nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒01‒25
thirty-six papers chosen by
Georg Man

  1. The Causal Relationship between Private Sector Credit Growth and Economic Growth in Bangladesh: Use of Toda-Yamamoto Granger Causality test in VAR Model By Paul, Uttam Chandra
  2. The role of finance in inclusive human development in Africa revisited By Simplice A. Asongu; Rexon T. Nting
  3. Serbia’s New Growth Agenda By Mariya Brussevich; Shawn W. Tan
  4. Structural Change and Regional Economic Growth in Indonesia By Andriansyah, Andriansyah; Nurwanda, Asep; Rifai, Bakhtiar
  5. Financial Inclusion: What Have We Learned So Far? What Do We Have to Learn? By Adolfo Barajas; Thorsten Beck; Mohammed Belhaj; Sami Ben Naceur
  6. Filling the Gap: Digital Credit and Financial Inclusion By Majid Bazarbash; Kimberly Beaton
  7. Financial development and macroeconomic sustainability: modeling based on a modified environmental Kuznets curve By Adel Ben Youssef; Sabri Boubaker; Anis Omri
  8. The Impact of Climate on Economic and Financial Cycles: A Markov-switching Panel Approach By Monica Billio; Roberto Casarin; Enrica De Cian; Malcolm Mistry; Anthony Osuntuyi
  9. Climate Finance By Stefano Giglio; Bryan Kelly; Johannes Stroebel
  10. Financial crisis, financial globalisation and financial development in Africa By Simplice A. Asongu; Joseph Nnanna
  11. Answering the Queen: Machine Learning and Financial Crises By Jeremy Fouliard; Michael Howell; Hélène Rey
  12. Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs By ; Daniel O. Beltran; Mohammad R. Jahan-Parvar
  13. Does Going Tough on Banks Make the Going Get Tough? Bank Liquidity Regulations, Capital Requirements, and Sectoral Activity By Deniz O Igan; Ali Mirzaei
  14. Financial Constraints: a Propagation Mechanism of Foreign Shocks By Rosario Aldunate
  15. Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? By Katharina Bergant; Francesco Grigoli; Niels-Jakob H Hansen; Damiano Sandri
  16. The macroprudential toolkit: effectiveness and interactions By Millard, Stephen; Rubio, Margarita; Varadi, Alexandra
  17. Leaning Against the Wind: A Cost-Benefit Analysis for an Integrated Policy Framework By Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
  18. Reforming the Greek Financial System: a decade of failure By Athanasios Kolliopoulos
  19. Togo; Selected Issues By International Monetary Fund
  20. Do Monetary Policy Frameworks Matter in Low Income Countries? By Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
  21. Managing Macrofinancial Risk By Tobias Adrian; Francis Vitek
  22. Switzerland; Financial Sector Assessment Program; Technical Note-Macrofinancial Analysis and Macroprudential Policy By International Monetary Fund
  23. Seychelles; Selected Issues By International Monetary Fund
  24. Why Does Structural Change Accelerate in Recessions? The Credit Reallocation Channel. By Cooper Howes
  25. Search for Profits and Business Fluctuations: How Banks' Behaviour Explain Cycles? By Emanuele Ciola; Edoardo Gaffeo; Mauro Gallegati
  26. Financial Amplification of Labor Supply Shocks By Nina Biljanovska; Alexandros Vardoulakis
  27. The Real Exchange Rate and Development - Theory, Evidence, Issues, and Challenges By Raphael Gouvea
  28. Real Exchange Rates and Manufacturing Industry in China By Ping Hua
  29. Exchange Rates and Domestic Credit—Can Macroprudential Policy Reduce the Link? By Erlend Nier; Thorvardur Tjoervi Olafsson; Yuan Gao Rollinson
  30. Investor Sentiment, Sovereign Debt Mispricing, and Economic Outcomes By Ramzy Al Amine; Tim Willems
  31. Dynamics and synchronization of global equilibrium interest rates By Beyer, Robert; Milivojevic, Lazar
  32. Global Banks’ Dollar Funding: A Source of Financial Vulnerability By Adolfo Barajas; Andrea Deghi; Claudio Raddatz; Dulani Seneviratne; Peichu Xie; Yizhi Xu
  33. Information Asymmetry and Insurance in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  34. Governance structure, technical change and industry competition By Mattia Guerini; Philipp Harting; Mauro Napoletano
  35. Early modern financial development in the Iberian peninsula By Freire Costa, Leonor; Münch Miranda, Susana; Nogues-Marco, Pilar
  36. Financial Intermediation and Technology: What’s Old, What’s New? By Arnoud W.A. Boot; Peter Hoffmann; Luc Laeven; Lev Ratnovski

  1. By: Paul, Uttam Chandra
