nep-ban New Economics Papers
on Banking
Issue of 2023‒01‒23
25 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Central Banks as Dollar Lenders of Last Resort: Implications for Regulation and Reserve Holdings By Mitali Das; Gita Gopinath; Taehoon Kim; Jeremy C. Stein
  2. Institutional theory of financial inclusion By Ozili, Peterson K
  3. Voluntary Equity, Project Risk, and Capital Requirements By Haufler, Andreas; Lülfesmann, Christoph
  4. Limited Energy Supply, Sunspots, and Monetary Policy By Nils Gornemann; Sebastian Hildebrand; Keith Kuester
  5. The Insurance Implications of Government Student Loan Repayment Schemes By Martin Gervais; Qian Liu; Lance Lochner
  6. Non-Fundamental Flows and Foreign Exchange Rates By Felipe E. Aldunate; Zhi Da; Borja Larrain; Clemens Sialm
  7. Optimal Bailouts in Banking and Sovereign Crises By Sewon Hur; Cesar Sosa-Padilla; Zeynep Yom
  8. Assessing global interest in decentralized finance, embedded finance, open finance, ocean finance and sustainable finance By Ozili, Peterson K
  9. Asia's push for monetary alternatives By Noland, Marcus
  10. Supranational supervision By Haselmann, Rainer; Singla, Shikhar; Vig, Vikrant
  11. eNaira central bank digital currency (CBDC) for financial inclusion in Nigeria By Ozili, Peterson K
  12. The Global Pandemic, Laboratory of the Cashless Economy? By Jeremy Srouji; Dominique Torre
  13. International Spillovers of Tighter Monetary Policy By Dario Caldara; Francesco Ferrante; Albert Queraltó
  14. International banking regulation and Tier 1 capital ratios. On the robustness of the critical average risk weight framework By Renaud Beaupain; Yann Braouezec
  15. Foreign bank penetration in Vietnam following Vietnam’s accession to the WTO: matching expectations with reality By Huong, Pham Thu
  16. Determinants of the Duration of Economic Recoveries: The Role of ´Too Much Finance´ By Vitor Castro; Boris Fisera
  17. Monetary Policy and Racial Inequality By Alina K Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
  18. Government Banks and Interventions in Credit Markets By Gustavo Joaquim; Felipe Netto; José Renato Haas Ornelas
  19. Optimal Monetary Policy Rules in the Fiscal Theory of the Price Level By Boris Chafwehé; Charles de Beauffort; Rigas Oikonomou
  20. Crypto Wash Trading By Lin William Cong; Xi Li; Ke Tang; Yang Yang
  21. Optimal Monetary Policy with and without Debt By Boris Chafwehé; Rigas Oikonomou; Romanos Priftis; Lukas Vogel
  22. Finance, Trade, Man and Machines: A New-Ricardian Heckscher-Ohlin-Samuelson Model By Marjit, Sugata; Das, Gouranga G.
  23. Are Expectations Misled by Chance? Quasi-Experimental Evidence from Financial Analysts By Pascal Flurin Meier; Raphael Flepp; Egon Franck
  24. Estimating the Effects of Monetary Policy in Australia Using Sign-restricted Structural Vector Autoregressions By Matthew Read
  25. CBDC, Fintech and cryptocurrency for financial Inclusion and financial stability By Ozili, Peterson K

  1. By: Mitali Das; Gita Gopinath; Taehoon Kim; Jeremy C. Stein
    Abstract: This paper explores how non-U.S. central banks behave when firms in their economies engage in currency mismatch, borrowing more heavily in dollars than justified by their operating exposures. We begin by documenting that, in a panel of 53 countries, central bank holdings of dollar reserves are significantly correlated with the dollar-denominated bank borrowing of their non-financial corporate sectors, controlling for a number of known covariates of reserve accumulation. We then build a model in which the central bank can deal with private-sector mismatch, and the associated risk of a domestic financial crisis, in two ways: (i) by imposing ex ante financial regulations such as bank capital requirements; or (ii) by building a stockpile of dollar reserves that allow it to serve as an ex post dollar lender of last resort. The model highlights a novel externality: individual central banks may tend to over-accumulate dollar reserves, relative to what a global planner would choose. This is because individual central banks do not internalize that their hoarding of reserves exacerbates a global scarcity of dollar-denominated safe assets, which lowers dollar interest rates and encourages firms to increase the currency mismatch of their liabilities. Relative to the decentralized outcome, a global planner may prefer stricter financial regulation (e.g., higher bank capital requirements) and reduced holdings of dollar reserves.
