nep-ban New Economics Papers
on Banking
Issue of 2022‒07‒25
thirty papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Interest Rate Caps in an Economy with Formal and Informal Credit Markets By Jorge Pozo
  2. Climate Change-Related Regulatory Risks and Bank Lending By Mueller, Isabella; Sfrappini, Eleonora
  3. The shifts and the shocks: bank risk, leverage, and the macroeconomy By Kuvshinov, Dmitry; Richter, Björn; Zimmermann, Kaspar
  4. The Big Tech Lending Model By Lei Liu; Guangli Lu; Wei Xiong
  5. The Impact of Minority Representation at Mortgage Lenders By W. Scott Frame; Ruidi Huang; Erik J. Mayer; Adi Sunderam
  6. Tracking Economic and Financial Policies During COVID-19: An Announcement-Level Database By Ms. Prachi Mishra; Mr. Divya Kirti; Yang Liu; Jan Strasky; Soledad Martinez Peria
  7. Early warning models for systemic banking crises: can political indicators improve prediction? By Tran Huynh; Silke Uebelmesser
  8. When It Rains, It Pours: Cyber Risk and Financial Conditions By Thomas M. Eisenbach; Anna Kovner; Michael Junho Lee
  9. Trade debts and bank lending in years of crisis By Davide Dottori; Giacinto Micucci; Laura Sigalotti
  10. Potential netting benefits from expanded central clearing in Canada’s fixed-income market By Jessie Ziqing Chen; Johannes Chen; Shamarthi Ghosh; Manu Pandey; Adrian Walton
  11. A stress testing framework for the Maltese household sector By Kirsten Abela; Ilias Georgakopoulus
  12. The credit channel of monetary transmission in the US: Is it a bank lending channel, a balance sheet channel, or both, or neither? By Sophocles N. Brissimis; Michalis-Panayiotis Papafilis
  13. A model of system-wide stress simulation: market-based finance and the Covid-19 event By di Iasio, Giovanni; Alogoskoufis, Spyridon; Kördel, Simon; Kryczka, Dominika; Nicoletti, Giulio; Vause, Nicholas
  14. Regulatory complexity, uncertainty, and systemic risk: are regulators hedgehogs or foxes? By Maurizio Trapanese
  15. Statistics for economic analysis: the experience of the Bank of Italy By Giovanni D’Alessio; Riccardo De Bonis; Matteo Piazza; Luigi Infante; Giorgio Nuzzo; Silvia Sabatini; Francesca Zanichelli; Romina Gambacorta; Guido de Blasio; Stefano Federico; Juri Marcucci; Laura Bartiloro; Elena San Martini
  16. Progress toward resolvability to address TBTF problem:10-year milestone since "Key Attributes" By Financial System and Bank Examination Department; Supervision Bureau; Research and International Affairs Department
  17. Policy Nimbleness Through Forward Guidance By Mary C. Daly
  18. Lessons Learned from Mortgage Borrower Policies and Outcomes during the COVID-19 Pandemic By Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
  19. Household Expectations and Dissent Among Policymakers By Moritz Grebe; Peter Tillmann
  20. Quantitative Easing and Credit Rating Agencies By Nordine Abidi; Matteo Falagiarda; Ixart Miquel-Flores
  21. The Business Leaders’ Pulse—An Online Business Survey By Tony Chernis; Chris D'Souza; Kevin MacLean; Tasha Reader; Joshua Slive; Farrukh Suvankulov
  22. Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel By Austin Adams; Markus F. Ibert
  23. Gold, Bitcoin, and Portfolio Diversification: Lessons from the Ukrainian War By Kim Oosterlinck; Ariane Reyns; Ariane Szafarz
