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on Financial Development and Growth |
| By: | IWASAKI, Ichiro; ONO, Shigeki |
| Abstract: | This study is the first meta-analysis to compare financial intermediation and direct financing in terms of their growth-promoting effects. Meta-synthesis of 1693 estimates extracted from 168 previous studies strongly suggest that, in general, financial development has a positive effect on economic growth and the synthesized effect size of the direct financing study exceeding that of the financial intermediation study. The two exceptions are when the average estimation year is limited to 1989 or before and when the target region is restricted to Latin America and the Caribbean. Results from metaregression analysis and tests for publication selection bias show, however, that some synthesis results cannot be reproduced when literature heterogeneity and publication selection bias are taken into consideration. |
| Keywords: | financial intermediation, direct financing, growth-promoting effect, meta-synthesis, meta-regression analysis, publication selection bias |
| JEL: | E44 G10 O40 P43 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2024-01&r=fdg |
| By: | Donato Ceci (Bank of Italy); Orest Prifti (Università degli Studi di Roma-Tor Vergata); Andrea Silvestrini (Bank of Italy) |
| Abstract: | This paper examines the role of weekly financial data in nowcasting the quarterly growth rate of Italian real GDP, with a specific focus on the impact of the COVID-19 pandemic. It combines factor models and MIxed DAta Sampling (MIDAS) regression models to set up Factor MIDAS specifications, which leverage a large set of higher-frequency financial variables to exploit the information flow within the quarter. The analysis is performed using a comprehensive dataset that includes monthly macroeconomic data and weekly financial data. The predictive accuracy is assessed by conducting a pseudo out-of-sample nowcast exercise and evaluating the performance of the models with and without the inclusion of factors derived from financial indicators. Financial variables improve the nowcast of real GDP growth in Italy, particularly in the first month of the quarter, when few macroeconomic data are available. The models incorporating financial variables consistently exhibit high nowcasting accuracy throughout the quarter. |
| Keywords: | nowcasting, mixed frequency, factor models, variable selection, financial markets, factor MIDAS |
| JEL: | C22 C43 C53 C55 E32 E37 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1446_24&r=fdg |
| By: | Claudio Raddatz; Dulani Seneviratne; Mr. Jerome Vandenbussche; Peichu Xie; Yizhi Xu |
| Abstract: | We construct a country-level indicator capturing the extent to which aggregate bank credit growth originates from banks with a relatively riskier profile, which we label the Riskiness of Credit Origins (RCO). Using bank-level data from 42 countries over more than two decades, we document that RCO variations over time are a feature of the credit cycle. RCO also robustly predicts downside risks to GDP growth even after controlling for aggregate bank credit growth and financial conditions, among other determinants. RCO’s explanatory power comes from its relationship with asset quality, investor and banking sector sentiment, as well as future banking sector resilience. Our findings underscore the importance of bank heterogeneity for theories of the credit cycle and financial stability policy. |
| Keywords: | Private sector debt; credit growth; credit origin; credit cycle; bank soundness; credit risk; financial vulnerability; investor sentiment; financial stability |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/072&r=fdg |
| By: | Nina Boyarchenko; Leonardo Elias |
| Abstract: | Do global credit conditions affect local credit and business cycles? Using a large cross-section of equity and corporate bond market returns around the world, we construct a novel global credit factor and a global risk factor that jointly price the international equity and bond cross-section. We uncover a global credit cycle in risky asset returns, which is distinct from the global risk cycle. We document that the global credit cycle in asset returns translates into a global credit cycle in credit quantities, with a tightening in global credit conditions predicting extreme capital flow episodes and declines in the stock of country-level private debt. Furthermore, global credit conditions predict the mean and left tail of real GDP growth outcomes at the country level. Thus, the global pricing of corporate credit is a fundamental factor in driving local credit conditions and real outcomes. |
| Keywords: | global financial cycle; corporate bond returns; return predictability; international capital flows; credit and real activity outcomes |
| JEL: | F30 F44 G15 G12 |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:98024&r=fdg |
