nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒01‒18
27 papers chosen by
Georg Man

  1. Financial development and macroeconomic performance: a cointegration approach By Cândida Ferreira
  2. Private Banking Credit and Economic Growth in Mexico: A State Level Panel Data Analysis 2005-2018 By Leonardo E. Torre Cepeda; Miguel A. Flores Segovia
  3. The Role of Institutional Infrastructures in Financial Inclusion-Growth Relations: Evidence from SSA By Kazeem B. Ajide; Ibrahim D. Raheem; Olorunfemi Y. Alimi; Simplice A. Asongu
  4. Does PMJDY Scheme Augmented Financial Inclusion in India? Evidence from Indian States By Singh, Bhanu Pratap; Kumari, Annu; Sharma, Tanya; Malhotra, Abhishek
  5. The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  6. Financial Sector Development and Investment in Selected ECOWAS Countries: Empirical Evidence using Heterogeneous Panel Data Method By Chimere O. Iheonu; Simplice A. Asongu; Kingsley O. Odo; Patrick K. Ojiem
  7. Ethiopia Financial Sector Development By World Bank
  8. Insurance that Works By World Bank Group
  9. Nonlinearities and the Determinants of Inequality: New Panel Evidence By Gravina, Antonio Francesco; Lanzafame, Matteo
  10. Banques de développement en Afrique subsaharienne: quelques leçons historiques pour une refondation? By P. Derreumaux
  11. Les financements opérés par les banques publiques de développement sont-ils contracycliques ? Un état des lieux By Florian Leon
  12. External Private Financing and Domestic Revenue Mobilization: A Dilemma? By Hippolyte W. Balima; Deirdre Daly; Boileau Loko
  13. External Financing Dependence and Corporate Saving in ASEAN5 By Xin Li
  14. Capital Gaps, Risk Dynamics, and the Macroeconomy By Fabian Lipinsky; Mirela S. Miescu
  15. American Business Cycles 1889-1913: An Accounting Approach By Dou Jiang; Mark Weder
  16. From interaction to business fluctuations: How credit network explain cycles By Emanuele Ciola; Gabriele Tedeschi
  17. Semi-Structural VAR and Unobserved Components Models to Estimate Finance-Neutral Output Gap By Kátay Gábor; Kerdelhué Lisa; Lequien Matthieu
  18. Bubbles and the Value of Innovation By Valentin Haddad; Paul Ho; Erik Loualiche
  19. Entrepreneurs are exposed to large uninsured risks. The risks may discourage them from creating productive assets. This may generate a productive asset shortage and stimulate demand for speculative bubbles. We introduce entrepreneurial risks into a textbook growth model with infinitely lived agents. In our model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree of entrepreneurial risks is high, bubbles promote growth because bubbles work as a buffer for the risks. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify fundamental shocks. By Takeo Hori; Ryonghun Im
  20. Fintech in Europe: Promises and Threats By Chikako Baba; Cristina Batog; Enrique Flores; Borja Gracia; Izabela Karpowicz; Piotr Kopyrski; James Roaf; Anna Shabunina; Rachel Elkan; Xin Cindy Xu
  21. Fintech Credit Risk Assessment for SMEs: Evidence from China By Yiping Huang; Longmei Zhang; Zhenhua Li; Han Qiu; Tao Sun; Xue Wang
  22. Incomplete Financial Markets and the Booming Housing Sector in China By Tamim Bayoumi; Yunhui Zhao
  23. Exchange rate fluctuations and the financial channel in emerging economies By Joscha Beckmann; Mariarosaria Comunale
  24. Central Bank Independence: Metrics and Empirics By Donato Masciandaro; Jacopo Magurno; Romano Tarsia
  25. Funding for lending schemes should prioritize SME lending By Barnabás Székely
  26. Financial Frictions and Firm Informality: A General Equilibrium Perspective By Luis Franjo; Nathalie Pouokam; Francesco Turino
  27. An Apocalypse Foretold: Climate Shocks and Sovereign Defaults By Serhan Cevik; João Tovar Jalles

  1. By: Cândida Ferreira
    Abstract: The paper tests the existence of long-term relations, measured through cointegration,between all the IMF financial development indices and some macroeconomic performance indicators applying panel cointegration tests in a panel with 46 countries, and in a panel including only the sub-sample of the 28 EU countriesover the interval 1990-2017. Overall, there are no significant differences between the results obtained for whole sample and the panel including only the EU countries. The results obtained clearly point to the existence of cointegration between the financial development indices and the real GrossDomestic Product, aswell aswith the inflation, the unemployment rate, and very particularly, with the current account, and with the net international investment position. The results also show there are no significant differences between the results obtained for the financial institutions and for the financial markets. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much ore mportant han he imple access to or the depth of the financial institutions nd markets is the efficiency of these institutions and markets.
