nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒02‒08
35 papers chosen by
Georg Man

  1. Does the Introduction of Stock Exchange Markets BoostEconomic Growth in African Countries? By António Afonso; Max Reimers
  2. Credit Misallocation and Economic Growth in Vietnam By Mitsuru Katagiri
  3. Machine Learning and Causality: The Impact of Financial Crises on Growth By Andrew J Tiffin
  4. Macrofinancial Linkages and Growth at Risk in the Dominican Republic By Olga Bespalova; Marina V Rousset
  5. The banking sector and national economy By Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
  6. Are bigger banks better? Firm-level evidence from Germany By Kilian Huber
  7. Financial Repression is Knocking at the Door, Again By Etibar Jafarov; Rodolfo Maino; Marco Pani
  8. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  9. The productivity paradox- policy lessons from MICROPROD By Grégory Claeys; Maria Demertzis
  10. Has the Stock Market Become Less Representative of the Economy? By Schlingemann, Frederik P.; Stulz, Rene M.
  11. The aggregate consequences of default risk: evidence from firm-level data By Besley, Timothy; Roland, Isabelle; Van Reenen, John
  12. Unequal and Unstable: Income Inequality and Bank Risk By Yuliyan Mitkov; Ulrich Schüwer
  13. The Distortionary Effects of Central Bank Direct Lending on Firm Quality Dynamics By Li, Wenhao; Li, Ye
  14. Inflation, interest rate and economic growth nexuses in SACU countries By Taderera, Christie; Runganga, Raynold; Mhaka, Simbarashe; Mishi, Syden
  15. Output-Inflation Trade-Off in the Presence of Foreign Capital: Evidence for Vietnam By Hung Ly-Dai
  16. Leaning against the bubble. Can theoretical models match the empirical evidence? By Ciccarone, Giuseppe; Giuli, Francesco; Marchetti, Enrico; Tancioni, Massimiliano
  17. BUSINESS CYCLE SYNCHRONISATION IN THE ECOWAS REGION By Ngozi E. Egbuna; Maimuna John-Sowe; Santigie M. Kargbo (PhD); Sani Bawa (PhD); Ibrahima Diallo; Isatou Mendy
  18. House Prices, Collateral Effects and Sectoral Output Dynamics in Emerging Market Economies By Berrak Bahadir; Inci Gumus
  19. Global Liquidity and Household Credit By Berrak Bahadir; Neven Valev
  20. Financial structure, capital openness and financial crisis By Zhai, Weiyang
  21. Financial Development, Exchange Rate Fluctuations and Debt Dollarization: A Firm-Level Evidence By Minsuk Kim
  22. International Capital Flows When Safe Assets Scarcity Matters By Hung Ly-Dai; Hoan Nguyen Thi Thuy
  23. How the West India trade fostered last resort lending by the Bank of England By Sissoko, Carolyn; Ishizu, Mina
  24. An Optimal Islamic Investment Decision in Two-region Economy: The Case of Indonesia and Malaysia By Syarifuddin, Ferry
  25. Banks’ Holdings of Government Securities and Credit to the Private Sector in Emerging Market and Developing Economies By Romain Bouis
  26. Bank Lobbying: Regulatory Capture and Beyond By Deniz O Igan; Thomas Lambert
  27. United Republic of Tanzania; Financial System Stability Assessment-Press Release; Staff Report; and Statement by the Executive Director for the United Republic of Tanzania By International Monetary Fund
  28. Prudential guidelines and financial system stability in Nigeria. By Uddin, Godwin
  29. Cyprus; Selected Issues By International Monetary Fund
  30. Indice agrégé de stabilité financière au Maroc By DEHMEJ , Salim; MIKOU, Mohammed
  31. The Size and Development of the Shadow Economy in Morocco By LAHLOU, Kamal; DOGHMI, Hicham; SCHNEIDER, Friedrich
  32. Agricultural credit guarantee scheme fund (ACGSF) and agricultural performance in Nigeria: A threshold regression analysis By Sulaimon, Mubaraq
  33. Linking of credit cooperatives with local societies: the Indian experience By Lakshmi Arakkathara Jayan; Shanmugham Dhanan Jayan
  34. Climate Finance By Stefano Giglio; Bryan T. Kelly; Johannes Stroebel
  35. CLIMATE CHANGE AND MICROFINANCE: A WAKE-UP CALL FOR POLICY MAKERS By Alberto Lanzavecchia; Maria Palumbo; Bharat Singh Thapa

  1. By: António Afonso; Max Reimers
    Abstract: We assess whether the introduction of private equity capital markets effects economic growth in African countries. We address this issue by focussing on stock exchange markets as the predominant type of new equity markets,using a Diff-in-Diffregressionmethod.The analysis uses a panel data set from48 Sub-Saharan countries over the time range of 1970-2018.23 countries are part of the “treated” group–which introduced international stock exchanges–and 25 “untreated” countries serve as the control group. Our results show that when compared with the time period priortothe introduction of stock exchange markets, GDP per capita rises by the amount of 532US$ (around 40% of the Sub-Saharan average) after theintroduction of equity capital markets inthe treated countries.Overthe tenyears post introduction, the effect is hump-shaped, with effects becoming statistically significant from the first year after implementation, with a peak in Year 5, and it then becomes statistically insignificant from then onwards.
