nep-ban New Economics Papers
on Banking
Issue of 2022‒08‒29
33 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Institutional Innovation and Central Bank Independence 2.0 By Kenneth S. Rogoff
  2. The Leading Role of Bank Supply Shocks By Leonardo Bonilla-Mejía; María Alejandra Ruiz-Sánchez; Mauricio Villamizar-Villegas
  3. Cash Money as a Saving Mode By Hannu Laurila
  4. Minimizing the Repayment Cost of Federal Student Loans By Paolo Guasoni; Yu-Jui Huang
  5. The Effect of Minimum Wages on Consumer Bankruptcy By Diego Legal; Eric R. Young
  6. TARGET2 analytical tools for regulatory compliance By Glowka, Marc; Müller, Alexander; Polo Friz, Livia; Testi, Sara; Valentini, Massimo; Vespucci, Stefano
  7. Evergreening By Miguel Faria-e-Castro; Jose E. Galdon Sanchez; Pascal Paul; Juan M. Sanchez
  8. Central Bank Communication with the General Public: Promise or False Hope? By Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
  9. Monetary Union, Asymmetric Recession, and Exit By Keuschnigg, Christian
  10. Banking on Transparency for the Poor: Experimental Evidence from India By Erica M. Field; Natalia Rigol; Charity M. Troyer Moore; Rohini Pande; Simone G. Schaner
  11. Shadow Rates as a Measure of the Monetary Policy Stance: Some International Evidence By Christina Anderl; Guglielmo Maria Caporale
  12. Inflation Surges and Monetary Policy By Carl E. Walsh
  13. The economic impact of the NPLcoverage expectations in the euro area By Budnik, Katarzyna; Dimitrov, Ivan; Groß, Johannes; Kusmierczyk, Piotr; Lampe, Max; Vagliano, Gianluca; Volk, Matjaz
  14. Global combinations of expert forecasts By Qian, Yilin; Thompson, Ryan; Vasnev, Andrey L
  15. The Determinants of Bank Liquid Asset Holdings By Stulz, Rene M.; Taboada, Alvaro G.; Van Dijk, Mathijs A.
  16. Output Losses in Europe During COVID-19: What Role for Policies? By Mr. Anil Ari; Jean-Marc B. Atsebi; Mar Domenech Palacios
  17. Manipulating Credit: Government Popularity as Driver of Credit Cycles By Etienne Lepers
  18. A Preferred Habitat View of Yield Curve Control By Junko Koeda; Yoichi Ueno
  19. Is There a Stable Relationship between Unemployment and Future Inflation? By Terry Fitzgerald; Callum Jones; Mariano Kulish; Juan Pablo Nicolini
  20. E-Money in Ghana: A Case Study By Samuel Senyo Okae; Eugene Yarboi Mensah
  21. A model for predicting Finnish household loan stocks By Nyholm, Juho; Silvo, Aino
  22. Evolution of Debt Financing toward Less Regulated Financial Intermediaries By Erel, Isil; Inozemtsev, Eduard
  23. Exploring Financial Networks Using Quantile Regression and Granger Causality By Kara Karpman; Samriddha Lahiry; Diganta Mukherjee; Sumanta Basu
  24. Heterogeneous global booms and busts By Farboodi, Maryam; Kondor, Peter
  25. Results of the First Market Functioning Survey concerning Climate Change - Progress in the Improvement of Market Functioning and Challenges for the Future - By Financial Markets Department
  26. Credit and Saving Constraints in General Equilibrium: A Quantitative Exploration By Granda-Carvajal, Catalina; Hamann, Franz; Tamayo, Cesar E.
