nep-ban New Economics Papers
on Banking
Issue of 2014‒09‒05
24 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Deposit Interest Rate Ceilings as Credit Supply Shifters: Bank Level Evidence on the Effects of Regulation Q By Koch, Christoffer
  2. The Macroecnomics of Shadow Banking By Alexi Savov; Alan Moreira
  3. Quantitative easing and bank lending: a panel data approach By Joyce, Michael; Spaltro, Marco
  4. Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all? By Claudia Curi; Ana Lozano-Vivas; Valentin Zelenyuk
  5. Outside Lending in the NYC Call Loan Market By Moen, Jon R.; Tallman, Ellis W.
  6. Selling Failed Banks By Joao Granja; Gregor Matvos; Amit Seru
  7. Reforms, Incentives and Banking Sector Productivity: A Case of Nepal By Luintel, Kul B; Selim, Sheikh; Bajracharya, Pushkar
  8. Ownership, institutions and bank risk-taking in Central and Eastern European countries By Georgios Kouretas; Chris Tsoumas; Anastasios A. Drakos
  9. Maturity Transformation and Interest Rate Risk in Large European Bank Loan Portfolios By Galen Sher; Giuseppe Loiacono
  10. A Theory of Credit Scoring and Competitive Pricing of Default Risk By Dean Corbae
  11. Shadow banking dynamics and learning behaviour By Duc Pham-Hi
  12. Evidence for Relational Contracts in Sovereign Bank Lending By Peter Benczur; Cosmin L. Ilut
  13. Relaxing the Financial Constraint: The Impact of Banking Sector Reform on Firm Performance - Emerging Market Evidence from Turkey By Can Erbil; Kit Baum; Ferhan Salman
  14. House Prices, Capital Inflows and Macroprudential Policy By Maria Teresa Punzi; Caterina Mendicino
  15. Perverse Nudges: Minimum Payments and Debt Paydown in Consumer Credit Cards By Jialan Wang; Benjamin Keys
  16. The Spatial Probit Model – An Application to the Study of Banking Crises at the End of the 90’s By Victor Mendes; Andrea Amaral; Margarida Abreu
  17. Capital Flows and Financial Intermediation: is EMU different? By Bezemer, Dirk; Samarina, Anna
  18. Bank Crises and Sovereign Defaults in Emerging Markets: Exploring the Links By Balteanu, Irina; Erce, Aitor
  19. What Calls to ARMs? International Evidence on Interest Rates and the Choice of Adjustable-Rate Mortgages By Cristian Badarinza; John Y. Campbell; Tarun Ramadorai
  20. Modeling Financial Distress: The Case of Indonesian Banking Industry By Rinaldo Sjahril; Andry Priharta; Andi M. Alfian Parewangi; Hermiyetti
  21. The role of microfinance institutions in supporting women microenterprises in urban Sudan By Khadra Hassan Siddig; Mohamed Osman Hegazi
  22. Competitive Advantages and Performance of Banks in India In Post Reforms Period: Application of Diamond Theory By Medha Tapiawala
  23. Linking Distress of Financial Institutions to Macrofinancial Shocks By Filippo di Mauro; Alexander Al-Haschimi; Stephane Dees; Martina Jancokova
  24. Self-Selection into Credit Markets: Evidence from Agriculture in Mali By Lori Beaman; Dean Karlan; Bram Thuysbaert; Christopher Udry

  1. By: Koch, Christoffer (Federal Reserve Bank of Dallas)
    Abstract: Shocks emanating from and propagating through the banking system have recently gained interest in the macroeconomics literature, yet they are not a feature unique to the 2008/09 financial crisis. Banking disintermediation shocks occured frequently during the Great Inflation era due to fixed deposit rate ceilings. I estimate the effect of deposit rate ceilings inscribed in Regulation Q on the transmission of federal funds rate changes to bank level credit growth using a historic bank level data set spanning half a century from 1959 to 2013 with about two million observations. Measures of the degree of bindingness of Regulation Q suggest that individual banks’ lending growth was smaller the more binding the legally fixed rate ceiling. Interaction terms with monetary policy suggest that the policy impact on bank level credit growth was non-linear at the ceiling “kink” and significantly larger when rate ceilings were in place. At the bank level, short-term interest rates exceeding the legally fixed deposit rate ceilings identify bank loan supply shifts that disappeared with deposit rate deregulation and thus weakened the credit channel of monetary transmission since the early 1980s.