    JEL: C32 G15 N17
    Date: 2021–01
  2. By: Mitsuru Katagiri
    Abstract: The legacy of non-performing loans and high opportunity cost of government financing of bank recapitalization impeded the efficiency of financial intermediation and are an important policy issue in Vietnam. This paper presents a theoretical and empirical analysis of the issue. An empirical analysis using corporate data indicates credit misallocation between state owned enterprises and private firms in Vietnam. On the theoretical side, a micro-founded banking model is embedded in a political economy setting to assess the factors determining the size of bank recapitalization and its effects on the efficiency of financial intermediation, economic growth and welfare. The analysis suggests that recapitalization depends on an array of factors, including the tightness of the government budget and the decision maker’s concern for the favored sector.
    Keywords: Credit;Nonperforming loans;Banking;Bank credit;Countercyclical capital buffers;WP,public funds
    Date: 2019–09–06
  3. By: Andrew J Tiffin
    Abstract: Machine learning tools are well known for their success in prediction. But prediction is not causation, and causal discovery is at the core of most questions concerning economic policy. Recently, however, the literature has focused more on issues of causality. This paper gently introduces some leading work in this area, using a concrete example—assessing the impact of a hypothetical banking crisis on a country’s growth. By enabling consideration of a rich set of potential nonlinearities, and by allowing individually-tailored policy assessments, machine learning can provide an invaluable complement to the skill set of economists within the Fund and beyond.
    Keywords: Machine learning;Financial crises;Exchange rate flexibility;WP,machine-learning literature,instrumental-variables approach,treatment variable,confidence interval,ML technique
    Date: 2019–11–01
  4. By: Olga Bespalova; Marina V Rousset
    Abstract: This paper uses the Growth-at-Risk (GaR) methodology to examine how macrofinancial conditions affect the growth outlook and its probability distribution. Using this approach, we evaluate risks to GDP growth in the Dominican Republic using quarterly data for 1996-2018. We group macrofinancial conditions in five principal determinants, based on 32 indicators. The Dominican Republic’s growth distribution appears most vulnerable to negative shocks to domestic financial conditions, domestic leverage, domestic demand, and external demand, with additional repercussions from the external cost of borrowing in the longer run. Our findings show that domestic monetary policy plays a particularly important role in reducing growth vulnerabilities when the economy is weak.
    Keywords: Credit;Liquidity;Macrofinancial linkages;Growth-at-risk assessment;WP,financial condition,interest rate,borrowing cost,transmission mechanism
    Date: 2019–11–13
  5. By: Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
    Abstract: The banks are central elements of a market economy. In more than one way, they facilitate business transactions by acting as depositor and lender for many actors in the domestic and international economy. The banking industry in Nigeria has expanded in size in terms of assets in the last 60 years since the country’s independence from British colonial rule and undergone large-scale reforms vis a vis transformation in the global economy. What are the dimensions of this growth? How has it affected market efficiency and economic wellbeing of the people? This article provides answers to these questions and argue that growth has indeed happened in the banking sector by a quantification of liquid assets, investment securities and loans. It also captured its transnational dimension and how that has boosted international transactions as well as repatriation of Diaspora transfers to the national economy. This article also focused on the contradictions of the economy arising from inconsistent policies of government and meddlesomeness of global financial institutions, and their impact on the banking sector. This article ends on a prescriptive note by suggesting ways to make the banking sector more relevant in promoting productive activities in the national economy.
    Keywords: Banks , Banking , Asset , Currency , Economy , Nigeria
    JEL: E0 E02 E4 E5 E50 E58 E6 G0 O1 O10
    Date: 2021–01–21
  6. By: Kilian Huber
    Abstract: The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.
