nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒06‒11
five papers chosen by
Georg Man

  1. An agent based Keynesian model with credit cycles and countercyclical capital buffer By Zsuzsanna Hosszú; Bence Mérõ
  2. The casual relationship between financial development and investment in Botswana By Muyambiri, Brian; Odhiambo, Nicholas M
  3. Corporate Governance: Banking Sector and Economic Development By Ion Croitoru; Issam MF Saltaji
  4. Macroeconomic factors behind financial instability By Jan Behringer; Sabine Stephan; Thomas Theobald
  5. Tourism-Growth Nexus in the South Pacific Islands: Role of Financial Sector Development as a Contingent Factor An Empirical Study of Fiji: 1980-2014 By Jayaraman, Tiru; Choong, Chee-Keong; Fatt Ng, Cheong; Bhatt, Markand

  1. By: Zsuzsanna Hosszú (Magyar Nemzeti Bank (Central Bank of Hungary)); Bence Mérõ (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper, we have developed an agent-based Keynesian macro model that features a detailed representation of a banking system, besides households and firms, and in which fiscal, monetary and macroprudential policy regulators also operate. The banking system generates longer credit cycles on the time series compared to the business cycle, and also fosters growth through lending, but deepens the recession during crises by decreasing credit supply. Macroprudential authority uses countercyclical capital buffer requirements to decrease the procyclicality of the banking system. According to our results, this policy instrument is effective in enhancing financial stability, while in recessions, the decrease in GDP is less with countercyclical capital buffer requirements than without any macroprudential rule. However, there is a trade-off between financial stability and economic growth.
    Keywords: agent based model, credit cycle, business cycle, countercyclical capital buffer
    JEL: E12 E32 E44 G18 G21
    Date: 2017
  2. By: Muyambiri, Brian; Odhiambo, Nicholas M
    Abstract: In this paper, we examine the causal relationship between financial development and investment in Botswana between 1976 and 2014, using the autoregressive distributed-lag (ARDL) bounds testing approach. Unlike some previous studies, our study divides financial sector development into two segments, namely bank-based and market-based financial development. We also employ a trivariate Granger-causality model in order to address the omission-of-variable bias associated with a bivariate causality model. In order to capture the breadth and depth of the financial sector in the study country, we employ both bank- and market-based financial development indices. These indices are constructed from an array of bank- and market-based financial development indicators. Our results show that there is a bidirectional Granger-causal relationship between both bank-based and market-based financial development and investment in the short run. However, in the long run, a distinct causal flow is found to prevail only from investment to bank-based financial development.
    Keywords: Botswana, Investment, Bank-Based Financial Development, Market-Based Financial Development
    Date: 2017–05
  3. By: Ion Croitoru (Athenaeum University of Bucharest); Issam MF Saltaji (Athenaeum University of Bucharest)
    Abstract: Corporate governance is concerned as the most important topic to be discussed by financial entities and economic institutions in developed and transition economic countries during the last decade especially several financial crisis took places around the world especially, the ninetieth was full of crises and scandals that highlighted the low quality of monitoring and related weak accounting system beside the poor experience and transparency. These crises and scandals made many shareholders and citizens to lose their wealth and due to that shareholders and citizens look for corporations applying corporate governance. Besides that, developed economic countries employ governance mechanisms aggressively in order to increase the investment possibilities in their corporations and territories. Overall, corporate governance has its role in economic reformation and economic development.
    Keywords: Corporate Governance, Economic Development, Banking Sector, High Quality Performance
    JEL: M4 M2 M11
    Date: 2017–01
  4. By: Jan Behringer; Sabine Stephan; Thomas Theobald
    Abstract: We investigate the interaction between inequality, leverage and financial crises using bivariate Granger causality tests for a sample of 13 European countries and the United States over the period 1975-2013. We also examine the relevance of other determinants of expansions in credit to income and test whether the causal relationships are sensitive to different measures of credit. We find that top income shares significantly affect future credit to income of the private household sector. The test statistics reveal that the effect of top income shares is weaker for bank credit to the private non-financial sector. This is broadly consistent with the notion, that rising (top-end) personal inequality may lead to an increase in demand for credit by low and middle income households in order to maintain their relative standards of consumption. While results suggest no robust causality relationship from the Gini coefficient to credit, there is evidence for feedback effects from credit to the income distribution. Moreover, we find bidirectional causality relationships between economic activity and credit on the one hand and asset prices and credit on the other which may give rise to mutually reinforcing boom-bust cycles. The monetary policy stance does not seem to be a strong driver of the expansion in credit to income and financial deregulation affects the expansion in credit to income only at the individual country level.
    Keywords: income distribution, credit, financial crises, Granger causality tests
    JEL: C32 C33 E51 G01
    Date: 2017
  5. By: Jayaraman, Tiru; Choong, Chee-Keong; Fatt Ng, Cheong; Bhatt, Markand
    Abstract: Tourism in recent years has emerged as the engine of growth in Pacific island countries. In Fiji in particular, it has relegated its traditional sugar exports to third place. Besides the steadily increasing air passenger traffic, there has been a rising trend in cruise ship arrivals. Short visits by cruise ship travelers have become additional sources of income for a host of small scale tourist operators and vendors, most of them being outside the informal sector in around its two major ports. In this context, financial inclusion efforts have assumed greater importance as these incomes in some part can find their way as savings into banks. The role of financial sector development (FSD) has thus become a critical factor in the tourism-growth nexus. This paper finds while the FSD indicator when individually employed, whether as broad money or bank credit to private sector is supportive of the growth nexus, the interaction term is has emerged with a negative sign indicating that FSD does not play a complementary role. The financial sector of Fiji is still shallow, despite considerable progress in financial inclusion efforts, measures towards deepening of FSD depend not on one front of mobilization of savings, but on all round progress in various segments of financial sector.
    Keywords: Fiji, Tourism, economic growth, financial sector development, bounds testing
    JEL: O47
    Date: 2017–05–31

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