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on Banking |
| By: | Kaur, Jasleen |
| Abstract: | The performance of aid projects matters for development. Yet what shapes performance, is insufficiently understood. According to interdisciplinary research on organizational management and bureaucratic representation, the gender of operational leaders in complex organizations can have a discernible effect on all aspects of the project cycle. To this end, I seek to test whether the gender of aid project staff matters in explaining variation in project performance. I use a self-collected novel dataset from the Asian Development Bank to discern whether project staff’s gender (women vs men project leaders) is associated with project performance. I use multinomial-ordered logistic regressions to test the association of the gender of project managers with project performance measures of relevance, effectiveness, efficiency, and sustainability. I find that projects led by women are, on average, associated with higher performance ratings on dimensions of efficiency. Significant and positive association with the relevance criterion is subject to model specification. However, I do not see an association with the effectiveness and sustainability criterion of project performance. This paper contributes to the literature by estimating the differential impact of women vs men project managers on disaggregated performance measures. It also lays down potential mechanisms and future research discourse |
| Date: | 2024–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:uv9fh&r=ban |
| By: | Julien Acalin; Laurence M. Ball |
| Abstract: | The fall in the U.S. public debt/GDP ratio from 106% in 1946 to 23% in 1974 is often attributed to high rates of economic growth. This paper examines the roles of three other factors: primary budget surpluses, surprise inflation, and pegged interest rates before the Fed-Treasury Accord of 1951. Our central result is a simulation of the path that the debt/GDP ratio would have followed with primary budget balance and without the distortions in real interest rates caused by surprise inflation and the pre-Accord peg. In this counterfactual, debt/GDP declines only to 74% in 1974, not 23% as in actual history. Moreover, the ratio starts rising again in 1980 and in 2022 it is 84%. These findings imply that, over the last 76 years, only a small amount of debt reduction has been achieved through growth rates that exceed undistorted interest rates. |
| Keywords: | U.S. Public Debt; Financial Repression; Surprise Inflation; r-g |
| Date: | 2024–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/005&r=ban |
| By: | Alona Shmygel (National Bank of Ukraine); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | What is the impact of cyclical systemic risk on future bank profitability? To answer this question, we study a large panel of Ukrainian banks between 2001 and 2023 comprising systemic events and wartime. With linear local projections we study the impact of cyclical systemic risk on bank profitability and following the original Growth-at-Risk approach we utilize quantile local projections to assess its impact on the tails of the future bank-level profitability distribution. We calibrate the countercyclical capital buffer, develop informative “Bank Capital-at-Risk” and “Share of vulnerable banks” indicators, and conduct scenario analyses and stress tests on profitability and capital adequacy. |
| Keywords: | systemic risk, linear projections, quantile regressions, bank capital, macroprudential policy |
| JEL: | E58 G21 G32 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2409&r=ban |
| By: | William Paul FORSTER; Olivier CHARNOZ |
| Abstract: | In an evolving development landscape, the urgency for Development Finance Institutions (DFIs) to innovate, adapt and deliver is intensifying. In this context, four discussions – focusing on DFIs’ additionality and ability to mobilise to private finance, their risk policies, and their development impacts – have become pivotal. They frame the dominant discourse around DFIs’ identity, purpose and priorities, and have captured the international community’s focus. This paper argues that the advantages and drawbacks of this discourse need greater consideration. Positively, it ensures constant emphasis on the continuous refinement of key operational areas and upholds important discussions on the principles and challenges inherent to the DFI mandate. However, by focusing so intently on these four debates, the discourse overshadows the need to explore fresh meanings and avenues and so limits adaptability. It risks too great an emphasis being placed on optimising existing operations rather than re-evaluating foundational objectives and mandates. While providing a structured, well-established framework for operations, it falls short in suggesting alternative worthwhile pathways for the future. Consequently, DFIs find themselves enmeshed in debates and discussions that impede their flexibility, creativity and explorative capabilities, as well as such possibilities as enhanced coordination in collective action. Essentially, this tunnel vision confines strategic perspectives and has become an impediment.To navigate these challenges, this paper adopts a qualitative approach – an unusual but much needed approach in the study of DFIs. Rather than accepting the structure of the prevailing discourse, it seeks to highlight its limiting effect on the strategic thinking of DFIs and suggests that DFIs should reflect more on their core purpose, essence and direction. To support this process, the paper proposes a ‘strategic compass’ which highlights four cardinal directions: aiding the SDG transition, championing trailblazers in business and finance, fostering a holistic business and finance ecosystem, and embracing digital and environmental transitions. To serve both emerging and in particular challenging ‘frontier’ nations effectively, DFIs must re-envision their overarching aims and strategies. They need to be prepared to be pioneers, to foster collaboration over competition, and gain more robust support for change from their political stakeholders. Complacency or delay, which risk relevance, are not options. |
| JEL: | Q |
| Date: | 2024–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en16428&r=ban |
| By: | Loretta J. Mester |
