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on Banking |
| By: | Carletti, Elena; Leonello, Agnese; Marquez, Robert |
| Abstract: | Bank market power, both in the loan and deposit market, has important implications for credit provision and for financial stability. This article discusses these issues through the lens of a simple theoretical framework. On the asset side, banks choose the quality and quantity of loans. On the liability side, they may be subject to depositor runs whenever they offer demandable contracts. This structure allows us to review the literature on the role of market power for credit provision and stability and also highlight the interactions between the two sides of banks’ balance sheets. Our approach identifies relevant channels that deserve further analysis, especially given the rising importance of bank market power for monetay policy transmission and the the rise of the digital economy. JEL Classification: G01, G21, G28 |
| Keywords: | balance sheet interactions, bank runs, credit provision, digital economy, monetary policy transmission |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242886&r=ban |
| By: | Hasan, Iftekhar; Li, Xiang; Takalo, Tuomas |
| Abstract: | This paper studies whether and how banks' technological innovations affect the bank lending channel of monetary policy transmission. We first provide a theoretical model in which banks' technological innovation relaxes firms' earning-based borrowing constraints and thereby enlarges the response of banks' lending to monetary policy changes. To test the empirical implications, we construct a patent-based measurement of bank-level technological innovation, which can specify the nature of technology and tell whether it is related to the bank's lending business. We find that lending-related innovations significantly strengthen the transmission of the bank lending channel. |
| Keywords: | Innovation, FinTech, Monetary Policy Transmission, Bank Lending Channel |
| JEL: | E52 G21 G23 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:280960&r=ban |
| By: | Deyan Radev (Sofia University, Faculty of Economics and Business Administration) |
| Abstract: | In this study, we explore the impact of solvency and wholesale funding shocks on the lending behavior of 84 OECD parent banks and their 375 foreign subsidiaries. Our findings indicate that solvency shocks play a more significant role than wholesale funding shocks in influencing subsidiary lending. Moreover, we observe that solvency shocks have a heightened impact on larger subsidiary banks operating in mature markets with limited growth opportunities. These results carry substantial theoretical and policy implications, contributing to a deeper understanding of how solvency and wholesale shocks traverse borders and affect the lending dynamics of global banking entities. |
| Keywords: | Commercial banks, global banks, wholesale shocks, solvency shocks, transmission, internal capital markets |
| JEL: | G01 G21 G28 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2024-02&r=ban |
| By: | Maria teNyenhuis; Adam Su |
| Abstract: | We investigate how the increase in interest rates since early 2022 is affecting mortgage payments. By November 2023, less than half of mortgage holders had faced higher payments. Many borrowers will see a sizable increase in payments at renewal, although income growth could help mitigate the impact. |
| Keywords: | Credit and credit aggregates; Financial institutions; Interest rates; Recent economic and financial developments |
| JEL: | D D1 E E4 E5 G G2 G21 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:23-19&r=ban |
| By: | Lennard, Jason; Kenny, Seán; Horgan, Emma |
| Abstract: | This paper studies a natural experiment in macroeconomic history: the Irish bank strike of 1966, which led to the closure of the major commercial banks for three months. We use synthetic control to estimate how the economy would have evolved had the strike not happened. We find that economic activity slowed, deviating by 6% from the counterfactual path. Narrative evidence not only supports this finding, but also depicts the struggles of households and firms managing a credit crunch, a liquidity shock, and rising transaction costs. This case study highlights the importance of banks for economic performance. |
| Keywords: | Banks, Ireland, macroeconomy, post-war |
| JEL: | E32 E44 G21 N14 N24 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:280962&r=ban |
| By: | Giulio Cornelli; Fiorella De Fiore; Leonardo Gambacorta; Cristina Manea |
| Abstract: | Fintech credit, which includes peer-to-peer and marketplace lending as well as lending facilitated by major technology firms, is witnessing rapid growth worldwide. However, its responsiveness to monetary policy shifts remains largely unexplored. This study employs a novel credit dataset spanning 19 countries from 2005 to 2020 and conducts a PVAR analysis to shed some light on the different reaction of fintech and bank credit to changes in policy rates. The main result is that fintech credit shows a lower (even non-significant) sensitivity to monetary policy shocks in comparison to traditional bank credit. Given the still marginal – although fast growing – macroeconomic significance of fintech credit, its contribution in explaining the variability of real GDP is less than 2%, against around one quarter for bank credit. |