  24. The weaponization of global payment infrastructures: A strategic dilemma By Nölke, Andreas
  25. Financial and Macroeconomic Indicators of Recession Risk By Michael T. Kiley
  26. Income Inequality and Job Creation By Sebastian Doerr; Thomas Drechsel; Donggyu Lee
  27. Agent-Based Modeling in Economics and Finance: Past, Present, and Future By Farmer, J. Doyne; Axtell, Robert L.
  28. Experiments in Finance – A Survey of Historical Trends By Christoph Huber; Michael Kirchler
  29. The reconstruction of back data for Italy’s balance of payments and international investment position (1945-1969) By Enrico Tosti
  30. People Are Less Risk-Averse than Economists Think By Ali Elminejad; Tomas Havranek; Zuzana Irsova

  1. By: Jorge Pozo (Central Reserve Bank of Peru)
    Abstract: In this work, we aim to study the implications of the interest rate cap in an emerging economy. To do so we develop a two-period banking model with entrepreneurs that undertake risky projects and with formal and informal lenders. Entrepreneurs are heterogeneous in their level of net worth. We find that a cap on the lending interest rate excludes entrepreneurs with a low level of net worth, which in turn increases the participation of the informal credit market, but also might reduce bank markups increasing entrepreneurs' welfare. As a result, our model implies that the lower the market power of banks, the smaller the likelihood that the cap might have some positive impact on aggregate credit and investment.
    Keywords: Interest rate cap; Informal credit market; monopoly banks
    JEL: E5 G21 G23
    Date: 2022–07–08
  2. By: Mueller, Isabella; Sfrappini, Eleonora
    Abstract: We identify the effect of climate change-related regulatory risks on credit real-location. Our evidence suggests that effects depend borrower's region. Following an increase in salience of regulatory risks, banks reallocate credit to US frms that could be negatively impacted by regulatory interventions. Conversely, in Europe, banks lend more to firms that could benefit from environmental regulation. The effect is moderated by banks' own loan portfolio composition. Banks with a portfolio tilted towards firms that could be negatively a affected by environmental policies increasingly support these firms. Overall, our results indicate that financial implications of regulation associated with climate change appear to be the main drivers of banks' behavior. JEL Classification: G21, Q51, Q58
    Keywords: climate change, climate risk, credit reallocation, Paris Agreement
    Date: 2022–06
  3. By: Kuvshinov, Dmitry; Richter, Björn; Zimmermann, Kaspar
    Abstract: This paper studies the long-run evolution of bank risk and its links to the macroeconomy. Using data for 17 advanced economies, we show that the riskiness of bank assets declined materially between 1870 and 2016. But even though bank assets have become safer, the losses on these assets are associated with increasingly large output gaps. Before 1945, bank asset returns had no excess predictive power for future economic activity, while after 1945 they have outperformed non-financials as a predictor of GDP. We provide evidence linking this increasing connectedness between banks and the macroeconomy to secular increases in financial and macroeconomic leverage. JEL Classification: G01, G15, G21, E44, N20, O16
    Keywords: banking crises, bank risk, leverage, long-run trends, macro-financial linkages
    Date: 2022–06
  4. By: Lei Liu; Guangli Lu; Wei Xiong
    Abstract: By comparing uncollateralized business loans made by a big tech lending program with conventional bank loans, we find that big tech loans tend to be smaller and have higher interest rates and that borrowers of big tech loans tend to repay far before maturity and borrow more frequently. These patterns remain for borrowers with access to bank credit. Our findings highlight the big tech lender’s roles in serving borrowers’ short-term liquidity rather than their long-term financing needs. Through this model, big tech lending facilitates credit to borrowers underserved by banks without experiencing more-severe adverse selection or incurring greater risks than banks (even during the COVID-19 crisis).
    JEL: G23
    Date: 2022–06
  5. By: W. Scott Frame; Ruidi Huang; Erik J. Mayer; Adi Sunderam
    Abstract: We study links between the labor market for loan officers and access to mortgage credit. Using novel data matching the (near) universe of mortgage applications to loan officers, we find that minorities are significantly underrepresented among loan officers. Minority borrowers are less likely to complete mortgage applications, have completed applications approved, and to ultimately take-up a loan. These disparities are significantly reduced when minority borrowers work with minority loan officers. Minority borrowers working with minority loan officers also have lower default rates. Our results suggest that minority underrepresentation among loan officers has adverse effects on minority borrowers’ access to credit.
    Keywords: mortgages; race; loan officers; approval; default
    JEL: G21 G51 J15
    Date: 2022–06–21
  6. By: Ms. Prachi Mishra; Mr. Divya Kirti; Yang Liu; Jan Strasky; Soledad Martinez Peria
    Abstract: We introduce a new comprehensive announcement-level database tracking the extraordinary fiscal, monetary, prudential, and other policies that countries adopted in response to Covid-19. The database provides detailed information, including sizes where available, for 28 granular policies adopted by 74 countries during 2020. About 5,500 policy measures were announced during this period. Importantly, the database is organized and presented in a format easy for researchers to use in empirical analyses. Announcements were highly correlated across the broad fiscal, monetary, and prudential categories and at more granular levels. Advanced economies (AEs) introduced larger fiscal measures than emerging and developing economies (EMDEs) and relied primarily on large unconventional monetary policies. Bank capital requirements were relaxed widely in both AEs and EMs, while relaxation of provisioning requirements was more common among EMs. Supervisory expectations and reporting requirements were widely relaxed.