| Abstract: | Monetary policy is in a good place from which to assess and respond to these risks to the outlook. The current strength in labor market conditions and the strong spending data give us the opportunity to keep the nominal funds rate at its current level while we gather more evidence that inflation truly is on a sustainable and timely path back to 2 percent. This is better than finding ourselves in a situation where we begin easing too soon, undo some of the progress we have made on inflation, potentially destabilize inflation expectations, and then have to reverse course. If the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down. My base case is that we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate. Of course, if downside risks materialize, we would have the opportunity to move rates down more quickly, just as we raised rates more aggressively than usual to combat rising inflation. Or if inflation appears to be stalling at a level above our goal, we would have the opportunity to maintain a restrictive stance for longer. Our policy actions will depend on how the economy and the risks evolve. When our goals of price stability and maximum employment are achieved, the economy will be in an even better place than where it is today. |
| Keywords: | Monetary policy; inflation; economic conditions; labor market; consumer spending |
| Date: | 2024–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:97730&r=ban |
| By: | F. Bolivar; M. A. Duran; A. Lozano-Vivas |
| Abstract: | To examine the relation between profitability and business models (BMs) across bank sizes, the paper proposes a research strategy based on machine learning techniques. This strategy allows for analyzing whether size and profit performance underlie BM heterogeneity, with BM identification being based on how the components of the bank portfolio contribute to profitability. The empirical exercise focuses on the European Union banking system. Our results suggest that banks with analogous levels of performance and different sizes share strategic features. Additionally, high capital ratios seem compatible with high profitability if banks, relative to their size peers, adopt a standard retail BM. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12323&r=ban |
| By: | Krenz, Johanna; Verma, Akhilesh K |
| Abstract: | How does macroprudential regulation affect financial stability in the presence of non-bank financial intermediaries? We estimate the contributions of traditional banks vis-'a-vis non-bank financial intermediaries to changes in systemic risk - measured as ∆CoVaR - after macroprudential policy shocks in European countries. We find that while tighter macro-prudential regulation, generally, decreases systemic risk among traditional banks, it has the opposite effect on systemic risk in the non-bank financial intermediation sector. For some types of regulations, the latter effect is even stronger than the former, indicating that macro-prudential tightening increases systemic risk in the entire financial system, through leakages between the traditional and the non-bank financial intermediation sectors. |
| Keywords: | macroprudential policy, systemic risk, ∆, CoVaR, non-bank financial intermediation, regulatory arbitrage, Europe |
| JEL: | G18 G23 G28 G21 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:uhhwps:281783&r=ban |
| By: | Henry Penikas (Bank of Russia, Russian Federation) |
| Abstract: | Default correlation parameter has a material impact on the loan portfolio credit risk. Moreover, the impact is more complex than that of the default probability itself. Current study shows that the rise in default correlation can simultaneously lead to multi-directional changes in different types of risk-measures or focus on a single risk measure, but at different confidence levels. The cause for such dual impact lies in the often neglected rising impact of the default rate (DR) distribution bimodality. In general, we evidence that rise in default correlation produces a multiplicative effect of the probability of default (PD): risk measure declines for low PDs and rises for high PDs, but changes are non-proportionate for the same changes in default correlation. Similar effects, in particular, may arise when augmenting the proportion of "green" lending. Moreover, when such a trend is associated with the decline in PD for the "green" sector and PD rise for the "brown" one, there is an overall reduction in the loan portfolio credit risk in the long-run. However, it is witnessed only after its rise in the mid-term. The paper is accompanied with the relevant codes. They enables the interested parties to replicate the findings, as well as to derive credit risk parameters for any given DR time series and model a DR distribution for any set of distribution mixture parameters. |
| Keywords: | default correlation, bimodal distribution, default rate; cliff effect, mixture of distribution |
| JEL: | C34 C67 E52 H23 O44 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps121&r=ban |
| By: | Blampied, Nicolas; Cafferata, Alessia; Tibiletti, Luisa; Uberti, Mariacristina |
| Abstract: | The Taylor rule constitutes the main tool policy makers rely on to guide monetary policy. In simple words, the rule is a reaction function that determines the short-term interest rate, which responds in the baseline specifications to changes in the inflation gap and the output gap. Since the original paper of Taylor (1993), a large debate has taken place in the literature regarding what the best performing rules are. This paper attempts to analyze the recent literature on the Taylor rule and in particular two important extensions proposed in the last decades: first, we consider whether financial variables should be included in the Taylor rule; second, we analyze the inclusion of the long-term interest rate. From this analysis, we contribute to the understanding of the main monetary policy tool used by any Central Bank and debate whether we find potential variables to extend it. |
| Keywords: | Inflation; Interest rates; Output;Taylor rule; Taylor principle |
| JEL: | E50 E52 E58 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119923&r=ban |
| By: | Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Andreas Schrimpf (Bank for International Settlements (BIS) - Monetary and Economic Department; Centre for Economic Policy Research (CEPR); University of Tuebingen); Yuan Zhang (Shanghai University of Finance and Economics) |
| Abstract: | We develop a continuous time general equilibrium model with intermediaries at the heart of international financial markets. Global intermediaries bargain with households and extract rents from providing access to foreign claims. By tilting state prices, intermediaries’ market power breaks monetary neutrality and makes international risksharing inefficient. Despite having zero net positions, markups charged by intermediaries significantly distort international asset prices and exchange rate dynamics and their response to shocks. Our model can reproduce patterns consistent with several well-known exchange rate puzzles, such as deviations from Uncovered and Covered Interest Parity. All equilibrium quantities are derived in closed form, allowing us to pin down the underlying economic mechanisms explicitly. |