    Keywords: bank regulation, big banks, bank size, economic growth, Brexit, economic geography, employment, globalisation, productivity,technological change
    JEL: E24 E44 G21 G28
    Date: 2020–12
  7. By: Etibar Jafarov; Rodolfo Maino; Marco Pani
    Abstract: Financial repression (legal restrictions on interest rates, credit allocation, capital movements, and other financial operations) was widely used in the past but was largely abandoned in the liberalization wave of the 1990s, as widespread support for interventionist policies gave way to a renewed conception of government as an impartial referee. Financial repression has come back on the agenda with the surge in public debt in the wake of the Global Financial Crisis, and some countries have reintroduced administrative ceilings on interest rates. By distorting market incentives and signals, financial repression induces losses from inefficiency and rent-seeking that are not easily quantified. This study attempts to assess some of these losses by estimating the impact of financial repression on growth using an updated index of interest rate controls covering 90 countries over 45 years. The results suggest that financial repression poses a significant drag on growth, which could amount to 0.4-0.7 percentage points.
    Keywords: Interest rate policy;Financial crises;Credit;Banking;Loans;WP,interest rate,crisis,debt,interest rate restriction
    Date: 2019–09–30
  8. By: Alexander Schramm; Alexander Schwemmer; Jan Schymik
    Abstract: We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages.
    Keywords: Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives
    JEL: E22 G31 D24 D25 L23
    Date: 2021–01
  9. By: Grégory Claeys; Maria Demertzis
    Abstract: This Policy Contribution is an output from the MICROPROD project, which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390. Productivity growth in Europe has been on a downward trend for several decades. Given that productivity growth is a crucial source of output growth, particularly in an aging society like the European Union, it is crucial to understand what is driving this...
    Date: 2021–01
  10. By: Schlingemann, Frederik P. (U of Pittsburgh and European Corporate Governance Institute); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute)
    Abstract: The firms listed on the stock market in aggregate as well as the top market capitalization firm contribute less to total non-farm employment and GDP now than in the 1970s. A major reason for this development is the decline of manufacturing and the growth of the service economy as firms providing services are less likely to be listed on exchanges. We develop quantitative measures of representativeness showing how firms' market capitalizations differ from their contribution to employment and GDP. Representativeness is worst when the market is most highly valued and worsens over time for employment, but not for value added.
    JEL: E44 G23 G32 K22 L16
    Date: 2020–10
  11. By: Besley, Timothy; Roland, Isabelle; Van Reenen, John
    Abstract: This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm’s probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firmlevel employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor’s PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm’s future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms.
    Keywords: productivity; default risk; credit frictions; misallocation
    JEL: D24 E32 L11 O47
    Date: 2020–01
  12. By: Yuliyan Mitkov; Ulrich Schüwer
    Abstract: We provide evidence that regions in the U.S. with higher income inequality tend to have a riskier banking sector. However, not all banks are more risky, as reflected in a higher dispersion of bank risk. We show how a model based on risk-shifting incentives where banks channel insured deposits into subprime loans can account for both findings. In equilibrium, a competition to risk-shift emerges, leading to a subprime lending boom in which loans to high-risk borrowers carry negative NPVs. Some banks engage in risk-shifting by lending to high-risk subprime borrowers, while the rest specialize in lending to low-risk prime borrowers.
    Keywords: Inequality, Financial stability, Agency costs, Composition of credit, Banking competition
    JEL: G11 G21 G28 G51
    Date: 2021–01
  13. By: Li, Wenhao (U of Southern California); Li, Ye (Ohio State U)
    Abstract: Bypassing the banking systems, central banks around the world lent to nonfinancial firms on an unprecedented scale during the Covid-19 crisis. Effective and necessary as it is, direct lending is subject to credit mispricing given central banks' lack of information on individual borrowers. Our dynamic model characterizes a downward bias in firm quality distribution that is self-perpetuating: Direct lending in the current crisis necessitates a greater scale of interventions in future crises, which in turn cause more severe distortion of firm quality distribution. Such effects are amplified by firms' forward-looking investment decisions in normal times. Low-quality firms overinvest to take advantage of underpriced central bank credit in future crises while, on a relative basis, high-quality firms underinvest. The distortionary effects can be mitigated by central banks' use of market information, collaboration and regulation of informed banks, and coordination of direct lending and conventional monetary policy.