    Keywords: Monetary Transmission; Lending Channel; Regulation Q; Deregulation; Great Moderation
    JEL: E51 E52 E58 G18 G21
    Date: 2014–07–14
  2. By: Alexi Savov (New York University Stern School of Busi); Alan Moreira (Yale University)
    Abstract: We build a macroeconomic model of financial intermediation in which intermediaries issue equity without friction. In normal times, they maximize liquidity creation by levering up the collateral value of their assets, a process we call shadow banking. A rise in uncertainty causes investors to demand liquidity in bad states, which forces intermediaries to delever and substitute toward safe liabilities; shadow banking shuts down, prices and investment fall. The model produces slow economic recoveries, especially when intermediaries are highly-capitalized. It features collateral runs and flight to quality, and it provides a framework for analyzing unconventional monetary policy and regulatory reform proposals.
    Date: 2014
  3. By: Joyce, Michael (Bank of England); Spaltro, Marco (Morgan Stanley Investment Management)
    Abstract: Studies of the Bank of England’s quantitative easing (QE) policy have tended to focus on its impact on financial markets and the broader macroeconomy. Less attention has been given to the effect on banks’ balance sheets and bank lending. In this paper we use a new non-publicly available panel data set of UK banks to address this question. Based on the historical bank-level relationship between deposits and bank lending, our analysis suggests that the first round of the Bank’s QE purchases during 2009-10 may have led to a small but statistically significant increase in bank lending growth. These effects appear more important for small rather than large banks. Our evidence also suggests that QE had weaker effects on lending because of low levels of bank capital.
    Keywords: Banking; quantitative easing; panel data
    JEL: E52 G21
    Date: 2014–08–22
  4. By: Claudia Curi (Free University of Bolzano - Bozen, School of Economics and Management); Ana Lozano-Vivas (University of Malaga); Valentin Zelenyuk (School of Economics and Centre for Efficiency and Productivity Analysis, the University of Queensland)
    Abstract: Diversified and focused business models may affect foreign bank efficiency differently in branches or subsidiaries. We investigate whether there is a unique optimal business model in three dimensions: assets, funding and income. We apply recently developed bootstrap methods to estimate group efficiency separately for diversified and focused banks and to test for differences across groups. We further analyze the link between bank efficiency and bank-specific characteristics including diversification measures. Using Luxembourg bank data that includes the financial crisis, we find there is no unique business model as diversified and focused foreign banks coexist and compete in all three dimensions. The most efficient business model appears to be diversified with regard to assets and focused with respect to funding and income. Over time, we find a shift to more focused assets and funding but not income.
    Keywords: foreign banks, asset funding and income diversification, financial crisis, DEA group-efficiency, heterogeneous bootstrap
    JEL: C14 G21 G28 G32 G34
    Date: 2014–08
  5. By: Moen, Jon R. (Federal Reserve Bank of Cleveland); Tallman, Ellis W. (Federal Reserve Bank of Cleveland)
    Abstract: Before the Panic of 1907 the large New York City banks were able to maintain the call loan market’s liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. The lack of a lender of last resort for investment banks engaged in bank-like activities during the crisis of 2007-09 revealed a similar need for an external liquidity source.