  27. The Effects of Economic Shocks on Heterogeneous Inflation Expectations By Mr. Gee Hee Hong; Yoosoon Chang; Fabio Gómez-Rodríguez
  28. Financial Sector and Economic Growth in India By Ms. TengTeng Xu; Ms. Margaux MacDonald
  29. Climate Change Mitigation: How Effective is Green Quantitative Easing? By Raphael Abiry; Marien Ferdinandusse; Alexander Ludwig; Carolin Nerlich
  30. Contagion as a Dealmaker? The Effect of Financial Spillovers on Regional Lending Programs By Alexandra Fotiou; Alica Ida Bonk; Georgios Manalis
  31. Financial inclusion in Nigeria: an overview By Ozili, Peterson Kitakogelu
  32. The Finance–Growth Nexus inAsia : A Meta-Analytic Approach By Anwar, Amar; Iwasaki, Ichiro
  33. Digital Money as a Medium of Exchange and Monetary Policy in Open Economies By Daisuke Ikeda

  1. By: Kenneth S. Rogoff (Professor of Economics and Maurits C. Boas Chair of International Economics, Harvard University (E-mail:
    Date: 2022–07
  2. By: Leonardo Bonilla-Mejía; María Alejandra Ruiz-Sánchez; Mauricio Villamizar-Villegas
    Abstract: This paper studies the impact of the Covid-19 pandemic on corporate credit in Colombia. We first exploit the geographic and temporal variation in the disease spread to estimate the effect of local exposure to the virus on credit. Our estimates indicate that neither local exposure to the virus, nor the sector-specific mobility restrictions had an impact on credit. We then assess the role of bank supply shocks. We create a measure of bank exposure, reflecting the geographic heterogeneity in pandemic vulnerability and deposits, and estimate its effect on credit. Results indicate that bank-supply shocks account for a credit contraction of approximately 5.2%. To further disentangle the role of bank supply shock, we control for the interaction between firm and time fixed-effects and restrict the sample to municipalities that were relatively spared from the pandemic, finding similar results. Most of the bank supply effects are driven by firms that are small, young, and have relatively low liquidity. **** RESUMEN: Este artículo estudia el impacto de la pandemia del Covid-19 en el crédito empresarial en Colombia. Primero, utilizamos la variación geográfica y temporal en la propagación de la enfermedad para estimar el efecto de la exposición local al virus sobre el crédito. Las estimaciones indican que ni la dinámica local de la enfermedad ni las restricciones de movilidad sectoriales tuvieron efectos importantes sobre el crédito. En seguida evaluamos el papel de los choques de oferta bancaria. Creamos una medida de exposición bancaria, basada en la distribución geográfica de la vulnerabilidad a la pandemia y los depósitos, y estimamos su efecto sobre el crédito. Los resultados indican que los choques de oferta bancaria redujeron el crédito en aproximadamente 5.2%. Para identificar plenamente el rol del choque de oferta bancaria, se incluyen en el modelo las interacciones entre los efectos fijos de firma y tiempo y se restringe la muestra a municipios que no fueron tan severamente afectados por la pandemia, encontrando resultados similares. La mayoría de los efectos se explican por firmas peque˜nas, j´ovenes y con relativamente baja liquidez.
    Keywords: Credit, Covid-19 Pandemic, bank liquidity, crédito, pandemia de Covid-19, liquidez de bancos
    JEL: G01 G21
    Date: 2022–08
  3. By: Hannu Laurila
    Abstract: Cash money can be a rational devise of saving as an insurance against external uncertainty. Liquid money, controlled by a stable and trustworthy central bank, offers an insurance against stock market crashes, bankrupts and other economic turmoils that endanger the yield of illiquid saving modes. In turbulent times, the value-carrying property of money is accentuated, and the recent dark episodes including the last financial crisis, the pandemic and the war in Ukraine have made the public in Europe respond to uncertainty by increasing their cash holdings. The paper constructs a simple life cycle framework for the analysis of rational and irrational motives to save money, answers to questions about the effects of saving liquid money on illiquid saving and education and examines the inherent cost of the use of cash as a saving mode. The main findings of the paper are the following. The insurance motive to save money increases total savings by replacing deposit saving more than one-to-one. The share of deposit savings depends positively on the expected interest rate, while the share of cash savings is the higher the less there is inflation. Deposit saving correlates positively and education negatively with the expected market interest rate thus affecting their relative proportion, but education does not affect the implicit price paid for cash insurance. Incorporating money illusion adds an internal bias to life-time optimization. Misjudgment of the inflation rate makes consumers save excessively in cash at the cost of market deposits and increases the cost of using cash as rational insurance against external uncertainty.
    Date: 2022–08
  4. By: Paolo Guasoni; Yu-Jui Huang
    Abstract: Federal student loans are fixed-rate debt contracts with three main special features: (i) borrowers can use income-driven schemes to make payments proportional to their income above subsistence, (ii) after several years of good standing, the remaining balance is forgiven but taxed as ordinary income, and (iii) accrued interest is simple, i.e., not capitalized. For a very small loan, the cost-minimizing repayment strategy dictates maximum payments until full repayment, forgoing both income-driven schemes and forgiveness. For a very large loan, the minimal payments allowed by income-driven schemes are optimal. For intermediate balances, the optimal repayment strategy may entail an initial period of minimum payments to exploit the non-capitalization of accrued interest, but when the principal is being reimbursed maximal payments always precede minimum payments. Income-driven schemes and simple accrued interest mostly benefit borrowers with very large balances.
    Date: 2022–07
  5. By: Diego Legal; Eric R. Young
    Abstract: We use cross-state differences in minimum wage (MW) levels and county-level consumer bankruptcy rates from 1991-2017 to estimate the effect of changes in minimum wages on consumer bankruptcy by exploiting policy discontinuities at state borders. We find that Chapter 7 bankruptcy rates are significantly lower in counties belonging to states with higher MW compared to neighboring counties in the lower MW state: a 10 percent increase in MW decreases the bankruptcy rate by around 4 percent. Before the 2005 bankruptcy reform, this effect was almost twice as large as for the entire sample. Theoretically, we cannot sign the effect of MW on bankruptcy and credit utilization; we use a stylized consumption/saving model with default to illustrate the dependence on particular parameters and to provide intuition on how to interpret our results.