| Keywords: | Financial Intermediation, Exchange Rates, Uncovered Interest Parity, Covered Interest Parity Deviations |
| JEL: | E44 E52 F31 F33 G13 G15 G23 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2401&r=ban |
| By: | Bernd Engelmann |
| Abstract: | Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on a macroeconomic scenario over multiple years. Part of the complexity stems from using a wide range of model parameters for, e.g., rating transition, write-off rules, prepayment, or origination of new loans. A typical parameterization of a credit risk stress test model specifies parameters linked to an average economic, the through-the-cycle, state. These parameters are transformed to a stressed state by utilizing a macroeconomic model. It will be shown that the model parameterization implies a unique through-the-cycle portfolio which is unrelated to a bank's current portfolio. Independent of the stress imposed to the model, the current portfolio will have a tendency to propagate towards the through-the-cycle portfolio. This could create unwanted spurious effects on projected portfolio default rates especially when a stress test model's parameterization is inconsistent with a bank's current portfolio. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.08892&r=ban |
| By: | Thomas Geelen (Copenhagen Business School - Department of Finance; Danish Finance Institute); Jakub Hajda (HEC Montreal - Department of Finance); Erwan Morellec (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Adam Winegar (BI Norwegian Business School) |
| Abstract: | Capital ages and must eventually be replaced. We propose a theory of financing in which firms borrow to finance investment and deleverage as capital ages to have enough financial slack to finance replacement investments. To achieve these dynamics, firms issue debt with a maturity that matches the useful life of assets and a repayment schedule that reflects the need to free up debt capacity as capital ages. In the model, leverage and debt maturity are negatively related to capital age while debt maturity and the length of debt cycles are positively related to asset life. We provide empirical evidence that strongly supports these predictions. |
| Keywords: | capital age, asset life, maturity matching, debt cycles, maturity cycles |
| JEL: | E32 G31 G32 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2406&r=ban |
| By: | Miguel A. Duran |
| Abstract: | The hypothesis that committed revolving credit lines with fixed spreads can provide firms with interest rate insurance is a standard feature of models on these credit facilities' interest rate structure. Nevertheless, this hypothesis has not been tested. Its empirical examination is the main contribution of this paper. To perform this analysis, and given the unavailability of data, we hand-collect data on usage at the credit line level itself. The resulting dataset enables us also to take into account characteristics of credit lines that have been ignored by previous research. One of them is that credit lines can have simultaneously fixed and performance-based spreads. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12301&r=ban |
| By: | Cisil Sarisoy |
| Abstract: | Measures of uncertainty about U.S. short maturity interest rates derived from options have risen sharply since October 2021, reaching their highest levels in more than a decade. This note first uses survey-based measures of economic uncertainty to argue that this increase in option-implied measures likely reflect higher uncertainty about inflation, the associated monetary policy response, and the perceived resulting downside risks to economic activity. |
| Date: | 2023–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2023-12-22&r=ban |
| By: | Debuque-Gonzales, Margarita; Ruiz, Mark Gerald C.; Miral, Ramona Maria L. |
| Abstract: | The COVID-19 crisis created conditions for digital finance to accelerate financial inclusion in the Philippines. This paper explores different sources, including survey, administrative, and market data, to compare trends in account ownership and usage before and after the pandemic. Stylized facts about financial inclusion and demographic information across periods are then drawn based on probit regressions, with special focus on digital financial services. This is followed by an analysis of how service providers, consumers, and the government have shaped and continue to shape the digital finance landscape. The paper closes with conclusions and policy recommendations moving forward. Comments to this paper are welcome within 60 days from the date of posting. Email publications@pids.gov.ph. |
| Keywords: | COVID-19;digital finance;electronic money;financial inclusion;fintech;mobile money |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2023-45&r=ban |
| By: | Garvit Arora; Shubhangi Shubhangi; Ying Wu; Xuan Mei |
| Abstract: | As a quantitative characterization of the complicated economy, Macroeconomic Variables (MEVs), including GDP, inflation, unemployment, income, spending, interest rate, etc., are playing a crucial role in banks' portfolio management and stress testing exercise. In recent years, especially during the COVID-19 period and the current high inflation environment, people are frequently talking about the changing "correlation structure" of MEVs. In this paper, we use a principal component based algorithm to better understand MEVs' correlation structure in a given period. We also demonstrate how this method can be used to visualize historical MEVs pattern changes between 2000 and 2022. Further, we use this method to compare different hypothetical or historical macroeconomic scenarios and present our key findings. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.10162&r=ban |
| By: | Gabriel Bizama; Alexander Wu; Bernardo Paniagua; Max Mitre |
| Abstract: | This research aims to provide a framework to assess the contribution of digital currencies to promote financial inclusion, based on a diagnosis of the landscape of financial inclusion and domestic and cross-border payments in Latin America and the Caribbean. It also provides insights from central banks in the region on key aspects regarding a possible implementation of central bank digital currencies. Findings show that although digital currencies development is at an early stage, a well-designed system could reduce the cost of domestic and cross-border payments, improve the settlement of transactions to achieve real-time payments, expand the accessibility of central bank money, incorporate programmable payments and achieve system performance demands. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.09811&r=ban |
