nep-ban New Economics Papers
on Banking
Issue of 2022‒03‒14
28 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. The Augmented Bank Balance-Sheet Channel of Monetary Policy By Christian Bittner; Diana Bonfim; Florian Heider; Farzad Saidi; Glenn Schepens; Carla Soares
  2. Financial Sustainability - Game Theory Analysis of Options Approach for a Czech Bank By Janda, Karel; Marek, Petr
  3. Caution: do not cross! Capital buffers and lending in Covid-19 times By Couaillier, Cyril; Lo Duca, Marco; Reghezza, Alessio; Rodriguez d’Acri, Costanza
  4. The real effects of FinTech lending on SMEs: evidence from loan applications By Ferreira, Miguel A.; Eça, Afonso; Prado, Melissa Porras; Rizzo, A. Emanuele
  5. The role of state-owned banks in crises: Evidence from German banks during COVID-19 By Li, Xiang
  6. The Role of Regulation and Bank Competition in Small Firm Financing: Evidence from the Community Reinvestment Act By Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
  7. Liquidation value and loan pricing By Barbiero, Francesca; Schepens, Glenn; Sigaux, Jean-David
  8. When uncertainty decouples expected and unexpected losses By Mikael Juselius; Nikola Tarashev
  9. Derivatives Holdings and Systemic Risk in the U.S. Banking Sector By Sergio Mayordomo; Maria Rodriguez-Moreno; Juan Ignacio Pe\~na
  10. Supply or Demand: What Drives Fluctuations in the Bank Loan Market? By Altavilla, Carlo; Boucinha, Miguel; Bouscasse, Paul
  11. What Happens When Banks Tighten C&I Loan Supply? By Andrew Castro; David P. Glancy; Felicia Ionescu; Greg Marchal
  12. How (Un-)Informed Are Depositors in a Banking Panic? A Lesson from History By Kristian S. Blickle; Markus K. Brunnermeier; Stephan Luck
  13. Drivers of Bank Supply of Business Loans By Andrew Castro; David P. Glancy; Felicia Ionescu
  14. Devaluations, Deposit Dollarization, and Household Heterogeneity By Francesco Ferrante; Nils Gornemann
  15. Balancing Before and After: Treasury Market Reform Proposals and the Connections Between Ex-Ante and Ex-Post Liquidity Tools By James A. Clouse
  16. Banking deregulation and consumption of home durables By Damar, H. Evren; Lange, Ian; McKennie, Caitlin; Moro, Mirko
  17. Keynote Remarks By Michael Held
  18. How to Limit the Spillover from the 2021 Inflation Surge to Inflation Expectations? By Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
  19. Pandemic Recession and Helicopter Money: Venice, 1629–1631 By Charles Goodhart; Donato Masciandaro; Stefano Ugolini
  20. Stress-ridden finance and growth losses: Does financial development break the link? By Martínez-Jaramillo, Serafín; Montañez-Enríquez, Ricardo; Ossandon Busch, Matias; Ramos-Francia, Manuel; Rodríguez-Martínez, Anahí; Sánchez-Martínez, Manuel
  21. Impact of Sustainable Finance on MSMEs and other Companies to Promote Green Growth and Sustainable development By K. M., Mahesh; Aithal, Sreeramana; Sharma, KRS
  22. Market-stabilization QE By Motto, Roberto; Özen, Kadir
  23. Central bank digital currency: A review and some macro-financial implications By Hongyi Chen; Pierre Siklos
  24. “Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium By Michael Böhm; Daniel Metzger; Per Strömberg
  25. Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms By Andrea Ajello; Nina Boyarchenko; Francois Gourio; Andrea Tambalotti
  26. Staatsbibliothek zu Berlin - Preußischer Kulturbesitz, Haus Potsdamer Straße ISBN 978-3-03943-597-5 By Huyền, Nguyễn Thanh Thanh
  27. Political science research on the reasons for the (non) adoption and (non) implementation of EMU reform proposals: The state of the art By Lindner, Vincent; Eckert, Sandra; Nölke, Andreas
  28. St. Louis Fed Chief James Bullard Interviewed by Wall Street Journal By James B. Bullard

  1. By: Christian Bittner (Bundesbank & Goethe University); Diana Bonfim (Banco de Portugal & Católica Lisbon); Florian Heider (ECB & CEPR); Farzad Saidi (University of Bonn & CEPR); Glenn Schepens (ECB); Carla Soares (Banco de Portugal)
    Abstract: This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use creditregistry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards.