    Abstract: This paper examines the causal relationship between private sector credit growth and economic growth in Bangladesh by using annual time series data over the period of 1976-2017. To investigate this relationship, the Autoregressive Distributed Lag (ARDL) Approach has been used. In addition, this paper examines the direction of causality by adopting the Toda-Yamamoto procedure of Granger Causality test in the VAR model. The empirical results show that the annual growth rate of private sector credit (PC) and industrial production index (IPI) have a positive and significant effect on annual growth rate of GDP in both long-run and short-run. But there is only a short-run positive effect of export (X) and a negative effect of broad money (BM) on GDP growth rate. Finally, the results of the Toda-Yamamoto Granger Causality test show that there is unidirectional causality from GDP growth rate to private sector credit growth rate.
    Keywords: Bangladesh, GDP growth, Private sector credit growth, Autoregressive Distributed Lag (ARDL) Approach, Toda-Yamamoto Granger Causality test.
    JEL: C22 E51 O47
    Date: 2020–12–02
  2. By: Simplice A. Asongu (Yaounde, Cameroon); Rexon T. Nting (University of Wales, London, UK)
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries. It employs a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers. This study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.
    Keywords: Banking; human development; Africa
    JEL: E00 G20 I00 O10
    Date: 2021–01
  3. By: Mariya Brussevich; Shawn W. Tan
    Keywords: International Economics and Trade - Foreign Direct Investment Private Sector Development - Private Sector Economics Science and Technology Development - Technology Innovation
    Date: 2019–11
  4. By: Andriansyah, Andriansyah; Nurwanda, Asep; Rifai, Bakhtiar
    Abstract: This paper investigates the relationship between structural change and regional economic growth in Indonesia. We utilize several measures of structural change, i.e. structural change index, norm absolute value index, shift-share method, and effective structural change index, for 30 provinces over the period 2005-2018. We show that the structural change has occurred across provinces, even though it is slowing, towards an agricultural-services transition. By employing dynamic panel data models, this study shows that structural change is a significant determinant of growth. However, structural change matters for growth only if there is an increase in productivity, not only a movement of labor across sectors. An improvement in productivity within sectors and a movement of labors to other sectors with better productivity lead to a better economic development.
    Keywords: Structural Change; Regional Growth; Indonesia; Productivity
    JEL: L16 O40 R11
    Date: 2020–08–07
  5. By: Adolfo Barajas; Thorsten Beck; Mohammed Belhaj; Sami Ben Naceur
    Abstract: The past two decades have seen a rapid increase in interest in financial inclusion, both from policymakers and researchers. This paper surveys the main findings from the literature, documenting the trends over time and gaps that have arisen across regions, income levels, and gender, among others. It points out that structural, as well as policy-related, factors, such as encouraging banking competition or channeling government payments through bank accounts, play an important role, and describes the potential macro and microeconomic benefits that can be derived from greater financial inclusion. It argues that policy should aim to identify and reduce frictions holding back financial inclusion, rather than targeting specific levels of inclusion. Finally, it suggests areas for future research.
    Keywords: Financial inclusion;Financial services;Credit;Banking;Mobile banking;WP,bank account,economic growth,incorporated firm,financial activity,household enterprise,loan officer
    Date: 2020–08–07
  6. By: Majid Bazarbash; Kimberly Beaton
    Abstract: Can fintech credit fill the credit gap in the consumer and business segments? There are few cross-country studies that explore this question. Focusing on marketplace lending, an important part of fintech credit, we use data for 109 countries from 2015 to 2017 to study the relationship between fintech credit to businesses and consumers and various aspects of financial development. Marketplace lending to consumers grows in countries where financial depth declines highlighting the role of fintech credit in filling the credit gap by traditional lenders. This result is particularly strong in low-income countries. In the business segment, marketplace lending expands where financial efficiency declines. Our findings show that low-income countries take advantage of the fintech credit opportunity in the consumer segment but face important challenges in the business segment.