| Keywords: | fintech credit, monetary policy, PVAR, collateral channel |
| JEL: | D22 G31 R30 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1157&r=ban |
| By: | Tobias Kranz; Hamza Bennani; Matthias Neuenkirch |
| Abstract: | Climate change poses significant challenges through rising temperatures, extreme weather events, and the exposure of economic (and societal) systems to these dangers. The irreversible and potentially non-linear nature of climate change, together with evolving technological and policy landscapes, complicates matters and predictions. We review the theoretical and empirical literature on climate change's effects on prices, output, and monetary policy transmission. In addition, we describe central banks' responses, including a timeline of efforts, potential actions, data sources, and a comparison of the five largest central banks. |
| Keywords: | Central Banks, Climate Change, Financial Stability, Macroprudential Regulation, Monetary Policy |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:202401&r=ban |
| By: | Guter-Sandu, Andrei; Haas, Armin; Murau, Steffen |
| Abstract: | The Green Transition to net-zero carbon emissions in Europe requires massive financing efforts, with estimates of 620 billion EUR annually, but the headwinds are substantive. Central banks seem overstretched and busy tightening to combat inflation; treasuries are subject to austerity-inducing fiscal rules; and banking systems are afflicted by non-performing loans, fragmentation, and risk aversion. We employ the framework of ‘monetary architecture’ to analyse the EU’s monetary and financial system as a constantly evolving hierarchical web of interlocking balance sheets and study its capacity to find ‘elasticity space’ to meet the financing challenge. To this end, we draw on a four-step scheme for green macro-financial governance along the financial cycle of balance sheet expansion, funding, and final contraction. We find that, first, Europe’s monetary architecture still has ample elasticity space to provide a green initial expansion due to its developed ecosystem of national, subnational, and supranational off-balance-sheet fiscal agencies. Second, as mechanisms lack to consciously organise the distribution of long-term debt instruments across different segments, its capacity to provide long-term funding is limited. Third, institutional transformation in the last two decades have greatly improved the capacity of the European monetary architecture to counteract financial instability by providing emergency elasticity. Fourth, the capacity of the European monetary architecture to manage a final contraction of balance sheets is limited, which is a general quandary in modern credit money systems. Our analysis points to the need for further investigations into techniques for monetary architectures to manage long-term funding and balance sheet contractions. |
| Date: | 2023–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:4mb2q&r=ban |
| By: | Yusuf Soner Baskaya; Ilhyock Shim; Philip Turner |
| Abstract: | Using quarterly data on macroprudential policy (MaPP) measures and capital flow management measures (CFMs) taken by 39 economies in 2000–2013, we analyse how domestic credit and cross-border capital flows respond to such measures. In doing so, we take a granular approach by considering price-based and quantity-based MaPP measures and CFMs, and also examine if the level of financial development matters in explaining policy effectiveness. We find that quantity-based MaPP measures significantly affect total credit and its components such as domestic bank credit, corporate credit and housing credit, but that the effects fade away beyond a certain level of financial development, suggesting that highly developed financial markets provide opportunities to circumvent MaPP measures imposed on banks. We also find that both price- and quantity-based CFMs are effective in slowing down bank inflows with the former effective at all levels of financial development and the latter effective at relatively high levels. Finally, we find some evidence on the existence of leakage effects. For example, tighter overall MaPP measures are associated with larger bond inflows, and tighter quantity-based MaPP measures with larger bank inflows. |
| Keywords: | bank lending, capital flow management measures, cross-border capital flows, financial development, macroprudential policy |
| JEL: | F34 G15 G28 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1158&r=ban |
| By: | Shihan Xie; Victoria Wenxin Xie; Xu Zhang |
