nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒09‒05
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Pushing on a String: US Monetary Policy is Less Powerful in Recessions By Tenreyro, Silvana; Thwaites, Gregory
  2. Economic growth, inequality and efficiency By Sona Stikarova
  3. Financialisation and financial crisis in Iceland By Guðmundsson, Björn Rúnar
  4. Bank Capital Requirements: A Quantitative Analysis By Nguyen, Thien Tung

  1. By: Tenreyro, Silvana; Thwaites, Gregory
    Abstract: We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.
    Keywords: assymetric effects of monetary policy; monetary policy
    JEL: E1 E31 E32 E52 E58
    Date: 2015–08
  2. By: Sona Stikarova (University of Economics in Bratislava, Faculty of National Economy, Department of Economic Policy)
    Abstract: Over the last decades, theoretical work has come up with a significant amount of concepts how the income inequality and economic growth may affect each other. The recent literature identifies many channels through inequality may have positive, negative or even both effects on economic performance, but in different time dimensions. The relationship has been researched from the both perspective: the impact of income inequality on economic growth, and how the economic growth and efficiency are related to income inequality. Despite of the amount of theoretical and empirical work, the relationship between efficiency and equality is far from being well understood.
    Keywords: income inequality, efficiency, growth
    JEL: E60 O10
    Date: 2014–09–17
  3. By: Guðmundsson, Björn Rúnar
    Abstract: Financialisation in Iceland should be seen as an evolving process driven by a mixture of global and domestic forces. Responding to fundamental issues underlying macroeconomic imbalances, the authorities introduced policies that proved particularly supportive of financial expansion at a time when cross-border capital movements were rapidly on the rise. Consequently, the rise in financial activity has had profound effects on income distribution and corporate and household behaviour. Following the 2008 financial meltdown, which was triggered by excessive growth of the financial sector, financialisation in Iceland has reversed to a degree, allowing for a shift away from financial-led towards increasingly export-led growth.
    Keywords: economic development,financialisation,financial crisis
    JEL: E02 E21 E22 E25 F36 G01 O11
    Date: 2015
  4. By: Nguyen, Thien Tung (OH State University)
    Abstract: This paper examines the welfare implications of bank capital requirements in a general equilibrium model in which a dynamic banking sector endogenously determines aggregate growth. Due to government bailouts, banks engage in risk-shifting, thereby depressing investment efficiency; furthermore, they over-lever, causing fragility in the financial sector. Capital regulation can address these distortions and has a first-order effect on both growth and welfare. In the model, the optimal level of minimum Tier 1 capital requirement is 8%, greater than that prescribed by both Basel II and III. Increasing bank capital requirements can produce welfare gains greater than 1% of lifetime consumption.
    JEL: G21 G28
    Date: 2014–01

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