    Keywords: Consumer bankruptcy; unsecured credit; minimum wage
    JEL: K35 J30 J38 E24 E44
    Date: 2022–08–09
  6. By: Glowka, Marc; Müller, Alexander; Polo Friz, Livia; Testi, Sara; Valentini, Massimo; Vespucci, Stefano
    Abstract: As the operator of a systemically important payment system (SIPS), the Eurosystem has the responsibility of regularly assessing the resilience of the Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET2) to various types of risks, as set out in the Principles for Financial Market Infrastructures (PFMIs) drawn up by the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO). To identify, measure, monitor and mitigate these risks over time, the TARGET2 operator has developed specific approaches that include both qualitative and quantitative elements. JEL Classification: G20, E42, E58, C10, C63
    Keywords: FMIs, payment systems, PFMIs, TARGET2
    Date: 2022–08
  7. By: Miguel Faria-e-Castro; Jose E. Galdon Sanchez; Pascal Paul; Juan M. Sanchez
    Abstract: We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.
    Keywords: evergreening; zombie firms; bank lending; misallocation
    Date: 2022–07–31
  8. By: Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
    Abstract: Central banks are increasingly reaching out to the general public to motivate and explain their monetary policy actions. One major aim of this outreach is to guide inflation expectations; another is to ensure accountability and create trust. This article surveys a rapidly-growing literature on central bank communication with the public. We first discuss why and how such communication is more challenging than communicating with expert audiences. Then we survey the empirical evidence on the extent to which this new outreach does in fact affect inflation expectations and trust. On balance, we see some promise in the potential to inform the public better, but many challenges along the way.
    JEL: D12 D84 E52 E58 G53
    Date: 2022–07
  9. By: Keuschnigg, Christian
    Abstract: We propose a New Keynesian DSGE model of the Eurozone and analyze an asymmetric recession in a vulnerable member state characterized by a trilemma of high public debt, weak banks, and deteriorating competitiveness. We compare macroeconomic adjustment under continued membership with two exit scenarios that introduce flexible exchange rates and autonomous monetary policy. An exit with stable investor expectations could significantly dampen the short-run impact. Stabilization is achieved by a targeted monetary expansion combined with depreciation. However, investor panic may lead to escalation, aggravate the recession and delay the recovery.
    Keywords: Currency union, exchange rate flexibility, fiscal consolidation, sovereign debt, banks
    JEL: E42 E44 E60 F30 F36 F45 G15 G21
    Date: 2022–08
  10. By: Erica M. Field; Natalia Rigol; Charity M. Troyer Moore; Rohini Pande; Simone G. Schaner
    Abstract: Do information frictions limit the benefits of financial inclusion drives for the rural poor? We evaluate an experimental intervention among recently banked poor Indian women receiving government cash transfers via direct deposit. Treated women were provided automated voice calls confirming details of transactions posted to their accounts. The intervention increased women's knowledge of account balances and trust in their local banking agent. Indicative of improved consumption-smoothing by income-constrained women, administrative data show that treated women accessed government transfers faster when the service was active, with treatment effects dissipating after the notifications were discontinued. On average, other aspects of account use remained unchanged. However, consistent with account information benefiting those with high transaction costs more, the intervention increased account use among women who lived more than an hour from the kiosk.
    JEL: G21 O12
    Date: 2022–07
  11. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper examines the usefulness of shadow rates to measure the monetary policy stance by comparing them to the official policy rates and those implied by three types of Taylor rules in both inflation targeting countries (the UK, Canada, Australia and New Zealand) and others that have only targeted inflation at times (the US, Japan, the Euro Area and Switzerland) over the period from the early 1990s to December 2021. Shadow rates estimated from a dynamic factor model are shown to suggest a much looser policy stance than either the official policy rates or those implied by the Taylor rules, and generally to provide a more accurate picture of the monetary policy stance during both ZLB and non-ZLB periods, since they reflect the full range of unconventional policy measures used by central banks. Further, generalised impulse response analysis based on two alternative Vector Autoregression (VAR) models indicates that monetary shocks based on the shadow rates are more informative than those related to the official policy rates, especially during the Global Financial Crisis and the recent Covid-19 pandemic, when unconventional measures have been adopted.