    JEL: E5 G0
    Date: 2020–11
  14. By: Taderera, Christie; Runganga, Raynold; Mhaka, Simbarashe; Mishi, Syden
    Abstract: Various theories ascertain that there is a positive relationship between inflation and interest rate. Developed and developing economies are still in search of an optimum inflation rate that increases economic growth. The SACU members has recorded low growths levels over the past years coupled with low inflation rates. This study examines the relationship between inflation rate, interest rate and economic growth in Southern African Customs Union (SACU) countries. Panel data for SACU countries covering the period 1991 to 2018 was analysed using Pooled Mean Group (PMG) estimators which are Panel Autoregressive Distributed Lag (ARDL) model, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) to enable isolating short and long run effects and for robustness.The results of the study show that inflation has a positive impact on economic growth while lending rate has a negative impact on growth in the long run. These results imply that policymakers should allow a high sustainable inflation rate in order to promote economic growth while interest rate can be used as a monetary policy instrument to achieve the desired inflation rate that will affect economic growth positively.
    Keywords: Inflation, Interest rate, Economic growth, Southern African Customs Union
    JEL: E31 E4 O42 O47
    Date: 2021–01–19
  15. By: Hung Ly-Dai (Vietnam Central Economic Commission, Hanoi, Vietnam)
    Abstract: On one monthly time-series dataset of Vietnam economy over 02/2008-09/2018, the Time-Varying-Coefficient VAR model records that the trade-off between inflation and output growth is mitigated by the foreign capital inflows. The inflation is mostly determined by credit supply growth, while output growth is largely driven by foreign direct investment (FDI) capital inflows. A monthly increase of FDI by 1 billion USD can raise 1.77 percent of monthly output growth rate. The result also holds on accounting for exchange rate fluctuation.
    Keywords: Economic Growth,Inflation,Foreign Capital Inflows,Exchange Rate,Time Varying Coefficients Vector Autoregression (TVC-VAR) model
    Date: 2019–12
  16. By: Ciccarone, Giuseppe; Giuli, Francesco; Marchetti, Enrico; Tancioni, Massimiliano
    Abstract: By estimating a Markov-switching model, we provide new evidence on the nonlinear effects of monetary policy shocks on asset prices and on their bubble component. We show that regime-dependence is mainly driven by the states affecting the interest rate equation. We also show that, following a positive interest rate shock, an OLG model of asset price bubbles with credit frictions and sticky prices may predict an increase in the real rate, a recession/deflation and an increase in the bubble value. This result, which is new to the theoretical literature, matches both the previously existing and our empirical evidence.
    Keywords: Asset price bubbles; monetary policy; overlapping generations models.
    JEL: E13 E32 E44 E52 G12
    Date: 2020–12–08
  17. By: Ngozi E. Egbuna; Maimuna John-Sowe; Santigie M. Kargbo (PhD); Sani Bawa (PhD); Ibrahima Diallo; Isatou Mendy
    Abstract: Countries of the Economic Community of West African States (ECOWAS) are heterogeneous, characterized by marked differences in production and export structures, divergent levels of inflation rates and fiscal positions. These features suggest that there is a greater tendency for the transmission of asymmetric shocks across member countries in the ECOWAS region. Understanding how well business cycles are synchronised between member countries is extremely important in designing appropriate policy responses to facilitate the launch of the single currency and reduce the cost of joining the proposed ECOWAS monetary union. This study undertakes a time-varying assessment of the degree of synchronisation of business cycles among ECOWAS member countries and analyses the role of bilateral trade, financial integration, and convergence in fiscal and monetary policy in achieving more synchronised business cycles in the region. Using the Hausman-Taylor and Error Components panel two-stage least squares (EC-2SLS) estimation techniques over the period 2001 – 2018, this study finds that well-coordinated policy responses such as the strengthening of trade linkages, convergence in fiscal policy and strong financial linkages would foster more closely synchronised business cycles across the region. Thus, measures to promote the synchronisation of business cycles and ensure the sustainable adoption of a single currency should focus not only on satisfying the macroeconomic convergence criteria, but also enhance trade and financial integration to foster broader policy coordination among countries in the region.
    Keywords: Business Cycle Synchronisation, Trade Linkages, Financial Integration, ECOWAS.