    Keywords: Bank panic; stock market; credit rationing; rehypothecation
    JEL: G01 N21
    Date: 2014–08–27
  6. By: Joao Granja; Gregor Matvos; Amit Seru
    Abstract: We study the recent episode of bank failures and provide simple facts to better understand who acquires failed banks and which forces drive the losses that the FDIC realizes from these sales. We document three distinct forces related to the allocation of failed banks to potential acquirers. First, a geographically proximate bank is significantly more likely to acquire a failed bank: only 15% of acquirers do not have branches within the state. Sales are more local in regions with more soft information. Second, a failed bank is more likely to be purchased by a bank that has a similar loan portfolio and that offers similar services, highlighting the role of failed banks’ asset specificity. Third, low capitalization of potential acquirers decreases their ability to acquire a failed bank and potentially distorts failed bank allocation. The results are robust to restricting the data to actual bidders, confirming that they are not driven by auction eligibility criteria imposed by the FDIC. We relate these forces to FDIC losses from failed bank sales. We organize these facts using the fire sales framework of Shleifer and Vishny (1992). Our findings speak to recent policies that are predicated on the idea that a bank’s ability to lend is embodied in its collection of assets and employees and cannot be easily replaced or sold.
    JEL: E65 G18 G21
    Date: 2014–08
  7. By: Luintel, Kul B (Cardiff Business School); Selim, Sheikh (Cardiff Business School); Bajracharya, Pushkar
    Abstract: We model banks as profit-cum-utility maximizing firms and study, inter alia, bankers’ incentives (optimal effort) and incentive driven productivity following deregulations. Our model puts to test a panel of Nepalese commercial banks which went through deep financial reforms in the recent past. We find that (i) bankers’ efforts and productivity have notably improved in Nepal, (ii) bankers’ efforts significantly explain the banking sector’s productivity, (iii) the proportion of non-performing loans has considerably declined, and (iv) banking services have become costly, although the bank spread has moderately declined. Our approach is different from the widely used data envelopment analysis (DEA) of bank productivity, hence complements the literature. It also informs the current policy debate in Nepal where the Central Bank is seen to be geared towards regulating the financial system and micro-managing the banking institutions.
    Keywords: Reforms; incentives; productivity; panel integration; cointegration; simulation
    JEL: G21 G28 O43 O53
    Date: 2014–08
  8. By: Georgios Kouretas; Chris Tsoumas; Anastasios A. Drakos
    Abstract: In a recent line of research the low interest-rate environment of the early to mid 2000s is viewed as an element that triggered increased risk-taking appetite of banks in search for yield. This paper uses approximately 7,000 annual observations on banks of the CEE countries over the period 1997-2011. The econometrics anlysis is conducted with the use of an unbalanced panel data set. We use two alternative estimation methods: A Dynamic Fixed Effects IV panel data and the ArellanoBover/Blundell-Bond GMM panel estimation method Our preliminary result provide strong empirical evidence that low interest rates indeed increase bank risk-taking substantially. This result is robust across a number of different specifications that account, inter alia, for the potential endogeneity of interest rates and/or the dynamics of bank risk. Furthermore, we take into consideration the presence of a significant number of foreign banks that operate in the 11 CEE countries. The new institutional and regulatory framework that has been implemented in these economies as the final stage of the modernization of the banking sector is shown to provide important implication in the conduct of monetary policy and the existence of a risk-channel. On average a relatively low level of risk assets leads to a higher risk-taking behaviour by banks over the period under examination. Finally, the distributional effects of interest rates on bank risk-taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off-balance sheet items.
    Keywords: Central and Eastern European Countries, Monetary issues, Finance
    Date: 2013–06–21
  9. By: Galen Sher; Giuseppe Loiacono
    Abstract: Rationale and objective: The objective of this paper is to define the term "Maturity Transformation" and to measure the amount of interest rate risk arising from maturity transformation to which large European banks are exposed. Modeling approach and methodology: We collect balance sheet asset and liability data by maturity for the largest European banks, in more detail than is available from the major data providers. To these asset and liability exposures, we apply several methods for measuring interest rate repricing risk based on asset pricing models, including the latest Basel Committee guidelines. Preliminary/expected results: We are able to rank the banks in our sample based on measures of the interest rate risk of their loan portfolios using publicly available information. These risk measures are crucial for understanding the overall interest rate risk of banks, and for allowing supervisors, investors and customers to hold these institutions to account.