    Keywords: Financial development; IMF Financial development indices; macroeconomic performance; cointegration; panel cointegration tests.
    JEL: E44 E02 F36 O43 C13
    Date: 2020–12
  2. By: Leonardo E. Torre Cepeda; Miguel A. Flores Segovia
    Abstract: The paper investigates the effect of banking credit to private agriculture, industrial and services sectors, on per capita GDP growth in Mexico using panel data at the state level for the period 2005-2018. The estimation controls for variables related to infrastructure, public expenditure, exports, inflation, human capital, a dummy for the 2008-2009 global financial crisis, and introduces a lag of the dependent variable in order to consider its likely persistence. Using the Generalized Method of Moments in order to control for possible endogenous effects among the variables, it is estimated that a 10% increase in the ratio of banking credit to GDP increases per capita GDP growth at the state level between 0.61 and 0.81 percentage points. These results underline the relevance of policy measures designed to promote a healthy functioning of the financial system in Mexico.
    JEL: O47 G21 R11 R15
    Date: 2020–12
  3. By: Kazeem B. Ajide (University of Lagos, Nigeria); Ibrahim D. Raheem (EXCAS, Liège, Belgium); Olorunfemi Y. Alimi (University of Lagos, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This paper investigates the role of institutional infrastructures in the financial inclusion-growth nexus for a panel of twenty countries in sub-Sahara Africa (SSA).Employing the System Generalized Method of Moments (GMM), the following insightful outcomes are established. First, while there is an unrestricted positive impact of physical access to ATMs and ICT measures of financial inclusion on SSA’s growth but only the former was found significant. Second, the four institutional components via economic, political, institutional and general governances were also found to be growth-spurring. Lastly, countries with low levels of real per capita income are matching up with other countries with high levels of real income per capita. The empirical evidence of some negative net effects and insignificant marginal impacts are indication that imperfections in the financial markets are sometimes employed to the disadvantage of the poor. On the whole, we established positive effects on growth for the most part. The positive effects are evident because the governance indicators compliment financial inclusion in reducing pecuniary constraints hindering credit access and allocation to the poor that deteriorate growth.
    Keywords: Financial Inclusion; Economic Growth; Governance; System Generalized Method of Moments (GMM)
    JEL: G20 I10 O40 P37
    Date: 2020–01
  4. By: Singh, Bhanu Pratap; Kumari, Annu; Sharma, Tanya; Malhotra, Abhishek
    Abstract: The study attempts to examine the impact of financial inclusion, promoted through Pradhaan Mantri Jan Dhan Yojna (PMJDY) scheme, on the economic performance across the Indian states. Using the index of financial inclusion developed in Sarma (2008), the current study develops a 3-dimensional FII for 25 major Indian states for the year 2011 and 2016 to assess the status of financial inclusion. Cross-sectional and pooled Ordinary Least Square regression techniques are applied to examine the impact of financial inclusion on the economic performance of the Indian states. The slope and interaction dummies are used to incorporate the effect of PMJDY scheme, which takes value 1 for structural change and 0 for the control period. The major findings of the study suggest the PMJDY scheme failed to augment financial inclusion in India in the short-run. Lack of physical infrastructure, human development and effective governance are the major reasons behind the failure of the PMJDY scheme. Hence, structural reforms are warranted in the regulatory framework for better economic outcomes.