    JEL: E42 F4 G15
    Date: 2022–12
  2. By: Ozili, Peterson K
    Abstract: This article advocates a new addition to the theories of financial inclusion which is the institutional theory of financial inclusion. The case for a new theory arises from the role of institutions or non-market structures in influencing the level of financial inclusion. Postulating an institutional theory of financial inclusion is important due to the need to understand financial inclusion from the context of institutions and non-market structures that people have a great deal of trust in. The institutional theory of financial inclusion has the capacity to generate a wide range of testable hypotheses, and can provide the social scientist with tools that are relevant for understanding the broad spectrum of financial inclusion in society.
    Keywords: financial inclusion, institutions, institutional theory, access to finance, non-market structure, culture, unbanked adults, financial exclusion.
    JEL: G21 I31 P37
    Date: 2023
  3. By: Haufler, Andreas (LMU Munich); Lülfesmann, Christoph (Simon Fraser University)
    Abstract: We introduce a model of the banking sector that formally incorporates a buffer function of capital. Heterogeneous banks choose their portfolio risk, bank size, and capital holdings. Banks voluntarily hold equity when the buffer effect against the risk of default outweighs the cost advantages of debt financing. In this setting, banks with lower monitoring costs are larger, choose riskier portfolios, and have less equity. Moreover, binding capital requirements or levies on bank borrowing are shown to make higher-risk portfolios more attractive. Accounting for banks' interior capital choices can thus explain why higher capital ratios incentivize banks to undertake riskier projects.
    Keywords: voluntary equity; capital requirements; bank heterogeneity;
    JEL: G28 G38 H32
    Date: 2022–12–27
  4. By: Nils Gornemann (Board of Governors of the Federal Reserve System); Sebastian Hildebrand (University of Bonn); Keith Kuester (University of Bonn)
    Abstract: A common assumption in macroeconomics is that energy prices are determined in a world-wide, rather frictionless market. This no longer seems an adequate description for the situation that much of Europe currently faces. Rather, one reading is that shortages exist in the quantity of energy available. Such limits to the supply of energy mean that the local price of energy is affected by domestic economic activity. In a simple open-economy New Keynesian setting, the paper shows conditions under which energy shortages can raise the risk of self-fulfilling fluctuations. A firmer focus of the central bank on input prices (or on headline consumer prices) removes such risks.
    Keywords: Energy crisis, macroeconomic instability, sunspots, monetary policy, heterogeneous households
    JEL: E31 E32 E52 F41 Q43
    Date: 2022–12
  5. By: Martin Gervais; Qian Liu; Lance Lochner
    Abstract: We use new administrative data that links detailed information on Canadian student loan recipients with their repayment and income histories from the Canada Student Loans Program (CSLP), income tax filings, and post-secondary schooling records to measure the extent to which student borrowers adjust loan repayments to insure against income variation. Several mechanisms are available for students to adjust loan repayments in response to income fluctuations: formal, like CSLP's Repayment Assistance Plan; and informal, such as delinquency or default. Borrowers can also make larger payments than required should they experience unexpectedly high income. Indeed, loan payments are shown to increase in income, more so in early years and for individuals with higher initial debt. More formally, we estimate that on average, an unexpected $1, 000 change in year-over-year income is associated with a $30 change in loan payment: from a $50 change the year after graduation, declining to a $20 change 5 years after graduation. Loan repayments are also used to absorb income variation that is more permanent in nature: for borrowers whose income is consistently below or above expected income at graduation, the magnitude of average repayment adjustment is similar to the average yearly response.