    JEL: C33 E32 O55
    Date: 2020–06
  18. By: Berrak Bahadir (Department of Economics, Florida International University); Inci Gumus (Faculty of Arts and Social Sciences, Sabanci University)
    Abstract: This paper studies the channels through which house prices affect sectoral output in emerging market economies, focusing on the role of collateral and borrowing dynamics. We first show that relative to the tradable sector, nontradable sector output is more strongly correlated with house prices and its response to a house price shock in a Panel VAR is larger for a sample of emerging market economies. Then, we study the model dynamics generated by shocks to housing demand in a two-sector small open economy real business cycle model. The results show that housing demand shocks lead to a sectoral reallocation by inducing an expansion in the nontradable sector and a contraction in the tradable sector. The model successfully generates the comovement between the cycle and house prices, matching the strong positive correlation of house prices and nontradable output. We also study the importance of collateral effects for the model dynamics and show that the collateral channel is key to generating the correlations between house prices and sectoral output observed in the data.
    Keywords: House Prices, Collateral Effects, Housing Demand Shocks, Sectoral Output
    JEL: E32 E44 F34 F41
    Date: 2021–01
  19. By: Berrak Bahadir (Department of Economics, Florida International University); Neven Valev (Georgia State University)
    Abstract: We show that global liquidity contributes to household credit growth across countries. The effect is particularly strong in countries that are more closely integrated with the world economy as well as in those with a greater level of financial development and more open capital markets. We also find tentative evidence that countries with a greater presence of foreign banks and those with more concentrated banking systems experience a closer link between global liquidity and household credit.
    Keywords: consumer credit, household credit, global liquidity
    JEL: G21 E3
    Date: 2021–01
  20. By: Zhai, Weiyang
    Abstract: This paper examines how the financial structure and capital openness of a country have affected the likelihood of financial crisis over the past two decades. By applying a panel probit estimation to a sample of 38 countries, we find the following. 1) An economy with a more market-based financial structure is less likely to experience a currency crisis. 2) More capital openness is associated with a lower probability of a currency crisis. 3) Countries with a more market-based financial structure are also less likely to experience a currency crisis if that structure is coupled with a more open capital account. 4) Unlike what is found for currency crises, neither financial structure nor capital openness has any effect on banking crises.
    Keywords: financial structure; capital openness; currency crisis; banking crisis
    JEL: G01 G15 G28
    Date: 2020–12–29
  21. By: Minsuk Kim
    Abstract: This paper examines how financial development influences the debt dollarization of nonfinancial firms in a sample of emerging market economies (EMEs). The macroeconomic channels are identified from an optimal portfolio allocation model and assessed empirically using the accounting information of nonfinancial firms from 21 EMEs during 2009–2017. The results show that financial development, measured by the private credit-to-GDP ratio, mainly reduces the influence of exchange rate volatility in determining a firm's debt currency composition, among other channels. Furthermore, the effect of exchange rate volatility becomes statistically insignificant beyond an estimated threshold credit-to-GDP ratio of 100 percent.
    Keywords: Exchange rates;Currencies;Depreciation;Financial sector development;Exchange rate risk;WP,debt ratio,exchange rate volatility,foreign currency,explanatory variable
    Date: 2019–08–02
  22. By: Hung Ly-Dai (Vietnam Central Economic Commission, Hanoi, Vietnam); Hoan Nguyen Thi Thuy
    Abstract: In an open multi-country economy, the safe assets supply shapes the pattern of international capital flows. A higher productivity growth rate raises the net capital inflows for economies with abundant safe assets, but reduces the net capital inflows for economies with scarce safe assets. The cross-section analysis on a sample of 170 economies over 1980-2013 confirms the theory. The evidence is robust for instrument-variable (IV) analysis method.
    Keywords: Public Debts,Safe Assets,International Capital Flows
    Date: 2020–07
  23. By: Sissoko, Carolyn; Ishizu, Mina
    Keywords: West India trade; lender of last resort; banking crises; banking system
    JEL: N23 N73
    Date: 2021–01
  24. By: Syarifuddin, Ferry
    Abstract: In this work, the possibility of cross-border activities between two regions in the framework of the investment contract is viewed as optimal allocation problems. The problems of determining the optimal proportion of funds to be invested in liquidity and technology are analyzed in two different environments. In the first case, we consider a two-region and two-technology economy in which both regions possess the same productive technology or project, but a different stream of return. While in the second case, we examine an economy where two regions (Indonesia and Malaysia) hold different Islamic productive projects with identical returns. Allocation models are formulated in terms of investors’ expected utility maximization problem under budget constraints with respect to regional and sectoral shocks. It is revealed that optimal parameters for liquidity ratio, technological investment profile, and bank repayment are analytically characterized by the return of a more productive project and the proportion of impatient and patient investors in the region. Even though both cases employ different assumptions, they provide the same expressions of optimal parameters. The model suggests that cross-border Islamic investment activities between two regions might be realized, provided both regions hold productive projects with an identical stream of return. This paper also shows that by increasing the lower return of the project approaching the higher return, a room for inter-region investment can be created. An analytical framework of an investment contract in terms of optimal allocation model is provided.