    Keywords: Financial inclusion, Economic growth, PMJDY scheme, Pooled OLS regression
    JEL: G2 G28 O11
    Date: 2020–11–30
  5. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Paul N. Acha-Anyi (Walter Sisulu University, South Africa)
    Abstract: This study investigates the simultaneous openness hypothesis by assessing the importance of trade openness in modulating the effect of foreign direct investment (FDI) on economic dynamics of gross domestic product (GDP) growth, real GDP and GDP per capita. The focus of the study is on 25 countries in Sub-Saharan Africa over the period spanning from 1980 to 2014. First, trade imports modulate FDI to induce net positive effects on GDP growth and GDP per capita. Second, trade exports moderate FDI to generate overall positive impacts on GDP growth, real GDP and GDP per capita. Implications of the study are discussed, inter alia: (i) both FDI and trade infrastructures are necessary for FDI-focused measures to engender positive economic development outcomes in host communities and countries. (ii) Macroeconomic conditions that are relevant for promoting economic development are necessary for the interactions between trade openness and FDI to generate favorable outcomes in terms of GDP growth, real GDP and GDP per capita.
    Keywords: Economic Output; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  6. By: Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Kingsley O. Odo (University of Nigeria, Nsukka, Nigeria); Patrick K. Ojiem (University of Nigeria, Nsukka, Nigeria)
    Abstract: This study investigated the impact of financial sector development on domestic investment in selected Economic Community of West African States (ECOWAS) countries for the years 1985 to 2017. The study employed the Augmented Mean Group procedure which accounts for country specific heterogeneity and cross sectional dependence, and the Granger non-causality test robust to cross sectional dependence. The result reveals that (1) the impact of financial sector development on domestic investment depends on the measure of financial sector development utilised, (2) domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS while banking intermediation efficiency (i.e. ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment, (3) cross country differences exist on the impact of financial sector development on domestic investment in the selected ECOWAS countries, and (4) domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends cautiousness in terms of the measure of financial development which is being utilised as a policy instrument to foster domestic investment as well as the importance of employing country-specific domestic investment policies in order to avoid blanket policy measures. Also, domestic credit to the private sector should be given priority when forecasting domestic investment into the future.
    Keywords: Financial Sector Development; Domestic Investment; Augmented Mean Group; Granger non-causality test; ECOWAS
    JEL: C5 E2 E5 G0
    Date: 2020–01
  7. By: World Bank
    Keywords: Finance and Financial Sector Development - Banks & Banking Reform Finance and Financial Sector Development - Financial Regulation & Supervision Finance and Financial Sector Development - Microfinance Finance and Financial Sector Development - Payment Systems & Infrastructure
    Date: 2019–12
  8. By: World Bank Group
    Keywords: Agriculture - Agricultural Sector Economics Finance and Financial Sector Development - Finance and Development Finance and Financial Sector Development - Financial Literacy Finance and Financial Sector Development - Insurance & Risk Mitigation Health, Nutrition and Population - Health Insurance
    Date: 2019–12
  9. By: Gravina, Antonio Francesco; Lanzafame, Matteo
    Abstract: Relying on data for a panel of 90 economies over 1970-2015 and System-GMM estimates, we extend the standard Kuznets-curve empirical framework to investigate how financial development, globalisation and technology affect income inequality. Our findings reveal the presence of significant nonlinearities, consistent with either U-shaped or inverted U-shaped relationships. As such, depending on whether a certain threshold value is achieved, the same determinants of income distribution can exert opposite effects in different countries. Globalisation is associated to increasing inequality in most advanced economies, but to falling disparities for the large majority of emerging economies. Further, while the effects for advanced economies are mixed, technology and financial development lead to increasing inequality for most emerging economies. Hence, particularly in countries in earlier stages of development, policymakers aiming at fostering growth via technological progress or financial development should also consider the nature of the trade-offs with inequality and how policy can improve them.