    Keywords: Monetary policy; Fiscal policy; Macroprudential policy; Covid-19; Advanced economies; policy measure; bank capital requirement; granular policy; asset purchase; Reserve requirements; Central bank policy rate; Countercyclical capital buffers; Global
    Date: 2022–06–03
  7. By: Tran Huynh (Friedrich Schiller University Jena); Silke Uebelmesser (Friedrich Schiller University Jena and CESifo)
    Abstract: This study provides the first attempt to evaluate whether a logit early warning system (EWS) for systemic banking crises can produce better predictions when political indicators are used alongside traditional macro-financial indicators. Based on a dataset covering 32 advanced economies for the period 1975-2017, we show that the inclusion of political indicators helps improve the predictive performance of the model. While the improvement is small, it is statistically significant and consistent for several different performance measures and robustness tests. Among the newly employed political variables, variables indicating the political ideology of the ruling party and the time in office of the incumbent chief executive show significant correlations with the likelihood of systemic banking crises. The results suggest that a systemic banking crisis is less likely when the government is left-wing and when the chief executive officer has been in office longer.
    Keywords: early warning systems, systemic banking crises, vulnerability, political indicators, macro-financial indicators
    JEL: C35 C53 E60 F37 G01 G28
    Date: 2022–06–24
  8. By: Thomas M. Eisenbach; Anna Kovner; Michael Junho Lee
    Abstract: We analyze how systemic cyber risk in the wholesale payments network relates to adverse financial conditions. We show that at the onset of the COVID-19 pandemic, payment activity increased, became more concentrated, and showed intraday liquidity stress. Cyber vulnerability was elevated in late February and early March 2020, with the potential impact of a cyberattack about 40 percent greater than in the remainder of 2020. Policy interventions to stabilize markets mitigated cyber vulnerability, particularly corresponding to large increases in aggregate reserves. We observe that cyber vulnerability and other financial shocks cannot be treated as uncorrelated risks and policy solutions for cyber security need to be calibrated for adverse financial conditions.
    Keywords: cyber; banks; networks; payments; COVID-19
    JEL: G12 G21 G28
    Date: 2022–06–01
  9. By: Davide Dottori (Bank of Italy); Giacinto Micucci (Bank of Italy); Laura Sigalotti (Bank of Italy)
    Abstract: This paper provides an empirical investigation of the substitution hypothesis between trade indebtedness and bank loans, based on a sample of 245,000 Italian firms for the period 2010-15, when episodes of bank credit contraction occurred. The econometric approach is based on a shift-and-share IV strategy aimed at isolating the causal effect of bank credit supply shocks on trade indebtedness. We find a significant negative elasticity of trade debt to bank loans, consistent with the pecking order theory, according to which firms prefer bank debt to (more costly) trade debt and an exogenous reduction in the former spurs the use of the latter. This substitution allows firms to rebalance their financial structure, thus increasing their resilience to external credit shocks. However, we find heterogeneity at geographical level: a significant substitution effect is estimated only for Central and Northern firms; in the South and Islands the financial structure of firms, which tend to rely more on trade debt, consequently appears more vulnerable to external credit shocks. Heterogeneity also seems to occur along other dimensions, suggesting no significant substitutability for smaller, riskier and highly leveraged firms.
    Keywords: Trade debt, bank credit supply, Mezzogiorno
    JEL: D22 G01 G30
    Date: 2022–06
  10. By: Jessie Ziqing Chen; Johannes Chen; Shamarthi Ghosh; Manu Pandey; Adrian Walton
    Abstract: We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants.