    Keywords: Credit;Fintech;Financial sector development;Banking;Peer-to-peer lending;WP,marketplace lending,fintech lending,cross-country difference,balance sheet lending,consumer lending
    Date: 2020–08–07
  7. By: Adel Ben Youssef (Université Côte d'Azur, CNRS, GREDEG (France), GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Sabri Boubaker; Anis Omri
    Abstract: Sustainability has become an important and widely applied concept in the environmental economics literature. Despite the numerous studies employing an environmental Kuznets curve (EKC) this model has been critiqued for its incompleteness. This article builds a modified EKC model to examine the contribution of financial development for achieving sustainable development. Using data for 14 selected Middle East and North Africa (MENA) countries during 1990-2017, the empirical results show that the EKC hypothesis is valid for per capita CO 2 emissions and ecological footprint. The results provide evidence also of the presence of linear and non-linear relationships between financial development and non-sustainability and indicate that financial development is likely to have a small long-term impact on sustainable development. This suggests that current efforts aimed at protecting the environment and achieving sustainability will be ineffective given the extent of the problem.
    Keywords: Financial development,Sustainable development,Modified EKC-model
    Date: 2020–11
  8. By: Monica Billio (Department of Economics, University Of Venice Cà Foscari); Roberto Casarin (Department of Economics, University Of Venice Cà Foscari); Enrica De Cian (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Malcolm Mistry (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Anthony Osuntuyi (Department of Mathematics, Obafemi Awolowo University Nigeria)
    Abstract: This paper examines the impact of climate shocks on 13 European economies analysing jointly business and financial cycles, in different phases and disentangling the effects for different sector channels. A Bayesian Panel Markov-switching framework is proposed to jointly estimate the impact of extreme weather events on the economies as well as the interaction between business and financial cycles. Results from the empirical analysis suggest that extreme weather events impact asymmetrically across the different phases of the economy and heterogeneously across the EU countries. Moreover, we highlight how the manufacturing output, a component of the industrial production index, constitutes the main channel through which climate shocks impact the EU economies.
    Keywords: Bayesian inference, climate shocks, financial cycle, business cycle, Markov-switching, Multi-country Panel
    JEL: C11 C15 C33 C53 E37
    Date: 2021
  9. By: Stefano Giglio; Bryan Kelly; Johannes Stroebel
    Abstract: We review the literature studying interactions between climate change and financial markets. We first discuss various approaches to incorporating climate risk in macro-finance models. We then review the empirical literature that explores the pricing of climate risks across a large number of asset classes including real estate, equities, and fixed income securities. In this context, we also discuss how investors can use these assets to construct portfolios that hedge against climate risk. We conclude by proposing several promising directions for future research in climate finance.
    Keywords: climate change, climate risk, physical risk, transition risk, ESG
    Date: 2020
  10. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: This study unites two streams of research by simultaneously focusing on the impact of financial globalisation on financial development and pre- and post-crisis dynamics of the investigated relationship. The empirical evidence is based on 53 African countries for the period 2004-2011 and Generalised Method of Moments. The following findings are established. First, whereas marginal effects from financial globalisation are positive on financial dynamics of activity and size, corresponding net effects (positive thresholds) are negative (within range). Second, while decreasing financial globalisation returns are apparent to financial dynamics of depth and efficiency, corresponding net effects (negative thresholds) are positive (not within range). Third, financial development dynamics are more weakly stationary and strongly convergent in the pre-crisis period. Fourth, the net effect from the: pre-crisis period is lower on money supply and banking system efficiency; post-crisis period is positive on financial system efficiency and pre-crisis period is positive on financial size.