    JEL: E21 G51 H52 I22
    Date: 2022–12
  6. By: Felipe E. Aldunate; Zhi Da; Borja Larrain; Clemens Sialm
    Abstract: Frequent, yet uninformed, fund flows in Chilean pension plans generate substantial trading in currency markets due to the high allocation to international securities. These non-fundamental flows have a significant impact on the Chilean peso, which is estimated to have a relatively low price elasticity of 0.81. Hedging by the banking sector propagates the price pressure to currency forward markets and results in violations of the covered interest rate parity. Using trading data and bank balance sheet data, we confirm that regulatory requirements and banks’ risk bearing constraints create limits of arbitrage.
    JEL: F31 F32 F33 G11 G15 G21 G23 G40 G51 H55
    Date: 2022–12
  7. By: Sewon Hur (Federal Reserve Bank of Dallas); Cesar Sosa-Padilla (University of Notre Dame/NBER); Zeynep Yom (Villanova University)
    Abstract: We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold governmentdebt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with the government sometimes finding it optimal to extend guaranteesover bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs andpossible heightened default risk (i.e., they create a ‘diabolic loop’). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of bankinglosses that the bailouts cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the bankingcrisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: Having access to bailouts lowers thecost of defaults, which in turn increases the default frequency, and reduces the levels of debt, output, and consumption.
    Keywords: Bailouts, Sovereign Defaults, Banking Crises, Contingent Transfers, Sovereignbank diabolic loop
    JEL: E32 E62 F34 F41 G01 G15 H63
    Date: 2022–12
  8. By: Ozili, Peterson K
    Abstract: This paper analyzes global interest in internet information about decentralized finance (DeFi), embedded finance (EmFi), open finance (OpFi), ocean finance (OcFi) and sustainable finance (SuFi) and the relationship among them. The findings reveal that global interest in internet information about embedded finance (EmFi) was more popular in Asian and European countries. Global web search for internet information about OcFi decreased during the financial crisis while global web search for internet information about OpFi and EmFi increased during financial crisis years. Global web search for internet information about DeFi, SuFi and EmFi increased during the pandemic years. There is a significant positive correlation between global interest in decentralized finance, embedded finance, ocean finance and sustainable finance information. Also, there is a significant negative correlation between global interest in embedded finance information and global interest in open finance information. The regression coefficient matrix shows that global interest in information about open finance, embedded finance, ocean finance, decentralized finance and sustainable finance are significantly related.
    Keywords: information technology, internet, decentralized finance, open finance, embedded finance, ocean finance, sustainable finance.
    JEL: G00 G21 Q56
    Date: 2023
  9. By: Noland, Marcus
    Abstract: For the last quarter century, Asia has been seeking greater autonomy within the existing international monetary system. While the region has had the resources to go its own way, intraregional rivalries, and a reluctance to damage ties to the US and the International Monetary Fund, have put a damper on regional initiatives. Now the ascendency of China offers a path toward greater regional autonomy in monetary affairs. Asia, led by China, has been playing a two-track strategy pushing for greater influence within the existing global institutions, while developing its own parallel institutions such as the Chiang Mai Initiative Multilateralization, the Belt and Road Initiative, and the Asian Infrastructure Investment Bank. Use of the Chinese renminbi will likely grow as a trade invoicing currency but expanded use of the renminbi as a reserve currency is more uncertain. It is possible that the dollar-centered international financial system could evolve into a multipolar system with multiple currencies playing key roles.