    Keywords: dynamic factor models, shadow rates, inflation targeting, monetary policy stance
    JEL: C38 E43 E52 E58
    Date: 2022
  12. By: Carl E. Walsh (Distinguished Professor Economics Emeritus, Department of Economics, University of California, Santa Cruz, and Honorary Adviser to the IMES (E-mail:
    Abstract: Similarities between the 1960s and 1970s raise concerns that central banks are repeating mistakes that led to the Great Inflation. Two explanations for this earlier period of inflation, that it was due to shocks and special factors or that it was the result of political pressures on monetary policy, seem particularly relevant today. Major central banks such as the Federal Reserve and the ECB have been slow to react to the surge in inflation due to COVID-19 and the war in Ukraine. I investigate the consequences of policy delay and the impact of a more aggressive reaction, conditional on policy being delayed. In assessing the persistence of inflation shocks and in dealing with uncertainty about inflation dynamics, policymakers seem to be ignoring lessons from the literature on monetary policy in the face of model uncertainty.
    Keywords: Inflation, Monetary policy, COVID-19
    JEL: E31 E52 E58
    Date: 2022–07
  13. By: Budnik, Katarzyna; Dimitrov, Ivan; Groß, Johannes; Kusmierczyk, Piotr; Lampe, Max; Vagliano, Gianluca; Volk, Matjaz
    Abstract: This paper looks at the macroeconomic impact of the two policies proposed by ECB Banking Supervision to tackle the high share of non-performing loans (NPLs) on the balance sheets of euro area banks. The first is the coverage expectations for new NPLs set out in the Addendum to the ECB’s NPL Guidance, which aim to prevent the build-up of new NPLs, and the second is the coverage expectations for legacy NPLs, which target the reduction of already existing stocks of NPLs. The impact assessment of the package is analysed via a semi-structural model, the Banking Euro Area Stress Test (BEAST). The coverage expectations for NPLs are found to be effective in reducing banks’ NPLs. The phase-in of the policies can temporarily reduce bank profitability owing to increased loan loss provisioning targets. However, over a longer time horizon, lower NPL ratios reduce uncertainty and enable banks to access cheaper funding in the markets, ultimately benefiting lending and output growth. Furthermore, the coverage expectations can also moderately but persistently reduce procyclicality in the banking system. JEL Classification: E37, E58, G21, G28
    Keywords: banking sector, impact assessment, loan loss provisions, Non-performing loans, real-financial feedback mechanism, regulatory policy
    Date: 2022–07
  14. By: Qian, Yilin; Thompson, Ryan; Vasnev, Andrey L
    Abstract: Expert forecast combination—the aggregation of individual forecasts from multiple subject matter experts— is a proven approach to economic forecasting. To date, research in this area has exclusively concentrated on local combination methods, which handle separate but related forecasting tasks in isolation. Yet, it has been known for over two decades in the machine learning community that global methods, which exploit taskrelatedness, can improve on local methods that ignore it. Motivated by the possibility for improvement, this paper introduces a framework for globally combining expert forecasts. Through our framework, we develop global versions of several existing forecast combinations. To evaluate the efficacy of these new global forecast combinations, we conduct extensive comparisons using synthetic and real data. Our real data comparisons, which involve expert forecasts of core economic indicators in the Eurozone, are the first empirical evidence that the accuracy of global combinations of expert forecasts can surpass local combinations.
    Keywords: Forecast combination, local forecasting, global forecasting, multi-task learning, European Central Bank, Survey of Professional Forecasters
    Date: 2022–07–29
  15. By: Stulz, Rene M. (Ohio State University); Taboada, Alvaro G. (Mississippi State University); Van Dijk, Mathijs A. (Erasmus University Rotterdam)
    Abstract: Bank liquid asset holdings vary significantly across banks and through time. The determinants of liquid asset holdings from the corporate finance literature are not useful to predict banks’ liquid asset holdings. Banks have an investment motive to hold liquid assets, so that when their lending opportunities are better, they hold fewer liquid assets. We find strong support for the investment motive. Large banks hold much more liquid assets after the Global Financial Crisis (GFC), and this change cannot be explained using models of liquid asset holdings estimated before the GFC. We find evidence supportive of the hypothesis that the increase in liquid assets of large banks is due at least in part to the post-GFC regulatory changes.
    JEL: G21 G28
    Date: 2022–07
  16. By: Mr. Anil Ari; Jean-Marc B. Atsebi; Mar Domenech Palacios
    Abstract: We use a decomposition methodology to analyze the factors underlying the differentiated output losses of European countries in 2020. Our findings are fourfold: First, 2020 growth outcomes can be explained by differences in mobility, underlying growth trends, and pre-pandemic country fundamentals. Second, fiscal and monetary policies helped alleviate output losses during the pandemic in all European countries but to a varying extent. Third, shallower recessions in emerging market economies in Europe can be attributed to higher underlying growth and younger populations. Fourth, fiscal multipliers were higher in countries where above-the-line measures accounted for a larger share of the total fiscal package, the size of the total fiscal package was smaller, and inequality and informality were greater, as well as in countries with IMF-supported program during the pandemic.