    Keywords: Banking; Financial crisis; Financial development
    JEL: F02 F21 F30 F40 O10
    Date: 2020–01
  11. By: Jeremy Fouliard; Michael Howell; Hélène Rey
    Abstract: Financial crises cause economic, social and political havoc. Macroprudential policies are gaining traction but are still severely under-researched compared to monetary policy and fiscal policy. We use the general framework of sequential predictions also called online machine learning to forecast crises out-of-sample. Our methodology is based on model averaging and is meta-statistic since we can incorporate any predictive model of crises in our set of experts and test its ability to add information. We are able to predict systemic financial crises twelve quarters ahead out-of-sample with high signal-to-noise ratio in most cases. We analyse which experts provide the most information for our predictions at each point in time and for each country, allowing us to gain some insights into economic mechanisms underlying the building of risk in economies.
    JEL: G01 G15
    Date: 2020–12
  12. By: ; Daniel O. Beltran; Mohammad R. Jahan-Parvar
    Abstract: Credit gaps are good predictors for financial crises, and banking regulators recommend using them to inform countercyclical capital buffers for banks. Researchers typically create credit gap measures using trend-cycle decomposition methods, which require many modelling choices, such as the method used, and the smoothness of the underlying trend. Other choices hinge on the tradeoffs implicit in how gaps are used as early warning indicators (EWIs) for predicting crises, such as the preference over false positives and false negatives. We evaluate how the performance of credit-gap-based EWIs for predicting crises is influenced by these modelling choices. For the most common trend-cycle decomposition methods used to recover credit gaps, we find that optimally smoothing the trend enhances out-of-sample prediction. We also show that out-of sample performance improves further when we consider a preference for robustness of the credit gap estimates to the arrival of new information, which is important as any EWI should work in real-time. We offer several practical implications.
    Keywords: Credit; Credit Gap; Optimization; Predictive Power; Robustness; Trend-cycle decomposition
    JEL: C22 E39 G28
    Date: 2021–01–06
  13. By: Deniz O Igan; Ali Mirzaei
    Abstract: Whether and to what extent tougher bank regulation weighs on economic growth is an open empirical question. Using data from 28 manufacturing industries in 50 countries, we explore the extent to which cross-country differences in bank liquidity and capital levels were related to differences in sectoral activity around the period of the global financial crisis. We find that industries which are more dependent on external finance, in countries where banks had higher liquidity and capital ratios, performed relatively better during the crisis, with regard to investment rates and the creation of new enterprises. This relationship, however, exists only for bank-based systems and emerging market economies. In the pre-crisis period, we find only a marginal link to bank capital. These findings survive a battery of robustness checks and provide some solid support for the tighter prudential measures introduced under Basel III.
    Keywords: Banking;Liquidity requirements;Liquidity;Capital adequacy requirements;Financial crises;WP,capital level,economic activity,capital requirement,capital position
    Date: 2020–06–19
  14. By: Rosario Aldunate
    Abstract: This essay seeks to contribute to the credit-channel literature by studying how the effects of foreign shocks can be amplified in the economy due to the existence of financial constraints at the firm-level in a small open economy as Chile. For this purpose, this study analyzes the evolution of Chilean manufacturing firms between 1995 and 2005 thanks to a panel based on the Annual National Survey of Industries, measures of financial constraints built on the work by Rajan and Zingales (1998) and pays special attention to the Asian crisis, an episode that hit particularly hard the Chilean economy in terms of contraction of the credit flow. Regarding the exit probability, during the Asian crisis firms with liquidity needs were more likely to leave the market. On the intensive margin side, the number of workers, wage-bill, total income, and value-added were more negatively affected by this crisis in financially constrained firms.
    Date: 2021–01
  15. By: Katharina Bergant; Francesco Grigoli; Niels-Jakob H Hansen; Damiano Sandri
    Abstract: We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains.