    Keywords: Political Economy
    Date: 2020–12–17
  10. By: P. Derreumaux (FERDI - Fondation pour les Etudes et Recherches sur le Développement International)
    Abstract: À l'époque des indépendances en Afrique subsaharienne, l'un des crédos les mieux partagés par les dirigeants des nouveaux États et par les bailleurs de fonds bilatéraux et internationaux (désormais appelés Partenaires techniques et financiers ou PTF) qui se penchaient sur leur destin économique était la nécessité de banques de développement étatiques pour que les objectifs de croissance et de construction de systèmes économiques nationaux modernes puissent être atteints dans les meilleurs délais.
    Date: 2020–10–19
  11. By: Florian Leon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International)
    Date: 2020–10–20
  12. By: Hippolyte W. Balima; Deirdre Daly; Boileau Loko
    Abstract: Domestic revenue mobilization (DRM) is essential for low-income and emerging economies to sustainably finance their development needs and has received increasing attention in recent years. Studies have centered on structural factors such as the size and the structure of the economy, and the quality of institutions, notably to account for weaknesses in revenue administrations. Nevertheless, DRM can take time and carry political costs. Raising more financing through donors or private investors may be an easier and more politically palatable way for countries to meet spending needs. Using an impact assessment methodology and panel regressions over a sample of 72 developing countries, we found no evidence that access to bond markets or external commercial loans undermines the countries’ efforts to collect tax revenue. On the contrary, we found that access to markets has a positive impact on domestic revenue mobilization. Plausible explanations are that private financing must be repaid, and strong macroeconomic fundamentals are key for maintaining market access. We have also found that macroeconomic stability and the strength of institutions do matter for domestic revenue mobilization.
    Keywords: Revenue administration;Revenue mobilization;International bonds;Emerging and frontier financial markets;Bonds;Domestic revenue mobilization,Bond markets,external commercial debt.,WP,market access,access country,access unit,market discipline effect,market financing
    Date: 2020–11–08
  13. By: Xin Li
    Abstract: Using firm-level data on ASEAN5, this paper studies the differential effects of macro-financial and structural factors on corporate saving behavior through the lens of external financing dependence. The finding suggests that non-financial corporations in ASEAN5 have been subject to binding financial constraints over the past two decades. Greater capital account openness or exchange rate depreciation reduces the average saving rate of industries with low dependence on external funds, while it increases the saving rate of industries with high dependence on external funds. The effects are greater for export-oriented industries. An improvement in banking sector competition, banks’ lending efficiency, or policy clarity is associated with lower saving rate of firms across the board.
    Keywords: Financial sector development;Commercial banks;Capital flows;Precautionary savings;Corporate sector;ASEAN countries,corporate saving,external financing need,export-orientation,financial constraint,capital account openness,exchange rate depreciation.,WP,saving rate,high-tech company,Level analysis,tech firm,firm's use,precautionary saving theory,saving behavior,use of external finance
    Date: 2020–10–30
  14. By: Fabian Lipinsky; Mirela S. Miescu
    Abstract: Motivated by the increasing interest in analyzing the links between the financial sector and the real economy, we develop a macro-financial structural model with two novel features. First, we include idiosyncratic and aggregate risk in a tractable general equilibrium model. This allows us to capture sectoral dynamics and the probabilities of default of both firms and financial intermediaries, and the feedback between them. Second, we introduce the concept of sticky (observed) versus flexible (agents’ target) capital. The identified differences between realized and optimal values — the capital gaps of firms and banks — lead financial and business cycles, and cause gaps in credit spreads and asset prices. The model can be used as a signaling device for macroprudential intervention, and to gauge whether macroprudential action was successful ex-post (e.g., whether gaps were closed). For illustration, we show how the analysis of gaps can be applied to the U.S. economy using Bayesian estimation techniques.