    Keywords: COVID-19 crisis; output losses; monetary policy; fiscal policy; fiscal multipliers; growth outcome; output loss; decomposition methodology; types of fiscal policies; monetary policy support; COVID-19; Central bank policy rate; Income inequality; Europe; Global
    Date: 2022–07–01
  17. By: Etienne Lepers
    Abstract: This paper analyses the interaction between credit and political cycles, arguing that short-termist governments will seek to ride and amplify credit cycles for political gains. Specifically, it tests for the existence of political credit cycles not only before elections but throughout the term when executives seek to bolster support in periods of popularity drops. Compiling a unique database on government approval from opinion polls in 57 countries starting in 1980, it provides evidence that drops in popularity are systematically associated with larger future credit cycles, robust to a number of checks for confounding factors. Such credit manipulation appears to target credit to households specifically, is more prevalent in advanced, financialized, and indebted economies, and increases the likelihood of bad credit booms. Overall, this research points to the crucial importance of political cycles as drivers and sources of financial cycles and vulnerabilities.
    Keywords: credit booms, financial stability, political business cycle, government popularity, electoral cycles, credit subsidies, homeownership
    JEL: D72 E51 E58 G01 G18 I38 N20
    Date: 2022–07
  18. By: Junko Koeda (Waseda University); Yoichi Ueno (Bank of Japan)
    Abstract: We extend the canonical preferred habitat term structure model of Vayanos and Vila (2021) to analyze yield curve control (YCC) by treating the central bank as a preferred habitat investor allowing the price elasticity of government bond demand to depend on its targeted yield. The price elasticity captures the strictness of YCC implemented by the central bank. We calibrate the model for Japan and find that sufficiently strict YCC requires limited additional bond purchases to keep the targeted yield within the targeted range, and attenuates the impact of short-rate changes in the yield curve. In the absence of YCC, the effect of bond demand and supply on bond yields increases once again as the influence of the effective lower bound on nominal interest rates weakens.
    Keywords: monetary policy; yield curve control; preferred habitat
    JEL: E43 E52 E58 G12
    Date: 2022–08–01
  19. By: Terry Fitzgerald (Federal Reserve Bank of Minneapolis); Callum Jones (Board of Governors of the Federal Reserve System); Mariano Kulish (University of Sydney); Juan Pablo Nicolini (Federal Reserve Bank of Minneapolis/Universidad Di Tella)
    Abstract: The empirical literature on the stability of the Phillips curve has largely ignored the bias that endogenous monetary policy imparts on estimated Phillips curve coefficients. We argue that this omission has important implications. When policy is endogenous, estimation based on aggregate data can be uninformative as to the existence of a stable relationship between unemployment and future inflation. But we also argue that regional data can be used to identify the structural relationship between unemployment and inflation. Using citylevel and state-level data from 1977 to 2017, we show that both the reduced form and the structural parameters of the Phillips curve are, to a substantial degree, quite stable over time.
    Keywords: Endogenous monetary policy; Stability of the Phillips curve.
    JEL: E52 E58
    Date: 2022–07
  20. By: Samuel Senyo Okae (Bank of Ghana); Eugene Yarboi Mensah (Ghana Deposit Protection Corporation)
    Abstract: The usage of electronic money (e-money) for transactions has grown across Ghana and has the potential to revolutionise the cash-dominant economy to become cashless. Propelling this growth are mobile money operators (MMOs), which have developed to offer a specific type of e-money, termed mobile money (MM). With the increased use of mobile-money services and growth in the payment systems sector each day, it is imperative for Ghana to design a holistic approach to the use of e-money as well as consider its operationalisation of the coverage by the deposit insurer. The Ghana Payment Systems Act, 2019 (Act 987) sets out the rules for the issuance of e-money within Ghana and the supervision of the business of e-money institutions (EMIs), which includes MMOs. There are growing concerns about safeguarding client funds held by EMIs worldwide. In Ghana, client funds held by EMIs must be placed in custodial accounts at banks. As a result, it has become necessary for Ghana's deposit insurance system to consider how to protect these funds. Funds backing the electronic value belonging to customers of MMOs are kept in a custodian account which resides with banks and hence the need for these funds to be protected in case of a bank failure is being discussed. This brief describes the distinctions between deposits and e-money and provides a description of the key features of e-money in the Ghanaian context. It discusses the factors influencing the protection of e-money wallets and the float (defined as the cash equivalent of outstanding electronic money liabilities of an electronic money issuer with partner banks) kept with commercial banks. Finally, options to be considered for the possible protection of these wallets in case of bank liquidation are presented.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2022–08
  21. By: Nyholm, Juho; Silvo, Aino
    Abstract: We propose a new Bayesian VAR model for forecasting household loan stocks in Finland. The model is designed to work as a satellite model of a larger DSGE model for the Finnish economy, the Aino 2.0 model. The forecasts produced with the BVAR model can be conditioned on projections of several macro variables obtained from the Aino 2.0 model. We study several specifications for the set of variables and lags included in the BVAR, and evaluate their out-of-sample forecast accuracy with root mean squared forecasting errors (RMSFEs). We then select a preferred specification that performs best in predicting the loan stocks over forecast horizons ranging from one to twelve quarters ahead. The model adds to the existing toolkit of forecast models currently in use at the Bank of Finland and improves our understanding of household debt trends in Finland.