    Keywords: Credit risk management; Financial institutions; Financial markets
    JEL: D4 G1 G12 G2 G21 G29
    Date: 2022–06
  11. By: Kirsten Abela; Ilias Georgakopoulus (Central Bank of Malta)
    Abstract: This paper outlines a stress testing framework for the household sector in Malta based on micro data. The analysis depends on granular data relating to income, expenses, and the value of liquid assets from the third wave of the Household Finance and Consumption Survey and assesses the financial resilience of households to macro-financial shocks. Households’ vulnerability is evaluated based on probabilities of default, while loan losses to banks are quantified by means of the exposure at default and loss given default. The analysis examines the impact of four adverse shocks separately: a rise in interest rates, an increase in the unemployment rate, a fall in real estate prices, and a fall in the value of liquid assets. The results indicate that: (i) households are most vulnerable to potential interest rate shocks, (ii) Maltese households have an ample amount of liquid assets that can cover their losses, and (iii) potential loans losses to banks stemming from the household sector are limited. Lastly, to simulate unfavourable economic conditions, the individual shocks are assessed simultaneously by producing two combined stress test scenarios. It is found that the combined high-scale scenario results in a higher impact on the financial vulnerability metrics, but the effects are contained.
    JEL: D14 E44 G01 G21
    Date: 2022
  12. By: Sophocles N. Brissimis (University of Piraeus and Bank of Greece); Michalis-Panayiotis Papafilis (University of Piraeus)
    Abstract: We develop a theoretical framework that extends the Bernanke and Blinder (1988) model to incorporate imperfect substitution between internal and external finance of firms in order to study the operation of both the bank lending and the balance sheet channels of monetary transmission in the US. Our model is used to quantify the financial accelerator effects due to the operation of these channels. Empirically, we employ multivariate cointegration techniques to identify the equilibrium relationships included in our model, and we provide evidence that only the balance sheet channel is operational for the period before and after the global financial crisis.
    Keywords: Monetary transmission mechanism; bank lending channel; balance sheet channel; financial structure; multivariate cointegration
    JEL: C32 C52 E44 E51 E52
    Date: 2022–07
  13. By: di Iasio, Giovanni; Alogoskoufis, Spyridon; Kördel, Simon; Kryczka, Dominika; Nicoletti, Giulio; Vause, Nicholas
    Abstract: We build a model to simulate how the euro area market-based financial system may function under stress. The core of the model is a set of representative agents reflecting key economic sectors, which interact in asset, funding, and derivatives markets and face solvency and liquidity constraints on their behaviour. We illustrate the model's behaviour in a two-layer approach. In Layer 1 the deterioration in the outlook for the corporate sector triggers portfolio reallocation by the model's agents. Layer 2 adds a rating downgrade shock where a fraction of investment grade corporate bonds is downgraded to high yield, which creates further rebalancing pressure and price movements. The model predicts (i) asset flows (buying and selling of marketable securities) across agents and (ii) balance sheet losses. It also provides quantitative evidence on equilibrium effects of the macroprudential regulation of nonbanks, which we illustrate by varying investment fund cash buffers. JEL Classification: G17, G21, G22, G23
    Keywords: COVID-19, market-based finance, stress testing, systemic risk
    Date: 2022–06
  14. By: Maurizio Trapanese (Banca d'Italia)
    Abstract: This paper explores the relationship between regulatory complexity and systemic risk. Building upon the distinction between measurable risk and uncertainty, it outlines the fundamentals of the main regulatory frameworks of the last two decades (with a focus on the Basel Accords). The resulting outcome in terms of excessively regulatory complexity might turn out to be costly, and sub-optimal for crisis prevention. Since modern finance is characterized by uncertainty (rather than risk), less complex rules could be given greater consideration. Rebalancing regulation towards simplicity may produce Pareto-improving solutions, and encourage better decision making by authorities and regulated entities. However, addressing systemic risk in a complex financial system should not entail the replacement of overly complex rules with overly simple or less stringent regulations. The challenge is to define criteria and methods to assess the degree of unnecessary complexity in regulation. To this end, the paper proposes some options affecting the content of the rules, the regulatory policy mix for certain financial sectors, as well as the rulemaking process.
