nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2018‒02‒26
five papers chosen by
Georg Man

  1. Lending Standards and Output Growth By Divya Kirti
  2. Credit and Fiscal Multipliers in China By Sophia Chen; Lev Ratnovski; Pi-Han Tsai
  3. Equilibrium Real Interest Rates, Secular Stagnation, and the Financial Cycle: Empirical Evidence for Euro-Area Member Countries By Ansgar Belke; Jens Klose
  4. Productivity growth in Italy: a tale of a slow-motion change By Matteo Bugamelli; Francesca Lotti; Monica Amici; Emanuela Ciapanna; Fabrizio Colonna; Francesco D’Amuri; Silvia Giacomelli; Andrea Linarello; Francesco Manaresi; Giuliana Palumbo; Filippo Scoccianti; Enrico Sette
  5. A Model to Assess the Probabilities of Growth, Fiscal, and Financial Crises By Suman S Basu; Marcos Chamon; Christopher W. Crowe

  1. By: Divya Kirti
    Abstract: While some credit booms are followed by economic underperformance, many are not. Can lending standards help separate good credit booms from bad credit booms contemporaneously? To observe lending standards internationally, I use information from primary debt capital markets. I construct the high-yield (HY) share of bond issuance for a panel of 38 countries. The HY share is procyclical, suggesting that lending standards in bond markets are extrapolative. Credit booms with deteriorating lending standards (rising HY share) are followed by lower GDP growth in the subsequent three to four years. Such booms deserve attention from policy makers.
    Date: 2018–01–26
  2. By: Sophia Chen; Lev Ratnovski; Pi-Han Tsai
    Abstract: We jointly estimate credit and fiscal multipliers in China. We use the tenure of the provincial party secretary, interacted with the type of stimulus used in other provinces, to obtain separate instruments for provincial credit and government expenditure. We estimate a fiscal multiplier of 0.8 and a credit multiplier of 0.2 in 2001-2015. The multipliers have changed over time. The fiscal multiplier has increased from 0.75 in 2001-2008 to 1.4 in 2010-2015. The credit multiplier has declined from 0.17 to zero over the same periods. Our results suggest that reducing credit growth in China is unlikely to disrupt output growth, whereas fiscal policy may be effective in supporting macroeconomic adjustment.
    Keywords: Asia and Pacific;China;Macroprudential Policy;Fiscal stimulus;Credit Growth, Multipliers, Comparative or Joint Analysis of Fiscal and Monetary or Stabilization Policy, General, Size and Spatial Distributions of Regional Economic Activity
    Date: 2017–12–12
  3. By: Ansgar Belke; Jens Klose
    Abstract: Is the Euro area as a whole, or are individual Euro-area member countries facing a period of sustained lower economic growth, a phenomenon known as secular stagnation? We tackle this question by estimating equilibrium real interest rates and comparing them to actual real rates. Since the financial crisis has altered the degree of leverage in several European economies, we expand our model to incorporate the financial cycle. We estimate the model for the Euro area as a whole and for nine Euro-area member countries. Incorporating the financial cycle changes the estimated equilibrium real interest rates: For some of Euro-area member countries, estimates of the equilibrium real interest rate are substantially higher than the standard estimates. In other cases, including our estimates for the Euro area as a whole, the estimated equilibrium real rates are slightly lower than without taking the financial cycle into account but are still higher than the actual rates. This indicates that real monetary policy rates were set even more systematically and consistently below (or not as far above) the natural real rate. Comparing the sequence of actual and equilibrium real rates, only Belgium, France, and Greece are likely to face a period of secular stagnation.
    Keywords: equilibrium real interest rate, secular stagnation, euro-area countries, heterogeneity
    JEL: E43 C32
    Date: 2018–01
  4. By: Matteo Bugamelli (Bank of Italy); Francesca Lotti (Bank of Italy); Monica Amici (Bank of Italy); Emanuela Ciapanna (Bank of Italy); Fabrizio Colonna (Bank of Italy); Francesco D’Amuri (Bank of Italy); Silvia Giacomelli (Bank of Italy); Andrea Linarello (Bank of Italy); Francesco Manaresi (Bank of Italy); Giuliana Palumbo (Bank of Italy); Filippo Scoccianti (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: Productivity is the main factor holding back long-term economic growth in Italy. Since the second half of the 1990s, productivity growth has been feeble both by historical standards and compared with the other main euro area countries. Understanding the reasons for such a performance and finding the most effective policy levers is crucial to increase Italy’s potential growth rate. Against this background, we provide a detailed analysis of the data and a critical review of the available empirical evidence to identify both the structural weaknesses limiting productivity growth and the strengths of the Italian productive system that may support it looking forward. Since the end of the 1990s and more intensively since the second half of 2011, the reform effort has been particularly effective in the regulation of product and labor markets and industrial policy. On other factors which are very relevant for productivity dynamics, the reform action has been less effective so far.
    Keywords: productivity, growth, business dynamics, innovation, human capital, labor, finance, regulation, policies
    JEL: D0 E0 F0 G0 H0 J08 K0 L0
    Date: 2018–01
  5. By: Suman S Basu; Marcos Chamon; Christopher W. Crowe
    Abstract: This paper summarizes a suite of early warning models to assess the probabilities of growth, fiscal, and financial crises in advanced economies and emerging markets. We estimate separate signal-extraction models for each type of crisis and sample of countries, and we use our results to generate “histories of vulnerabilities” for countries, regions, and the world. For the global financial crisis, our models report that vulnerabilities in advanced economies were rooted in the bursting of leveraged bubbles, while vulnerabilities in emerging markets stemmed from lengthy booms in credit and asset prices combined with growing weaknesses in the corporate and external sectors.
    Date: 2017–12–14

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