    Keywords: household debt,Bayesian estimation,conditional forecasting
    JEL: C11 C32 E37
    Date: 2022
  22. By: Erel, Isil (Ohio State University); Inozemtsev, Eduard (Ohio State University)
    Abstract: Nonbank lenders have been playing an increasingly important role in the supply of debt financing, especially post Great Recession. These nonbank financial institutions not only participate in syndicated loans to large businesses but also act as direct lenders to small and mid-sized businesses, providing loans previously were primarily supplied by banks. Moreover, the composition of bondholders has changed, with mutual funds and other less regulated entities having gained nontrivial market shares. What is the extent of nonbank lending? How important are the distortions associated with the varying degrees of regulatory oversight for banks that differentially limit risk-taking across alternative sources of credit? What are the financial stability implications of this transformed landscape of credit markets? This selective review addresses these important questions and also discusses how banks and nonbanks helped provide liquidity to the nonfinancial sector during the COVID-19 pandemic shock.
    JEL: G21 G22 G23 G24 G28
    Date: 2022–07
  23. By: Kara Karpman (Department of Statistics and Data Science, Cornell University); Samriddha Lahiry (Department of Statistics and Data Science, Cornell University); Diganta Mukherjee (Sampling and Official Statistics Unit, Indian Statistical Institute Kolkata); Sumanta Basu (Department of Statistics and Data Science, Cornell University)
    Abstract: In the post-crisis era, financial regulators and policymakers are increasingly interested in data-driven tools to measure systemic risk and to identify systemically important firms. Granger Causality (GC) based techniques to build networks among financial firms using time series of their stock returns have received significant attention in recent years. Existing GC network methods model conditional means, and do not distinguish between connectivity in lower and upper tails of the return distribution - an aspect crucial for systemic risk analysis. We propose statistical methods that measure connectivity in the financial sector using system-wide tail-based analysis and is able to distinguish between connectivity in lower and upper tails of the return distribution. This is achieved using bivariate and multivariate GC analysis based on regular and Lasso penalized quantile regressions, an approach we call quantile Granger causality (QGC). By considering centrality measures of these financial networks, we can assess the build-up of systemic risk and identify risk propagation channels. We provide an asymptotic theory of QGC estimators under a quantile vector autoregressive model, and show its benefit over regular GC analysis on simulated data. We apply our method to the monthly stock returns of large U.S. firms and demonstrate that lower tail based networks can detect systemically risky periods in historical data with higher accuracy than mean-based networks. In a similar analysis of large Indian banks, we find that upper and lower tail networks convey different information and have the potential to distinguish between periods of high connectivity that are governed by positive vs negative news in the market.
    Date: 2022–07
  24. By: Farboodi, Maryam; Kondor, Peter
    Abstract: We investigate the heterogeneous boom and bust patterns across countries that emerge as a result of global shocks. Our analysis sheds light on the emergence of core and periphery countries, and the joint determination of the depth of recessions and tightness of credit across countries. The model implies that interest rates are similar across core and periphery countries in booms, with larger credit and output growth in periphery countries. However, a common global shock that leads to a credit crunch across the globe gives rise to a sharper spike in interest rates and a deeper recession in periphery countries, while a credit flight to the core alleviates the adverse consequences in these countries.