    Keywords: Nonbank financial institutions;Mutual funds;Financial statements;Credit;Financial crises;WP,capital gap,FIs capital,adjustment cost,cash flow,capital level,risk shock
    Date: 2020–09–25
  15. By: Dou Jiang (Nanjing University of Finance and Economics); Mark Weder (Department of Economics and Business Economics, Aarhus University and CAMA)
    Abstract: This paper quantitatively investigates the Depression of the 1890s and the 1907 recession in the United States. Business Cycle Accounting decomposes economic fluctuations into their contributing factors. The results suggest that both the 1890s and the 1907 recessions were primarily caused by factors that affect the efficiency wedge, i.e. slumps in the economy’s factor productivity. Distortions to the labor wedge played a less important role. Models with financial market frictions that translate into the efficiency wedge are the most promising candidates for explaining the recessionary episodes.
    Keywords: Business cycles, Depression of the 1890s, Recession of 1907
    JEL: E32 E44 N11
    Date: 2020–01–06
  16. By: Emanuele Ciola (Department of Economics, Universitat Jaume I, Castellón, Spain and Department of Economics and Social Sciences, Università Politecnica delle Marche, Ancona-Italy); Gabriele Tedeschi (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper, we develop a macroeconomic model with heterogeneous interacting agents to study the effects of different configurations of the interbank network on the overall performance of the economy. Specifically, we implement a simple decentralized matching model in which deposit, credit and interbank relations evolve endogenously via a fitness measure. Our findings confirm the importance of the interbank market as an indisputable source of economic stability able to counterbalance deposit withdrawal and stabilize the credit allocation. However, when highly centralized, this market can amplify the effects of shocks in the economy due to coordination failures of core banks.
    Keywords: Interbank network; Business Fluctuations; Financial crises
    JEL: C63 E44 E32 G01
    Date: 2021
  17. By: Kátay Gábor; Kerdelhué Lisa; Lequien Matthieu
    Abstract: The paper assesses the impact of adding information on financial cycles on the output gap estimates for eight advanced economies using two unobserved components models: a reduced form extended Hodrick-Prescott filter, and a standard semi-structural unobserved components model. To complement these models, a semi-structural vector autoregression model is proposed in which only supply shocks are identified. The accuracy of the output gap estimates is assessed based on their performance in predicting recessions. The models with financial variables generally produce more accurate output gap estimates at the expense of increased real-time volatility. While the extended Hodrick-Prescott filter is particularly appealing for its real-time stability, it lags behind the two semi-structural models in terms of forecasting performance. The vector autoregression model augmented with financial variables features the best in-sample forecasting performance, and it has similar real-time prediction capabilities to the semi-structural unobserved components model. Overall, financial cycles appear to be relevant in Japan, Spain, the UK, and – to a lesser extent – in the US and in France, while they are relatively muted in Canada, Germany, and Italy.
    Keywords: Unobserved Components model, semi-structural VAR, output gap, financial cycle, sustainable growth, credit, house prices, advanced economies.
    JEL: C32 E32 E44 G01 O11 O1
    Date: 2020
  18. By: Valentin Haddad; Paul Ho; Erik Loualiche
    Abstract: Episodes of booming innovation coincide with intense speculation in financial markets leading to bubbles—increases in market valuations and firm creation followed by a crash. We provide a framework reproducing these facts that makes a rich set of predictions on how speculation changes both the private and social values of innovation. We confirm the theory in the universe of U.S. patents issued from 1926 through 2010. Measures based on financial market information indicate that speculation increases the private value of innovation and reduces negative spillovers to competing firms. No commensurate change occurs in measures grounded in real outcomes.
    Keywords: Bubbles; Innovation; patents
    Date: 2020–07–03
  19. By: Takeo Hori (Tokyo Institute of Technology); Ryonghun Im (Kyoto University)
    Keywords: asset bubbles, idiosyncratic risks, incomplete insurance, amplification, growth effect, welfare analysis.