| Abstract: | This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Using a novel dataset comprising individual-level payday loan applications and loan-level information, we find that extreme temperature days—both hot and cold—lead to surges in demand for payday loans. An increase in the number of days with extreme heat results in an increase in delinquency and default rates and a reduction of total credit issued, indicating a contraction in loan supply. These effects are especially noticeable for online payday loans. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies. |
| Keywords: | Climate change; Credit and credit aggregates |
| JEL: | Q54 G5 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-1&r=ban |
| By: | Baumgärtner, Martin; Zahner, Johannes |
| Abstract: | Dictionary approaches are at the forefront of current techniques for quantifying central bank communication. This paper proposes embeddings - a language model trained using machine learning techniques - to locate words and documents in a multidimensional vector space. To accomplish this, we utilize a text corpus that is unparalleled in size and diversity in the central bank communication literature, as well as introduce a novel approach to text quantification from computational linguistics. This allows us to provide high-quality central bank-specific textual representations and demonstrate their applicability by developing an index that tracks deviations in the Fed's communication towards inflation targeting. Our findings indicate that these deviations in communication significantly impact monetary policy actions, substantially reducing the reaction towards inflation deviation in the US. |
| Keywords: | Word Embedding, Neural Network, Central Bank Communication, Natural Language Processing, Transfer Learning |
| JEL: | C45 C53 E52 Z13 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:280939&r=ban |
| By: | Fares Bounajm; Austin McWhirter |
| Abstract: | We show how Canadian mortgage debt dynamics can be modelled in a semi-structural macroeconomic model, such as the Bank of Canada’s LENS. The model we propose accounts for Canada’s unique mortgage debt structure. |
| Keywords: | Economic models; Monetary policy transmission |
| JEL: | E27 E43 E47 G51 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:24-1&r=ban |
| By: | Agni Poullikka |
| Abstract: | The policy responses to the Eurozone crisis were mainly driven by taxpayer funded bail-outs and austerity packages, with the exception of Cyprus where a bail-out was supplemented with a bank bail-in for the first time in the Eurozone. This paper examines how voters assign blame for the 2013 Cypriot banking crisis. The results of an original public opinion survey that was conducted in Cyprus show that neither the incumbent government at the time of the bail-in nor the previous one are assigned primary responsibility. Instead, blame is dispersed towards two non-elected actors; the national central bank and the banking sector. The findings carry implications for democratic accountability at the domestic and European Union level. |
| Keywords: | European Union, Eurozone crisis, Cyprus, small states, public opinion |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:192&r=ban |
| By: | Irfan Cercil; Cem Ali Gökcen |
| Abstract: | Most advanced economy central banks cut their policy rates and introduced asset purchase programs (APPs) to weather the impacts of the Covid-19 pandemic on their economies and financial systems. Similar to their advanced economy counterparts, a number of emerging market (EM) central banks also initiated APPs during the Covid-19 pandemic. In this paper, we analyze the effects of these EM APPs on financial market variables such as sovereign bond yields, nominal exchange rates vis-à-vis US dollar, and stock market indices by using a novel causal inference approach. We utilize the local projections (LP) methodology of Jordà (2005) and estimate the average treatment effect (ATE) of EM APPs by applying the augmented inverse probability weighting (AIPW) estimator that addresses the selection bias and endogeneity problems inherent in the statistical analysis of quantitative easing (QE) policies. Our empirical findings suggest that QE policies adopted by EM central banks played an instrumental role in lowering sovereign bond yields and supporting exchange rates and equity markets during Covid-19 pandemic. This suggests that QE policies may complement traditional monetary policies in EM countries especially during periods of elevated market stress and uncertainty. |
| Keywords: | Covid-19, Quantitative easing, Asset purchase program, Central banks, Emerging markets, Local projections, Augmented inverse probability weighting estimation. |
| JEL: | E5 F3 G1 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2308&r=ban |
| By: | Nahid Farnaz |