    Keywords: Capital controls;Central bank policy rate;Emerging and frontier financial markets;Capital outflows;Capital flows;WP,capital control,real GDP,net capital,output gap
    Date: 2020–06–26
  16. By: Millard, Stephen (Bank of England); Rubio, Margarita (Nottingham University); Varadi, Alexandra (Bank of England)
    Abstract: We use a DSGE model with financial frictions, leverage limits on banks, loan to value (LTV) limits and debt‑service ratio (DSR) limits on mortgage borrowing to examine: i) the effects of different macroprudential policies on key macro aggregates; ii) their interaction with each other and with monetary policy; and iii) their effects on the volatility of key macroeconomic variables and on welfare. We find that capital requirements can nullify the effects of financial frictions and reduce the effects of shocks emanating from the financial sector on the real economy. LTV limits, on their own, are not sufficient to constrain household indebtedness in booms, though can be used with capital requirements to keep DSRs under control. Finally, DSR limits lead to a significant decrease in the volatility of lending, consumption and inflation, since they disconnect the housing market from the real economy. Overall, DSR limits are welfare improving relative to any other macroprudential tool.
    Keywords: Macroprudential policy; monetary policy; leverage ratio; affordability constraint; collateral constraint
    JEL: E44 E58 G21 G28
    Date: 2021–01–15
  17. By: Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
    Abstract: This paper takes a new approach to assess the costs and benefits of using different policy tools—macroprudential, monetary, foreign exchange interventions, and capital flow management—in response to changes in financial conditions. The approach evaluates net benefits of policies using quadratic loss functions, estimating policy effects on the full distribution of future output growth and inflation with quantile regressions. Tightening macroprudential policy dampens downside risks to growth stemming from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses, calling for caution in the use of monetary policy to “lean against the wind.” These findings hold when policies are used in response to easing global financial conditions. Buying foreign-exchange or tightening capital controls has small net benefits.
    Keywords: Macroprudential policy;Macroprudential policy instruments;Credit;Financial conditions index;Capital flow management;WP,financial conditions,loss function
    Date: 2020–07–07
  18. By: Athanasios Kolliopoulos
    Abstract: In this paper an attempt is made to describe the political economy of financial reforms in Greece. After a decade of deep crisis, Greek banks still suffer from the highest Non-Performing Loans (NPLs) ratio in the Eurozone, which occurred because of macroeconomic and bank-specific factors. However, due to the emphasis of policy makers on the macroeconomic determinants of NPLs and the contradicted incentives of the main stakeholders (bankers, politicians, regulators and investors), the need to improve the internal NPL management skills and the corporate governance of banks, both of which were poor, was neglected. As a result, the lost opportunity to restructure the Greek financial system aggravated the macroeconomic conditions for lack of a counter-cyclical lending policy.
    Keywords: Non-performing loans, corporate governance, Greek banks, reforms
    Date: 2021–01
  19. By: International Monetary Fund
    Abstract: This Selected Issues paper investigates state-owned financial institutions’ (SOFIs) performance in developing economies. It focuses on Sub-Saharan Africa, zooming in on the Togolese experience with SOFIs and privatization, at a time when the Togolese government has decided to further disengage from the financial sector. Typically set up with a public interest and financial inclusion mandate, SOFIs tend to weaken financial stability and fiscal discipline in developing economies, especially if they are not typically regulated and supervised on the same basis as other banks. Togo’s and cross-country experiences suggest that performance improves more after privatization when the government fully relinquishes control, when banks are privatized to strategic investors rather than through share issues, and when bidding is open to all, including foreign banks. The success of privatization also hinges on the business environment for competition, governance, and entry, on banks’ valuation and how policy concerns are dealt with, as well as on owner’s prudential review quality.
    Keywords: Privatization;Banking;State-owned banks;Corruption;Health;ISCR,CR,Togo,outlay,authority,education outlay,frontier
    Date: 2019–07–02
  20. By: Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
    Abstract: In recent years, many Low-Income Countries (LICs) have implemented substantial reforms to their monetary policy frameworks, but existing economic research has not provided a clear rationale to guide those efforts. In this paper we analyze the role of monetary policy frameworks in the propagation of aggregate shocks, using a large panel dataset of 79 LICs over the period 1990-2015 as well as event study analysis for a group of 28 sub-Saharan African LICs. We find highly significant differences in the propagation of external shocks between the LICs that target monetary aggregates or inflation compared to those that maintain rigid nominal exchange rates as a nominal anchor. We also find that the large surprise devaluation of the Central African Franc (CFA) in January 1994 had highly significant effects on the GDP growth of 10 CFA countries compared to 18 similar countries that were outside the CFA zone. Our empirical analysis provides strong support for the role of monetary policy frameworks in facilitating macroeconomic stability in LICs—a conclusion that is particularly relevant as LICs now face a multitude of similar shocks associated with the global COVID-19 pandemic.