    Keywords: international credit markets; global cycles; information frictions; (Starting Grant #336585
    JEL: E44 E43 E21 G15 E32
    Date: 2022–07–01
  25. By: Financial Markets Department (Bank of Japan)
    Abstract: As the efforts to tackle climate change accelerate globally in recent years, financial markets are expected to play a greater role in terms of financial intermediation. Specifically, financial markets are expected to support industries' efforts to address climate change by reflecting risks and opportunities arising from climate change (climate-related risks and opportunities) in the prices of financial instruments such as stocks and corporate bonds, providing a more conducive environment for the issuance of ESG bonds related to climate change (hereinafter "the ESG bonds"), thereby facilitating funding and investments. The Bank of Japan has launched the Market Functioning Survey concerning Climate Change with a view to assessing the functioning of Japanese financial markets in tackling climate change and understanding the challenges for improvement. Since climate change is a long-term issue involving various economic stakeholders, the survey will collect views from a broad set of market participants on an annual basis. The first survey was distributed to 663 entities including issuers, investors, financial institutions, and rating agencies, and more than 40 percent of those responded. In the survey, the respondents provided a view that climate-related risks and opportunities were reflected to a certain degree in the pricing of both stock and corporate bond markets in Japan, although there is room for further reflection in both markets. In order that climate-related risks and opportunities will be reflected more in the prices, many respondents raised issues regarding the availability of information and also the assessment methodologies of climate-related risks and opportunities. The former included "enhancing and/or standardizing information disclosure" and "bridging data gaps on climate-related data," and the latter included "improving transparency in ESG evaluation" and "further developing analysis methodologies." These issues were also raised by many respondents as challenges for increasing the size of the ESG bond market in Japan. Looking at supply and demand in the ESG bond market, the survey found solid demand for the ESG bonds. As for the motivation behind the ESG bond issuance, respondents emphasized strategic interest for their businesses and investor relations (e.g., improving their reputation, diversifying the investor base) rather than favorable issuing conditions of the ESG bonds. On the investor side, making social and environmental contributions was the most important reason for investing in the ESG bonds. These results suggest that Japan's ESG bond market would further expand with a broader base of issuers and investors by raising their awareness of those benefits and by reducing the cost of issuing as well as investing in the ESG bonds with more enhanced and standardized information disclosure. Market stakeholders have already been making efforts to overcome the issues identified in the first survey, such as the availability of information and the assessment methodologies of climate-related risks and opportunities, to further develop the market. The Bank will provide information on the status of market functioning concerning climate change and challenges for the future by continuously conducting this survey while improving its contents. The Bank also intends to contribute to advancing financial markets by following up on efforts made outside of Japan, conducting additional research and analyses on the functioning of financial markets concerning climate change, and communicating and coordinating with relevant stakeholders to develop market infrastructure.
    Date: 2022–08–05
  26. By: Granda-Carvajal, Catalina; Hamann, Franz; Tamayo, Cesar E.
    Abstract: In this paper we build an incomplete-markets model with heterogeneous households and firms to study the aggregate effects of saving constraints and credit constraints in general equilibrium. We calibrate the model using survey data from Colombia, a developing country in which informal saving and credit frictions are pervasive. Our quantitative results suggest that reducing savings costs increases selection into formal saving, but the effect on aggregate outcomes and welfare is dwarfed by that of a policy which ameliorates borrowing constraints. Such a policy improves resource allocation and increases returns to capital and labor, resulting in higher savings and welfare gains for both households and firms.
    Keywords: saving constraints; credit constraints; financial inclusion; misallocation; savings; formal and informal financial markets
    JEL: E21 E44 G21 O11 O16
    Date: 2022–08
  27. By: Mr. Gee Hee Hong; Yoosoon Chang; Fabio Gómez-Rodríguez
    Abstract: In this paper, we examine how economic shocks affect the distribution of household inflation expectations. We show that the dynamics of households' expected inflation distributions are driven by three distinctive functional shocks, which influence the expected inflation distribution through disagreement, level shift and ambiguity. Linking these functional shocks to economic shocks, we find that contractionary monetary shocks increase the average level of inflation expectation with anchoring effects, with a reduction in disagreement and an increase in the share of households expecting future inflation to be between 2 to 4 percent. Such anchoring effects are not observed when the high inflation periods prior to the Volcker disinflation are included. Expansionary government spending shocks have inflationary effects on both short and medium-run inflation expectations, while an increase in personal income tax shocks is inflationary for mediumrun. A surprise increase in gasoline prices increases the level of inflation expectations, but lowers the share of households with 2 percent inflation expectations.
    Keywords: Inflation expectations; household survey; functional autoregression; transmission of economic shocks; heterogeneous beliefs; inflation expectation; expansionary government spending shock; inflation distribution; monetary policy shock; gasoline price shock; Inflation; Fuel prices; Personal income tax; Income shocks
    Date: 2022–07–01
  28. By: Ms. TengTeng Xu; Ms. Margaux MacDonald
    Abstract: India’s financial sector has faced many challenges in recent decades, with a large, negative, and persistent credit to GDP gap since 2012. We examine how cyclical financial conditions affect GDP growth using a growth-at-risk (GaR) approach and analyze the link between bank balance sheets, credit growth, and long-term growth using bank-level panel regressions for both public and private banks. We find that on a cyclical basis, a negative shock to credit or a rise in macro vulnerability all shift the distribution of growth to the left, with lower expected growth and higher negative tail risks; over the long term, the results indicate that higher credit growth, arising from better capitalized banks with lower NPLs, is associated with higher GDP growth.