| By: | Jess Benhabib; Feng Dong; Pengfei Wang; Zhenyang Xu |
| Abstract: | We develop a model of self-fulfilling default cycles with demand externality a la Dixit- Stiglitz to explain the recurrent clustered defaults observed in the data. The literature reports that observable fundamental factors alone are insufficient to explain the cluster. A decline in aggregate output reduces the value of firms and increases their probability of default. As defaults take more firms out of production, aggregate output declines further, creating a positive feedback loop that generates multiple equilibria and self-fulfilling default cycles. Our global analysis using Bogdanov-Takens bifurcation reveals the existence of multiple or even infinite paths that satisfy all equilibrium conditions. Moreover, a family of periodic orbits can emerge in the perfect foresight equilibrium. Our model is consistent with the view that business cycles arise largely because the economy’s internal forces tend to endogenously generate cyclical mechanisms (Beaudry et al., 2020). |
| JEL: | E22 E32 E44 G12 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32291&r=fdg |
| By: | Matthias Kehrig; Nicolas Vincent |
| Abstract: | We document that most dispersion in marginal revenue products of inputs occurs across plants within firms rather than between firms. This is commonly thought to reflect misallocation: dispersion is “bad.” However, we show that eliminating frictions hampering internal capital markets in a multi-plant firm model may in fact increase productivity dispersion and raise output: dispersion can be “good.” This arises as firms optimally stagger investment activity across their plants over time to avoid raising costly external finance, instead relying on reallocating internal funds. The staggering in turn generates dispersion in marginal revenue products. We use U.S. Census data on multi-plant manufacturing firms to provide empirical evidence for the model mechanism and show a quantitatively important role for good dispersion. Since there is less scope for good dispersion in emerging economies, the difference in the degree of misallocation between emerging and developed economies looks more pronounced than previously thought. |
| Keywords: | Misallocation, Productivity Dispersion, Multi-Plant Firms, Internal Capital Markets. |
| JEL: | E2 G3 L2 O4 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:24-13&r=fdg |
| By: | Paul Lavery (Adam Smith Business School, University of Glasgow); John Tsoukalas (The Productivity Institute, The University of Glasgow); Nick Wilson (Leeds University Business School) |
| Keywords: | Private equity buyouts; productivity; investment; firm growth |
| JEL: | F14 G01 G32 G34 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:anj:wpaper:041&r=fdg |
| By: | Diane Coyle (Bennett Institute for Public Policy, University of Cambridge); Ayantola Alayande (Bennett Institute for Public Policy, University of Cambridge) |
| Keywords: | Investment, UK investment, G7 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:anj:wpaper:040&r=fdg |
| By: | Bakari, Sayef |
| Abstract: | In the context of this study, we aim to assess the impact of domestic investments and carbon dioxide emissions on economic growth in 48 Sub-Saharan African countries over the period 1990-2022. By employing an estimation methodology based on static gravity models (fixed and random effects) as well as the Panel GMM model (fixed and random effects), our results significantly and positively indicate that domestic investments and CO2 emissions influence economic growth. We recommend that policymakers and stakeholders in Sub-Saharan African countries take these findings into consideration when formulating economic policies. The positive and significant implications of domestic investments and CO2 emissions on economic growth underscore the importance of promoting policies that encourage appropriate levels of domestic investment and sustainable management of CO2 emissions. |
| Keywords: | CO2 Emissions, Domestic Investment, Economic Growth, Sub-Saharan African Countries. |
| JEL: | E22 O47 O55 Q56 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120370&r=fdg |
| By: | West Togbetse (Université d’Orléans); Camelia Turcu |
| Abstract: | In the context of climate change, countries need natural resources for their development and energy transition process. A large share of these resources is based in emerging and developing countries. Within this framework, we investigate whether natural resources endowment has become a key determinant in the allocation of development aid. We put a specific focus on China, which has started to have a proactive role in international aid to other countries, although it is still an emerging economy. In particular, we analyze whether China is increasingly granting aid to countries well endowed with natural resources and if this official development assistance is motivated by economic interests, mainly those related to natural resources. To do so, we use two sets of data: an original database at the country level, covering the period 2000-2016, and geocoded data on 1650 Chinese development projects across 2969 physical locations in Africa over the period 1999-2013. We built thus our analysis at a macro and microeconomic level. Our results show that the aid granted by China can be linked to access to natural resources. |