    Keywords: European Union, Finance, Microsimulation models
    Date: 2013–06–21
  10. By: Dean Corbae (University of Wisconsin)
    Abstract: We propose a theory of unsecured consumer credit where: (i) borrowers have the legal option to default; (ii) defaulters are not exogenously excluded from future borrowing; (iii) there is free entry of lenders; and (iv) lenders cannot collude to punish defaulters. In our framework, limited credit or credit at higher interest rates following default arises from the lender's optimal response to limited information about the agent's type and earnings realizations. The lender learns from an individual's borrowing and repayment behavior about his type and encapsulates his reputation for not defaulting in a credit score. We take the theory to data choosing the parameters of the model to match key data moments such as the overall and subprime delinquency rates. We test the theory by showing that our underlying framework is broadly consistent with the way credit scores affect unsecured consumer credit market behavior. The framework can be used to shed light on household consumption smoothing with respect to transitory income shocks and to examine the welfare consequences of legal restrictions on the length of time adverse events can remain on one's credit record.
    Date: 2014
  11. By: Duc Pham-Hi
    Abstract: Shadow "banks" are unidentified entities operating in the financial sphere, in different countries. Therefore their lending and borrowing activities must be based on some rationally determined interest rate. We make the hypothesis that it is determined by a Reinforced Learning process and try to model this behaviour alongside a classic CCLM/DSGE model. This is a follow-up from the presentation made at EcoMod July 2012 Seville "A Markov random model of Interbank Dynamics with Filtering and Learning". We go farther in the implementation of the model. Starting from a DSGE equilibrium, forward simulations are made using Sequential Monte Carlo and interacting particle systems technique. Loopbacks are made with RL equations implemented in a dozen of heterogenous agents as "shadow bankers", each with own set of utility preferences and learning capacities. Tentatively, it appears that in a interbank liquidity shortage environment, the "shadow entities" will split up into 2 categories according to risk aversion and learning speed and their own size. I will upload a first version of the paper in February.
    Keywords: Global EU, Modeling: new developments, Agent-based modeling
    Date: 2014–07–03
  12. By: Peter Benczur; Cosmin L. Ilut
    Abstract: This paper presents direct evidence for relational contracts in sovereign bank lending. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems on current spreads (a "punishment" effect in prices) from an indirect effect through higher expected future default probabilities ("loss of reputation"). Such a punishment provides positive surplus to lenders after a default and decreases the borrower's present discounted value of the net benefits of future borrowing, which create dynamic incentives. Using data on bank loans to developing countries between 1973-1981 and constructing continuous variables for credit history, we find evidence that most of the influence of past repayment problems is through the direct, punishment channel.