    Keywords: economic theory, uncertainty, financial crises, financial regulation
    JEL: B20 D81 G01 G28
    Date: 2022–06
  15. By: Giovanni D’Alessio (Bank of Italy); Riccardo De Bonis (Bank of Italy); Matteo Piazza (Bank of Italy); Luigi Infante (Bank of Italy); Giorgio Nuzzo (Bank of Italy); Silvia Sabatini (Bank of Italy); Francesca Zanichelli (Bank of Italy); Romina Gambacorta (Bank of Italy); Guido de Blasio (Bank of Italy); Stefano Federico (Bank of Italy); Juri Marcucci (Bank of Italy); Laura Bartiloro (Bank of Italy); Elena San Martini (Bank of Italy)
    Abstract: The paper provides an overview of the main statistics produced by the Bank of Italy: financial accounts, monetary statistics, balance of payments, household and business surveys. The volume discusses the problems related to the measurement of economic phenomena, how statistics can be used for policy evaluation, the challenges for official statistics posed by globalization, the digital economy and big data. Finally, we show the policy adopted by the Bank of Italy for the dissemination of statistics and the role of the Research Data Center.
    Keywords: central bank statistics, financial accounts, monetary and banking statistics, balance of payment, household surveys, business surveys, financial literacy, policy evaluation, official statistics, globalization, digital economy, big data, dissemination
    JEL: C40 C80
    Date: 2022–06
  16. By: Financial System and Bank Examination Department (Bank of Japan); Supervision Bureau (Financial Services Agency); Research and International Affairs Department (Deposit Insurance Corporation of Japan)
    Abstract: The Global Financial Crisis once again highlighted the "too big to fail" problem for systemically important financial institutions, and regulatory reforms since then have been implemented to address the issue. In this report, we focus on the resolution of global systemically important banks (G-SIBs) and highlight the progress since 2011, when the Financial Stability Board (FSB) set out the key elements of effective resolution regimes ("Key Attributes"). Over the past decade, the financial authorities in Japan and Japanese G-SIBs have cooperated to develop public regimes in Japan, build the internal framework in G-SIBs toward resolvability, and ensure effectiveness of the regimes. It is important to prepare for the next potential financial crisis when the financial system is stable, and the financial authorities in Japan will continue to make steady progress on this issue.
    Date: 2022–06–22
  17. By: Mary C. Daly
    Abstract: Presentation at Shadow Open Market Committee Conference, Chapman University, Orange, CA, June 24, 2022, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco.
    Keywords: covid19; monetary policy; inflation; Ukraine war
    Date: 2022–06–24
  18. By: Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
    Abstract: This article reviews the aid offered to the roughly 50 million homeowners with mortgages included in a forbearance program, and the Federal Reserve’s actions that pushed down mortgage rates, allowing many mortgage holders to reduce their monthly payments by refinancing. We deem these policies to be quite effective in relieving financial distress and allowing homeowners to stay in their homes, especially in contrast with the policies pursued during the Great Recession. We emphasize that these policies in part worked because of rising housing prices and home equity, before and during the pandemic, and note that such conditions might not hold in future downturns. We observe that minority mortgage borrowers were much more likely to miss mortgage payments, so forbearance was particularly important to them. Black and Hispanic borrowers, however, were less likely than white or Asian borrowers to refinance.
    Keywords: mortgage refinancing; mortgage repayment; home equity; racial inequality
    JEL: G21 G51 E52 J15
    Date: 2022–07–07
  19. By: Moritz Grebe (University of Giessen); Peter Tillmann (University of Giessen)
    Abstract: This paper studies the impact of dissent in the ECB's Governing Council on uncertainty surrounding households' inflation expectations. We conduct a randomized controlled trial using the Bundesbank Online Panel Households. Participants are provided with alternative information treatments concerning the vote in the Council, e.g. unanimity and dissent, and are asked to submit probabilistic inflation expectations. The results show that the vote is informative. Households revise their subjective inflation forecast after receiving information about the vote. Dissenting votes cause a wider individual distribution of future inflation. Hence, dissent increases households' uncertainty about inflation. This effect is statistically significant once we allow for the interaction between the treatments and individual characteristics of respondents. The results are robust with respect to alternative measures of forecast uncertainty and hold for different model specifications. Our findings suggest that providing information about dissenting votes without additional information about the nature of dissent is detrimental to coordinating household expectations.
    Keywords: central bank communication, disagreement, inflation expectations, randomized controlled trial, survey
    JEL: E52 E43 E32
    Date: 2022
  20. By: Nordine Abidi; Matteo Falagiarda; Ixart Miquel-Flores
    Abstract: This paper investigates the behaviour of credit rating agencies using a natural experiment in monetary policy. We exploit the corporate QE of the Eurosystem and its rating-based specific design which generates exogenous variation in the probability for a bond of becoming eligible for outright purchases. We show that after the launch of the policy, rating activity was concentrated precisely on the territory where the incentives of market participants are expected to be more sensitive to the policy design. Our findings contribute to better assessing the consequences of the explicit reliance on CRAs ratings by central banks when designing monetary policy. They also support the Covid-19 monetary stimulus, and in particular the waiver of private credit rating eligibility requirements applied to recently downgraded issuers.