    Keywords: transmission of monetary policy, bank lending, bank risk taking, bank balance sheets, euro-area heterogeneity
    JEL: E44 E52 E58 E63 F45 G20 G21
    Date: 2022–02
  2. By: Janda, Karel; Marek, Petr
    Abstract: This paper applies a model of bank run based on game theory analysis of options to the real world case of the Czech retail bank Air Bank a. s. We discuss the main factors affecting the susceptibility of Czech banks to bank run. We estimate the equity value which triggers bank run for Air Bank´s a. s. clients. We also simulate a possible bank run, using a liquidity stress test, which is similar to stress tests used by some European supervisory authorities. We provide alternative estimates of critical value of bank’s equity after the attainment of which depositors withdraw their deposits and by doing so trigger a bank run.
    Keywords: Bank run,liquidity,game theory,option pricing
    JEL: C72 G01 G21
    Date: 2022
  3. By: Couaillier, Cyril; Lo Duca, Marco; Reghezza, Alessio; Rodriguez d’Acri, Costanza
    Abstract: While regulatory capital buffers are expected to be drawn to absorb losses and meet credit demand during crises, this paper shows that banks were unwilling to do so during the pandemic. To the contrary, banks engaged in forms of pro-cyclical behaviour to preserve capital ratios. By employing granular data from the credit register of the European System of Central Banks, we isolate credit supply effects and find that banks with little headroom above regulatory buffers reduced their lending relative to other banks, also when controlling for a broad range of pandemic support measures. Firms’ inability to reallocate their credit needs to less constrained banks had real economic effects, as their headcount went down, although state guarantee schemes acted as partial mitigants. These findings point to some unintended effects of the capital framework which may create incentives for pro-cyclical behaviour by banks during downturns. They also shed light on the interactions between fiscal and prudential policies which took place during the pandemic. JEL Classification: E61, G01, G18, G21
    Keywords: bank lending, Buffer usability, coronavirus, credit register, macroprudential policy, MDA distance
    Date: 2022–02
  4. By: Ferreira, Miguel A.; Eça, Afonso; Prado, Melissa Porras; Rizzo, A. Emanuele
    Abstract: We show that FinTech lending affects credit markets and real economic activity using a unique data set of a Peer-to-Business platform for which we have the universe of loan applications. We find that FinTech serves high quality and creditworthy small businesses who already have access to bank credit. Firms use FinTech to obtain long-term unsecured loans and reduce their exposure to banks with less liquid assets, stable funds, and capital. We find that access to FinTech spurs firm growth, employment and investment relative to firms that get their loan application rejected. In addition, firms with access to FinTech increase leverage and substitute long-term bank debt with FinTech debt. Our findings suggest that FinTech allows firms to preserve financial flexibility, reduce their bank dependence and exposure to banking shocks. JEL Classification: G21, G23, O33
    Keywords: bank relationships, debt structure, FinTech, firm growth, small business lending
    Date: 2022–02
  5. By: Li, Xiang
    Abstract: By adopting a difference-in-differences specification combined with propensity score matching, we provide evidence using the microdata of German banks that stateowned savings banks have lent less than credit cooperatives during the COVID-19 crisis. In particular, the weaker lending effects of state-owned banks are pronounced for long-term and nonrevolving loans but insignificant for short-term and revolving loans. Moreover, the negative impact of government ownership is larger for borrowers who are more exposed to the COVID-19 shock and in regions where the ruling parties are longer in office and more positioned on the right side of the political spectrum.
    Keywords: bank credit,COVID-19,state-owned banks
    JEL: D72 G21 P16
    Date: 2022
  6. By: Panagiotis Avramidis; George Pennacchi; Konstantinos Serfes; Kejia Wu
    Abstract: This paper analyzes how bank regulation that promotes greater access to credit impacts the financing of targeted small firms. It develops a model where banks compete with trade creditors to fund small firms and applies it to study the effects of the Community Reinvestment Act (CRA). The empirical tests reveal that a CRA-induced increase in bank loans reduces small firms’ use of relatively expensive trade credit. The effect is more profound in low- and medium-income areas where financial constraints are tighter due to low bank competition. The effect is also larger for small firms that operate in trade credit-dependent industries.
