nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2019‒02‒25
seven papers chosen by
Georg Man

  1. Does Stock Market impact on the Growth of Nigerian Economy using 3SLS Analysis? By Oseni, Isiaq; Akpa, Emeka; Aberu, Felix
  2. The Fall in UK Potential Output due to the Financial Crisis: a Much Bigger Estimate By Crafts, Nicholas
  3. Breaking the shackles: Zombie firms, weak banks and depressed restructuring in Europe By Andrews, Dan; Petroulakis, Filippos
  4. Debt overhang, rollover risk, and corporate investment: evidence from the European crisis By Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David
  5. Quantifying Reduced-Form Evidence on Collateral Constraints By Sylvain Catherine; Thomas Chaney; Zongbo Huang; David Sraer; David Thesmar
  6. Corporate Debt Composition and Business Cycles By Jelena Zivanovic
  7. Une analyse de la contribution de la politique monétaire à la croissance économique By Christophe Blot; Paul Hubert

  1. By: Oseni, Isiaq; Akpa, Emeka; Aberu, Felix
    Abstract: The paper investigated the impact of stock market on economic growth in Nigeria from 1981 to 2016 using a three-equation simultaneous-equations model in a Three Stage Least Square (3SLS) estimation technique. The paper found that stock market positively spurs economic growth in Nigeria indicating that increase in stock market participations would enhance growth in Nigerian economy. The paper therefore concluded that there is positive and significant effect between stock market and economic growth. The paper recommended that policy makers should encourage more participation in the stock market by making it easier for business owners and foreign investors have easy access business registration and float on the stock market.
    Keywords: Stock Market, Economic Growth, 3SLS, Emerging Economies, Fiscal Policy
    JEL: C3 C32 E22
    Date: 2018–06–01
  2. By: Crafts, Nicholas
    Abstract: Conventional estimates suggest that the 2007-9 financial crisis reduced UK potential output by 3.8 to 7.5 per cent of GDP. This implied a need for fiscal tightening as the structural budget deficit had increased considerably. The austerity that followed led to the rise of UKIP, the EU referendum and the vote for Brexit. Brexit will reduce potential output by somewhere between 3.9 and 8.7 per cent of GDP. Thus, it can be argued that the total fall in UK potential output due to the banking crisis is approximately double the conventional estimate.
    Keywords: austerity; Brexit; financial crisis; Potential Output
    JEL: F15 G01 H12 O47
    Date: 2019–01
  3. By: Andrews, Dan; Petroulakis, Filippos
    Abstract: This paper explores the connection between ”zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation can be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe. JEL Classification: D24, G21, L25, O47
    Keywords: credit constraints, factor reallocation, productivity, zombie firms
    Date: 2019–02
  4. By: Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David
    Abstract: We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We find that firms with higher debt levels and a higher share of short-term debt reduce their investment more after the crisis. This negative effect is stronger for firms linked to weak banks with exposures to sovereign risk, signifying increased rollover risk. These financial channels explain about 60% of the decline in aggregate corporate investment. JEL Classification: E22, E32, E44, F34, F36, G32
    Keywords: bank-sovereign nexus, debt maturity, firm investment, rollover risk
    Date: 2019–02
  5. By: Sylvain Catherine; Thomas Chaney (Département d'économie); Zongbo Huang (Chinese University of Hong Kong (CUHK)); David Sraer (Princeton University); David Thesmar (Sloan School of Management (MIT Sloan))
    Abstract: While a mature literature shows that credit constraints causally affect firm level investment, this literature provides little guidance to quantify the economic effects implied by these findings. Our paper attempts to fill this gap in two ways. First, we use a structural model of firm dynamics with collateral constraints, and estimate the model to match the firm-level sensitivity of investment to collateral values. We estimate that firms can only pledge about 19% of their collateral value. Second, we embed this model in a general equilibrium framework and estimate that, relative to first-best, collateral constraints are responsible for 11% output losses.
    Date: 2018–05
  6. By: Jelena Zivanovic
    Abstract: Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks. It is shown that in the presence of monetary and financial shocks, cyclical changes in corporate debt composition significantly attenuate the effects on investment and output. An additional result of the theoretical model is that a bank-dependent economy is more affected by financial shocks, which is in line with empirical results by Gambetti and Musso (2016), who report stronger real effects of loan supply shocks in Europe (with an excessive reliance on bank debt) than in the US.
    Keywords: Business fluctuations and cycles; Financial Institutions; Financial markets; Recent economic and financial developments
    JEL: E32 E44
    Date: 2019
  7. By: Christophe Blot (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: Cet article a pour objectif d'évaluer la contribution de la politique monétaire à l'activité économique depuis 1999 en zone euro, aux États-Unis et Royaume-Uni, ainsi qu'en Allemagne, France, Italie et Espagne. L'estimation des multiplicateurs monétaires indique un effet significatif de la politique monétaire sur le PIB et confirme des délais de transmission assez longs, de l'ordre de plusieurs trimestres. L'effet d'une hausse des taux d'intérêt semble plus important dans la zone euro qu'aux États-Unis et au Royaume-Uni. Il y a cependant une forte hétérogénéité entre les quatre plus grands pays de la zone euro, avec un effet plus important en Espagne et en Italie et plus faible en Allemagne et en France. Nous calculons ensuite la contribution passée et à venir de la politique monétaire à l'activité. Avec la normalisation de la politique entreprise à partir de 2015 aux États-Unis et probablement en 2019 dans la zone euro, le soutien de la politique monétaire devrait s'atténuer et la croissance pourrait être négativement impactée à l'horizon 2020 dans les six économies avancées.
    Keywords: Politique monétaire; Transmission; Multiplicateur monétaire; Impulsion monétaire
    Date: 2018–12

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