nep-cba New Economics Papers
on Central Banking
Issue of 2012‒04‒03
twenty-six papers chosen by
Maria Semenova
Higher School of Economics

  1. Expectations and Fluctuations : The Role of Monetary Policy By Rousakis, Michael
  2. Optimal Policy When the Inflation Target is not Optimal By Sergio A. Lago Alves
  3. Real exchange rate adjustment, wage-setting institutions, and fiscal stabilization policy: Lessons of the Eurozone’s first decade By Carlin, Wendy
  4. Labor-Market Frictions and Optimal Inflation By Carlsson, Mikael; Westermark, Andreas
  5. Towards an explanation of cross-country asymmetries in monetary transmission By Georgiadis, Georgios
  6. Financial intermediaries in an estimated DSGE model for the United Kingdom By Villa, Stefania; Yang, Jing
  7. The information content of central bank interest rate projections: Evidence from New Zealand By Gunda-Alexandra Detmers; Dieter Nautz
  8. The business cycle implications of banks’ maturity transformation By Andreasen, Martin; Ferman, Marcelo; Zabczyk, Pawel
  9. Do bank characteristics influence the effect of monetary policy on bank risk? By Yener Altunbas; Leonardo Gambacorta; David Marques-Ibanez
  10. CISS - a composite indicator of systemic stress in the financial system By Dániel Holló; Manfred Kremer; Marco Lo Duca
  11. The Cantillon Effect of Money Injection through Deficit Spending By Wenli Cheng; Simon D. Angus
  12. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks By Joseph E. Gagnon
  13. Evidence on Features of a DSGE Business Cycle Model from Bayesian Model Averaging By Rodney Strachan; Herman K. van Dijk
  14. Identifying risks in emerging market sovereign and corporate bond spreads By Zinna, Gabriele
  15. Stress testing German banks against a global cost-of-capital shock By Duellmann, Klaus; Kick, Thomas
  16. Are banks affected by their holdings of government debt? By Chiara Angeloni; Guntram B. Wolff
  17. Optimal Capital Flow Taxes in Latin America By João Barata Ribeiro Blanco Barroso
  18. Regulation, credit risk transfer with CDS, and bank lending By Pausch, Thilo; Welzel, Peter
  19. Financial sector in resource-dependent economies By Kurronen, Sanna
  20. How Does Country Risk Matter for Foreign Direct Investment? By Kazunobu HAYAKAWA; Fukunari KIMURA; Hyun-Hoon LEE
  21. Fire-Sale FDI? The Impact of Financial Crisis on Foreign Direct Investment By Olga Bogach; Ilan Noy
  22. Inflation dynamics and real marginal costs: new evidence from U.S. manufacturing industries By Ivan PETRELLA; Emiliano SANTORO
  23. Time-consistent fiscal policy under heterogeneity: conflicting or common interests? By Konstantinos Angelopoulos; James Malley; Apostolis Philippopoulos
  24. Second-tier Government Banks and Access to Credit: Micro-Evidence from Colombia By Marcela Eslava; Alessandro Maffioli; Marcela Meléndez Arjona
  26. Real Effective Exchange Rates for 178 Countries: a New Database By Zsolt Darvas

  1. By: Rousakis, Michael (University of Warwick)
    Abstract: How does the economy respond to shocks to expectations? This paper addresses this question within a cashless, monetary economy. A competitive economy features producers and consumers/workers with asymmetric information. Only workers observe current productivity and hence they perfectly anticipate prices, whereas all agents observe a noisy signal about long-run productivity. Information asymmetries imply that monetary policy and consumers' expectations have real effects. Non-fundamental, purely expectational shocks are conventionally thought of as demand shocks. While this remains a possibility, expectational shocks can also have the characteristics of supply shocks : if positive, they increase output and employment, and lower inflation. Whether expectational shocks manifest themselves as demand or supply shocks depends on the monetary policy pursued. Forward-looking policies generate multiple equilibria in which the role of consumers' expectations is arbitrary. Optimal policies restore the complete information equilibrium. They do so by manipulating prices so that producers correctly anticipate their revenue despite their uncertainty about current productivity. I design targets for forward-looking interest-rate rules which restore the complete information equilibrium for any policy parameters. In ation stabilization per se is typically suboptimal as it can at best eliminate uncertainty arising through prices. This offers a motivation for the Dual Mandate of central banks. Key words: Asymmetric information ; producer expectations ; consumer expectations ; business cycles ; supply shocks ; demand shocks ; optimal monetary policy JEL Classification: E32 ; E52 ; D82 ; D83 ; D84
    Date: 2012
  2. By: Sergio A. Lago Alves
    Abstract: I assess the optimal policy to be followed by a welfare-concerned central bank when assigned an inflation target that is not necessarily welfare-optimal. I treat the inflation target as the trend inflation and I have three main contributions: (i) a welfare-based loss function fully derived under trend inflation, showing how the non-optimal inflation target acts as an extra inefficiency source; (ii) I show that the trend inflation does affect the relative weight of the output gap: they are inversely related; (iii) under trend inflation, I derive time consistent optimal policies with both unconditional and timeless commitment, and I show how to translate the pursuit of the inflation target into an additional constraint in the minimization step.