    Keywords: Monetary policy frameworks;Exchange rates;Production growth;Inflation targeting;Oil prices;WP,oil price shock,terms of trade,change frequency,monetary policy framework in LICs,sensitivity analysis,transparent monetary policy framework,unanticipated monetary policy shock
    Date: 2020–07–24
  21. By: Tobias Adrian; Francis Vitek
    Abstract: We augment a linearized dynamic stochastic general equilibrium (DSGE) model with a tractable endogenous risk mechanism, to support the joint analysis of monetary and macroprudential policy. This state dependent conditional heteroskedasticity mechanism specifies the conditional variances of structural shocks as functions of the business or financial cycle. The resultant heteroskedastic linearized DSGE model preserves the satisfactory simulation and forecasting performance of its nested homoskedastic counterpart for the conditional means of endogenous variables, while substantially improving its goodness of fit to their conditional distributions. In particular, the model matches the key stylized facts of growth at risk. Accounting for state dependent conditional heteroskedasticity makes it optimal for monetary policy to respond more aggressively to the business cycle, and for macroprudential policy to manage the resilience of the banking sector more actively over the financial cycle.
    Keywords: Mortgages;Production growth;Macroprudential policy;Short term interest rates;Banking;WP,math display
    Date: 2020–08–07
  22. By: International Monetary Fund
    Abstract: Financial Sector Assessment Program; Technical Note-Macrofinancial Analysis and Macroprudential Policy
    Keywords: Pension spending;Mortgages;Financial sector stability;Real estate prices;Pensions;ISCR,CR,mortgage loan,financial market,SNB researcher,SNB analysis,risk weight
    Date: 2019–06–26
  23. By: International Monetary Fund
    Abstract: Selected Issues
    Keywords: Financial conditions index;Credit gaps;Vector autoregression;Macroprudential policy;Post-clearance customs audit;ISCR,CR,Correlations Between FCIs,Seychelles,financial condition,constructed FCIs
    Date: 2019–07–01
  24. By: Cooper Howes
    Abstract: The decline of the U.S. manufacturing share since 1960 has occurred disproportionately during recessions. Using evidence from two natural experiments—the collapse of Lehman Brothers in 2008 and U.S. interstate banking deregulation in the 1980s—I document a role for credit reallocation in explaining this phenomenon. Specifically, I show that losing access to credit disproportionately hurt manufacturing firms, and that the creation of new credit disproportionately benefited nonmanufacturing firms. These results arise endogenously from a model with technology-driven structural change and fixed costs of establishing new financial relationships. The model suggests an important role for long-run industry trajectories in properly accounting for the costs and benefits of policy interventions in credit markets.
    Keywords: Structural Change; Reallocation; Frinancial Frictions
    JEL: E32 E44 E51
    Date: 2020–11–02
  25. By: Emanuele Ciola (Department of Management, Universita' Politecnica delle Marche (Italy)); Edoardo Gaffeo (Department of Economics and Management, Universita' degli Studi di Trento (Italy).); Mauro Gallegati (Department of Management, Universita' Politecnica delle Marche (Italy))
    Abstract: This paper develops and estimates a macroeconomic model of real-financial markets interactions in which the behaviour of banks generates endogenous business cycles. We do so in the context of a computational agent-based framework, where the channelling of funds from depositors to investors occurring through intermediaries nformation and matching frictions. Since banks compete in both deposit and credit markets, the whole dynamic is driven by endogenous fluctuations in their profits. In particular, we assume that intermediaries adopt a simple learning process, which consists of copying the strategy of the most profitable competitors while setting their interest rates. Accordingly, the emergence of strategic complementarity - mainly due to the accumulation of information capital - leads to periods of sustained growth followed by sharp recessions in the simulated economy.