| Keywords: | Foreign aid, natural resources, energy transition |
| JEL: | F Q |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2023.16&r=fdg |
| By: | West Togbetse (Université d’Orléans); Camelia Turcu |
| Abstract: | In this study, we assess the effect of natural resources on FDI flows to Africa within the energy transition context. To do this, and given China’s growing presence in Africa, we focus only on China as a main investor in Africa. We analyze its outward FDI flows, at micro and macro level to 30 African countries over a 19-year period (2000 to 2018). Our results show that not all natural resources are attractive factors for FDI. Mineral resources and natural gas were found to be key determinants of Chinese FDI while oil resources have a negative impact on Chinese FDI flows to Africa. These results might suggest an engagement in the energy transition process which requires specific mineral resources. |
| Keywords: | FDI , natural resources, energy transition |
| JEL: | F |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2023.15&r=fdg |
| By: | David Gomtsyan (CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | Weak financial institutions may affect developing countries due to slowing the much-needed construction process of residential housing. Using novel data collected from Nairobi, I document considerable variation in the construction duration of new residential buildings, with about 40% of buildings started in 2009 still unfinished in 2018. To understand the role of financial development in cities and urbanization, I develop a model with financial frictions in which households construct individual housing units. Quantitative exercises show that improvements in credit provision can substantially speed up the expansion of the housing stock and increase the city's density by enabling the construction of taller buildings. |
| Abstract: | Des institutions financières faibles peuvent affecter les pays en développement en ralentissant le processus de construction des logements résidentiels dont ils ont tant besoin. En utilisant de nouvelles données collectées à Nairobi, notre étude met en évidence des variations considérables dans la durée de construction des nouveaux bâtiments résidentiels. 40% des bâtiments commencés en 2009 sont toujours inachevés en 2018. Pour comprendre le rôle du développement financier dans l'urbanisation, nous avons développé un modèle avec des frictions financières dans lequel les ménages construisent des unités de logements individuels. Les exercices quantitatifs montrent que l'amélioration de l'offre de crédit peut considérablement accélérer l'expansion du parc immobilier, et augmenter la densité de la ville en permettant la construction d'immeubles plus hauts. |
| Keywords: | Urban growth, Housing investment, Financial frictions, Croissance urbaine, Investissement résidentiel, Frictions financières |
| Date: | 2024–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04523748&r=fdg |
| By: | Etienne Fakaba Sissoko (USSGB - Université des sciences sociales et de gestion de Bamako); Daman-Guilé Diawara (USSGB - Université des sciences sociales et de gestion de Bamako); Madiouma Kone (USSGB - Université des sciences sociales et de gestion de Bamako); Khalid Dembele (USSGB - Université des sciences sociales et de gestion de Bamako) |
| Abstract: | This study examines the impact of politics on Foreign Direct Investment (FDI) in Mali from 2002 to 2022, a period characterized by significant political and economic transformations. The main objective is to determine the extent to which political stability influences FDI flows in a developing African context. Methodologically, this research adopts a mixed approach. It utilizes an Auto-Regressive Distributed Lag (ARDL) model for quantitative analysis of macroeconomic data, and a series of semi-structured interviews with 20 key stakeholders, including business leaders, economists, and policymakers, for in-depth qualitative exploration. The findings reveal that, contrary to expectations, an improvement in political stability does not necessarily correlate with an increase in FDI. In fact, better political stability was correlated with a decrease in long-term FDI, suggesting that investors may favor markets with a certain degree of risk. Additionally, the population (POP) emerged as a constraint on FDI, highlighting the importance of labor quality and internal market development policies. This study enriches the existing literature on FDI in developing countries by providing insights into the complex interplay between politics, economy, and foreign investments in a specific African country. It underscores the importance for policymakers to adopt a holistic approach to attract FDI, going beyond political stability and incorporating economic policies and human capital development. |