| Abstract: | This paper probes deeper into the finance-inequality nexus to explore whether the impact of the multi-dimensional aspects of financial development on income inequality varies across countries at different stages of the inequality spectrum. Using an instrumental variable quantile regressions approach for a panel dataset of 91 countries from 1980 to 2014, the findings suggest that the impact of financial development in terms of banking and stock market development on income inequality for countries at the higher end of the inequality spectrum differs from those with lower or moderate inequality levels. Furthermore, the variation observed in the magnitude of the impact at different quantiles of the conditional distribution of income inequality depends on the specific measure used to capture a different aspect of financial development, i.e., depth, efficiency and stability of banking sector and stock market development. The results are robust to several alternative specifications and have important policy implications for countries with different inequality levels. |
| Keywords: | income inequality; financial development; financial systems; quantile regressions |
| JEL: | D63 O16 G00 P00 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:2311&r=ban |
| By: | Taskin, Ahmet Ali; Yaman, Firat |
| Abstract: | What is the role of financial deregulation on rising finance wage premium in the US? This study makes use of the Interstate Banking and Branching Efficiency Act of 1994 as an exogenous shift to local banking markets and investigates the effect of deregulation induced competition on relative wages in finance. We find that the finance wage premium increased significantly in deregulated states. Our estimates suggests that the deregulation explains about a quarter of the increase in finance wage premium between 1994 and 2008. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:280992&r=ban |
| By: | Frederic Boissay; Fabrice Collard; Cristina Manea; Adam Shapiro |
| Abstract: | The paper explores the state–dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: the nature of supply versus demand inflation at the time of policy rate hikes. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven (e.g. due to adverse supply or cost–push shocks) or demand–driven (e.g. due to positive demand factors). We find that financial stress flares up after a policy rate hike when inflation is supply–driven, but it remains roughly unchanged, or even declines when inflation is demand–driven. Our findings point to a particular tension between price stability and financial stability when inflation is high and largely supply–driven. |
| Keywords: | supply– versus demand–driven inflation, monetary tightening, financial stress |
| JEL: | E1 E3 E6 G01 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1155&r=ban |
| By: | Estrin, Saul (London School of Economics); Khavul, Susanna (San Jose State University); Kritikos, Alexander S. (DIW Berlin); Löher, Jonas (IfM Bonn) |
| Abstract: | Financing entrepreneurship spurs innovation and economic growth. Digital financial platforms that crowdfund equity for entrepreneurs have emerged globally, yet they remain poorly understood. We model equity crowdfunding in terms of the relationship between the number of investors and the amount of money raised per pitch. We examine heterogeneity in the average amount raised per pitch that is associated with differences across three countries and seven platforms. Using a novel dataset of successful fundraising on the most prominent platforms in the UK, Germany, and the USA, we find the underlying relationship between the number of investors and the amount of money raised for entrepreneurs is loglinear, with a coefficient less than one and concave to the origin. We identify significant variation in the average amount invested in each pitch across countries and platforms. Our findings have implications for market actors as well as regulators who set competitive frameworks. |
| Keywords: | equity crowdfunding, soft information, entrepreneurship, finance, financial access and inclusion |
| JEL: | D26 G23 G41 L26 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16679&r=ban |
| By: | Hatice Gökce Karasoy Can; Evren Erdogan Cosar |
| Abstract: | The aim of this paper is to construct an index of financial constraints for firms in Türkiye. Traditional indices such as the KZ index, the WW index and the HP index have been constructed for advanced economies such as the United States or European countries. In this study, we take advantage of the Investment Tendency Survey sent to firms by the Central Bank of the Republic of Türkiye to extract a real indicator of financial constraints based on managers' own evaluations of their firms. The survey question on the factors that stimulate investment decisions is evaluated as a true indicator of financial constraints, and then this response is predicted with various balance sheet indicators. In this way, we construct an index of financial constraints that is specific to firms operating in the Turkish economy. We find that financial constraints can be determined with seven fundamental variables: age of the firm, size, change in size, profitability, leverage, tangibles (tangible assets to total assets) and export share. We prove the validity of the index by showing that financially constrained firms identified by this index have real difficulties in accessing bank credit in the form of lower volumes, higher interest rates and shorter loan maturities. We then show that financial constraints have a dampening effect on the firm's net worth and investment both through its own effect and through the long-term borrowing channel. Moreover, the transmission of a macro-financial shock is persistently affected by the financial constraint status. Finally, the validity of the index applies to a larger sample of companies. |