    Keywords: Competition; Regulation; Trade credit; Small business loans
    JEL: G14 G21 L13 L50 L49
    Date: 2022–02–17
  7. By: Barbiero, Francesca; Schepens, Glenn; Sigaux, Jean-David
    Abstract: We show that the liquidation value of collateral depends on who is pledging it. We employ transaction-level data on overnight repurchase agreements (repo) and loan-level credit registry data on corporate loans. We find that borrowers on the repo market pay a 2.6 basis points rate premium when their default risk is positively correlated with the risk of the collateral that they pledge. The premium in corporate loan markets amounts to 25 basis points. Our results imply that liquidation value contains a component at the borrower-collateral level, and that lenders monitor and price-in the interdependency between borrower and collateral risk. JEL Classification: G21, G12, D53, D47, E43
    Keywords: collateral, corporate loans, LGD, money markets, wrong-way risk
    Date: 2022–02
  8. By: Mikael Juselius; Nikola Tarashev
    Abstract: A parsimonious extension of a well-known portfolio credit-risk model allows us to study a salient stylized fact – abrupt switches between high- and low-loss phases – from a risk-management perspective. As uncertainty about phase switches increases, expected losses decouple from unexpected losses, which reflect a high percentile of the loss distribution. Banks that ignore this decoupling have shortfalls of loss-absorbing resources, which is more detrimental if the portfolio is more diversified within a phase. Likewise, the risk-management benefits of improving phase-switch forecasts increase with diversification. The analysis of these findings leads us to an empirical method for comparing the degree of within-phase default clustering across portfolios.
    Keywords: expected loss provisioning, bank capital, unexpected losses, credit cycles, portfolio credit risk.
    JEL: G21 G28 G32
    Date: 2022–01
  9. By: Sergio Mayordomo; Maria Rodriguez-Moreno; Juan Ignacio Pe\~na
    Abstract: Foreign exchange and credit derivatives increase the bank's contributions to systemic risk. Interest rate derivatives decrease it. The proportion of non-performing loans over total loans and the leverage ratio have stronger impact on systemic risk than derivatives holdings.
    Date: 2022–02
  10. By: Altavilla, Carlo; Boucinha, Miguel; Bouscasse, Paul
    Abstract: We propose a new methodology to identify aggregate demand and supply shocks in the bank loan market. We present a model of sticky bank-firm relationships, estimate its structural parameters in euro area credit register data, and infer aggregate shocks based on those estimates. To achieve credible identification, we leverage banks’ exposure to various sectors’ heterogeneous liquidity needs during the COVID-19 Pandemic. We find that developments in lending volumes following the pandemic were largely explained by demand shocks. Fluctuations in lending rates were instead mostly determined by bank-driven supply shocks and borrower risk. A by-product of our analysis is a structural interpretation of two-way fixed effects regressions in loan-level data: according to our framework, firm- and bank-time fixed effects only separate demand from supply under certain parametric assumptions. In the data, the conditions are satisfied for supply but not for demand: bank-time fixed effects identify true supply shocks up to a time constant, while firm-time fixed effects are contaminated by supply forces. Our methodology overcomes this limitation: we identify supply and demand shocks at the aggregate and individual levels. JEL Classification: E51, G21, G32
    Keywords: credit demand, credit supply
    Date: 2022–02
  11. By: Andrew Castro; David P. Glancy; Felicia Ionescu; Greg Marchal
    Abstract: The supply of bank credit is an important driver of macroeconomic outcomes, with significant implications for employment and output (Basset et al., 2014; Chodorow-Reich, 2014). However, studying credit supply is not straightforward for several reasons.
    Date: 2022–02–18
  12. By: Kristian S. Blickle; Markus K. Brunnermeier; Stephan Luck
    Abstract: How informed or uninformed are bank depositors in a banking crisis? Can depositors anticipate which banks will fail? Understanding the behavior of depositors in financial crises is key to evaluating the policy measures, such as deposit insurance, designed to prevent them. But this is difficult in modern settings. The fact that bank runs are rare and deposit insurance universal implies that it is rare to be able to observe how depositors would behave in absence of the policy. Hence, as empiricists, we are lacking the counterfactual of depositor behavior during a run that is undistorted by the policy. In this blog post and the staff report on which it is based, we go back in history and study a bank run that took place in Germany in 1931 in the absence of deposit insurance for insight.