| Abstract: | Résumé Cette étude analyse l'impact de la politique sur les Investissements Directs Étrangers (IDE) au Mali de 2002 à 2022, une période marquée par d'importantes transformations politiques et économiques. L'objectif principal est de déterminer dans quelle mesure la stabilité politique influence les flux d'IDE dans un contexte africain en développement. Méthodologiquement, cette recherche adopte une approche mixte. Elle utilise un modèle Auto-Régressif à Délais Distribués (ARDL) pour l'analyse quantitative des données macroéconomiques, et une série d'entretiens semi-structurés avec 20 acteurs clés, incluant des chefs d'entreprises, des économistes et des décideurs politiques, pour une exploration qualitative approfondie. Les résultats montrent que, contrairement aux attentes, une amélioration de la stabilité politique n'est pas nécessairement associée à une augmentation des IDE. En fait, une meilleure stabilité politique a été corrélée à une diminution des IDE à long terme, ce qui suggère que les investisseurs peuvent privilégier des marchés présentant un certain degré de risque. Par ailleurs, la population (POP) est apparue comme un frein aux IDE, mettant en évidence l'importance de la qualité de la main-d'œuvre et des politiques de développement du marché intérieur. Cette étude enrichit la littérature existante sur les IDE dans les pays en développement, en fournissant des insights sur l'interaction complexe entre la politique, l'économie et les investissements étrangers dans un pays africain spécifique. Elle souligne l'importance pour les décideurs politiques d'adopter une approche holistique pour attirer les IDE, en allant au-delà de la stabilité politique et en intégrant des politiques économiques et de développement du capital humain. Mots clés : Investissements Directs Étrangers ; Stabilité Politique ; Mali ; Démocratie ; Développement Économique Classification JEL : F21; O1; P16; F23; F63 Type de l'article : Article empirique Abstract This study examines the impact of politics on Foreign Direct Investment (FDI) in Mali from 2002 to 2022, a period characterized by significant political and economic transformations. The main objective is to determine the extent to which political stability influences FDI flows in a developing African context. Methodologically, this research adopts a mixed approach. It utilizes an Auto-Regressive Distributed Lag (ARDL) model for quantitative analysis of macroeconomic data, and a series of semi-structured interviews with 20 key stakeholders, including business leaders, economists, and policymakers, for in-depth qualitative exploration. The findings reveal that, contrary to expectations, an improvement in political stability does not necessarily correlate with an increase in FDI. In fact, better political stability was correlated with a decrease in long-term FDI, suggesting that investors may favor markets with a certain degree of risk. Additionally, the population (POP) emerged as a constraint on FDI, highlighting the importance of labor quality and internal market development policies. This study enriches the existing literature on FDI in developing countries by providing insights into the complex interplay between politics, economy, and foreign investments in a specific African country. It underscores the importance for policymakers to adopt a holistic approach to attract FDI, going beyond political stability and incorporating economic policies and human capital development. Keyboard: Foreign Direct Investment; Political Stability; Mali; Democracy; Economic Development Classification JEL : F21 ; O1 ; P16 ; F23 ; F63 Type of Article : Empirical Resarch Etienne Fakaba SISSOKO, (Docteur en Macroéconomie Internationale) Centre de Recherche et d'Analyses Politiques, Économiques et Sociales (CRAPES) Université des Sciences Sociales et de Gestion de Bamako (USSGB) Faculté des Sciences Économiques et de Gestion (FSEG), Mali Daman-Guilé DIAWARA, (Docteur en Sciences Économiques) Centre Universitaire en Recherche Économique et Sociale (CURES) Faculté des Sciences Économiques et de Gestion de Bamako (FSEG) Université des Sciences Sociales et de Gestion (USSGB), Mali Madiouma KONE, (Docteur en Sciences Économiques) Centre Universitaire en Recherche Économique et Sociale (CURES) Faculté des Sciences Économiques et de Gestion de Bamako (FSEG) Université des Sciences Sociales et de Gestion (USSGB), Mali Khalid DEMBELE, (Docteur en Sciences Économiques) Centre de Recherche et d'Analyses Politiques, Économiques et Sociales (CRAPES) Faculté des Sciences Économiques et de Gestion de Bamako (FSEG) Université des Sciences Sociales et de Gestion (USSGB), Mali |