| By: | Ricardo J. Caballero; Alp Simsek |
| Abstract: | This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context: (i) the central bank (the Fed, for short) stabilizes the aggregate asset price in response to financial shocks, using large-scale asset purchases if needed ("the Fed put"); (ii) when the Fed is constrained, negative financial shocks cause demand recessions, (iii) the Fed's response to aggregate demand shocks increases asset price volatility, but this volatility plays a useful macroeconomic stabilization role; (iv) the Fed's beliefs about the future aggregate demand and supply drive the aggregate asset price; (v) macroeconomic news influences the Fed's beliefs and asset prices; (vi) more precise news reduces output volatility but heightens asset market volatility; (vii) disagreements between the market and the Fed microfound monetary policy shocks, and generate a policy risk premium. |
| JEL: | E32 E43 E44 E52 G12 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32053&r=ban |
| By: | Jiaqi Li; Andrew Usher; Yu Zhu |
| Abstract: | To what extent does a central bank digital currency (CBDC) compete with bank deposits? To answer this question, we develop and estimate a structural model where each household chooses which financial institution to deposit their digital money with. Households value the interest paid on digital money, the possibility of obtaining complementary financial products, and the access to in-branch services. A non-interest-bearing CBDC that does not provide complementary financial products can substantially crowd out bank deposits only if it provides an extensive service network. Imposing a large limit on CBDC holding would effectively mitigate this crowding out. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E50 E58 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-4&r=ban |
| By: | O. Didkovskyi; N. Jean; G. Le Pera; C. Nordio |
| Abstract: | This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit bureau, to effectively identify instances of loan defaults among bank customers. Employing state-of-the-art statistical and machine learning techniques ensures the model's predictive accuracy. Furthermore, we assess the model's transferability by testing it on behavioral data from the Bank of Italy, demonstrating its potential applicability across diverse datasets during prediction. This study highlights the benefits of incorporating external behavioral data to improve credit risk assessment in financial institutions. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.09778&r=ban |
| By: | Aydin, Deniz; Kim, Olivia S. |
| Abstract: | Firms with ample financial slack are unconstrained... or are they? In a field experiment that randomly expands debt capacity on business credit lines, treated small-and-medium enterprises (SMEs) draw down 35 cents on the dollar of expanded debt capacity in the short-run and 55 cents in the long-run despite having debt levels far below their borrowing limit before the intervention. SMEs direct new borrowing to financing investment gradually over time and do not exhibit a measurable impact on delinquencies. Heterogeneity analysis by the risk of being at the credit line limit supports the SME motive to preserve financial flexibility. |
| Keywords: | field experiment, RCT, finance, investment, debt structure |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:281672&r=ban |
| By: | Jing Cynthia Wu; Yinxi Xie; Ji Zhang |
| Abstract: | Motivated by empirical evidence, we propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We find financial integration features an amplification for a domestic monetary policy shock and a negative spillover for a foreign shock. These results hold for conventional and unconventional monetary policies. Among various aspects of financial integration, the bond duration plays a major role, and our results cannot be replicated by a standard model of perfect risk sharing between households. Finally, we observe an important interaction between financial integration and trade openness and demonstrate trade alone does not have an economically meaningful impact on monetary policy transmission. |
| Keywords: | central bank research; international financial markets; monetary policy transmission |
| JEL: | E44 E52 F36 F42 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-3&r=ban |
| By: | Davide Romelli |
| Abstract: | This paper presents an extensive update to the Central Bank Independence – Extended (CBIE) index, originally developed in Romelli (2022), extending its coverage for 155 countries from 1923 to 2023. The update reveals a continued global trend towards enhancing central bank independence, which holds across countries’ income levels and indices of central bank independence. Despite the challenges which followed the 2008 Global financial crisis and the recent re-emergence of political scrutiny on central banks following the COVID-19 pandemic, this paper finds no halt in the momentum of central bank reforms. I document a total of 370 reforms in central bank design from 1923 to 2023 and provide evidence of a resurgence in the commitment to central bank independence since 2016. These findings suggest that the slowdown in reforms witnessed post-2008 was a temporary phase, and that, despite increasing political pressures on central banks, central bank independence is still considered a cornerstone for effective economic policy-making |
| Keywords: | Central banking, central bank independence, central bank governance, legislative reforms. |
| JEL: | E58 G28 N20 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp24217&r=ban |
| By: | Bonam, Dennis; Ciccarelli, Matteo; Gomes, Sandra; Aldama, Pierre; Bańkowski, Krzysztof; Buss, Ginters; da Costa, José Cardoso; Christoffel, Kai; Elfsbacka Schmöller, Michaela; Jacquinot, Pascal; Kataryniuk, Ivan; Marx, Magali; Mavromatis, Kostas; Moyen, Stéphane; Mužić, Ivan; Notarpietro, Alessandro; Papageorgiou, Dimitris; Rannenberg, Ansgar; Skotida, Ifigeneia; Bouabdallah, Othman; Dobrew, Michael; Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Brzoza-Brzezina, Michał; Hurtado, Samuel; Kolasa, Marcin; Patella, Valeria; Renault, Théodore; Domínguez-Díaz, Rubén; Lechthaler, Wolfgang; McClung, Nigel; Šestořád, Tomáš; Silgado-Gómez, Edgar; Železník, Martin; von Thadden, Leo; Menéndez-Álvarez, Carolina |