| Keywords: | Index of financial constraints, KZ index, Investment tendency, Turkish firms, Turkish economy |
| JEL: | E44 E60 G30 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2306&r=ban |
| By: | Sullivan, Megan |
| Abstract: | This paper investigates the determinants of countries' choice of monetary policy frameworks (MPF) for emerging and developing countries. Countries make different MPF choices and we think it is because they have different country-level characteristics (e.g. democratic strength and trade networks). By covering 87 countries from 1985-2017, we investigate the role these characteristics play in predicting MPF choice. A highlight of this paper is that it uses a tailored variable to measure the volume of trade with a network that pegs to an anchor currency. We find that a country is significantly more likely to choose an exchange rate MPF when the volume increases. The model used in this paper correctly predicts 74% of MPF choice when done via a cross-validation method. This paper enables policymakers to see which MPF countries similar to their own have chosen, and they can decide if it is suitable for them, too. |
| Keywords: | Inflation targeting, central bank independence, trade networks, cross-validation |
| JEL: | E42 E52 E58 F40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hwuaef:280994&r=ban |
| By: | von Schweinitz, Gregor |
| Abstract: | This paper contributes to a better understanding of the important role that credit demand plays for credit markets and aggregate macroeconomic developments as both a source and transmitter of economic shocks. I am the first to identify a structural credit demand equation together with credit supply, aggregate supply, demand and monetary policy in a Bayesian structural VAR. The model combines informative priors on structural coefficients and multiple external instruments to achieve identification. In order to improve identification of the credit demand shocks, I construct a new granular instrument from regional mortgage origination. I find that credit demand is quite elastic with respect to contemporaneous macro-economic conditions, while credit supply is relatively inelastic. I show that credit supply and demand shocks matter for aggregate fluctuations, albeit at different times: credit demand shocks mostly drove the boom prior to the financial crisis, while credit supply shocks were responsible during and after the crisis itself. In an out-of-sample exercise, I find that the Covid pandemic induced a large expansion of credit demand in 2020Q2, which pushed the US economy towards a sustained recovery and helped to avoid a stagflationary scenario in 2022. |
| Keywords: | Bayesian proxy SVAR, credit demand, credit-driven business cycles, granular instrument |
| JEL: | C32 E32 E44 G10 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:281058&r=ban |
| By: | Bogdanova, Iryna |
| Abstract: | Introduction The current discussion of Ukraine’s recovery and reconstruction takes place against the backdrop of the broad and internationally coordinated efforts to sanction Russia and its ruling elites. Given that these sanctions resulted in the assets of the Russian Central Bank and entities under its control being immobilized, the question that immediately springs to one’s mind is whether and how can these resources be used to rebuild Ukraine. While the political discussions have abounded in claims that these funds can be used as reparations and the war crimes committed by the Russian army only strengthen this resolve, this might be a thorny path to follow from a legal perspective. It is against this backdrop that this chapter aims to contribute to both academic and policy debates on the topic. The contribution is structured in the following way. Part 2 is dedicated to the analysis of whether there is a political will among the states that immobilized Russian assets to confiscate or use them. Following this, Part 3 focuses on the discussion of the legality of such a move. For this purpose, the legality of asset confiscation or their temporary use is examined against the background of immunities granted to central bank assets under international law. Subsequently, this part explores possible legal justifications for asset confiscation and their availability. Continue reading in the attached PDF. Full publication available. |
| Date: | 2024–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:wti:papers:1431&r=ban |
| By: | Fiorella De Fiore; Benoit Mojon; Daniel Rees; Damiano Sandri |