    Keywords: international monetary system; Asia; China; renminbi
    JEL: F33 F53 N25
    Date: 2022–12–01
  10. By: Haselmann, Rainer; Singla, Shikhar; Vig, Vikrant
    Abstract: We exploit the establishment of a supranational supervisor in Europe (the Single Supervisory Mechanism) to learn how the organizational design of supervisory institutions impacts the enforcement of financial regulation. Banks under supranational supervision are required to increase regulatory capital for exposures to the same firm compared to banks under the local supervisor. Local supervisors provide preferential treatment to larger institutes. The central supervisor removes such biases, which results in an overall standardized behavior. While the central supervisor treats banks more equally, we document a loss in information in banks' risk models associated with central supervision. The tighter supervision of larger banks results in a shift of particularly risky lending activities to smaller banks. We document lower sales and employment for firms receiving most of their funding from banks that receive a tighter supervisory treatment. Overall, the central supervisor treats banks more equally but has less information about them than the local supervisor.
    Keywords: Financial Regulation, Financial Supervision, Banking Union
    JEL: G21 G28
    Date: 2022
  11. By: Ozili, Peterson K
    Abstract: There is much interest in central bank digital currency (CBDC) among central banks around the world. African countries have also joined the league of nations that are conducting research into CBDC. The launch of the eNaira CBDC in Nigeria has drawn substantial interest from observers around the world including central banks. The eNaira CBDC is envisaged to bring many benefits, and financial inclusion is considered to be one of such benefits. This paper explores the eNaira CBDC and its potential to increase financial inclusion in Nigeria. I show that the eNaira CBDC can increase financial inclusion by (i) offering an easy account opening process for greater financial inclusion (ii) enabling digital access to diverse financial services in the financial system, (iii) offering low-cost financial products and services, (iv) avoiding unexplained bank charges that causes financial exclusion, (v) attracting people who have lost confidence in banks, (vi) introducing interest-bearing eNaira, and (vii) using offline channels to access the eNaira.
    Keywords: Nigeria, eNaira, central bank digital currency, CBDC, financial inclusion, eNaira wallet.
    JEL: E50 E52 E58 G21
    Date: 2023
  12. By: Jeremy Srouji (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, ISS - International Institute of Social Studies (ISS), Erasmus University Rotterdam); Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Abstract: The COVID-19 pandemic has had a profound impact on payment systems and preferences around the world, reducing the use of cash in favor of digital payment instruments and accelerating the discussion around the need for a central bank digital currency. This article presents the digital payments and cashless agenda before and after the pandemic, focusing on how the changing payments landscape has influenced the priorities and decisions of regulators, banks and other financial intermediaries, with regards to the future shape of payment systems. It finds that while the pandemic demonstrated the benefits associated with building an advanced, competitive and integrated digital payments ecosystem , it has also brought to the forefront more fragmentation than convergence between payment systems in different regions of the world.
    Keywords: central bank digital currency (CBDC), digital payments, mobile money, cashless, payment systems, NFC, e-wallets
    Date: 2022–11–26
  13. By: Dario Caldara; Francesco Ferrante; Albert Queraltó
    Abstract: Central banks around the world are tightening monetary policy in response to a global surge in inflation not seen since the 1970s. This synchronization of global interest rate hikes and further increases expected by markets, illustrated in figure 1, have raised concerns about adverse international spillovers of tighter monetary policy.
    Date: 2022–12–22
  14. By: Renaud Beaupain (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France); Yann Braouezec (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France)
    Abstract: Under Basel III, the new international banking regulation, banks must maintain two Tier 1 capital ratios that treat risky assets dierently. The Basel Committee uses the critical average risk weight (CARW) framework, developed by the Bank of England to determine which ratio is the binding constraint. This methodology, which implicitly assumes that each asset is subject to a uniform shock, consists in comparing the implied average risk weight of a bank to a regulatory critical threshold. Using a stress test approach, we examine whether, and under which conditions, the CARW framework identies the correct binding capital ratio. We nd important errors, that are attributable to incorrect data but surprisingly not to the CARW framework. We nally generalize the methodology used by the Basel Committee and show how our stress-test approach can be used to determine which ratio is binding when only a (single class of) asset(s) is shocked.