| Keywords: | Investissements Directs Étrangers Stabilité Politique Mali Démocratie Développement Économique Classification JEL : F21 O1 P16 F23 F63 Foreign Direct Investment Political Stability Mali Democracy Economic Development Classification JEL : F21 O1 P16 F23, Investissements Directs Étrangers, Stabilité Politique, Mali, Démocratie, Développement Économique Classification JEL : F21, O1, P16, F23, F63 Foreign Direct Investment, Political Stability, Democracy, Economic Development Classification JEL : F21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04511928&r=fdg |
| By: | Daniel Ofori-Sasu (University of Ghana Business School); Elikplimi Komla Agbloyor (University of Ghana Business School); Dennis Nsafoah (Niagara University); Simplice A. Asongu (Johannesburg, South Africa) |
| Abstract: | This study examines the effect of regulatory independence of the central bank in shaping the impact of electoral cycles on bank lending behaviour in Africa. It employs the dynamic system Generalized Method of Moments (SGMM) Two-Step estimator for a panel dataset of 54 African countries over the period, 2004-2022. The study found that banks lend substantially higher during election years, and reduce lending patterns thereafter. The study shows that countries that enforce monetary policy autonomy of the central bank induce a negative impact on bank lending behaviour while those that apply strong macro-prudential independent action and central bank independence reduce lending in the long term. The study provides evidence to support that regulatory independence of the central bank dampens the positive effect of elections on bank lending around election years while they amplify the reductive effects on bank lending after election periods. There is a wake-up call for countries with weak independent central bank regulatory policy to strengthen their independent regulatory policy frameworks and political institutions. This will enable them better strategize to yield a desirable outcome of bank lending to the real economy during election years. |
| Keywords: | Political Economy; Political Credit Cycles, Electoral Cycle; Central Bank Regulatory Independence; Bank lending Behaviour |
| JEL: | D7 D72 G2 G3 E3 E5 E61 G21 L10 L51 M21 P16 P26 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:24/002&r=fdg |
| By: | Caroline Flammer; Thomas Giroux; Geoffrey Heal |
| Abstract: | Blended finance---the use of public and philanthropic funding to crowd in private capital---is a potential way to finance a more sustainable world. While blended finance holds the promise of being catalytic in mobilizing vast amounts of private capital, little is known about this practice. In this paper, we provide a conceptual framework that formalizes the decision-making of development finance institutions (DFIs) that engage in blended finance. We then provide empirical evidence on blended finance using data from a major DFI. The key variable we study is the level of concessionality, which captures the subsidy from the blended co-investment. Our findings indicate that DFIs provide higher concessionality for projects that have a higher sustainability impact per dollar invested. Moreover, the concessionality is higher for projects in countries with higher political risk and a higher degree of information asymmetries. In such cases, the blending tends to also include risk-management provisions. These findings are consistent with the predictions from our conceptual framework, in which DFIs have a limited budget that they allocate across projects to create societal value. |
| JEL: | G23 H41 O1 Q01 Q14 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32287&r=fdg |
| By: | Baessler, Laura; Gebhardt, Georg; Gropp, Reint; Güttler, André; Taskin, Ahmet |
| Abstract: | We investigate whether employees in Germany benefit from public bank guarantees in terms of employment probability and wages. To that end, we exploit the removal of public bank guarantees in Germany in 2001 as a quasi-natural experiment. Our results show that bank guarantees lead to higher employment, but lower wage prospects for employees after working in affected establishments. Overall the results suggest that employees do not benefit from bank guarantees. |
| Keywords: | bank guarantees, credit, employment, public banks, wages |
| JEL: | E24 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:287750&r=fdg |
| By: | Mikel Bedayo (Banco de España); Jorge E. Galán (Banco de España) |