    Keywords: bank runs; deposit insurance; financial crises
    JEL: G2
    Date: 2022–02–17
  13. By: Andrew Castro; David P. Glancy; Felicia Ionescu
    Abstract: Numerous studies show that tightening loan supply may significantly affect credit outcomes, including declines in total lending capacity and changes in loan terms (see for example, Bassett et al. (2014), Castro et al. (2022), Lown and Morgan (2006)). Moreover, research has linked these supply-driven declines in credit to negative effects on economic outcomes, including employment or output (see Alfaro et al. (2021) or Herheknhoff (2019)).
    Date: 2022–02–22
  14. By: Francesco Ferrante; Nils Gornemann
    Abstract: We study the aggregate and re-distributive effects of currency devaluations in a small open economy heterogeneous households model with leverage-constrained banks. Our framework captures three stylized facts about liability dollarization in emerging economies: i) banks and firms borrow in foreign currency; ii) households save in dollar-denominated local bank deposits; and iii) such deposits are mainly held by wealthier households. The resulting currency mismatch causes an erosion of banks' net worth during a devaluation, depressing credit supply. The ensuing macroeconomic downturn is amplified by a strong reduction of consumption among poorer households in response to rising borrowing costs and falling labor income. Richer households are partially insured, as they are holding a larger share of their wealth in foreign currency denominated assets. We show that a larger currency hedging by wealthier households deepens the recession and amplifies the negative spillovers for poorer agents. When deposit dollarization is high, welfare gains can arise if monetary policy dampens a depreciation.
    Keywords: Dollarization; Currency Depreciation; Household Heterogeneity; Redistribution
    JEL: E21 F32 F41
    Date: 2022–02–16
  15. By: James A. Clouse
    Abstract: This paper develops a simple framework that helps to draw out some of the potential connections between ex-ante liquidity risk management tools such as liquidity requirements or mandatory fees and ex-post liquidity tools such as a lender of last resort. A central message of this analysis is that policy actions that expand the lender of last resort function so as to better address periods of financial distress are likely to be most effective when accompanied by regulations or other mechanisms that encourage socially-responsible ex-ante liquidity risk management on the part of financial firms. Regulation in the form of a liquidity coverage requirement can be helpful in moving private sector outcomes toward a social optimum. A mandatory fee schedule also emerges as a potentially very useful tool. The structure of the optimal fee schedule depends on both the scale of volatile liabilities and the extent of “liquidity coverage” maintained to cover potential funding shortfalls. Both liquidity requirements and mandatory fees can help to address a form of time consistency problem in connection with the provision of ex-post liquidity support through a lender of last resort. The framework also provides some potentially useful benchmarks in evaluating the distribution of liquidity risks across different classes of financial firms.
    Keywords: Lender of Last Resort; Liquidtiy Regulation; Treasury Market
    JEL: G21 G28 G23
    Date: 2022–02–10
  16. By: Damar, H. Evren; Lange, Ian; McKennie, Caitlin; Moro, Mirko
    Abstract: We exploit the spatial and temporal variation of the staggered introduction of interstate banking deregulation across the U.S. to study the relationship between credit constraints and consumption of durables. Using the American Housing Survey from 1981 to 1989, we link the timing of these reforms with evidence of a credit expansion and household responses on many margins. We find evidence that low-income households are more likely to purchase new appliances after the deregulation. These durable goods allowed households to consume less natural gas and spend less time in domestic activities after the reforms.
    Keywords: banking deregulation,credit constraints,energy consumption,durable goods
    JEL: D12 G2 Q41
    Date: 2022
  17. By: Michael Held
    Abstract: Remarks at the Union of Arab Banks' Conference on Anti-Bribery Corruption, the Sixth European Union Anti-Money Laundering Directive, and the Anti-Money Laundering Act of 2020 (delivered via videoconference).
    Keywords: governments; financial institutions; financial crimes; schemes; banks; corruption; Odebrecht; shell companies
    Date: 2022–02–03
  18. By: Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
    Abstract: By providing numerical inflation projections. Many central banks currently face inflation well above their targets and with that the challenge to prevent spillovers on inflation expectations. We study the effect of different communication about the 2021 inflation surge on German consumers' inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using information about inflation projections, where numerical information about professional forecasters' projections seems to reduce inflation expectations by more than policymaker’s characterization of inflation as a temporary phenomenon.
    Keywords: Short-run and long-run inflation expectations; inflation surge; randomized control trial; survey experiment; persistent or transitory in inflation shock
    JEL: E31 E52 E58 D84
    Date: 2022–02
  19. By: Charles Goodhart; Donato Masciandaro; Stefano Ugolini (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - UT2J - Université Toulouse - Jean Jaurès - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)
    Abstract: We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629–31, which was equivalent to a ‘net-worth helicopter money' strategy – a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.