    Keywords: : International banking regulation, Leverage ratio, Risk-based capital ratio, Critical average risk weight framework, Stress-test framework
    Date: 2022–11
  15. By: Huong, Pham Thu
    Abstract: Vietnam continuously liberalizes the financial market as a requirement for its accession to the World Trade Organization in 2007. This paper discusses the foreign investors’ expectation and their experience when penetrating into Vietnam’s market. The role of the foreign entrants is also assessed. By synthesizing and analyzing relevant research and reports, several important insights are discovered. Firstly, the presence of foreign investors and banks improves market competition, efficiency, and stability. Wholly and partly foreign-owned banks provide the spillover effects in management quality, in the introduction of world standard banking products and services, and in the application of information technology. Secondly, by looking into the foreign owned banks, it is found that the banks’ foreign investors are not likely to play an influential role in managing the banks they invested in. The motive of the investors to control the invested companies leads to their decision of holdings withdrawing.
    Date: 2022–11–29
  16. By: Vitor Castro (Faculty of Social Sciences, Charles University, Prague, Czech Republic & Institute of Economic Research, Slovak Academy of Sciences, Bratislava); Boris Fisera (Faculty of Social Sciences, Charles University, Prague & Institute of Economic Research, Slovak Academy of Sciences, Bratislava)
    Abstract: This paper explores the effect of financial development on the duration of economic recoveries, considering a sample of 414 economic recoveries observed in 67 countries during the period 1989-2019. We define the duration of economic recovery, as the time it takes the economy to return to its potential output level. Using a continuous-time Weibull duration model, we find that a higher level of financial development tends to prolong the duration of economic recovery. Therefore, our findings indicate that a too highly developed financial system might delay a full recovery after a recession, supporting the notion that there is ´too much financeâ´. In particular, greater size of the underregulated sector of non-banking financial institutions (shadow banks) prolongs the economic recovery. Moreover, the emerging economies, with their generally poorer regulatory frameworks, are more negatively affected by ´too much finance´. Underlining the importance of an effective regulation of the entire financial system, our results also confirm that a higher regulatory quality limits the negative consequences of ´too much finance´.
    Keywords: economic recovery, duration analysis, Weibull duration model, financial development, too-much-finance
    Date: 2022–12
  17. By: Alina K Bartscher (Danmarks Nationalbank); Moritz Kuhn (University of Bonn, CEPR - Center for Economic Policy Research - CEPR, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Moritz Schularick (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, University of Bonn, CEPR - Center for Economic Policy Research - CEPR); Paul Wachtel (NYU - NYU System)
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than for white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own fewer financial assets that appreciate in value. Over a fiveyear horizon, the employment effects remain substantially smaller than the countervailing portfolio effects.
    Keywords: Monetary policy, Racial inequality, Income distribution, Wealth distribution, Wealth effects
    Date: 2022
  18. By: Gustavo Joaquim; Felipe Netto; José Renato Haas Ornelas
    Abstract: We study a large-scale quasi-experiment in the Brazilian banking sector characterized by an unexpected and macroeconomically relevant increase in lending by commercial government banks. Using credit registry data, we find that this intervention led to a reduction in lending rates, but it did not lead to a change in private banks’ credit supply. Firms reliant on government banks experienced a substantial increase in debt, and government banks faced a large increase in loan defaults driven by indebted firms. We find a small increase in employment at the firm level, suggesting limited direct benefits of the intervention. At the regional level, we find that branch presence cannot explain credit growth due to cross-market borrowing. Once we account for this channel, we find real effects at the regional level that are substantially larger than those at the firm level, emphasizing the general-equilibrium effects of large-scale interventions.