| Abstract: | The countercyclical capital buffer (CCyB) has become a very important macroprudential tool to strengthen banks’ resilience. However, there is still limited evidence of its impact on lending over the cycle. Using data of 170 banks in 25 European Union countries, we provide a comprehensive assessment of how the CCyB release during the pandemic and its earlier accumulation impacted lending activity. We find that the CCyB has significant effects on lending, but that these effects are highly dependent on banks’ capitalization levels and, more importantly, on their headroom over regulatory requirements. We show that the release of the CCyB in response to the pandemic had a positive impact on lending, especially for banks with the lowest headroom over requirements, and that this effect was larger than the negative impact of its previous accumulation. While the CCyB accumulation had a short-term negative impact on lending for the most capital-constrained banks, this effect quickly diluted due to their enhanced solvency position, potentially allowing them to lower their cost of equity. Our results provide evidence of the benefits of the CCyB, especially in supporting lending during adverse events, while emphasising the need for policymakers to consider the heterogeneous effects across banks when deploying this tool. |
| Keywords: | bank credit, capital buffers, COVID-19, macroprudential policy, capital regulation |
| JEL: | C32 E32 E58 G01 G28 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2411&r=fdg |
| By: | Matthew S. Jaremski; Steven Sprick Schuster |
| Abstract: | The lack of universal deposit insurance coverage can create liquidity risk during financial crises. This aspect of deposit insurance is hard to test in modern data because of the broad coverage of most systems. We, therefore, study the role that the U.S. Postal Savings System played in commercial bank closures during the Great Depression. The system offered households a federally insured deposit account at post offices throughout the nation, and its structure provides a near-ideal environment to identify this competitive liquidity risk during a crisis. We find that banks that operated nearby a post office that accepted deposits were more likely to close between 1929 and 1935. We further make use of a structural change in the availability of postal depositories in the early 1910 to estimate an IV regression that confirms the results. In either model, the effect is strongest for those banks with low reserves, suggesting that the mechanism was through depositor withdrawals rather than other factors. |
| JEL: | G21 H42 N22 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32284&r=fdg |
| By: | Niels Johannesen |
| Abstract: | Offshore tax havens cause large losses of government revenue by facilitating tax evasion by wealthy individuals. This paper focuses on offshore tax evasion in developing countries and documents two empirical regularities. First, there is no clear development gradient in the exposure to offshore tax havens: a range of indicators suggests that wealth held in offshore tax havens, measured relative to the size of the economy, correlates only weakly with economic development. |
| Keywords: | Tax evasion, Tax havens, Offshore financial centres |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-15&r=fdg |
| By: | Jun Hee Kwak (Department of Economics, Sogang University, Seoul, Korea); Bada Han (InternationalMonetary Fund, Strategy, Policy, and Review Department); Jaeyoung Lee (Bank of Korea, Foreign ExchangeMarket Team) |
| Abstract: | In this paper, we estimate the causal effects of gross equity inflows into an open economy using the Granular Instrument Variable (GIV) constructed from regulatory data on foreign investments in the Korean stock market. We find that a one-standard-deviation increase in monthly foreign inflows into the Korean stock market results in approximately a 2.2% rise in the Korean benchmark stock price index and a 1.0% appreciation of the Korean won against the US dollar. These foreign inflows also lead to drops in short-term treasury bond rates and improvements in dollar funding conditions. Our empirical results are consistent with the InelasticMarket Hypothesis. |
| Keywords: | Foreign Investor, Capital Flow, Gross Equity Flow, Stock Price, Granular Instrument, InelasticMarket Hypothesis |
| JEL: | G12 G15 F31 F32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2307&r=fdg |
| By: | Jun Hee Kwak (Department of Economics, Sogang University, Seoul, Korea) |
| Abstract: | This study shows that corporate debt accumulation during credit booms can explain increases in sovereign risk during stress periods. Using detailed firmlevel database across six Eurozone countries, I construct granular instruments for aggregate corporate leverage. Instrumental variable regressions indicate that rising corporate leverage causally increases sovereign spreads in Eurozone countries during the debt crisis period of 2010-2012. This result provides the first empirical evidence on the causal link between corporate debt and sovereign debt crises. Additionally, firm-level evidence suggests that highly leveraged firms are likely to pay fewer taxes to the government, contributing to the rise in sovereign risk. |