    Keywords: Monetary policy,Helicopter money,Pandemic,Venice 1629-1631
    Date: 2022
  20. By: Martínez-Jaramillo, Serafín; Montañez-Enríquez, Ricardo; Ossandon Busch, Matias; Ramos-Francia, Manuel; Rodríguez-Martínez, Anahí; Sánchez-Martínez, Manuel
    Abstract: Does financial development shield countries from the pass-through of financial shocks to real outcomes? We evaluate this question by characterising the probability density of expected GDP growth conditional on financial stability indicators in a panel of 28 countries. Our robust results unveil a non-linear nexus between financial stability and expected GDP growth, depending on countries' degree of financial development. While both domestic and global financial factors affect expected growth, the effect of global factors is moderated by financial development. This result highlights a previously unexplored channel trough which financial development can break the link between financial (in)stability and GDP growth.
    Keywords: economic growth,financial development,financial stability,growth at risk
    JEL: G15 O16 O43
    Date: 2022
  21. By: K. M., Mahesh; Aithal, Sreeramana; Sharma, KRS
    Abstract: Purpose: Sustainable Finance (SF) contributes to better development and better Finance for Economic growth. Sustainable development is protecting and restoring the ecological system. SIDBI, NITI Aayog, and World Bank facilitate Sustainable Finance to encourage businesses to grow from Small Medium Enterprises to large Industries to make an enormous global impact. As per the World Bank estimate, adversely affect the standard of living of the population and climate change will reduce India’s GDP by nearly 3%. For tracking the climate protection performance of the country, the CCPI tool is used. The Key sustainable finance providers to companies and MSME’s are Banks, Corporations, International Financial Institutions, Institutional Investors, International organizations through Financial Instruments Climate Funds, Green Bonds, Impact Finance, Social bonds, Microfinance, SIDBI Sustainable Finance Scheme for funding, NABARD, and Make in India. MSMEs, and SMEs involved in the Projects Solar Power Plants, renewable energy, Green Machinery, Waste Management, Electric Vehicles (EV), Clean Energy, Recycle, Poverty alleviations, and Energy conservation, and India is committed to achieving Net Zero Emissions by 2070. During the Climate summit in Glasgow, India accepted for Five –Point climate ‘panchamrit, or pledge’ towards climate change and Climate Finance. As per the Environment ministry. India needs $280 billion for green infrastructure and the government of India proposed the creation of a Social Stock Exchange, Europe Investment Bank (EIB) with SBI. RBI has considered Green and Sustainable projects should be put under Priority Sector Lending (PSL) to support GE (Green Economy) growth and to meet the SDG (Sustainable Development Goals) and ESG (Economic, Social, Environment) guidelines for fundraising. Methodology / Design /Approaches: In this article theoretical concepts are used in the analysis of various financing Mechanics for green production and Sustainable development. Findings and results: The effectiveness of sustainable finance or Climate finance required for MSME and Companies for greener production infrastructure and government of India missions on climate Change, Regular to boost the ESG to promote sustainable development and Economic growth. Originality/value: Analysed the various articles and case studies and prepared the model required for sustainable fiancé for green growth in India.
    Keywords: ESG, Climate Finance, Financial Institutions, Green Bonds, Green Economy, MSME’s, RBI, SIDBI, Social Stock Exchange, Sustainable Development Goals (SGS’s), ABCD analysis
    JEL: H3 H32 L8 L84 O1 P4 R3
    Date: 2022–02–14
  22. By: Motto, Roberto; Özen, Kadir
    Abstract: We identify a novel dimension of monetary policy from high-frequency changes in asset prices around ECB policy events, orthogonal to surprises extracted from risk-free interest rates. We find that it is present in policy events that were interpreted by real-time market commentaries as containing information about asset purchase programmes aimed to stabilise financial markets and safeguard the monetary policy transmission by implementing asset purchases in a flexible manner across asset classes and euro area countries. We label this dimension of policy “market-stabilization QE” to contrast it with conventional QE programmes such as the APP launched by the ECB in 2015 aimed to extract duration risk. When including our market-stabilization QE, the R2 for the regression of sovereign yields during the sovereign debt crisis increases by about 50 percentage points and the one of the stock market by 35 percentage points; during the COVID-19 pandemic by 25 and 15 percentage points, respectively. Although it moves euro area stressed-country sovereign yields down and German sovereign yields up as a result of the reversal of flight-to-safety dynamics, it generates strong expansionary macroeconomic effects in all euro area countries including Germany. JEL Classification: E43, E44, E52, E58, E65, G01, G14
    Keywords: Central Bank Communication, COVID-19 pandemic, European debt crisis, monetary policy shocks, unconventional monetary policies
    Date: 2022–02
  23. By: Hongyi Chen; Pierre Siklos
    Abstract: Central Bank Digital Currency (CBDC) has attracted considerable interest and its deployment on a global scale is imminent. However, digital currencies face several challenges. They include: legal, technological, and political considerations. We summarize those challenges and add a few more that have not received much attention in the literature. We then consider two forms of CBDC: a narrow version that only replaces notes and coins and a broader form with a deposit feature. The narrow CBDC is the most likely one to be first introduced. Next, relying on evidence of past episodes of financial innovation, and using cross-country data, we explore the hypothetical impact of CBDC on inflation and financial stability, based on the historical behaviour of the velocity of circulation and incorporating a CBDC’s impact in McCallum’s policy rule which defines the stance of monetary policy based on money growth. Our simulations suggest that CBDC need not produce higher inflation, but financial stability remains at risk. We provide some policy implications.