    Keywords: credit market interventions; credit supply shocks; government banks
    JEL: E44 E65 G21 G28
    Date: 2022–09–01
  19. By: Boris Chafwehé (European Commission (Joint Research Center) and IRES (UCLouvain)); Charles de Beauffort (National Bank of Belgium); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: In the fiscal theory of the price level, inflation and debt dynamics are determined jointly. We derive optimal monetary policy rules that can approximate the Ramsey outcome in this environment. When the government issues a portfolio of bonds of different maturities and buys it back every period the optimal interest rate response to inflation is a simple, transparent function of the average debt maturity. This policy exploits the maturity structure to minimize the intertemporal variability of inflation in response to fiscal shocks. We then turn to the more realistic scenario of no buyback assuming that the government does not repurchase and reissue debt in every period. In the case where debt is only long term, the optimal policy equilibrium features oscillations in inflation and simple inflation targeting rules may lead to explosive inflation dynamics. Issuing both short and long bonds rules out oscillations and allows simple rules to approximate the Ramsey outcome closely. Underlying these results is the ability of the optimizing policy authority to smooth distortions stemming from inflation across periods. When debt is short term or it is bought back in every period, the planner can spread evenly the distortions over time. Under no repurchases, this ability is lost.
    Keywords: Monetary Policy, Fiscal Theory, Optimal Interest Rates, Government Debt Maturity, Ramsey policy
    JEL: E31 E52 E58 E62 C11
    Date: 2022–11–29
  20. By: Lin William Cong; Xi Li; Ke Tang; Yang Yang
    Abstract: We introduce systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions on 29 cryptocurrency exchanges. Regulated exchanges feature patterns consistently observed in financial markets and nature; abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g., age and userbase), market conditions, and regulation.
    JEL: G18 G23 G29
    Date: 2022–12
  21. By: Boris Chafwehé (European Commission (Joint Research Center) and IRES (UCLouvain)); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Romanos Priftis (European Central Bank); Lukas Vogel (European Commission (ECFIN))
    Abstract: We derive optimal monetary policy rules when government debt may be a constraint for the monetary authority. We focus on an environment where fiscal policy is exogenous, setting taxes according to a rule that specifies the tax rate as a function of lagged debt. In the case where taxes do not adjust sufficiently to ensure the solvency of debt, then the monetary authority is burdened by debt sustainability. Under this scenario, optimal monetary policy is a ‘passive money rule’, setting the interest rate to weakly respond to inflation. We characterize analytically the optimal inflation coefficients under alternative specifications of the central bank loss function, using a simple Fisherian model, but also the canonical New Keynesian model. We show that the maturity structure of debt is a key variable behind optimal policy. When debt maturity is calibrated to US data, our model predicts that a simple inflation targeting rule where the inflation coefficient is 1 − 1 Maturity is a good approximation of the optimal policy. Lastly, our framework can also nest the case where fiscal policy adjusts taxes to satisfy the intertemporal debt constraint. In this scenario optimal monetary policy is an active policy rule. We contrast the properties of active and passive policies, using the analytical optimal policy rules derived from this framework of monetary/fiscal interactions.
    Keywords: Fiscal/monetary policy interactions, Fiscal theory of the price level, Ramsey policy
    JEL: E31 E52 E58 E62 C11
    Date: 2022–12–08
  22. By: Marjit, Sugata; Das, Gouranga G.
    Abstract: This paper attempts to build up a Heckscher-Ohlin-Samuelson model of production and trade where capital is introduced outside the production process as a financial capital or credit as per the classical Ricardian wage fund framework. Stock of credit or financial capital as past savings, finances employment and machines or capital goods used in the process of production with Ricardian fixed coefficient technology. Availability of finance does not affect production or pattern of trade only nominal factor prices. International financial flows will not alter pattern of trade, but movement of labour and machines will. Such results change drastically when we consider a model with unemployment and finance dictates real outcomes much more than before. Introducing finance affects trade patterns with unemployment and especially with imperfect credit markets. In a two-period extension with credit demand being allocated for financing R&D expenditure, a rise in interest rate in the subsequent period will motivate perpetual tendencies to invest in machine via R&D so that machine-intensive sector will expand at the expense of the labour-intensive sector. This can account for the secular decline in labour income share as has been observed for some time. Our results are consistent with contemporary empirical evidence and have serious policy implications for role of financial development and quality of institutions for innovation and economic development. Numerical illustration corroborates this.