| Keywords: | Financial Crisis, Corporate Debt, Sovereign Risk, Granular Instrument, Indentification |
| JEL: | F34 F41 G32 L11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2305&r=fdg |
| By: | Jun Hee Kwak (Department of Economics, Sogang University, Seoul, Korea) |
| Abstract: | I build a dynamic quantitative model in which both firms and the government can default. Rising endogenous corporate debt increases sovereign default risk, as tax revenues are expected to decrease. Externalities arise because it can be privately optimal but socially suboptimal for firms to default given their limited liability, rationalizing macroprudential interventions in corporate debt markets. I propose a set of such optimal policies that reduce the number of defaulting firms, increase fiscal space, and boost household consumption during financial crises. Contrary to conventional wisdom, countercyclical debt policy can be counterproductive, as the countercyclical policy induces more firmdefaults. |
| Keywords: | Sovereign Debt, Corporate Debt, Default, Macroprudential Policy, Externalities |
| JEL: | F34 F38 F41 E44 E61 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2306&r=fdg |
| By: | Angelo D’Andrea; Patrick Hitayezu; Mr. Kangni R Kpodar; Nicola Limodio; Mr. Andrea F Presbitero |
| Abstract: | Combining administrative data on credit, internet penetration and a land reform in Rwanda, this paper shows that the complementarity between technology and law can overcome financial frictions. Leveraging quasi-experimental variation in 3G availability from lightning strikes and incidental coverage, we show that mobile connectivity steers borrowers from microfinance to commercial banks and improves loan terms. These effects are partly due to the role of 3G internet in facilitating the acquisition of land titles from the reform, used as a collateral for bank loans and mortgages. We quantify that the collateral's availability mediates 35% of the overall effect of mobile internet on credit and 80% for collateralized loans. |
| Keywords: | Banks; Credit; High-speed Internet; Mobile; Technological Change |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/070&r=fdg |
| By: | Zixuan Huang; Ms. Amina Lahreche; Mika Saito; Ursula Wiriadinata |
| Abstract: | E-money development has important yet theoretically ambiguous consequences for monetary policy transmission, because nonbank deposit-taking e-money issuers (EMIs) (e.g., mobile network operators) can either complement or substitute banks. Case studies of e-money regulations point to complementarity of EMIs with banks, implying that the development of e-money could deepen financial intermediation and strengthen monetary policy transmission. The issue is further explored with panel data, on both monthly (covering 21 countries) and annual (covering 47 countries) frequencies, over 2001 to 2019. We use a two-way fixed effect estimator to estimate the causal effects of e-money development on monetary policy transmission. We find that e-money development has accompanied stronger monetary policy transmission (measured by the responsiveness of interest rates to the policy rate), growth in bank deposits and credit, and efficiency gains in financial intermediation (measured by the lending-to-deposit rate spread). Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion. This paper highlights the potential benefits of e-money development in strengthening monetary policy transmission, especially in countries with limited financial inclusion. |
| Keywords: | Monetary policy transmission; banks; nonbank financial institutions; e-money; panel data |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/069&r=fdg |
| By: | Pascal Paul; Mauricio Ulate; Jing Cynthia Wu |
| Abstract: | We develop a quantitative New Keynesian DSGE model to study the introduction of a central bank digital currency (CBDC): government-backed digital money available to retail consumers. At the heart of our model are monopolistic banks with market power in deposit and loan markets. When a CBDC is introduced, households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed. However, deposits also flow out of the banking system and bank lending contracts. We assess this welfare trade-off for a wide range of economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal interest rate that can be approximated by a simple rule of thumb: the maximum between 0% and the policy rate minus 1%. |
| Keywords: | central banks; digital currencies; banks; DSGE models; monetary policy; central bank |
| JEL: | E3 E4 E5 G21 G51 |
| Date: | 2024–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:98046&r=fdg |