| Abstract: | We evaluate the performance of alternative monetary policy rules during and after the post-pandemic inflation surge. We first document that inflation expectations remained well anchored in advanced economies irrespective of differences in monetary policy frameworks. We then show that an aggressive inflation targeting (IT) rule would have contained the inflation surge very modestly relative to a benchmark average inflation targeting (AIT) rule, at the cost of larger negative output gaps. Finally, looking at the post inflation surge period, we compare monetary policy frameworks with respect to potential changes in the slope of the Phillips curve or changes in the level of r*. We illustrate that the benefits of a dual mandate relative to a single mandate increase when the Phillips curve is flatter; that AIT rules tend to stabilize inflation and interest rates relative to IT rules but at the cost of higher output volatility; and that AIT is more robust than IT to a possible misperception of r*. |
| Keywords: | monetary policy frameworks, inflation targeting, average inflation targeting, dual mandate |
| JEL: | E31 E42 E52 E58 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1156&r=ban |
| By: | Clodomiro Ferreira; José Miguel Leiva; Galo Nuño Barrau; Alvaro Ortiz; Tomasa Rodrigo; Sirenia Vazquez |
| Abstract: | We identify and study analytically three key channels that shape how inflation affects wealth inequality: (i) the traditional wealth (Fisher) channel through which inflation redistributes from lenders to borrowers; (ii) an income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the price of different goods affect people differently depending on their consumption baskets. We then quantify these channels during the 2021 inflation surge in Spain using detailed and high-frequency client-level data from one of the main commercial banks. The unexpected nature and temporary perception of the inflation shock in this particular period closely maps on to the assumptions behind our theoretical decomposition. Results show that the wealth and income channels are one order of magnitude larger than the consumption channel. Middle-aged individuals were largely unaffected by inflation, while older ones suffered the most. We find similar results when using representative surveys on households' wealth, income, and consumption. |
| Keywords: | inflation inequality, net nominal positions, nominal wage rigidities |
| JEL: | G51 D31 E31 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1152&r=ban |
| By: | Unal Seven; Ertan Tok |
| Abstract: | Exports have direct and indirect contributions to growth and welfare; therefore, countries have been implementing various policies to boost exports. Among these policies, export credit remains an important policy instrument. Through its export-led growth strategy, Türkiye intends to increase its exports by subsidizing exporters via a rediscount credit scheme, a form of subsidized export credit, that is mostly financed by the Central Bank of the Republic of Türkiye (CBRT). In this paper, we aim to answer whether benefiting from such cost-effective financial support causes unintended consequences. We focus on the foreign exchange (FX) purchases of treated firms and estimate whether they purchase more FX than their non-treated pairs during the treatment period. Using firm-level data, we employ a propensity score matching (PSM) difference-in-differences (DD) estimator. Focusing only on firms that used rediscount credit for the first time after June 2020, we find evidence of positive and significant impact of using rediscount credits on the treated firms’ net FX purchases. However, this impact significantly diminishes after the CBRT regulations on the conditions for allocation and repayment of rediscount credits came into effect. We also find that being net importer increases the sensitivity of net FX purchase to using rediscount credit. We show that the effect of using rediscount credits on net FX purchase is higher in SMEs than in large firms. Our results suggest that directing rediscount credits from net importers to net exporters and preventing unintended uses through efficient regulations may increase the positive contribution of rediscount credit programs to financial stability. |
| Keywords: | Rediscount credits, Propensity score matching, Difference-in-differences, Türkiye |
| JEL: | F13 F31 O24 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2307&r=ban |
| By: | Masataka Mori; Juan M. Sanchez |
| Abstract: | A smaller share of Americans were in financial distress in 2021 than before the pandemic. Depending on the type of debt, the incidence of financial distress has returned to a high level in 2023. |
| Keywords: | financial distress |
| Date: | 2023–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:l00001:97542&r=ban |
| By: | Malik, Awais; Fürstenau, Bärbel |