    JEL: C73 D86 F34 G12 G14 G15
    Date: 2014–08
  13. By: Can Erbil; Kit Baum; Ferhan Salman
    Abstract: We examine the impact of banking reform and financial crisis of 2001 on non-financial firm dynamics. Our analysis integrates the two lines of literature on financial liberalization, banking reform and access to capital and banking competition, which were addressed earlier by Bertrand, Schoar and Thesmar (2007) and Cetorelli and Strahan (2006). Our unique firm level survey data from Turkey sheds light on market structure and firm performance. We find that increased banking competition for credit along with banking concentration and financial crisis severely affects access to capital. Moreover, this effect is more pronounced with varying firm size. See above See above
    Keywords: Turkey, Finance, Finance
    Date: 2013–06–21
  14. By: Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business); Caterina Mendicino (Economics and Research Department, Bank of Portugal)
    Abstract: This paper evaluates the monetary and macroprudential policies that mitigate the procyclicality arising from the interlinkages between current account deficits and financial vulnerabilities. We develop a two-country dynamic stochastic general equilibrium (DSGE) model with heterogeneous households and collateralised debt. The model predicts that external shocks are important in driving current account deficits that are coupled with run-ups in house prices and household debt. In this context, optimal policy features an interest-rate response to credit and a LTV ratio that countercyclically responds to house price dynamics. By allowing an interest-rate response to changes in financial variables, the monetary policy authority improves social welfare, because of the large welfare gains accrued to the savers. The additional use of a countercyclical LTV ratio that responds to house prices, increases the ability of borrowers to smooth consumption over the cycle and is Pareto improving. Domestic and foreign shocks account for a similar fraction of the welfare gains delivered by such a policy.
    Keywords: house prices, financial frictions, global imbalances, saving glut, dynamic loan-to value ratios, monetary policy, optimized simple rules
    JEL: C33 E51 F32 G21
    Date: 2014–08
  15. By: Jialan Wang (Consumer Financial Protection Bureau); Benjamin Keys (University of Chicago)
    Abstract: What factors impact how much consumers repay on their credit cards each month? This paper examines the drivers of payment behavior using the CFPB credit card database, which includes the monthly account activity of a large fraction of U.S. consumers from 2008-2012. We find that consumers' payment behavior is consistent and strongly bimodal. Most accounts are either paid in full or paid near the minimum amount each month, with very few intermediate payment amounts. We then evaluate the impact of two types of policy changes: 1) changes in the minimum payment formulas implemented by individual issuers, and 2) new payment disclosures mandated by the CARD Act of 2010. The policy changes led to small increases in the payments made by consumers previously paying the minimum. On average, the CARD Act disclosures increased consumer payments by $19 per month from February 2010 to December 2012. However, both the formula changes and the CARD Act's 3-year payment disclosure had the perverse effect of decreasing the fraction of accounts paid in full by 1%. These findings are difficult to reconcile with rational economic models, and imply that setting suggested payments at low amounts lead some consumers to reduce their overall debt payments. Our results suggest that anchoring and the salience of minimum payments play an important role in the credit card market.
    Date: 2014
  16. By: Victor Mendes; Andrea Amaral; Margarida Abreu
    Abstract: We use a spatial Probit model to study the effect of contagion between banking systems of different countries on the probability of a systemic crisis in one county. Applied to the late 90’s banking crisis in Asia we show that the phenomena of contagion is better seized using a spatial than a traditional Probit model. Unlike the latter, the spatial Probit model allows one to consider the cascade of cross and feedback effects of contagion that result from the outbreak of one initial crisis in one country or system. These contagion effects may result either from business connections between institutions of different countries or from institutional similarities between banking systems The paper is structured as follows. The spatial Probit model is presented in section 2. In section 3 we discuss the dataset and variables used in the empirical application. Results are discussed (and compared with those from the traditional model) in section 4, while section 5 concludes the paper. The study of banking crisis through a traditional Probit model isn’t satisfactory. The results from the spatial Probit model are statistically more reliable, and more robust than those from the traditional model. If the observations are inter-related, the maximization of the usual likelihood function in the Probit model produces inconsistent and inefficient estimators. The estimates here obtained for the traditional Probit model are an example of it, and this lack of quality of the estimators and of reliability of the statistic inference probably explains why previous studies didn’t find any significant relationship between the occurrence of crises and the characteristics of the banking sector (Eichengreen and Rose 1998) or bank liquidity (Demirgüç-Kunt and Detragiache 1998b, Domaç and Peria 2003). Contagion is crucial to understanding the occurrence of systemic banking crises but the phenomenon may result from business connections between institutions or from similarities between banking systems. However, our results show little sensitivity to the proximity concept used, which could be a sign that the contagion channels are diverse. This is also, without a doubt, a sign of the robustness of the phenomenon of contagion.