    JEL: E21 E23 E44 G01 G11
    Date: 2021–01
  20. By: Chikako Baba; Cristina Batog; Enrique Flores; Borja Gracia; Izabela Karpowicz; Piotr Kopyrski; James Roaf; Anna Shabunina; Rachel Elkan; Xin Cindy Xu
    Abstract: Europe’s high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries, although cross-border and pan-euro area instruments are not yet widespread, notwithstanding important enabling EU level regulation and the establishment of instant payments by the ECB. Automated lending models are developing but remain limited mainly to unsecured consumer lending. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand. Meanwhile, competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition, thereby causing them to increasingly resemble balanced sheet-based fintech companies. These developments could improve the efficiency and reach of financial intermediation while also adding to profitability pressures for some banks. Although the COVID-19 pandemic could call into question the viability of platform-based lending fintechs funding models given that investors could face much higher delinquencies, it may also offer growth opportunities to those fintechs that are positioned to take advantage of the ongoing structural shift in demand toward virtual finance.
    Keywords: Fintech;Peer-to-peer lending;Loans;Financial statements;Crowdfunding;lending,payment system,European Union,Payments Directive,PSD2,WP,Fintech company,direct debit,micro-enterprise lending,individual investor,Big-tech company,crowdfunding firm,due diligence,payment company,value chain,venture capital
    Date: 2020–11–13
  21. By: Yiping Huang; Longmei Zhang; Zhenhua Li; Han Qiu; Tao Sun; Xue Wang
    Abstract: Promoting credit services to small and medium-size enterprises (SMEs) has been a perennial challenge for policy makers globally due to high information costs. Recent fintech developments may be able to mitigate this problem. By leveraging big data or digital footprints on existing platforms, some big technology (BigTech) firms have extended short-term loans to millions of small firms. By analyzing 1.8 million loan transactions of a leading Chinese online bank, this paper compares the fintech approach to assessing credit risk using big data and machine learning models with the bank approach using traditional financial data and scorecard models. The study shows that the fintech approach yields better prediction of loan defaults during normal times and periods of large exogenous shocks, reflecting information and modeling advantages. BigTech’s proprietary information can complement or, where necessary, substitute credit history in risk assessment, allowing unbanked firms to borrow. Furthermore, the fintech approach benefits SMEs that are smaller and in smaller cities, hence complementing the role of banks by reaching underserved customers. With more effective and balanced policy support, BigTech lenders could help promote financial inclusion worldwide.
    Keywords: Fintech;Machine learning;Bank credit;Loans;Credit risk;WP,credit history,Fintech firm,house ownership,internet company,real-time customer rating
    Date: 2020–09–25
  22. By: Tamim Bayoumi; Yunhui Zhao
    Abstract: Housing is by far the most important asset in Chinese households’ balance sheets. However, despite forceful and frequent government interventions, the rise in Chinese housing prices has not been contained as much as intended, a trend that has not been reversed by the COVID-19 shock. In this paper, we first provide some stylized facts and then a DSGE model (encompassing both demand and supply channels) to highlight the impact of a “slow-moving” structural vulnerability—financial market incompleteness—on China’s housing prices. The model implies that to eradicate the root causes of the rising housing price, policymakers need to go beyond the housing market itself; instead, it would be desirable to deepen financial markets because these markets would help channel financial resources to productive sectors rather than to housing speculation. This is particularly important in the COVID era because without addressing this structural vulnerability, the higher household savings and the government stimulus may fuel the housing bubble and sow seeds for a future crisis. The paper can also shed light on the housing markets in other economies that face similar vulnerabilities.
    Date: 2020–12–04
  23. By: Joscha Beckmann (Universität Greifswald); Mariarosaria Comunale (Bank of Lithuania & Vilnius University)
    Abstract: This paper assesses the financial channel of exchange rate fluctuations for emerging countries and the link to the conventional trade channel. We analyse whether the effective exchange rate affects GDP growth, the domestic credit and the global liquidity measure as the credit in foreign currencies, and how global liquidity affects GDP growth. We make use of local projections in order to look at the shocks transmission covering 11 emerging market countries for the period 2000Q1-2016Q3. We find that foreign denominated credit plays an important macroeconomic role, operating through various transmission channels. The direction of effects depends on country characteristics and is also related to the policy stance among countries. We find that domestic appreciations increase demand with regard to foreign credit, implying positive effects on investment and GDP growth. However, this is valid only in the short-run; in the medium-long run, an increase of credit denominated in foreign currency (for instance, due to appreciation) decreases GDP. The financial channel works mostly in the short-run except for Brazil, Malaysia and Mexico, where the trade channel always dominates. Possibly there is a substitution effect between domestic and foreign credit in the case of shocks in exchange rates.