    Date: 2012–03
  3. By: Carlin, Wendy
    Abstract: In terms of macroeconomic performance, the Eurozone’s first decade is a story of successful inflation-targeting by the ECB for the common currency area as a whole combined with the persistence of real exchange rate and current account disequilibria at member country level. According to the standard New Keynesian model of a small member of a currency union, policy intervention at country level is not necessary to ensure adjustment to country-specific shocks. Self-stabilization of shocks takes place through the adjustment of prices and wages to ensure that the real exchange rate returns to equilibrium. That this did not happen in the Eurozone appears to be related to the presence of non-rational wage-setters in a number of member countries. A related second departure from the New Keynesian model was the transmission of nonrational inflation expectations to the real interest rate, propagating easy credit conditions in countries with inflation above target. Problems of real exchange rate misalignment among members were exacerbated by the ability of Germany’s wagesetting institutions to deliver self-stabilization. The implications for policy focus on using fiscal policy to target the real exchange rate and / or on reforms to labour markets that deliver real exchange rate oriented wage-setting.
    Keywords: Eurozone; fiscal policy; New Keynesian model; real exchange rate; wage-setting
    JEL: E61 E62 E65 F41 O52
    Date: 2012–03
  4. By: Carlsson, Mikael (Research Department, Central Bank of Sweden); Westermark, Andreas (Research Department, Central Bank of Sweden)
    Abstract: In central theories of monetary non-neutrality the Ramsey optimal inflation rate varies between the negative of the real interest rate and zero. This paper explores how the interaction of nominal wage and search and matching frictions affect the policy prescription. We show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation rate that is significantly positive. Specifically, for a standard U.S. calibration, we find a Ramsey optimal inflation rate of 1.11 percent per year.
    Keywords: Optimal Monetary Policy; Inflation; Labor-market Distortions
    JEL: E52 H21 J60
    Date: 2012–03–01
  5. By: Georgiadis, Georgios
    Abstract: I quantify the importance of financial structure, labor market rigidities and industry mix for cross-country asymmetries in monetary transmission. To do so, I determine how closely the impulse responses to a monetary policy shock obtained from country-specific vectorautoregressive (VAR) models and a non-standard panel VAR model match. In the country-specific VAR models, the impulse responses vary across countries in an unrestricted fashion. In the panel VAR model, the impulse responses also vary across countries, but only to the extent that countries differ regarding their financial structure, labor market rigidities and industry mix. For a sample of 20 industrialized countries over the time period from 1995 to 2009, I find that up to 70% (50%) of the cross-country asymmetries in the responses of output (prices) to a monetary policy shock can be accounted for by crosscountry differences in financial structure, labor market rigidities and industry mix. While in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium and long run differences in financial structure and labor market rigidities gain more importance. Moreover, cross-country differences in industry mix appear to be of rather minor importance for cross-country asymmetries in the transmission of monetary policy to prices. --
    Keywords: Monetary Transmission,Financial Structure,Labor Market Rigidities,Industry Mix,Panel VAR,Heterogeneity
    JEL: C33 C51 E44 E52
    Date: 2012
  6. By: Villa, Stefania (Birkbeck College, University of London); Yang, Jing (Bank for International Settlements)
    Abstract: Gertler and Karadi combined financial intermediation and credit policy in a DSGE framework. We estimate their model with UK data using Bayesian techniques. To validate the fit, we evaluate the model’s empirical properties. Then we analyse the transmission mechanism of the shocks, set to produce a downturn. Finally, we examine the empirical importance of nominal, real and financial frictions and of different shocks. We find that banking friction seems to play an important role in explaining the UK business cycle. Moreover, the banking sector shock seems to explain about half of the fall in real GDP in the recent crisis. A credit supply shock seems to account for most of the weakness in bank lending.
