strong Global Financial Safety Net, including e ective collaboration between the International Monetary Fund (IMF) and RFAs, to safeguard against external risks.
Working paper in academic journal Term Spread Spillovers to Latin America and Emergence of the ‘Twin Ds’ Carlos Giraldo, Iader Giraldo, Jose E. Gomez-Gonzalez, Jorge
The extractive sector holds great relevance for the macro-financial stability of Latin America. In most economies in the region, significant commercial and financial inflows originate from the extractive industry, and a portion of government income relies on the well-being of these companies, sourced either from the taxes paid by these entities or from the profits generated when the state owns a share of their assets.
This study examines the determinants of hedging practices among commodity-producing companies in Latin America, given the economic significance of the extractive sector in the region. Key factors identified include firm size, leverage, and commodity prices. Additionally, exchange rate exposure and the acquisition of US dollar-denominated debt influence hedging activities, along with access to international markets. Ownership type is also relevant, as state-owned firms, particularly in the oil sector, are more likely to hedge to reduce revenue volatility.