| Abstract: | In the low inflation and low interest rate environment that prevailed over the period 2013-2020, many argued that besides expansionary monetary policy, expansionary fiscal policy could also support central banks’ efforts to bring inflation closer to target. During the pandemic, proper alignment of fiscal and monetary policy was again crucial in promoting a rapid macroeconomic recovery. Since the end of 2021 an environment of higher inflation, lower growth, higher uncertainty, and higher interest rates has changed the nature of the required policy mix and poses different challenges to the interaction between monetary and fiscal policy. Following up on the work done under the ECB’s 2020 strategy review (see Debrun et al., 2021), this report explores some of the renewed challenges to monetary and fiscal policy interactions in an environment of high inflation. The main general conclusion is that, with an independent monetary policy that aims to bring inflation back to target in a timely manner, it is still possible to design fiscal policy in a way that protects vulnerable parts of society against the costs of high inflation without pulling against the central bank’s effort to tame inflation. This is more likely to be the case if fiscal measures are temporary and targeted, and if priority is given to structural reforms and public investment in support of potential growth. The latter is particularly effective in reshaping the supply side of the economy in a manner that is likely to have a lasting positive structural impact. JEL Classification: E22, E52, E58, E62 |
| Keywords: | fiscal policy, monetary policy, public investment |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2024337&r=ban |
| By: | Anton Bobrov (Federal Reserve Bank of San Francisco); Rupal Kamdar (Indiana University); Mauricio Ulate (Federal Reserve Bank of San Francisco) |
| Abstract: | U.S. monetary-policy decisions are made by the 12 voting members of the Federal Open Market Committee (FOMC). Seven of these members, coming from the Federal Reserve Board of Governors, inherently represent national-level interests. The remaining five members, a rotating group of presidents from the 12 Federal Reserve districts, come instead from sub-national jurisdictions. Does this structure have relevant implications for the monetary policy-making process? In this paper, we first build a panel dataset on economic activity across Fed districts. We then provide evidence that regional economic conditions influence the voting behavior of district presidents. Specifically, a regional unemployment rate that is one percentage point higher than the U.S. level is associated with an approximately nine percentage points higher probability of dissenting in favor of looser policy at the FOMC. This result is statistically significant, robust to different specifications, and indicates that the regional component in the structure of the FOMC could matter for monetary policy. |
| Keywords: | Monetary Policy, FOMC, Regional Economic Conditions, Taylor Rule |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2024002&r=ban |
| By: | ULLAH, nazim; Barua, Chayan; Haque, Ehsanul; Arif Hosen Raja, Md; Tahsinul Islam, Mohammed |
| Abstract: | Financial system and economic growth/development is a critical and multifaceted topic that holds significant importance in the context of a country's economic landscape. Over the 21st century, the relationship between economic growth/development and financial system has been the subject of increasing attention. The objective of this study is to assessing the role of Financial Institutions i.e., Islami bank and Conventional bank with real GDP growth and also to analyzing Financial Inclusion. We used the time series data of banks from the period 2018 to 2022.We also used secondary data for this paper. Our analysis found that Islami Banks shows higher contribution over the economic development then the Conventional Banks in Bangladesh. But there are more to go. Our recommendation is that making financial system more accessible through adopting new technologies can accelerate economic growth/development in Bangladesh. |
| Keywords: | Financial system, Economic Growth, Islamic and Conventional Banks |
| JEL: | A10 |
| Date: | 2024–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119937&r=ban |
| By: | Faccia, Donata; Hünnekes, Franziska; Köhler-Ulbrich, Petra |
| Abstract: | In this paper we build a unique dataset to study how banks decide which firms to lend to and how this decision depends on their own situation and the characteristics of their borrowers. We find that weaker capitalised banks adjust their credit standards more than healthier banks, especially for firms with a higher default risk. We also show how credit standards change in reaction to two specific macroeconomic developments, namely an increase in bank funding costs and a sudden deterioration in banks’ corporate loan portfolios. Here we find that weaker banks respond more forcefully by tightening their credit standards more than better capitalised banks. This development is particularly pronounced when banks are linked to riskier firms. Insofar, we provide evidence of heterogeneity in the bank lending channel, depending on the situation of the lenders and the borrowers. JEL Classification: E44, E51, E52, G21 |
| Keywords: | bank lending channel, credit risk, credit supply, monetary policy transmission |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242902&r=ban |
| By: | Apeti, Ablam Estel; Edoh, Eyah Denise |
| Abstract: | Making tax administration more efficient and maximising voluntary compliance is a very difficult task for developing countries. In this paper, we analyse the effect of mobile money payments on the quality of tax policy and administration for a large sample of countries in developing economies. We use the World Bank indicator on efficiency of revenue mobilisation as a measure of the quality of tax policy and administration and employ an entropy balancing method to show that mobile money payments improve the quality of tax systems. This result is robust to several robustness tests, including sample alteration, alternative measures of mobile money, controlling for other aspects of tax policy, and alternative estimation methods such as GMM-system, event study approach and ordinary least square. In addition, our results show that the positive effect of mobile money on tax systems depends on the level of development, financial development, the state’s legitimacy, a country’s fiscal space, the number of available products/companies, the type of mobile money services, and the geographic position of countries. Finally, we highlight some potential mechanisms underlying these findings through lower tax compliance burden, smaller informal sector, and lower corruption. |