    Keywords: Financial friction; DSGE; Bayesian estimation
    JEL: C11 E44
    Date: 2011–07–13
  7. By: Gunda-Alexandra Detmers; Dieter Nautz (Reserve Bank of New Zealand)
    Abstract: The Reserve Bank of New Zealand was the first central bank to publish interest rate projections as a tool for forward guidance of monetary policy. This paper provides new evidence on the information content of interest rate projections for market expectations about future short-term rates before and during the financial crisis. While the information content of interest rate projections decreases with the forecast horizon in both periods, we find that their impact on market expectations has declined significantly since the outbreak of the crisis.
    JEL: E52 E58
    Date: 2012–02
  8. By: Andreasen, Martin (Bank of England); Ferman, Marcelo (LSE); Zabczyk, Pawel (Bank of England)
    Abstract: This paper develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock.
    Keywords: Banks; DSGE model; financial frictions; firm heterogeneity; maturity transformation
    JEL: E22 E32 E44 G21
    Date: 2012–03–19
  9. By: Yener Altunbas (Centre for Banking and Financial Studies, University of Wales, Bangor, Gwynedd, LL57 2DG, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marques-Ibanez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We analyze whether the impact of monetary policy on bank risk depends upon bank characteristics. We relate the materialization of bank risk during the financial crisis to differences in the monetary policy stance and bank characteristics in the pre-crisis period for a large sample of listed banks operating in the European Union and the United States. We find that the insulation effect produced by capital and liquidity buffers on bank risk was lower for banks operating in countries that, prior to the crisis, experienced a particularly prolonged period of low interest rates. JEL Classification: E44, E52, G21.
    Keywords: Risk-taking channel, monetary policy, credit crisis, bank characteristics.
    Date: 2012–03
  10. By: Dániel Holló (Magyar Nemzeti Bank, 1054 Szabadság tér 8/9, 1850 Budapest, Hungary.); Manfred Kremer (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Marco Lo Duca (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper introduces a new indicator of contemporaneous stress in the financial system named Composite Indicator of Systemic Stress (CISS). Its specific statistical design is shaped according to standard definitions of systemic risk. The main methodological innovation of the CISS is the application of basic portfolio theory to the aggregation of five market-specific subindices created from a total of 15 individual financial stress measures. The aggregation accordingly takes into account the time-varying cross-correlations between the subindices. As a result, the CISS puts relatively more weight on situations in which stress prevails in several market segments at the same time, capturing the idea that financial stress is more systemic and thus more dangerous for the economy as a whole if financial instability spreads more widely across the whole financial system. Applied to euro area data, we determine within a threshold VAR model a systemic crisis-level of the CISS at which financial stress tends to depress real economic activity. JEL Classification: G01, G10, G20, E44.
    Keywords: Financial system, financial stability, systemic risk, financial stress index, macro-financial linkages.
    Date: 2012–03
  11. By: Wenli Cheng; Simon D. Angus
    Abstract: This paper develops a simple dynamic model to study some of the implications of Cantillon’s insight that new money enters an economy at a specific point and that it takes time for the new money to permeate the economy. It applies a process analysis and uses numerical simulations to map out how the economy changes from one period to the next following a money injection. It finds that, within the region of stability, a money injection can generate oscillating changes in real variables for a considerably long period of time before converging back to the initial steady state. It also finds that a money injection benefits first recipients of the new money, but hurts later recipients and savers. Our simulation suggests that in our model savers can lose from a money injection even if they are first recipients of the new money.
    JEL: E51 E52 E37
    Date: 2012–03
  12. By: Joseph E. Gagnon (Peterson Institute for International Economics)
    Abstract: Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
    Keywords: current account, foreign exchange reserves
    JEL: F30 F31 F32
    Date: 2012–03
  13. By: Rodney Strachan (Australian National University); Herman K. van Dijk (Erasmus University Rotterdam, and VU University Amsterdam.)