    Keywords: emerging markets, financial channel, exchange rates, global liquidity
    JEL: F31 F41 F43 G15
    Date: 2020–12–29
  24. By: Donato Masciandaro; Jacopo Magurno; Romano Tarsia
    Abstract: This paper reviews the evolution of the literature on Central Bank Independence (CBI) focusing on its metrics as well as on its empirical association with macroeconomic variables. Part One describes the evolution of the CBI indicators, while Part Two analyses the econometric studies devoted to shed light on the relationships between CBI and macroeconomic performances.
    Keywords: Monetary Policy, Central Bank Independence, Inflation, Growth, Sacrifice Ratio, Public Finance, Financial Stability
    JEL: E50 E52 E58
    Date: 2021
  25. By: Barnabás Székely (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In the aftermath of the sovereign debt crisis the Central Bank of Hungary implemented a great-scale funding for lending scheme designed specifically to subsidize SME finance. This creates a unique opportunity to identify this policy in the SVAR framework as asymmetric credit supply shocks specific to SME lending. I find that during the post-crisis recovery, such disturbances had a substantial effect on lending conditions and the real economy. Moreover, rather than supplanting lending to large enterprises, the program had considerable positive spillover effects to this sector. Finally, for a unit of lending, these shocks had larger and more persistent effect on output than general credit supply shocks. These results are robust to different proxies of economic performance and alternative identification strategies. I conclude that under tight lending conditions funding for lending schemes are more effective if concentrated to SMEs.
    Keywords: Bayesian SVARs, Credit supply shocks, Funding for lending scheme, SME finance
    JEL: C11 E32 E44 E58
    Date: 2020
  26. By: Luis Franjo; Nathalie Pouokam; Francesco Turino
    Abstract: In this paper we build a model of occupational choice with informal production and progressive income taxation. We calibrate the model to the Brazilian economy to evaluate the impact of removing financial frictions on informality. We find that financial deepening leads to a drop in the size of the informal sector (from 37 percent to 22 percent of official GDP), to an increase in measured TFP (by 4 percent), to an increase in official GDP (by 27 percent), to a decrease in tax evasion (by 17 percent) and to an increase in fiscal revenues (by 15 percent). When assessing the response of this policy at different levels of financial development, we find a non-linear relationship between the credit-to-GDP ratio on the one hand, and either the size of the informal economy, or GDP per capita on the other hand. We test these features with cross-country data and find evidence in favor of both types of non-linearity. We also investigate changes in the income tax progressitivity as an alternative policy and find it to be more effective in countries with a medium to high level of financial markets development.
    Keywords: Self-employment;Tax evasion;Financial frictions;Credit;Informal economy;WP,informal firm,firms informality,survival firm,ghost firm,parasite firm
    Date: 2020–09–25
  27. By: Serhan Cevik; João Tovar Jalles
    Abstract: Climate change poses an existential threat to the global economy. While there is a growing body of literature on the economic consequences of climate change, research on the link between climate change and sovereign default risk is nonexistent. We aim to fill this gap in the literature by estimating the impact of climate change vulnerability and resilience on the probability of sovereign debt default. Using a sample of 116 countries over the period 1995–2017, we find that climate change vulnerability and resilience have significant effects on the probability of sovereign debt default, especially among low-income countries. That is, countries with greater vulnerability to climate change face a higher likelihood of debt default compared to more climate resilient countries. These findings remain robust to a battery of sensitivity checks, including alternative measures of sovereign debt default, model specifications, and estimation methodologies.
    Keywords: Climate change;Debt default;Public debt;Real effective exchange rates;Financial sector development;vulnerability,resilience,government debt,sovereign default,WP,climate change vulnerability,sovereign default,climate change resilience,climate change face,climate change pay
    Date: 2020–11–08

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