| Abstract: | Financial literacy is crucial for making sound financial decisions and living a better life. However, the field of finance is full of abstract concepts, such as inflation, liquidity, asset allocation and credit. Abstract concepts may be harder to comprehend than concrete concepts. This is because abstract concepts lack tangible referents in the physical world, whereas concrete concepts (e.g., car or house) have a palpable form and can be directly experienced through our senses. Against this background, the question arises of how instructional material can be designed in a way that helps people acquire knowledge about abstract financial concepts. Multimedia learning theories suggest complementing verbal information with pictures that represent the respective topic or concept. Since abstract financial concepts lack palpable, concrete forms, these representational pictures are not simply available but have to be developed. Based on grounded cognition theory, this article discusses three approaches, including ‘situations’, ‘emotions’ and ‘metaphors’, which can be used to generate representational pictures of abstract financial concepts. This study aims to enhance our understanding of how to make effective pictures of abstract financial concepts and thus multimedia learning material, which in turn supports increasing people’s financial literacy. |
| Keywords: | Abstract Financial Concepts, Financial Literacy, Multimedia Learning, Pictures, Financial Education |
| JEL: | A20 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119517&r=ban |
| By: | Javier Bianchi; Louphou Coulibaly |
| Abstract: | Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that determine whether the Nash equilibrium exhibits under-tightening or over-tightening: the output gap, sectoral differences in labor intensity, and the trade balance response to changes in nominal rates. Independently of the shocks hitting the economy, we find that under-tightening is possible during economic expansions or contractions. For large shocks, the gains from coordination can be substantial. |
| Keywords: | Macroeconomic and financial spillovers; Monetary policy cooperation |
| JEL: | E23 E43 E52 E21 E62 E44 F32 |
| Date: | 2024–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:97546&r=ban |
| By: | Jalal Etesami; Ali Habibnia; Negar Kiyavash |
| Abstract: | We propose a nonparametric and time-varying directed information graph (TV-DIG) framework to estimate the evolving causal structure in time series networks, thereby addressing the limitations of traditional econometric models in capturing high-dimensional, nonlinear, and time-varying interconnections among series. This framework employs an information-theoretic measure rooted in a generalized version of Granger-causality, which is applicable to both linear and nonlinear dynamics. Our framework offers advancements in measuring systemic risk and establishes meaningful connections with established econometric models, including vector autoregression and switching models. We evaluate the efficacy of our proposed model through simulation experiments and empirical analysis, reporting promising results in recovering simulated time-varying networks with nonlinear and multivariate structures. We apply this framework to identify and monitor the evolution of interconnectedness and systemic risk among major assets and industrial sectors within the financial network. We focus on cryptocurrencies' potential systemic risks to financial stability, including spillover effects on other sectors during crises like the COVID-19 pandemic and the Federal Reserve's 2020 emergency response. Our findings reveals significant, previously underrecognized pre-2020 influences of cryptocurrencies on certain financial sectors, highlighting their potential systemic risks and offering a systematic approach in tracking evolving cross-sector interactions within financial networks. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2312.16707&r=ban |
| By: | Ahmed Ahmed; Boris Hofmann; Martin Schmitz |
| Abstract: | This paper uses security-level data of euro area investment funds' bond holdings to analyze their reaching for yield in the US dollar bond market. We find that they rebalance their US dollar bond portfolios toward higher yielding, riskier bonds when US monetary policy tightens, reflecting the effects of foreign exchange hedging. The effect is driven by the practice of hedging currency risk through rolling short-term hedging contracts. This gives rise to an erosion of the hedged yield earned on US dollar bonds when US monetary policy tightens and hedging costs increase, inducing reaching for yield in order to bolster portfolio returns. The hedging channel of monetary transmission is diametrically opposed to the classical risk-taking channel operating through US dollar-based investors, where a monetary tightening is associated with less reaching for yield. We further find that the US dollar bond purchases by euro area investment funds induced by their reaching for yield have meaningful effects on bond prices, implying that they affect conditions in the US dollar bond market. |
| Keywords: | monetary policy, foreign institutional investors, FX hedging, US dollar bond market |
| JEL: | E43 E52 G11 G12 G15 G23 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1153&r=ban |