    Keywords: developed and developing countries, Macroeconometric modeling, Monetary issues
    Date: 2014–07–03
  17. By: Bezemer, Dirk; Samarina, Anna (Groningen University)
    Abstract: The share of domestic bank credit allocated to non-financial business declined significantly in EMU economies since 1990. This paper examines the impact of capital inflows on domestic credit allocation, taking account of (future) EMU membership. The study utilizes a novel data set on domestic credit allocation for 38 countriesover 1990?2011 and data on capital inflows into the bank and non-bank sectors. We estimate panel models controlling for initial financial development, income level, inflation, interest rate, credit market deregulation and current account positions. The results suggest that the decline in the share of credit to non-financial business was significantly larger in (future) EMU economies which experienced more capital inflows into their non-bank sectors. We discuss implications.
    Date: 2014
  18. By: Balteanu, Irina (Bank of Spain); Erce, Aitor (European Stability Mechanism)
    Abstract: This paper provides a set of stylized facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define “twin crises” as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end up in sovereign debt crises, and vice-versa. We then assess what differentiates “single” episodes from “twin” ones. Using an event analysis methodology, we study the behavior around crises of variables describing the balance sheet interconnection between the banking and public sectors, the characteristics of the banking sector, the state of public finances, and the macroeconomic context. We find that there are systematic differences between “single” and “twin” crises across all these dimensions. Additionally, we find that “twin” crises are heterogeneous events: taking into account the proper time sequence of crises that compose “twin” episodes is important for understanding their drivers, transmission channels and economic consequences. Our results shed light on mechanisms surrounding feedback loops of sovereign and banking stress.
    Keywords: bank crises; sovereign debt
    JEL: E44 F34 G01 H63
    Date: 2014–06–01
  19. By: Cristian Badarinza; John Y. Campbell; Tarun Ramadorai
    Abstract: The relative popularity of adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) varies considerably both across countries and over time. We ask how movements in current and expected future interest rates affect the share of ARMs in total mortgage issuance. Using a nine-country panel and instrumental variables methods, we present evidence that near-term (one-year) rational expectations of future movements in ARM rates do affect mortgage choice, particularly in more recent data since 2001. However longer-term (three-year) rational forecasts of ARM rates have a weaker effect, and the current spread between FRM and ARM rates also matters, suggesting that households are concerned with current interest costs as well as with lifetime cost minimization. These conclusions are robust to alternative (adaptive and survey-based) models of household expectations.
    JEL: D14 E43 G21
    Date: 2014–08
  20. By: Rinaldo Sjahril; Andry Priharta; Andi M. Alfian Parewangi; Hermiyetti
    Abstract: To be completed To be completed To be completed
    Keywords: Indonesia, Finance, Finance
    Date: 2014–07–03
  21. By: Khadra Hassan Siddig; Mohamed Osman Hegazi
    Abstract: In this context, there is a need to assess the role of MFIs to the sustainable growth of women microenterprises, the promotion of entrepreneurship activities and reducing poverty in Sudan. These are therefore the objectives of this research, which in addition tries to investigate the level to which MFIs meet the financial needs of microenterprisesand to identify the MFIs’ challenges in serving microenterprises, taking the Khartoum State as a case. The study’s focus is on women with microenterprises or engaged in trading, production, and selling in the informal sector. Hence, the population of the study is the 104 thousand of the self-employed females in KS.350 respondents are selected and random sampling technique is applied considering location of project (market-based, home-based, and street sellers), locality (all KS localities, namely Omdorman, Karrari, Ombada, Khartoum, Jabalawlia, Bahri, Shargalneel) and type of activity (20 different activities are covered). Primary data are collected using a structured questionnaire and individual interviews held with female entrepreneurs in KS as well as by optical observation by visiting the respondents in their locations. Also to assess the performance of MFIs in Sudan,several MFIs are selected including the following: • Saving and Social