    Abstract: The empirical support for features of a Dynamic Stochastic General Equilibrium model with two technology shocks is valuated using Bayesian model averaging over vector autoregressions. The model features include equilibria, restrictions on long-run responses, a structural break of unknown date and a range of lags and deterministic processes. We find support for a number of features implied by the economic model and the evidence suggests a break in the entire model structure around 1984 after which technology shocks appear to account for all stochastic trends. Business cycle volatility seems more due to investment specific technology shocks than neutral technology shocks.
    Keywords: Posterior probability; Dynamic stochastic general equilibrium model; Cointegration; Model averaging; Stochastic trend; Impulse response; Vector autoregressive model
    JEL: C11 C32 C52
    Date: 2012–03–20
  14. By: Zinna, Gabriele (Bank of England)
    Abstract: This study investigates the systematic risk factors driving emerging market (EM) credit risk by jointly modelling sovereign and corporate credit spreads at a global level. We use a multi-regional Bayesian panel VAR model, with time-varying betas and multivariate stochastic volatility. This model allows us to decompose credit spreads and to build indicators of EM risks. We find that indices of EM sovereign and corporate credit spreads differ because of their specific reactions to global risk factors. Following the failure of Lehman Brothers, EM sovereign spreads ‘decoupled’ from the US corporate market. In contrast, EM corporate bond spreads widened in response to higher US corporate default risk. We also find that the response of sovereign bond spreads to the VIX was short-lived. However, both EM sovereign and corporate bond spreads widened in flight-to-liquidity episodes, as proxied by the OIS-Treasury spread. Overall, the model is capable of generating other interesting results about the comovement of sovereign and corporate spreads.
    Keywords: Bayesian econometrics; factor models; emerging markets; credit spreads
    JEL: F31 F34
    Date: 2011–07–13
  15. By: Duellmann, Klaus; Kick, Thomas
    Abstract: This paper introduces a stress test of the corporate credit portfolios of 24 large German banks by a two-stage approach: First, a macro-econometric model is used to forecast the impact of a substantial increase of the user cost of business capital for firms worldwide on three particularly export-oriented industry sectors in Germany. Second, the impact of this economic multi-sector stress on banks' credit portfolios is captured by a state-of-theart CreditMetrics-type portfolio model with sector-dependant unobservable risk factors as drivers of the systematic risk. The German credit register provides us with access to highly granular risk information on loan volumes and banks' internal estimates of default probabilities which is key for an accurate assessment of the impact of the stress scenario. We find that the increase of the capital charge for the unexpected loss needs to be considered together with the increase in banks' expected losses in order to assess the change of banks' capital ratios. We also confirm that highly granular information on the level of borrowerspecific probabilities of default has a significant impact on the outcome of the stress test. --
    Keywords: Asset correlation,portfolio credit risk,macroeconomic stress tests
    JEL: G21 G33 C13 C15
    Date: 2012
  16. By: Chiara Angeloni; Guntram B. Wolff
    Abstract: The strong relation between sovereign and banking stress is frequently emphasised, especially since the start of the European sovereign debt crisis. This working paper sheds light on the determinants of the link. It studies the stock market performance and the holdings of government debt of the banks stress tested by the European Banking Authority in July and December 2011. A number of results stand out: Banksâ?? holdings of the sovereign bonds of vulnerable countries generally decreased during the period December 2010 to September 2011. The average stock market performance of each countryâ??s banks was very uneven during 2011. The long-term refinancing operation (LTRO) had no material effect on banksâ?? stock market values. Greek debt holdings had an effect on banksâ?? market values in the period July to October 2011 while after October this effect disappeared. Holdings of Italian and Irish debt had a material effect on banksâ?? market value in the period October to December 2011. Holdings of debt of other periphery countries, in particular Spain, were not an issue. The July PSI deal did not substantially affect the risk resulting from holdings of debt other than Greek debt. The location of banks matters for their market value. This highlights the need to form a banking union in the euroarea.
    Date: 2012–03
  17. By: João Barata Ribeiro Blanco Barroso
    Abstract: This paper estimates optimal capital flow taxes for Latin American economies based on early warning models for sudden stops. The paper adopts the externality view advanced by Korinek (2010), according to which domestic agents do not internalize the costs of high debt in bad states of nature. Capital flow taxes realign private and social incentives, therefore avoiding credit constraints problems in the future. The early warning estimates of crisis likelihood, severity and amplification dynamics provide new stylized evidence on the externality view. The most relevant and statistically significant conditioning states were found to be international risk aversion, net foreign asset position, international reserves and overvaluation indicators. An interesting rule of thumb that emerged from the empirical estimates is that capital flow taxes should be proportional to the square of the likelihood of an external crisis.