    Keywords: Investment contract; Optimal allocation model; Two-region economy.
    JEL: C61 F36 G11
    Date: 2020
  25. By: Romain Bouis
    Abstract: This paper studies the relationship between banks’ holdings of domestic sovereign securities and credit growth to the private sector in emerging market and developing economies. Higher banks’ holdings of government debt are associated with a lower credit growth to the private sector and with a higher return on assets of the banking sector. Analysis suggests that the negative relationship between banks’ claims on the government and private sector credit growth mainly reflects a portfolio rebalancing of banks towards safer, more liquid public assets in stress times and provides only limited evidence of a crowding-out effect due to financial repression.
    Keywords: Banking;Public debt;Credit;Government securities;Commercial banks;WP,return on assets,banks' claim
    Date: 2019–10–11
  26. By: Deniz O Igan; Thomas Lambert
    Abstract: In this paper, we discuss whether and how bank lobbying can lead to regulatory capture and have real consequences through an overview of the motivations behind bank lobbying and of recent empirical evidence on the subject. Overall, the findings are consistent with regulatory capture, which lessens the support for tighter rules and enforcement. This in turn allows riskier practices and worse economic outcomes. The evidence provides insights into how the rising political power of banks in the early 2000s propelled the financial system and the economy into crisis. While these findings should not be interpreted as a call for an outright ban of lobbying, they point in the direction of a need for rethinking the framework governing interactions between regulators and banks. Enhanced transparency of regulatory decisions as well as strenghtened checks and balances within the decision-making process would go in this direction.
    Keywords: Banking;Global financial crisis of 2008-2009;Financial sector;Mortgages;Deposit insurance;WP,bank lobbying,lobbying bank,financial crisis,lobbying expenditure,lobbying agenda,lobbying operation,lobbying process
    Date: 2019–08–09
  27. By: International Monetary Fund
    Abstract: Tanzania’s bank-dominated financial sector is small, concentrated, and at a relatively nascent stage of development. Financial services provision is dominated by commercial banks, with the ten largest institutions being preeminent in terms of mobilizing savings and intermediating credit. Medium-to-small banks rely systematically more on costlier, short-term, interbank financing and institutional deposits and have markedly higher operating costs. These structural features underpin financial stability challenges which are significant. Bank asset quality has deteriorated sharply in recent years, and under-provisioning is significant, belying the apparently comfortable capital cushions. Credit growth has fallen precipitously, corporate debt loads have risen, and their cash flows are weak. Dollarization of bank balance-sheets raises the possibility of solvency stress under shocks being exacerbated by funding liquidity pressures, especially at smaller banks.
    Keywords: Banking;Financial Sector Assessment Program;Trade balance;Nonperforming loans;Commercial banks;ISCR,CR,bank asset quality,FSAP reform agenda,problem bank oversight,repo market development,Tanzanian bank
    Date: 2018–12–04
  28. By: Uddin, Godwin
    Abstract: Much studies had considered the efficacy of the Central Bank of Nigeria (CBN)’s monetary policy to ensure Deposit Money Banks (DMBs) performance in Nigeria, and the conclusions thereof had been mixed. Also, the need for initiatives that could inform efforts to strengthen the efficacy of CBN’s monetary policy (and or macro- and microprudential guidelines) remains, in same vein as there are scanty assertions in literature on other roles that the Asset Management Corporation of Nigeria (AMCON) – an agency aligned to the CBN – could perform to further strengthen the efficacy of the CBN’s macro- and microprudential guidelines, besides its statutory role of debt recovery for financial system stability. Thus, this exploratory review (or study) of 50 relevant literature is to examine the activities of AMCON, and its activities’ implication(s) on the CBN’s macro- and microprudential guidelines’ formulation and implementation in Nigeria. The findings thereof include AMCON contributes to DMBs’ surveillance which inform macro- and microprudential guidelines’ formulation, and that the basis of association between the CBN and AMCON is prominent in respect to macro- and microprudential guidelines’ implementation and compliance. Therefore, this study recommends CBN to leverage on AMCON’s interface with DMBs in efforts to ensure operational effectiveness of so established macro- and microprudential guidelines.