    Keywords: Central Bank Digital Currency, Velocity, Money Demand, Monetary Policy, McCallum Rule
    JEL: O31 O33 E41 E42 E51 E52
    Date: 2022–01
  24. By: Michael Böhm (University of Bonn, IZA, and Swedish House of Finance); Daniel Metzger (Erasmus University of Rotterdam, SHoF, ECGI, and Financial Markets Group); Per Strömberg (Stockholm School of Economics(SSE), SHoF, ECGI, and CEPR)
    Abstract: Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about “brain drain” into finance but suggest that finance workers have captured rising rents over time.
    Keywords: Industry Wage Premia; Talent Allocation; Rent Sharing; Earnings Inequality; Compensation in Financial Sector
    JEL: J24 J31 G20
    Date: 2022–02
  25. By: Andrea Ajello; Nina Boyarchenko; Francois Gourio; Andrea Tambalotti
    Abstract: This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit provision, lowers asset prices, and depresses economic activity and inflation. Finally, monetary policy may affect the buildup of vulnerabilities, but the sign of the impact along some of its transmission channels is theoretically ambiguous and may vary with the state of the economy.
    Keywords: monetary policy; financial stability; credit; leverage; liquidity; asset prices
    JEL: E44 E52 E58 G2
    Date: 2022–02–01
  26. By: Huyền, Nguyễn Thanh Thanh
    Abstract: The advent of the fourth industrial revolution, Industry 4.0, brings about both opportunities and challenges that are likely to set developed economies even farther apart from emerging economies. This book, through the perspective of researchers in the emerging markets, presents analyses on a number of issues important to entrepreneurial finance, such as debt financing, mergers and acquisitions, stock market efficiency, resource allocation and consumption, and sustainable development. It aims at improving our understanding of the financing needs as well as the financial risks involved in entrepreneurial endeavors in less-developed settings in the new era.
    Date: 2022–01–02
  27. By: Lindner, Vincent; Eckert, Sandra; Nölke, Andreas
    Abstract: There have been numerous attempts to reform the Economic and Monetary Union (EMU) after the Great Recession, however the reform success varies greatly among sub-fields. Additionally, the political science research community has engaged a diverse set of theory- driven explanations, causal mechanisms, and variables to explain respective reform success. This article takes stock of reform policies in the EMU from two angles. First, it outlines distinct theoretical approaches that seek to explain success and failure of reform proposals and second, it surveys how they explain policy output and policy outcome in four policy subfields: financial stabilization, economic governance, financial solidarity, and cooperative dissolution. Finally, the article develops a set of explanatory factors from the existing literature that will be used for a Qualitative Comparative Analysis (QCA).
    Keywords: Economic and Monetary Union,European integration,neoinstitutionalism,political economy,European Banking Union,European Capital Markets Union,economic governance,fiscal solidarity,policy reform
    Date: 2022
  28. By: James B. Bullard
    Abstract: Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank should start raising interest rates “sooner rather than later,” and that he sees a March rate rise as likely amid high inflation. He also said a strong job market could push the unemployment rate to under 3% this year, during an interview with The Wall Street Journal’s Michael S. Derby on Wednesday.
    Keywords: interest rates; inflation; labor market; unemployment
    Date: 2022–01–12

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