    Date: 2012–03
  18. By: Pausch, Thilo; Welzel, Peter
    Abstract: We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze the interaction between capital adequacy regulation and credit risk transfer with credit default swaps (CDS) including its effect on lending behavior and risk sensitivity of a risk-neutral bank. CDS contracts may be used to hedge a bank's credit risk exposure at a certain (potentially distorted) price. Regulation is found to induce the risk-neutral bank to behave in a more risk-sensitive way: Compared to a situation without regulation the optimal volume of loans decreases more as the riskiness of loansincreases. CDS trading is found to interact with the former effect when regulation accepts CDS as an instrument to mitigate credit risk. Under the substitution approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total exposure to credit risk conditional on the CDS price being downward biased, unbiased or upward biased. However, the substitution approach weakens the tendency to over-hedge or under-hedge when CDS markets are biased. This promotes the intention of the Basel II (and III) regulations to 'strengthen the soundness and stability of banks'. --
    Keywords: Banking,regulation,credit risk
    JEL: G21 G28
    Date: 2012
  19. By: Kurronen, Sanna (BOFIT)
    Abstract: This paper examines financial sector characteristics in resource-dependent economies. Using a unique dataset covering 133 countries, we present empirical evidence that the banking sector tends to be smaller in resource-dependent economies, even when controlling for several other factors which have been shown to have a significant effect on financial sector development in previous studies. Moreover, the threshold level at which the increasing resource-dependence begins to be harmful for domestic banking sector is very low. We also find evidence that the use of market-based and foreign financing is more common in resource-dependent economies. Further, we argue that a relatively small financial sector used to cater the needs of the resource sector might be unfavorable for emerging businesses, thereby hampering economic diversification and reinforcing the resource curse.
    Keywords: resource dependence; resource curse; financial sector; banks; panel data
    JEL: G20 O16 O57 Q32
    Date: 2012–03–22
  20. By: Kazunobu HAYAKAWA (Kazunobu HAYAKAWA Bangkok Research Center, Japan External Trade Organization, Thailand); Fukunari KIMURA (Fukunari KIMURA Faculty of Economics, Keio University, Japan Economic Research Institute for ASEAN and East Asia (ERIA), Indonesia); Hyun-Hoon LEE (Hyun-Hoon LEE Department of International Trade and Business, Kangwon National University, Korea)
    Abstract: In this paper we empirically investigate the effects on inward FDI of various components of political and financial risk. We also examine the relationship between inward FDI and not only the level of these risks but also their changes over time. Two kinds of findings are noteworthy. One is that among the political and financial risks, only the political risk is associated with the FDI inflow. Specifically, the change in the level of political risk affects FDI inflows, while the initial level of political risk does not. The other is that, particularly in the case of developing countries, payment delays, contract expropriation, and corruption are negatively associated with the FDI inflow. However, significant improvement leads to increased FDI inflow, even if initial levels are high.
    Date: 2012–02–01
  21. By: Olga Bogach (Department of Economics, University of Hawaii at Manoa); Ilan Noy (Department of Economics, University of Hawaii at Manoa)
    Abstract: In this paper, we analyze the evolution of foreign direct investment (FDI) inflows to developing and emerging countries around financial crises. We empirically and thoroughly examine the Fire-Sale FDI hypothesis and describe the pattern of FDI inflows surrounding financial crises. We also add a more granular detail about the types of financial crises and their potentially differential effects on FDI. We distinguish between Mergers and Acquisitions (M&A) and Greenfield investment, as well as between different motivations for FDI—horizontal (tariff jumping) and vertical (integrating production stages). We find that financial crises have a strong negative effect on inward FDI in our sample. Crises are also shown to reduce the value of horizontal and vertical FDI. We do not find empirical evidence of Fire-Sale FDI. On the contrary, financial crises are shown to affect FDI flows and M&A activity adversely.