    Keywords: Monetary policy, Deposit Money Banks (DMBs), Central Bank of Nigeria (CBN), Asset Management Corporation of Nigeria (AMCON), Coronavirus (COVID-19)
    JEL: E5 E52 E58
    Date: 2020–11–26
  29. By: International Monetary Fund
    Abstract: This Selected Issues paper identifies key challenges among households in reducing nonperforming loans (NPL) further in Cyprus, namely, low repayment capacity, particularly among a certain group of debtors; and weak repayment discipline owing to strategic behavior. Despite some revival of lending activity, the role of bank credit as a funding source remains limited. External inflows, drawdown of savings, use of own funds, and unpaid debt service obligations are contributing to financing economic activities, but these sources may not be sustainable over the medium term. Addressing NPLs to lower borrowing costs and reviving credit supply will be important for supporting longer-term growth. Since 2017, bank credit has provided only a moderate amount of new financing. The reduction in credit-to-GDP ratio has been almost entirely achieved by NPL write-offs and sale or transfer of loans out of the banking system, and through denominator effect. As of 2017, credit demand appears moderately strong, in line with robust economic growth, while credit supply remains broadly unchanged, reflecting continued risk averseness by banks. These trends suggest that while deleveraging is expected to continue through clean-up of bank balance sheets, growth in credit flows (pure new loans) are likely to remain at a moderate level until NPL recovery and repayment discipline improves significantly.
    Keywords: Nonperforming loans;Loans;Credit;Banking;Debt service;ISCR,CR,legacy NPLs,NPL overhang,cash repayment,loans buyer,pressure bank profitability
    Date: 2018–12–03
  30. By: DEHMEJ , Salim (International Monetary Fund); MIKOU, Mohammed (Bank Al-Maghrib, Département de la Recherche)
    Abstract: La crise des « subprimes » et plus récemment celle du Covid-19 ont mis en exergue les risques potentiels menaçant la stabilité financière et l’importance d'une surveillance accrue du système financier. L’objectif de ce document de travail est double puisqu’il mesure d’abord le risque systémique du secteur bancaire marocain - à l’aide de techniques récentes développées dans la littérature économique et utilisées par des Banques Centrales - avant de l’intégrer dans un indice agrégé de stabilité financière (IASF), susceptible de faciliter le suivi des risques financiers et la détection précoce des vulnérabilités. L’indice agrégé est calculé comme une moyenne pondérée de 25 indicateurs macroéconomiques et financiers, classés en cinq sous-indices : le développement macroéconomique, le développement financier, la vulnérabilité bancaire, la vulnérabilité du secteur non financier et le risque systémique. Son évolution est contenue et confirme que le système financier marocain a fait preuve d’une résilience avérée durant ces dernières années.
    Keywords: Stabilité financière; Risque Systémique; Indice de stress financier; SRISK
    JEL: E44 G01 G10 G20
    Date: 2020–12–30
  31. By: LAHLOU, Kamal (Bank Al-Maghrib, Département de la Recherche); DOGHMI, Hicham (Bank Al-Maghrib, Département de la Recherche); SCHNEIDER, Friedrich (Johannes Kepler University of Linz)
    Abstract: The objective of this paper is to estimate the size of the shadow economy in Morocco over the period 1988-2018. The CDA and MIMIC approaches are used while taking into consideration variables that reflect the features of the Moroccan economy such as the importance of currency in circulation, the size of the agricultural sector and the financial development process. Our results show that the evolution of the shadow economy exhibits three distinct periods: (i) over the first period 1988-1998, it is almost stagnant at around 40% of GDP; (ii) during the second period 1999-2008, it decreases to 32% -34% of GDP; (iii) during the last period 2009-2018, the declining trend is continuing but at a more moderate pace, to reach a level just below 30% of GDP. These results suggest that the strategies implemented by national authorities since the early 2000s to improve the institutional, economic and financial environment contributed to reducing the size of the shadow economy. However, the persistence of important shadow activities requires additional structural reforms particularly those related to education, judiciary system, tax policy and labor market.