| By: | Jean-Laurent Cadorel (EBS Paris - European Business School Paris, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | What caused the 1929 crash of the New York Stock Exchange? This paper provides a quantitative study of liquidity in the 1929 crash of the NYSE. I evidence the crash was indeed a liquidity crisis due to the liquidation of brokers' margin loans. Applying recent estimators of effective spreads and liquidity conditions from contemporary finance literature suggests a fourfold increase in spreads during the crash at the aggregate level. At the individual stock level, quoted bid-ask spreads suggest liquidity explains one-fifth of the variance in daily stock returns in the crash. |
| Abstract: | Quelles sont les causes immédiates du krach boursier de 1929 à la Bourse de New York ? Cet article présente une étude quantitative de la liquidité dans le krach de 1929 et prouve que le krach était bien une crise de liquidité dûe à des appels de marge sur des prêts des courtiers. En utilisant des estimateurs issus de la littérature financière moderne, cet article met en évidence la sévère détérioration des conditions de marché. Au niveau agrégé, les spreads ont été multipliés par 4. Au niveau des actions individuelles, les écarts entre la meilleure offre et la meilleure vente suggèrent que la liquidité explique un cinquième de la variance des rendements quotidiens des actions au cours de la crise. Grâce à des données intra journalières sur les 80 plus grandes actions, cet article montre que les chutes ont eu lieu aux horaires fixes d'appels de marge. |
| Keywords: | 1929 crash, Stock market, NYSE, Financial crisis, Liquidity crisis, Krach 1929, Marchés financiers, Crise financière, Crise de liquidité |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04347097&r=ban |
| By: | Gabriele Camera (Economic Science Institute, Chapman University); Alessandro Gioffré (DISEI, University of Florence) |
| Abstract: | Extreme financial shocks often elicit extraordinary policy interventions that preclude financial activity on a large scale, for example as the 1933 U.S. “bank holiday.†We study these interventions using a random matching framework where the financial contagion process is explicit and the diffusion of the initial shock can be analytically characterized. The study suggests that there is scope for forced closures of individual firms or even economy-wide financial lockdowns only when firms are financially vulnerable and policy institutions are not well-functioning. Here, ordinary policy alone cannot prevent or sufficiently mitigate contagion, while complementing it with a lockdown or individual closures can do so, and improve social welfare if the initial shock is severe but not widespread. |
| Keywords: | matching models, financial crises, contagion |
| JEL: | C6 D6 E5 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:23-15&r=ban |
| By: | Daube, Carl Heinz |
| Abstract: | The aim of this working paper is to provide a brief introduction to artificial intelligence and highlight specific potential applications in financial and investment decision-making. On the one hand, it is about where AI is already being used today in many areas of the financial industry. On the other hand, the aim is to show examples of what will be possible in the near future and where AI might lead to better, more sound decisions |
| Abstract: | Ziel dieses Working Papers ist es, eine kurze Einführung in die Künstliche Intelligenz zu geben und konkrete Einsatzmöglichkeiten in der Finanz- und Investitionsentscheidung aufzuzeigen. Dabei geht es zum einen darum, wo KI heute schon in vielen Bereichen der Finanzindustrie zum Einsatz kommt. Zum anderen geht es darum exemplarisch aufzuzeigen, was in naher Zukunft möglich sein wird und wo es auf der Basis von KI zu besseren, fundierteren Entscheidungen kommen könnte. |
| Keywords: | AI, Artificial Intelligence, investment decision, finance decision |
| JEL: | G00 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:280899&r=ban |
| By: | Fabrice Hervé (CREGO - Centre de Recherche en Gestion des Organisations - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE] - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]); Sylvain Marsat (CleRMa - Clermont Recherche Management - ESC Clermont-Ferrand - École Supérieure de Commerce (ESC) - Clermont-Ferrand - UCA - Université Clermont Auvergne) |
| Abstract: | Drawing on a survey of 671 French individual investors, we document for the first time the connection between emotions towards the environment and investment in green funds. Both eco-anxiety and connectedness to nature have a significant impact on deciding to invest in green funds, but, interestingly, do not exert any influence on the amount invested. Hence, investing in green funds seems to be a way to buy a good conscience towards the environment, but the good deed ends there since the amount itself is not linked to environmentally related emotions. |
| Keywords: | Green Investment, Green Funds, Eco-anxiety, Connectedness to nature, Emotions, Behavioral Finance |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04150758&r=ban |