    Keywords: International investment, Foreign direct investment (FDI), Financial crises, Mergers and Acquisitions, Multinational firms
    JEL: F21 F23 F29 G01 G34
    Date: 2012–03–21
  22. By: Ivan PETRELLA; Emiliano SANTORO
    Abstract: This paper deals with the analysis of price-setting in U.S. manufacturing industries. Recent studies have heavily criticized the ability of the New Keynesian Phillips curve (NKPC) to fit aggregate inflation [see, e.g., Rudd and Whelan, 2006, Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?, American Economic Review, vol. 96(1), pp. 303-320 ]. We challenge this evidence, showing that forward-looking behavior as implied by the New Keynesian model of price-setting is widely supported at the sectoral level. In fact, current and expected future values of the income share of intermediate goods emerge as an effective driver of inflation dynamics. Unlike alternative proxies for the forcing variable, the cost of intermediate goods presents dynamic properties in line with the predictions of the New Keynesian theory.
    Date: 2011–12
  23. By: Konstantinos Angelopoulos (University of Glasgow); James Malley (University of Glasgow); Apostolis Philippopoulos (Athens University of Economics and Business,CESifo)
    Abstract: This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main findings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidize labour; (ii) a Pareto improving means to reduce inefficiently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of "capitalist bias", are not aligned implying a conflict of interests.
    Keywords: Optimal fiscal policy; Markov-perfect equilibrium; heterogeneous agents
    JEL: E62 H21
    Date: 2011–12
  24. By: Marcela Eslava; Alessandro Maffioli; Marcela Meléndez Arjona
    Abstract: Government-owned development banks have often been justified by the need to respond to financial market imperfections that hinder the establishment and growth of promising businesses, and as a result, stifle economic development more generally. However, evidence on the effectiveness of these banks in mitigating financial constraints is still lacking. To fill this gap, this paper analyzes the impact of Bancoldex, Colombia's publicly owned development bank, on access to credit. It uses a unique dataset that contains key characteristics of all loans issued to businesses in Colombia, including the financial intermediary through which the loan was granted and whether the loan was funded with Bancoldex resources. The paper assesses effects on access to credit by comparing Bancoldex loans to loans from other sources and study the impact of receiving credit from Bancoldex on a firm's subsequent credit history. To address concerns about selection bias, it uses a combination of models that control for fixed effects and matching techniques. The findings herein show that credit relationships involving Bancoldex funding are characterized by lower interest rates, larger loans, and loans with longer terms. These characteristics translated into lower average interest rates and larger average loans for firms that used Bancoldex credit. Average loans of Bancoldex' beneficiaries also exhibit longer terms, although this effect can take two years to materialize. Finally, the findings show evidence of a demonstration effect of Bancoldex: beneficiary firms that have access Bancoldex credit are able to significantly expand the number of intermediaries with whom they have credit relationships.
    Keywords: Financial Sector :: Financial Markets, Financial Sector :: Financial Policy, Financial Sector :: Financial Services, Private Sector :: SME, Second-tier development banks, access to credit, impact evaluation, panel data, interest rates, loan size, loan term, demonstration effects
    JEL: C23 G28 H43 O12 O16 O54
    Date: 2012–03
  25. By: James B. Ang; Jakob B. Madsen
    Abstract: Although ideas production plays a critical role for growth, there has been only a modicum of research on the role played by financial forces in fostering new inventions. Drawing on Schumpeterian growth theory, this paper tests the roles of risk capital and private credit in stimulating knowledge production. Using panel data for 77 countries over the period 1965-2009, it is found that countries with more developed financial systems are more innovative. A stronger patent protection framework, on the other hand, curbs innovative production.
    Keywords: Schumpeterian growth; financial development; venture capital
    JEL: O30 O40
    Date: 2012–03
  26. By: Zsolt Darvas
    Abstract: We use data on exchange rates and consumer price indices and the weighting matrix derived by Bayoumi, Lee and Jaewoo (2006) to calculate consumer price index-based REER. The main novelties of our database are that (1) it includes data for 178 countries –many more than in any other publicly available database– plus an external REER for the euro area, using a consistent methodology; (2) it includes up-to-date REER values, such as data for January 2012; and (3) it is relatively easy to calculate REER against any arbitrary group of countries. The annual database is complete for 172 countries and the euro area for 1992-2011 and data is available for six other countries for a shorter period. For several countries annual data is available for earlier years as well, e.g. data is available for 67 countries from 1960. The monthly database is complete for 138 countries for January 1995-January 2012, and data is also available for 15 other countries for a shorter period. The indicators calculated by us are freely downloadable and will be irregularly updated.
    Keywords: effective exchange rate
    JEL: F31
    Date: 2012–03–19

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