    Keywords: Shadow economy; MIMIC model; currency demand approach; financial development; structural reforms; Morocco
    JEL: C22 E26 H26 K42 O17 P11
    Date: 2020–12–30
  32. By: Sulaimon, Mubaraq
    Abstract: Credit financing deficit is one of the problems militating against the performance of agriculture in Nigeria. Against this background, the government of Nigeria introduced the agricultural credit guarantee scheme fund (ACGSF) in 1977 to encourage banks to increase and sustain lending to agriculture. Unfortunately, the scheme has not achieved the desired results. Hence, this study seeks to evaluate the thresholds of ACGSF on agricultural performance in Nigeria between 1981 and 2019. The performance of agriculture was captured using real agricultural Gross Domestic Product (GDP). Annual time series data were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin and the World Development Indicators (WDI) and analysed using threshold regression. Although insignificant, the results show U-shaped relationship between real agricultural GDP and ACGSF. In addition, ACGSF has significant positive effects on real agricultural GDP at 1060389 (₦’ thousand) and 5951809 (₦’ thousand) thresholds. The study concludes that sustain increase in the value of agricultural loans guaranteed and the inclusiveness of more smallholder farmers who dominate the Nigerian agricultural space will translate into robust contribution of the scheme to agricultural performance in Nigeria.
    Keywords: Agriculture; Credit; Guarantee; Threshold; Nigeria
    JEL: Q1
    Date: 2021–01–06
  33. By: Lakshmi Arakkathara Jayan; Shanmugham Dhanan Jayan
    Abstract: An inclusive involvement of the entirety of the population is the desirable model of development. Each local society and community has its own features and interests and there is a need of organisations that are capable of catering them. The cooperative form of organisation is suited in addressing the needs of local communities and contributing to social and economic aspects of the civil society. The extent of this achievement of cooperatives depends on their efficiency. The organisational structure and the operational model have to be developed taking into consideration the requirements of the local communities. India as a country is characterised by a high diversity in multiple aspects. In such a context, the priority must be to reach out to the local communities and identify their needs. A collective and inclusive development of the local population will contribute to the larger development of the country as a whole. The creation of cooperative forms of organisations and a proper structuring of them is required for achieving this objective of reaching out to the local community. This paper is an attempt to analyse the structure and functioning of credit cooperatives in India and to assess to what extent the same is conducive for connecting the local societies.
    Keywords: Cooperatives, Credit cooperatives, India, Local development
    JEL: Q13 J54 H74
    Date: 2020
  34. By: Stefano Giglio; Bryan T. 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.
    JEL: G0
    Date: 2020–12
  35. By: Alberto Lanzavecchia (University of Padova, Padova, Italy); Maria Palumbo (University of Padova, Padova, Italy); Bharat Singh Thapa (Tribhuvan University, Kathmandu, Nepal)
    Abstract: People in the Hindu-Kush Himalayan region are particularly vulnerable to food insecurity related to climate change because of poor infrastructure, limited access to global markets, physical isolation, low productivity, and hazard exposure (IPCC, 2019). Farmers in this region are facing more frequent floods as well as prolonged droughts with ensuing negative impacts on agricultural yields and increases in food insecurity (Hussain et al. 2016; Manzoor et al. 2013). Drought, forest fires, floods and landslides are nowadays magnified by climate change. In Nepal, changes in monsoon patterns, increasing hydropower projects and poorly planned rural road projects will greatly exacerbate the situation of unacceptable presence of poverty and inequality of opportunities in the country. Climate change adaptation and mitigation measures at household level and micro business are urgent for policy makers. Microfinance can play a crucial role in fostering such good practice if capital is constrained by policy rules. Through the provision of credit and other financial services, microfinance helps rural people develop alternate livelihood opportunities, build assets and spread risks. There is a significant potential for taking benefit from financial innovations such as risk insurance, microfinance, conditional cash transfer programs, and targeted subsidies by scaling up these initiatives through policy and community level initiatives. However, mitigation and adaptation measures are not enough to prevent climate change adverse impacts: loss and damage (L&D) measures is becoming increasingly urgent and unavoidable. As a consequence, a full multi-level governance is needed. The Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts (2013) needs concrete implementation that requires the support of national policies and mechanisms. Following the case of Bangladesh, we call for both a top-down and bottom-up approach for addressing in a more comprehensive way L&D within the territory of Nepal. This policy paper is targeted at policy makers to urgently take action to design and implement effective strategies to tackle climate change impact to achieve economic and social progress.
    Keywords: climate change, adaptation, loss and damage, microfinance, Nepal
    JEL: Q54 R51 Q58
    Date: 2021–01

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