    Keywords: Credit Rating Agencies; Monetary Policy; Quantitative Easing; eligibility requirement; rating activity; behaviour of credit rating agencies; rating Agency Disclaimer; eligibility frontier; Bonds; Bond ratings; Corporate bonds; Credit ratings; Unconventional monetary policies; Global; Middle East and Central Asia
    Date: 2022–06–03
  21. By: Tony Chernis; Chris D'Souza; Kevin MacLean; Tasha Reader; Joshua Slive; Farrukh Suvankulov
    Abstract: The Business Leaders’ Pulse is a new online survey conducted each month. It is designed to provide timely and flexible input into the Bank of Canada’s monetary policy decision making while also creating a platform to analyze business conditions and uncertainty. Since May 2021, the Bank has been reaching out to leaders of almost all types of businesses across the country with this short questionnaire inquiring about their sales and employment growth expectations, the risks to their business outlook, and topical questions that address specific information needs of the Bank. This survey is designed to complement the Bank’s quarterly Business Outlook Survey conducted in person. The Business Leaders’ Pulse has already proven valuable in getting timely feedback from firms about the effects of a rapidly changing economic environment, including the impact of COVID-19 and the Russian invasion of Ukraine. It has also helped Bank staff assess the extent of and reaction to ongoing economic challenges, such as supply chain bottlenecks and labour shortages.
    Keywords: Monetary policy and uncertainty; Recent economic and financial developments
    JEL: C83 D22 E32
    Date: 2022–06
  22. By: Austin Adams; Markus F. Ibert
    Abstract: Stablecoins---digital currencies pegged to an external reference (e.g., the US dollar)---play an increasingly important role in transacting digital currencies. However, with a peg to an external reference comes the risk that the peg breaks and, akin to runs on other financial instruments, the risk of a stablecoin run.
    Date: 2022–06–02
  23. By: Kim Oosterlinck; Ariane Reyns; Ariane Szafarz
    Abstract: How do major disruptive events, such as wars, affect the correlations between gold, Bitcoin, and financial assets? We address this question by estimating a dynamic conditional correlation (DCC) model before and during the 2022 Russian invasion of Ukraine. The results show that, after the outbreak of the war, the correlation between gold and stock markets dropped, confirming the diversification potential of gold during crises. The correlation between Bitcoin and oil declined as well. Meanwhile, the gold/Bitcoin correlation slightly decreased. Overall, our preliminary evidence suggests that gold and Bitcoin act as complements—rather than substitutes—for diversification purposes during international crises.
    Keywords: Bitcoin; Gold; Portfolio diversification; 2022 Russian invasion
    JEL: G11 G15 F65 E44
    Date: 2022–06–29
  24. By: Nölke, Andreas
    Abstract: The sixth sanction package of the European Union in the context of the aggression against Ukraine excludes Sberbank, the largest Russian bank, from the SWIFT network. The increasing use of SWIFT as a tool for sanctions stimulates the rollout of alternative payment information systems by the governments of Russia and China. This policy white paper informs about the alternatives at hand, as well as their advantages and disadvantages. Careful reflection about these issues is particularly important, given the call for an "Economic Article 5" tabled for the next NATO meeting. Finally, the white paper highlights the need for institutional reforms, if policymakers decide to return SWIFT to the status of a global public good after the war.
    Keywords: Ukraine,Russia,Sanctions,SWIFT
    Date: 2022
  25. By: Michael T. Kiley
    Abstract: Recessions impose sizable hardship, with large increases in the unemployment rate and related dislocations. In addition, recessions can lead to large shifts in financial markets. As a result, economists and financial market professionals have considered prediction models to assess the probability of a recession.
