nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒03‒12
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Bank Lending to the Private Sector and GDP Growth: Thresholds and Returns By Demetris Koursaros; Nektarios A. Michail; Christos S. Savva
  2. The Global Role of the U.S. Economy: Linkages, Policies and Spillovers By Kose, Ayhan; Lakatos, Csilla; Ohnsorge, Franziska; Stocker, Marc
  3. The Transmission of Monetary Policy Shocks By Miranda-Agrippino, Silvia; Ricco, Giovanni
  4. Fiscal space on the eurozone periphery: The case of Spain By Uxó González, Jorge; Álvarez, Ignacio; Febrero, Eladio
  5. Fundamental uncertainty and unconventional monetary policy: an info-gap approach By Yakov Ben-Haim; Maria Demertzis; Jan Willem van den End
  6. Monetary Policy: By Rule, By Committee, or By Both? : a speech at the 2017 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York, March 3, 2017. By Fischer, Stanley

  1. By: Demetris Koursaros (Cyprus University of Technology); Nektarios A. Michail (Central Bank of Cyprus); Christos S. Savva (Cyprus University of Technology)
    Abstract: We examine the relationship between lending to the private sector and GDP growth using a two-period model and test model conclusions through a Smooth Transition Conditional Correlation (STCC) model for the G7 countries. Theory suggests that the correlation between private lending and growth is positive and this relationship exhibits diminishing returns after a threshold. The empirical exercise confirms that this relationship holds, and while thresholds exist for most countries, the correlation between private lending and growth is never negative. Overall, the evidence indicates that policy should not emphasise the level of lending but its allocation in the economy.
    Keywords: private debt, correlation, bank lending, threshold, policy
    JEL: E51 E60 C32
    Date: 2016–02
  2. By: Kose, Ayhan; Lakatos, Csilla; Ohnsorge, Franziska; Stocker, Marc
    Abstract: This paper analyzes the role of the United States in the global economy and examines the extent of global spillovers from changes in U.S. growth, monetary and fiscal policies, and uncertainty in its financial markets and economic policies. Developments in the U.S. economy, the world's largest, have effects far beyond its shores. A surge in U.S. growth could provide a significant boost to the global economy. Tightening U.S. financial conditions -whether due to contractionary U.S. monetary policy or other reasons- could reverberate across global financial markets, with adverse effects on some emerging market and developing economies that rely heavily on external financing. In addition, lingering uncertainty about the course of U.S. economic policy could have an appreciably negative effect on global growth prospects. While the United States plays a critical role in the world economy, activity in the rest of the world is also important for the United States.
    Keywords: Business Cycles; global economy.; Trade; uncertainty; United States
    JEL: C15 E32 E52 F13 H30 O51
    Date: 2017–02
  3. By: Miranda-Agrippino, Silvia (Bank of England and CFM); Ricco, Giovanni (University of Warwick and OFCE - Science Po)
    Abstract: Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identi cation that accounts for informational rigidities, with a flexible econometric method robust to misspecifications that bridges between VARs and Local Projections.We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles.
    Keywords: Monetary Policy ; Local Projections ; VARs ; Expectations ; Information ; Rigidity ; Survey Forecasts ; External Instruments
    JEL: E52 G14 C32
    Date: 2017
  4. By: Uxó González, Jorge; Álvarez, Ignacio; Febrero, Eladio
    Abstract: On the one hand, every official document about fiscal policy in Spain, and most orthodox academic papers argue that Spain has no "fiscal space" and that it should apply resolute actions to assure budget consolidation. On the other hand, Spain also had the second highest unemployment rate in the Eurozone in 2015: 21% of the active population. A rapid decline in that rate would require a higher fiscal impulse to sustain higher economic growth rates. This paper addresses this dilemma, presenting two alternative scenarios for the coming years and analyzing their impact on unemployment and fiscal sustainability. The first scenario represents a firm commitment to budget consolidation, while in the second the government uses the fiscal instrument to stimulate domestic demand and ensure a GDP growth rate target. The second scenario is based on an application of an "imperfect" balanced budget multiplier, proposing a combination of discretionary increases in both public expenditure and revenue. The main conclusion is that the end of fiscal austerity is feasible and perfectly compatible with fiscal finances sustainability for Spain.
    Keywords: Fiscal Policy,Fiscal Space,Functional Finance,Balance Budget Multiplier,Spain
    JEL: E61 E62
    Date: 2017
  5. By: Yakov Ben-Haim; Maria Demertzis; Jan Willem van den End
    Abstract: This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it.
    Date: 2017–02
  6. By: Fischer, Stanley (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2017–03–03

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