| Keywords: | Economic Development, |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:idq:ictduk:18214&r=ban |
| By: | Anna Burova (Bank of Russia, Russian Federation); Danila Karpov (Bank of Russia, Russian Federation); Denis Koshelev (Bank of Russia, Russian Federation) |
| Abstract: | Applying a new method of decomposition of corporate credit growth, we estimated what part of credit expansion in Russia in 2018–2021 was accounted for by companies that had experience in credit borrowing in the past, and what part was due to newcomers to the corporate bank loan market. In absolute terms, the share of the loan portfolio attributable to companies that are new to the credit market (the extensive component of growth) is small. A fact that is not obvious at first glance, which we confirm in the course of the study, is that their contribution to fluctuations in the growth rates of credit aggregates, on the contrary, is large. The fact is that companies with existing credit relationships (the intensive component of growth) borrow and repay comparable amounts. Moreover, both the same borrower and different borrowing companies can borrow and repay - we draw a conclusion about their net activity. What unites them and allows us to consider such borrowers on a net basis is the presence of bank loans in the past (based on this fact, we can talk about such a set of borrowers as an intensive component of the growth of corporate bank loans). Thus, the net contribution of the intensive component to credit expansion is small. During the acute phase of the pandemic (from June 2020 to May 2021), the role of lending on preferential terms increased noticeably and then decreased. For companies new to the lending market from affected industries (according to the list of the Russian Government), this growth was especially noticeable. This corresponds with other results: the massive inflow of borrowers at the beginning of the pandemic was sporadic and tightly linked to the state support measures. In this regard, the lower default rates of loans issued with the start of state support programs (between June and September 2020) probably do not imply better quality of borrowers, but reflect the features of the subsidised loans. Within the framework of already existing credit relations (the intensive component of growth), the contribution of preferential lending to the growth of corporate credit was relatively stable until July 2021, after which the contribution of the non-preferential component began to grow rapidly. An increase in the share of inactive borrowers, i.e., those who have open but unused credit lines starting from April 2021. Potentially, this type of borrowers may quickly increase their borrowings via open credit lines under adverse economic conditions. Thus, entail additional risks to banks. In this regard, we suggest the close monitoring of open and used credit lines. However, actual utilisation of credit lines could be bounded by terms of credit agreement, revaluation of collateral, and could led to smaller volumes of funds available during adverse economic conditions. |
| Keywords: | corporate debt, loan portfolio, state support measures, credit lines, credit aggregates |
| JEL: | E44 F34 G28 G31 G32 G38 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps119&r=ban |
| By: | Martin Iseringhausen |
| Abstract: | We study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates. |
| Keywords: | Credit conditions, FAVAR, house prices, monetary policy, regional data, supply elasticities |
| JEL: | C23 E32 E52 R31 |
| Date: | 2024–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:stm:wpaper:59&r=ban |
| By: | Guidorzzi Girotto, Vitor; Strachman, Eduardo |
| Abstract: | The relationship between money and credit is analyzed differently between schools of economic thought. Orthodoxy, in general, analyzes it using the commodity money approach; heterodoxy, in large part, adopts the Chartist approach. The crucial difference between them lies in the fact, as put by Schumpeter, that orthodoxy postulates a monetary theory of credit; the heterodox, a credit theory of money. For the latter, money is, by nature, credit, and it can take different forms, tangible or not. The State uses it sovereignty to delimit the monetary system by defining what will (or will not) be accepted as money in the payments of transactions due to itself. Thus, Knapp’s contribution in structuring a theory of state money meets Innes’s credit theory of money and, together, these contributions offer a solid theoretical and historical framework for the formulation of an alternative theory of money, the Chartist theory. |
| Keywords: | Money; Chartalism; Credit; Knapp; Innes. |
| JEL: | E12 E42 E51 |
| Date: | 2024–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119866&r=ban |
| By: | James Costain; Galo Nuño Barrau; Carlos Thomas |
| Abstract: | We build an arbitrage-based model of the yield curves in a heterogeneous monetary union with sovereign default risk, which can account for the asymmetric shifts in euro area yields during the Covid-19 pandemic. We derive an affine term structure solution, and decompose yields into term premium and credit risk components. In an extension, we endogenize the peripheral default probability, showing that it decreases with central bank bond-holdings. Calibrating the model to Germany and Italy, we show that a "default risk extraction" channel is the main driver of Italian yields, and that flexibility makes asset purchases more effective. |
| Keywords: | sovereign default, quantitative easing, yield curve, affine model, Covid-19 crisis, ECB, pandemic emergency purchase programme |
| JEL: | E5 G12 F45 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1165&r=ban |
| By: | Miguel A. Duran |
| Abstract: | This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are positively related. Our main findings support this prediction, in contrast to the only previous work that examined this problem two decades ago. Nevertheless, we find evidence of mispricing regarding the risk of deteriorating firms using their facilities more intensively and during the subprime crisis. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.12315&r=ban |
| By: | Fischer, Lion; Rapp, Marc Steffen; Zahner, Johannes |