    Date: 2022–06–21
  26. By: Sebastian Doerr; Thomas Drechsel; Donggyu Lee
    Abstract: This paper shows that changes in top income shares affect job creation at firms of different sizes. High-income households save relatively more in stocks and bonds, and relatively less in bank deposits. We propose that a higher share of income accruing to top earners therefore channels funds to large firms, but tightens financing conditions for small, bank-dependent firms. In turn, small firms create fewer jobs than large firms. Exploiting variation in top incomes across U.S. states and an instrumental variable strategy, we estimate that a 10 percentage point (p.p.) increase in the income share of the top 10 percent reduces the net job creation rate of small firms by 2.5 p.p. relative to large firms. Very small firms and those in bank-dependent industries are most affected. Experiments in a quantitative macro model show that growing top incomes account for 16 percent of the overall decline in the employment share of small firms since 1980. The model also reveals that not taking into account the link between inequality and job creation understates the welfare effects of income redistribution.
    Keywords: income inequality; job creation; small businesses; bank lending; household heterogeneity; financial frictions
    JEL: D22 D31 E44 L25
    Date: 2022–06–01
  27. By: Farmer, J. Doyne; Axtell, Robert L.
    Abstract: Agent-based modeling (ABM) is a novel computational methodology for representing the behavior of individuals in order to study social phenomena. Its use is rapidly growing in many fields. We review ABM in economics and finance and highlight how it can be used to relax conventional assumptions in standard economic models. In economics, ABM has enriched our understanding of markets, industrial organization, labor, macro, development, environmental and resource economics, as well as policy. In financial markets, substantial accomplishments include understanding clustered volatility, market impact, systemic risk and housing markets. We present a vision for how ABMs might be used in the future to build more realistic models of the economy and review some of hurdles that must be overcome to achieve this.
    Keywords: agent-based computational economics, multi-agent systems, agent-based modeling and simulation, distributed systems
    JEL: C00 C63 C69 D00 E00 G00
    Date: 2022–06
  28. By: Christoph Huber; Michael Kirchler
    Abstract: Experiments can complement other methods in identifying causal relationships and in measuring behavioral deviations from theoretical predictions. While the experimental method has long been central in many scientific disciplines, it was almost nonexistent in finance until the 1980s. To survey the development of experiments in finance, we compile a comprehensive account of experimental studies published in the Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Review of Finance, Journal of Quantitative and Financial Analysis, and Journal of Banking and Finance—as well as of experimental finance studies published in the Top 5 journals in economics. With this novel dataset, we identify historical trends in experimental finance. Since the first experiments where published in finance journals in the 1980s, and especially in the last 20 years, the share of experimental publications in these journals has increased strongly. We report trends towards descriptive experiments, individual decision experiments, and field experiments.
    Keywords: Experimental finance, laboratory experiments, field experiments, survey.
    JEL: B41 C90 G00 G41
    Date: 2022–09
  29. By: Enrico Tosti (Bank of Italy)
    Abstract: The changeover to the IMF’s sixth Balance of Payments Manual (BPM6) has meant a significant revision of the international standards for compiling external statistics (flows and stocks). This statistical work reconstructs these statistics for Italy between the immediate post-war period and 1969, extending previous research that covered the period between 1970 and the second half of the 1990s. The methodological approach adopted was to rely as much as possible on the available data, mainly sourced from the Bank of Italy, although strict compliance with BPM6 standards was not always possible, mainly due to the lack of some statistical information in the historical data. The possibility of having longer time series nonetheless widens the scope for the long-term analysis of real and financial phenomena concerning Italy’s external economic relations.
    Keywords: balance of payments, international investment position, time series reconstruction, back data
    JEL: C82 F00 N14 Y1
    Date: 2022–06
  30. By: Ali Elminejad (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Tomas Havranek (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & CEPR); Zuzana Irsova (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We collect 1,021 estimates from 92 studies that use the consumption Euler equation to measure relative risk aversion and that disentangle it from intertemporal substitution. We show that calibrations of risk aversion are typically larger than estimates thereof. Moreover, reported estimates are typically larger than the underlying risk aversion because of publica- tion bias. After correction for the bias, the literature suggests a mean risk aversion of 1 in economics and 2-7 in finance contexts. The reported estimates are systematically driven by the characteristics of data (frequency, dimension, country, stockholding) and utility (func- tional form, treatment of durables). To obtain these results we use nonlinear techniques to correct for publication bias and Bayesian model averaging techniques to account for model uncertainty.
    Keywords: Euler equation, risk aversion, Epstein-Zin preferences, meta-analysis, publication bias, Bayesian model averaging
    JEL: C83 D81 D90
    Date: 2022–06

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