    Keywords: India; Credit and Leverage; Macro-financial Linkages; Growth-at-Risk; Panel Regressions.
    Date: 2022–07–08
  29. By: Raphael Abiry (Goethe University Frankfurt (E-mail:; Marien Ferdinandusse (European Central Bank (E-mail:; Alexander Ludwig (Goethe University Frankfurt, ICIR & CEPR (E-mail:; Carolin Nerlich (European Central Bank (E-mail:
    Abstract: We develop a two sector incomplete markets integrated assessment model to analyze the effectiveness of green quantitative easing (QE) in complementing fiscal policies for climate change mitigation. We model green QE through an outstanding stock of private assets held by a monetary authority and its portfolio allocation between a clean and a dirty sector of production. Green QE leads to a partial crowding out of private capital in the green sector and to a modest reduction of the global temperature by 0.04 degrees of Celsius until 2100. A moderate global carbon tax of 50 USD is 4 times more effective.
    Keywords: Climate Change, Integrated Assessment Model, 2-Sector Model, Green Quantitative Easing, Carbon Taxation
    JEL: E51 E62 Q54
    Date: 2022–07
  30. By: Alexandra Fotiou; Alica Ida Bonk; Georgios Manalis
    Abstract: The recent European sovereign debt crisis highlighted the critical role of regional lending arrangements. For the first time, European mechanisms were called to design financing programmes for member countries in trouble. This paper analyses how the risk of contagion, an essential characteristic of interlinked economies, shapes borrowing conditions. We focus on the role of spillovers as a channel of bargaining power that a country might have when asking for financial support from regional lending institutions. We build and present a new database that records both the dates on which official meetings took place, relevant statements were released and the timing of the announcements regarding loan disbursements. This database allows us to assess the defining role that announcements of future actions have in mitigating spillover costs. In addition, we study the design of lending arrangements within a recursive contract between a lender and a sovereign country. When accounting for spillover costs, arising from the borrower to the creditor, we find that it is in the lender's best interest to back-load consumption by giving more weight to future transfers in order to reduce contagion cost. Subsequently, we test and validate our theoretical predictions by assessing the effect of spillovers on loan disbursements to programme-countries and by juxtaposing lending conditions imposed by the IMF and the European mechanisms.
    Keywords: Regional lending mechanisms; currency-union; spillovers
    Date: 2022–07–08
  31. By: Ozili, Peterson Kitakogelu
    Abstract: This paper analyse the level of financial inclusion in Nigeria using data from the global findex indicators. The findings reveal that Nigeria witnessed growth in several financial inclusion indicators in the early years of financial inclusion in 2014 but the benefits were not sustained in the later years especially in 2017. Nigeria’s level of financial inclusion is very low compared to the World average. In the population group analysis, it was observed that the female, poorest, male, older and uneducated population were worse-off in all indicators of financial inclusion in 2017. The implication of the observed decline in the level of financial inclusion in 2017 suggest that there are barriers to financial inclusion in the post-2014 years.
    Keywords: formal account, borrowing, sustainable development, Nigeria, financial inclusion, access to finance, financial institutions, credit cards, debit cards, account ownership, female, savings.
    JEL: G21 G23 G28 G29
    Date: 2022
  32. By: Anwar, Amar; Iwasaki, Ichiro
    Abstract: This paper features a meta-analysis of the effects of financial development and liberalization on macroeconomic growth in Asia. A meta-synthesis of 748 estimates extracted from 75 previous works indicates that the growth-enhancing effect of finance reaches an economically meaningful scale in the region. Synthesis results also reveal that the finance–growth nexus in South Asia is stronger than that in East Asia. Publication selection bias is examined using both linear and nonlinear techniques, and our results show that there is a possibility of publication bias in the literature. After applying advanced and up-to-date metaanalysis methods, we find that the collected estimates contain significant underlying empirical evidence of the impact of finance on economic growth for both Asia and its subregions.
    Keywords: financial development, economic growth, meta-analysis, publication selection bias, Asia
    JEL: E44 G10 O11 O16 D53
    Date: 2022–08
  33. By: Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail:
    Abstract: The rise of digital money may bring about privately issued money that circulates across borders and coexists with public money. This paper uses an open-economy search model with multiple currencies to study the impact of such global money on monetary policy autonomy -- the capacity of central banks to set a policy instrument. I show that the circulation of global money can entail a loss of monetary policy autonomy, but it can be preserved if government policy that limits the amount or use of global money for transactions is introduced or if the global currency is subject to counterfeiting. The result suggests that global digital money and monetary policy autonomy can be compatible.
    Keywords: Cryptocurrency, Monetary policy autonomy, Currency counterfeiting, Government transaction policy
    JEL: D82 E4 E5 F31
    Date: 2022–07

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