Development Bank (SSDB) and Farmer Commercial Bank (FCB) as examples of banks providing microfinance; and • Youth Foundation for microfinance and the experience of “Amel” microfinance program, as examples of financial institution providing microfinance; Interviews were conducted with officials in these institutions and additional information was also obtainedfrom their reports.Secondary data are gathered from various sources including national surveys, censuses and previous studies. Both primary and secondary data are analysed using descriptive statistics and cross tabulation imbedded in Microsoft Excel. Major findings of the study show thatThe Central Bank of Sudan adopted the strategy of the microfinance and it opened an important path of social insurance, but the rate of the inflow of finance was less than the proposed rate of 12% of the inflow of finance, which was specified by the bank. It is also revealed thatthe reluctance of commercial banks to microfinance is due to the risks associated with microfinance and low returns. The findings of the survey reported that the lack of funds to finance investment or ongoing business operations is one of the main problems facing female entrepreneurs in Khartoum state. Results show that 63% of the women micro-entrepreneurs indicated that they didn’t take loans from banks or other financial institutions, while only 37% indicated that they took loans from banks or financial institutions. Nonetheless, all interviewees underlined their need for finance as a major constraint. Thosewho sought financial services from banks however are found to be satisfied and the majority confirmed that the funding helped them to succeed.Banks and funding institutions as well confirmed that, female entrepreneurs have succeeded in paying back their loans in due times with a repayment ratio of 74%among female entrepreneurs, which is considered high.
    Keywords: Sudan, Finance, Business cycles
    Date: 2014–07–03
  22. By: Medha Tapiawala
    Abstract: To be completed To be completed To be completed
    Keywords: India, Finance, Finance
    Date: 2014–07–03
  23. By: Filippo di Mauro; Alexander Al-Haschimi; Stephane Dees; Martina Jancokova
    Abstract: This paper links granular data of financial institutions to global macroeconomic variables using an infinite-dimensional vector autoregressive (IVAR) model framework. This framework is used to assess the impact of foreign macroeconomic shocks on default risks of euro area financial firms. In addition, the macroeconomic impact of firm-specific shocks is investigated. The approach taken nests a global VAR (GVAR) model, which allows an assessment of the two-way links between the financial system and the macroeconomy, while accounting for heterogeneity among financial institutions and the role of international linkages in the transmission of shocks. The model is estimated using macroeconomic data for 21 countries and default probability estimates for 35 euro area financial institutions. Overall, the results show that accounting for heterogeneity among firms is important for investigating the transmisson of shocks through the financial system. The model also captures the important role of international linkages, showing that macroeconomic shocks scaled to those observed following the Lehman bankruptcy generate a rise in firm-level default probabilities that is close to those observed during this time period. By linking a firm-level framework to a global model, the IVAR approach provides promising avenues for developing macro-prudential tools that can explicitly model spillover effects among a potentially large group of firms, while accounting for the two-way linkages between the financial sector and the macroeconomy, which were key transmission channels during the recent financial crisis.
    Keywords: European countries, Macroeconometric modeling, Finance
    Date: 2014–07–03
  24. By: Lori Beaman; Dean Karlan; Bram Thuysbaert; Christopher Udry
    Abstract: We partnered with a micro‐lender in Mali to randomize credit offers at the village level. Then, in no- loan control villages, we gave cash grants to randomly selected households. These grants led to higher agricultural investments and profits, thus showing that liquidity constraints bind with respect to agricultural investment. In loan-villages, we gave grants to a random subset of farmers who (endogenously) did not borrow. These farmers have lower – in fact zero – marginal returns to the grants. Thus we find important heterogeneity in returns to investment and strong evidence that farmers with higher marginal returns to investment self-select into lending programs.
    JEL: D21 D92 O12 O16 Q12 Q14
    Date: 2014–08

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