    Keywords: Wage-Fund, Heckscher-Ohlin-Samuelson, Ricardo, Inequality, Credit, General Equilibrium, Financial Development, Unemployment, Machine-biased Technical Change, R&D
    JEL: B12 B13 B17 F11 F63 F65 F16 O12
    Date: 2023
  23. By: Pascal Flurin Meier (Department of Business Administration, University of Zurich); Raphael Flepp (Department of Business Administration, University of Zurich); Egon Franck (Department of Business Administration, University of Zurich)
    Abstract: We examine whether finance professionals deviate from Bayes’ theorem on the processing of nondiagnostic information when forecasting quarterly earnings. Using field data from sell-side financial analysts and employing a regression discontinuity design, we find that analysts whose forecasts have barely been met become increasingly optimistic relative to when their forecasts have barely been missed. This result is consistent with an update of analysts’ expectations after observing uninformative performance signals. Our results also suggest that this behavior leads to significantly worse forecasting accuracy in the subsequent quarter. We contribute to the literature by providing important field evidence of expectation formation under uninformative signals.
    Keywords: Financial Analysts; Information Processing; Uninformative Signals; Outcome Bias; Regression Discontinuity Design
    JEL: D81 D83 D91 G41
    Date: 2022–12
  24. By: Matthew Read (Reserve Bank of Australia)
    Abstract: Existing estimates of the macroeconomic effects of Australian monetary policy tend to be based on strong, potentially contentious, assumptions. I estimate these effects under weaker assumptions. Specifically, I estimate a structural vector autoregression identified using a variety of sign restrictions, including restrictions on impulse responses to a monetary policy shock, the monetary policy reaction function, and the relationship between the monetary policy shock and a proxy for this shock. I use an approach to Bayesian inference that accounts for the problem of posterior sensitivity to the choice of prior that arises in this setting, which turns out to be important. Some sets of identifying restrictions are not particularly informative about the effects of monetary policy. However, combining the restrictions allows us to draw some useful inferences. There is robust evidence that an increase in the cash rate lowers output and consumer prices at horizons beyond a year or so. The results are consistent with the macroeconomic effects of a 100 basis point increase in the cash rate lying towards the upper end of the range of existing estimates.
    Keywords: impulse responses; monetary policy; proxies; robust Bayesian inference; sign restrictions
    JEL: C32 E52
    Date: 2022–12
  25. By: Ozili, Peterson K
    Abstract: This article presents a discussion of the role of central bank digital currency (CBDC), Fintech and cryptocurrency for financial inclusion and financial stability. We show that Fintech, CBDC and cryptocurrency can increase financial inclusion by providing an alternative channel through which unbanked adults can access formal financial services. CBDC and Fintech services have the potential to preserve financial stability while cryptocurrency presents financial stability risks that can be mitigated through effective regulation. The paper also identified some problems of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. The paper offered some insight about the future of financial inclusion and the future of financial stability. Although CBDC, Fintech or cryptocurrency can extend financial services to unbanked adults and offer cost-efficient advantages, there are risk considerations that need to be taken into account when using CBDC, Fintech and cryptocurrency to increase financial inclusion and to preserve financial stability.
    Keywords: CBDC, Fintech, cryptocurrency, financial inclusion, financial stability, blockchain, central bank digital currency.
    JEL: E40 E51 E58 E59 G21 O31
    Date: 2023

This nep-ban issue is ©2023 by Sergio Castellanos-Gamboa. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.