    Keywords: Keywords: Agent-based macroeconomics, Simulation-based estimation, Intermediaries behaviour, Business cycles
    JEL: C15 C51 C63 E32 E44
    Date: 2021–01
  26. By: Nina Biljanovska; Alexandros Vardoulakis
    Abstract: We study how financial frictions amplify labor supply shocks in a macroeconomic model with occasionally binding financing constraints. Workers supply labor to entrepreneurs who borrow to purchase factors of production. Borrowing capacity is restricted by the value of capital, generating a pecuniary externality when financing constraints bind. Additionally, there is a distributive externality operating through wages. The planner’s allocation can be decentralized with two instruments: a credit tax/subsidy and a labor tax/subsidy. Labor shocks, such as the COVID-19 shock, amplify the policy responses, which critically depend on whether financing constraints bind or not.
    Keywords: Labor supply;Collateral;Labor taxes;Supply shocks;Labor;WP,utility function,quantitative analysis
    Date: 2020–09–18
  27. By: Raphael Gouvea (Institute for Applied Economic Research (IPEA); Department of Economics, University of Massachusetts Amherst)
    Abstract: This paper surveys the theoretical and empirical literature on the effects of the real exchange rate (RER) on international trade, economic development and growth. We summarize the main conceptual issues, discuss the relevance of the RER as an instrument of development policy, provide an overview of the macroeconomic and microeconomic mechanisms that link the RER to trade and long run growth and development, analyze the challenges – especially the disconnect between theory and data -- that often arise in empirical applications, and present new avenues for future research. In the process, we present some updated estimates and illustrative figures. The mechanisms through which the RER influences long-run growth and structural change outcomes remains a promising area of research and the relevance of individual channels in different contexts deserves much more careful investigation. Greater data availability should help fill some of these gaps in our understanding.
    Keywords: Real exchange rate, Economic development, Structural change, Economic growth, International trade
    JEL: F31 F43 E2 O11 O24
    Date: 2020
  28. By: Ping Hua (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Date: 2020–07
  29. By: Erlend Nier; Thorvardur Tjoervi Olafsson; Yuan Gao Rollinson
    Abstract: This paper examines empirically the role of macroprudential policy in addressing the effects of external shocks on financial stability. In a sample of 62 economies over the period of 2000: Q1–2016: Q4, our dynamic panel regressions show that an appreciation of the local exchange rate is associated with a subsequent increase in the domestic credit gap, while a prior tightening of macroprudential policies dampens this effect. These results are strong for small open economies, and robust when we explicitly account for potential simultaneity and reverse causality biases. We also examine a feedback effect where strong domestic credit pulls in additional cross-border funding, potentially further increasing systemic risk, and find that targeted capital controls can play a complementary role in alleviating this effect.
    Keywords: Macroprudential policy;Credit gaps;Domestic credit;Capital controls;Real exchange rates;WP,exchange rate,monetary policy,currency appreciation,real GDP
    Date: 2020–09–11
  30. By: Ramzy Al Amine; Tim Willems
    Abstract: We find that countries which are able to borrow at spreads that seem low given fundamentals (for example because investors take a bullish view on a country's future), are more likely to develop economic difficulties later on. We obtain this result through a two-stage procedure, where a first regression links sovereign spreads to fundamentals, after which residuals from this regression are deployed in a second stage to assess their impact on future outcomes (real GDP growth and the occurrence of fiscal crises). We confirm the relevance of past sovereign debt mispricing in several out-of-sample exercises, where they reduce the RMSE of real GDP growth forecasts by as much as 15 percent. This provides strong support for theories of sentiment affecting the business cycle. Our findings also suggest that countries shouldn't solely rely on spread levels when determining their fiscal strategy; underlying fundamentals should inform policy as well, since historical relationships between spreads and fundamentals often continue to apply in the medium-to-long run.