| Abstract: | In December 2017, during the One Planet Summit in Paris, a group of eight central banks and supervisory authorities launched the "Network for Greening the Financial Sector" (NGFS) to address challenges and risks posed by climate change to the global financial system. Until 06/2023 an additional 69 central banks from all around the world have joined the network. We find that the propensity to join the network can be described as a function in the country's economic development (e.g., GDP per capita), national institutions (e.g., central bank independence), and performance of the central bank on its mandates (e.g., price stability and output gap). Using an event study design to examine consequences of network expansions in capital markets, we document that a difference portfolio that is long in clean energy stocks and short in fossil fuel stocks benefits from an enlargement of the NGFS. Overall, our results suggest that an increasing number of central banks and supervisory authorities are concerned about climate change and willing to go beyond their traditional objectives, and that the capital market believes they will do so. |
| Keywords: | Climate finance, green central bank policy, stock market reaction, sustainable finance |
| JEL: | E58 E61 G1 Q54 Q58 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:281998&r=ban |
| By: | Sofia Anyfantaki; Yannis Caloghirou; Konstantinos Dellis; Aikaterini Karadimitropoulou; Filippos Petroulakis |
| Abstract: | We document and analyse key deficiencies of the Greek economy, with the view to providing new insights and articulate policy proposals. We consider issues which are the purview of both horizontal policies, raising productivity across sectors, and vertical policies, which allow for realignment of activity. With respect to the first dimension, we focus on two specific problem-areas of Greek industry, with high importance: skills and management practices. We also use information from a novel survey on entrepreneurship, technological developments, and regulatory change and examine structural characteristics of innovation and technology adoption of Greek firms, with a focus on the role of size, ownership structure, and global value chain participation. With respect to the second dimension, we provide an overview of Greece’s export performance and analyse its sectoral comparative advantage. In an empirical study we also focus on the determinants of export sophistication. Overall, the collection of our empirical findings provides ample fodder for concrete policy proposals to increase productivity in Greek manufacturing. |
| Keywords: | skills; management, innovation, knowledge, export sophistication. |
| JEL: | D22 F10 J24 J50 L22 O32 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:193&r=ban |
| By: | Moreno, Diego; Takalo, Tuomas |
| Abstract: | We study a competitive banking sector in which banks choose the level of risk of their asset portfolios and, upon the public disclosure of stress test results, raise funding by promising investors a repayment. We show that competition forces banks to choose risky assets so as to promise investors high repayments, and to gamble on favorable stress test results. Increasing stress test precision increases banks' asset riskiness but also improves allocative efficiency. When risk taking is not too sensitive to the precision of information, maximal transparency maximizes both stability and surplus. In contrast, when banks exercise market power assets are less risky, while opacity maximizes banks' stability and, when the social cost of bank failure is sufficiently large, the surplus as well. Our results in overall highlight the need to take into account the structure of banking industry when designing stress tests. |
| Keywords: | financial stability, stress tests, bank transparency, banking regulation, bank competition |
| JEL: | G21 G28 D83 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:281999&r=ban |
| By: | Djimoudjiel, Djekonbe; T. Rostand, Dany Dombu; MBATINA NODJI, NDILENGAR |
| Abstract: | The objective of this study is to assess the effect of COVID-19 on the situation of excess liquidity in the CEMAC zone. The results are obtained using Bayesian estimates of VAR models on monthly data on banks ranging from 2000 to 2020 for countries in CEMAC. The main results suggest the shock generated by the COVID-19 pandemic on the economy of the sub-region has contributed to bogging down the situation of excess liquidity. Indeed, on the one hand, the shock on bank liquidity is greater in the short than in the long term. On the other hand, the situation under COVID-19 led to an increase in credit in the first 6 to 8 months of 2020 followed by a drop in the level of risk hedging capital. The health policies adopted and the ensuing recession, on the other hand, significantly affected the level of bank deposits. The main recommendations consist of reducing the climate of information asymmetry by encouraging the implementation of credit registers and establishing policies to help borrowers. |
| Keywords: | Excess liquidity; Information sharing ; COVID-19; BVAR; CEMAC. |
| JEL: | C23 D82 E50 O55 |
| Date: | 2024–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119666&r=ban |
| By: | Sanaz Behzadi; Mahmonir Bayanati; Hamed Nozari |
| Abstract: | Economic periods and financial crises have highlighted the importance of evaluating financial markets to investors and researchers in recent decades. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.05417&r=ban |
| By: | Rodrigue Dossou-Cadja (Sapienza University of Rome, EHESS, PSE) |
| Abstract: | The CFA franc devaluation on 11 January 1994 stands out as the most significant reform within the Franc Zone system since political independences of former African French colonies in 1960, yet a topic shrouded into profound taboo. So far, the economic literature has failed to draw any connection between this pivotal event in African macroeconomic history and its historical context: the 1992-3 European Monetary System (EMS) crisis. Using the narrative approach coupled with quantitative analysis (DCC-MGARH-X and SVARs) and powered by an unprecedented set of archival data from the Banque de France, the Bank of England, and the Bundesbank (the latter two from Eichengreen and Naef, 2022), as well as the International Monetary Fund (IMF), we document a brand-new route on understanding a certain integrated African-European common history. Evidence unveils the CFA franc devaluation as a fundamental role player in backing up credibility of the French franc amidst the 1992-3 EMS crisis. A ‘new democratic Franc Zone's Transition Committee' at the Banque de France, appears as a key feature for the future of the Zone’s management. |
| Keywords: | CFA franc devaluation, Franc Zone, European Monetary System, Currency crisis, Political Independences, Narrative approach |
| JEL: | E42 E58 F31 F33 F42 F53 F54 F55 N14 N17 N24 N27 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:hes:wpaper:0246&r=ban |
| By: | Phoebe Tian |