| By: | Zan Fairweather (Reserve Bank of Australia); Denzil Fiebig (University of New South Wales); Adam Gorajek (Reserve Bank of Australia); Rochelle Guttmann (Reserve Bank of Australia); June Ma (Harvard University); Jack Mulqueeney (Reserve Bank of Australia) |
| Abstract: | This paper explores the merits of introducing a retail central bank digital currency (CBDC) in Australia, focusing on the extent to which consumers would value having access to a digital form of money that is even safer and potentially more private than commercial bank deposits. To conduct our exploration we run a discrete choice experiment, which is a technique designed specifically for assessing public valuations of goods without markets. The results suggest that the average consumer attaches no value to the added safety of a CBDC. This is consistent with bank deposits in Australia already being perceived as a safe form of money, and physical cash issued by the Reserve Bank of Australia continuing to be available as an alternative option. Privacy settings of a CBDC, which can take various forms, look more consequential for the CBDC value proposition. We find no clear relationship between safety or privacy valuations and the degree of consumers' cash use. |
| Keywords: | central bank digital currency; data privacy; financial safety; willingness to pay |
| JEL: | C90 E42 E50 G21 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2024-02&r=fdg |
| By: | Arina Wischnewsky |
| Abstract: | As economies transition towards digitalization, the shift from cash to noncash alternatives becomes increasingly relevant. While this trend is rapidly advancing in some countries, others continue to rely heavily on cash, underlining the need for central banks to measure and understand cash usage accurately. Numerous studies have attempted to explain the dynamics behind the declining—or, in some instances, paradoxically increasing—utilization of cash in conjunction with the rise of digital payment systems. Yet, the question of what fundamental factors influence cash use and how one might accurately formulate policies for a Central Bank Digital Currency (CBDC), particularly in a diverse European context, remains unanswered. This paper enriches the discourse on digital payment systems and cash usage by exploring the underlying influences on these phenomena. Notably, it provides new cross-country evidence on cultural and behavioral factors being pivotal in shaping these trends. This study is the first to reveal that (social) trust plays a crucial role in the global shift from cash reliance to digital economy integration, outlining a distinctive non-linear relationship between trust and cash usage. |
| Keywords: | cash use, digital transformation, culture, national mobile payment system, cashless societies, trust, monetary systems |
| JEL: | E41 O33 E42 C33 Z1 E7 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:202404&r=fdg |
| By: | Adam Brzezinski; Nuno Palma; François R. Velde |
| Abstract: | Debates about the nature and economic role of money are mostly informed by evidence from the 20th century, but money has existed for millennia. We argue that there are many lessons to be learned from monetary history that are relevant for current topics of policy relevance. The past acts as a source of evidence on how money works across different situations, helping to tease out features of money that do not depend on one time and place. A close reading of history also offers testing grounds for models of economic behavior and can thereby guide theories on how money is transmitted to the real economy. |
| Keywords: | monetary policy, monetary history, natural experiments, policy experiments, identification in macroeconomics |
| JEL: | E40 E50 N10 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:man:allwps:0004&r=fdg |
| By: | Fuchs, Larissa; Ngyuen, Huyen; Nguyen, Trang; Schaeck, Klaus |
| Abstract: | Does banking supervision affect borrowers' transition to the carbon-neutral economy? We use a unique identification strategy that combines the French bank climate pilot exercise with borrowers' carbon emissions to present two novel findings. First, climate stress tests actively facilitate borrowers' transition to a low-carbon economy through a lending channel. Stress-tested banks increase loan volumes but simultaneously charge higher interest rates for brown borrowers. Second, additional lending is associated with some improvements in environmental performance. While borrowers commit more to reduce carbon emissions and are more likely to evaluate environmental effects of their projects, they neither reduce direct carbon emissions, nor terminate relationships with environmentally unfriendly suppliers. Our findings establish a causal link between bank climate stress tests and borrowers' reductions in transition risk. |
| Keywords: | climate change, climate stress test, green finance, syndicated loans |
| JEL: | G21 G28 K11 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:287752&r=fdg |