    Keywords: Public debt;Current account deficits;External debt;Government consumption;Economic forecasting;WP,sub,cross-validation procedure
    Date: 2020–08–14
  31. By: Beyer, Robert; Milivojevic, Lazar
    Abstract: With the COVID-19 pandemic, the intense debate about secular stagnation will become even more important. Empirical estimates of equilibrium real interest rates are so far mostly limited to advanced economies, since no statistical procedure suitable for a large set of countries is available. This is surprising, as equilibrium rates have strong policy implications in emerging markets and developing economies as well; current estimates of the global equilibrium rate rely on only a few countries; and estimates for a more diverse set of countries can improve understanding of the drivers. This paper proposes a model and estimation strategy that decompose ex ante real interest rates into a permanent and transitory component even with short samples and high volatility. This is done with an unobserved component local level stochastic volatility model, which is used to estimate equilibrium rates for 50 countries with Bayesian methods. Equilibrium rates were lower in emerging markets and developing economies than in advanced economies in the 1980s, similar in the 1990s, and have been higher since 2000. In line with economic integration and rising global capital markets, synchronization has been rising over time and is higher among advanced economies. Equilibrium rates of countries with stronger trade linkages and similar demographic and economic trends are more synchronized.
    Keywords: equilibrium interest rate,stochastic volatility,Bayesian inference,synchronization
    JEL: E52 E43 C32
    Date: 2021
  32. By: Adolfo Barajas; Andrea Deghi; Claudio Raddatz; Dulani Seneviratne; Peichu Xie; Yizhi Xu
    Abstract: Leading up to the global financial crisis, US dollar activity by global banks headquartered outside the United States played a crucial role in transmitting shocks originating in funding markets. Although post-crisis regulation has improved banking systems’ resilience, US dollar funding remains a global vulnerability, as evidenced by strains that reemerged in March 2020 in the midst of the COVID-19 crisis. We show that shocks to US dollar funding costs lead to financial stress in the home economies of these global non-US banks, and to spillovers to borrowers, especially emerging economies. US dollar funding vulnerability amplifies these negative effects, while some policy-related factors act as mitigators, such as swap line arrangements between central banks and international reserve holdings. Thus, these vulnerabilities should be monitored and, to the extent possible, controlled.
    Keywords: Banking;Commercial banks;Currencies;Liquidity requirements;Liquidity indicators;WP,dollar,return on assets,USD lending
    Date: 2020–07–03
  33. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: In this study, we assess the relevance of decreasing information asymmetry on life and non-life insurance consumption, by using data from 48 African countries during the period 2004-2014. Reduced information asymmetry is proxied by information sharing offices, namely: public credit registries and private credit bureaus. The empirical evidence is based on the Generalised Method of Moments. The findings show that information sharing offices increase insurance consumption with a comparatively higher magnitude in life insurance penetration, relative to non-life insurance penetration. Practical and theoretical implications are discussed.
    Keywords: Insurance; Information Asymmetry
    JEL: I30 G20 G22 O16 O55
    Date: 2020–01
  34. By: Mattia Guerini (COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019), GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Philipp Harting (Universität Bielefeld = Bielefeld University); Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Abstract: We develop a model to study the impact of corporate governance on firm investment decisions and industry competition. In the model, governance structure affects the distribution of shares among short-and long-term oriented investors, the robustness of the management regarding possible stockholder interference, and the managerial remuneration scheme. A bargaining process between firm's stakeholders determines the optimal allocation of financial resources between real investments in R&D and financial investments in shares buybacks. We characterize the relation between corporate governance and firm's optimal investment strategy and we study how different governance structures shape technical progress and the degree of competition over the industrial life cycle. Numerical simulations of a calibrated setup of the model show that pooling together industries characterized by heterogeneous governance structures generate the well-documented inverted-U shaped relation between competition and innovation.
    Keywords: governance structure,industry dynamics,competition,technical change
    Date: 2020–12–04
  35. By: Freire Costa, Leonor; Münch Miranda, Susana; Nogues-Marco, Pilar
    Abstract: Iberian colonies produced the vast majority of world precious metals in the Early Modern period, which increased liquidity in the Iberian Peninsula. In this paper we focus on the relationship between liquidity and financial development – including other relevant variables such as instruments and institutions – to examine the efficiency of the financial systems in Castile and Portugal.
    Keywords: financial system, public debt, private credit market, precious metals, interest rates.
    JEL: N13 N23 G15 E44
    Date: 2021
  36. By: Arnoud W.A. Boot; Peter Hoffmann; Luc Laeven; Lev Ratnovski
    Abstract: We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.
    Keywords: Financial services;Banking;Communications in revenue administration;Technological innovation;Financial statements;WP,bank,firm,customer,financial service,provider
    Date: 2020–08–07

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