| Abstract: | This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. I develop and estimate a dynamic model where firms repeatedly interact with the same lender. All loans are short-term. Collateral can be used to deter a strategic default by a firm, but the lender cannot recover the full value of the collateral in the case of a default. The endogenous contract terms—including interest rates, loan size and collateral—reflect a firm’s probability of default in equilibrium. Learning drives the dynamics of contract terms because a firm’s profitability type is unknown. Long-term contracts improve welfare mainly by mitigating the incentives for a firm to default. |
| Keywords: | Financial institutions |
| JEL: | D83 D86 G21 L14 L26 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-2&r=ban |
| By: | Mr. Selim A Elekdag; Drilona Emrullahu; Sami Ben Naceur |
| Abstract: | Motivated by its rapid growth, this paper investigates how FinTech activities influence risk taking by financial intermediaries (FIs). In this context, this paper revisits an ongoing debate on the impact of competition on financial stability: on one side, it is argued that greater competition encourages greater risk taking (competition-fragility hypothesis), while the other side of the debate asserts that more competition can increase financial stability (competition-stability hypothesis). Using a curated databased covering over 10, 000 FIs and global FinTech activities, we find a robust relationship whereby greater FinTech presence is associated with heightened risk taking by FIs, offering support for the competition-fragility hypothesis. However, the inclusion of bank-, industry-, and country-specific characteristics can alter this relationship. Importantly, there is suggestive evidence indicating that in certain cases, greater FinTech presence may be associated with less FI risk taking amid stronger domestic institutions. Notwithstanding the relevance for policy, this paper presents a novel framework that may help reconcile some of the conflicting results in the literature which have found supportive evidence for each of the two competing hypotheses. |
| Keywords: | fintech; bank risk taking; competition |
| Date: | 2024–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/017&r=ban |
| By: | Yuriy Kitsul; Bill Lang; Mehrdad Samadi |
| Abstract: | Rapid monetary policy tightening in most advanced economies in 2022 and 2023 was accompanied by substantial increases in prevailing interest rates for new credit to businesses and households. In addition to increasing the cost of new borrowing, monetary policy tightening may also be associated with increases in costs of servicing existing debt, potentially leading to the tightening of firms' and households' financial constraints, leaving them with less cash for investment and consumption. |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2023-12-01&r=ban |
| By: | Grant Rosenberger; Peter Zimmerman |
| Abstract: | Rising interest rates have prompted concerns about losses on bank assets, especially following the failure of Silicon Valley Bank (SVB) in March 2023. In this working paper, we examine whether US credit unions could be subject to similar losses as banks and analyze how their regulatory capital would be affected. We estimate that after realizing losses from assets that have decreased in value and not yet been sold the overall net worth of the credit union industry would have fallen by 40 percent in 2023:Q1. Unrealized losses were most severe at the largest credit unions. Nonetheless, the bulk of deposits at credit unions were insured, suggesting limited risk of an SVB-style run. In addition, credit union deposit rates are relatively insensitive to market interest rates, providing credit unions with a hedge against a rising rate environment. Overall, credit unions’ balance sheet positions seemed to be more resilient to unrealized interest rate risk than banks’. |
| Keywords: | credit unions; deposit franchise; interest rate risk |
| JEL: | G21 G28 |
| Date: | 2024–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97721&r=ban |
| By: | Alexandre Carrier; Kostas Mavromatis |
| Abstract: | We examine optimal normalization strategies for a central bank confronted with persistent inflationary shocks and a potential de-anchoring of expectations. Our analysis characterizes optimal monetary policy, when the central bank uses both the short-term interest rate and the balance sheet, in a framework in which agents’ expectations can deviate from the rational expectations benchmark. Optimal policy is developed using a sufficient statistics approach, highlighting the dynamic causal effects of changes in each policy instrument on the central bank’s targets. Three key insights emerge: first, the interest rate is identified as the key instrument for managing inflationary pressures, outperforming balance sheet adjustments. Second, having anchored expectations about the path of quantitative tightening (QT) is crucial to mitigate economic downturns and controlling inflation, within the framework of an optimal balance sheet strategy set under a predefined interest rate rule. Lastly, when both the interest rate and QT are set optimally, expectations are found to significantly influence the optimal interest rate trajectory, whereas their impact on the optimal QT path is comparatively minimal. |
| Keywords: | Optimal monetary policy; de-anchored expectations; normalization strategy |
| JEL: | E52 E71 D84 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:800&r=ban |
| By: | Lo Duca, Marco; Moccero, Diego; Parlapiano, Fabio |
| Abstract: | We analyse the impact of macroeconomic and monetary policy shocks on corporate credit risk as measured by firms’ probabilities of default (PDs) for the four largest euro area countries. We estimate the impact of shocks on one-year PDs using local projections (LP). For the period 2014-19, we find that aggregate shocks significantly affect the dynamics of credit risk. An adverse supply shock leads to a deterioration of firms’ riskiness 10 per cent above the average PD. Contractionary monetary policy shocks exert similar, but delayed effects. Firms’ responses to shocks vary depending on their characteristics and degree of financial constraints. Smaller firms are affected to a larger degree. Firms’ outstanding indebtedness and debt repayment capacity are an important transmission channel for aggregate shocks, but the accumulation of cash reserves helps building resilience. JEL Classification: C23, C55, E43, E52, G33 |
| Keywords: | corporate credit risk, local projections, monetary policy shocks, probabilities of default, structural demand and supply shocks |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242897&r=ban |