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on Financial Development and Growth |
| By: | Cândida Ferreira |
| Abstract: | We test 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 over the interval 1990-2017. The results obtained clearly point to the existence of cointegration between the financial development indices not only with the real Gross Domestic Product, but also with the inflation, the unemployment rate, with the current account, and with the net international investment position. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much more important than the simple access to or the depth of the financial institutions and markets is the efficiency of these institutions and markets. |
| JEL: | F |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2021.02&r=all |
| By: | , AISDL |
| Abstract: | This study is aimed towards assessing the role of banking development and energy consumption on economic growth in Vietnam for the period ranging from 1990 to 2019. The researcher has collected data on the variables from 1990 to 2019 related with banking development, energy consumption and economic growth. On the data collected on the specified variables, certain tests have been conducted. This research has used Stata as the statistical platform to carry out data analysis where descriptive statistics, Augmented Dickey Fuller (ADF), Bounds test, and Autoregressive Distributed Lag Model (ARDL) have been applied on the data. The results indicated that the data was non-stationary and had trend which can predict the future data. Based on this condition, ARDL test and Bounds test were applied. The results indicated that overall, the model was found to be significant. Individually, energy consumption had a significant impact in both short term and long term however, there was insignificant association among banking development and economic growth. |
| Date: | 2021–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:tnvkc&r=all |
| By: | Anjan K. Saha; Vinod Mishra; Russell Smyth |
| Abstract: | We use instrumental variable regression to isolate the causal impact of financial development on top income shares a panel of 14 OECD countries - five Anglo-Saxon countries, eight continental European countries and Japan - over a 110-year period. Our main finding is that financial development has a significant positive effect on top income shares, and that the most affluent are the biggest beneficiaries of financial development. In distribution terms, a onestandard-deviation increase in the private credit-GDP ratio corresponds to around a onestandard-deviation increase in the top 1% income share, with the top 1% income group deriving more benefits from financial development than the top 5%, and the top 5% deriving more benefit than the top 10%. The effects are robust to various measures of top income shares and financial development and alternative estimation techniques, including nonparametric modelling. Financial development is typically viewed in positive terms in that it makes it easier to access credit and facilitates economic growth. Our results are important because they contribute to understanding of the potential negative effects of financial development. |
| Keywords: | Financial development; top income shares. |
| JEL: | O15 O50 G00 E62 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2019-03&r=all |
| By: | , AISDL |
| Abstract: | Tác động của sự phát triển tài chính lên tăng trưởng kinh tế quốc gia là chủ đề thu hút nhiều sự quan tâm và tranh luận không chỉ trong giới học thuật mà cả ở các nhà hoạch định chính sách. Nhiều quan điểm khác nhau, thậm chí là trái chiều nhau, trong việc đánh giá vai trò của phát triển tài chính đối với tăng trưởng kinh tế. Sau khủng hoảng 2008, Quỹ tiền tệ quốc tế đã cảnh báo rằng phát triển tài chính chỉ nên đạt đến một mức ngưỡng mà nếu vượt qua sẽ gây cản trở và làm giảm tăng trưởng. Nghiên cứu này phân tích tác động của sự phát triển tài chính đến tăng trưởng kinh tế tại các quốc gia châu Á, trên cơ sở đó xác định mức độ phát triển của hệ thống tài chính trong nền kinh tế để thúc đẩy sự tăng trưởng kinh tế trong dài hạn. |
| Date: | 2019–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:6kxgh&r=all |
| By: | Ma, Debin |
| Abstract: | This paper surveys the phenomenal transformation of banking and finance, public debt, and monetary regimes during 1900–37, a period of great political instability in Chinese history. To understand why growth in these strategic sectors occurred, I highlight the role of the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. My new interpretation on the importance of this mechanism sheds new light on the role of Chinese political institutions, the impact of the West and the ongoing Great Divergence debate. |
| Keywords: | China; credible commitment; public debt; financial revolution |
| JEL: | N15 N25 N45 E42 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100280&r=all |
| By: | Schnabl, Gunther; Murai, Taiki |
| Abstract: | The bursting of the Japanese bubble economy in the early 1990s put the stage for a lasting lowzero-, and negative-interest rate environment, which fundamentally changed the business environment for the Japanese commercial banks. On the income side, with interest margins becoming increasingly depressed, net interest revenues declined, which forced the banks to expand revenues from fees and commissions. The banks had to cut costs by reducing the number of employees, closing branches and merging into larger banks. The gradual concentration process has most recently cumulated in the relaxation of the monopoly law. With the capital allocation function of banks being undermined, the Japanese economy has become zombified, suffering from anemic growth. |
| Keywords: | Japan,Bank of Japan,monetary policy,banks,interest margin,financial repression,concentration,regional banks |
| JEL: | E50 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:169&r=all |
| By: | Thanh Tam Nguyen-Huu (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie); Ngoc-Sang Pham (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie) |
| Abstract: | The paper investigates the country receiving FDI's optimal strategy in an optimal growth context. First, if the multinational enterprise has high productivity or the entry cost is high, no domestic firm enters the new industry. Still, the host economy's investment stock converges to a higher steady state than that of the closed economy. Second, if the old sector is strong enough and the domestic firm's productivity is high, the foreign firm will be dominated, even eliminated by the domestic one. Third, we show that if the host country invests in R&D, its economy may grow without bounds. In this case, FDI helps the host country only at the first stages of its development process. We present empirical evidence that supports our theoretical findings. |
| Keywords: | fixed cost,R&D,Optimal growth,FDI,MNE |
| Date: | 2021–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03143087&r=all |
| By: | Taniya Ghosh (Indira Gandhi Institute of Development Research); Prashant Mehul Parab (Indira Gandhi Institute of Development Research) |
| Abstract: | The study evaluates the role of R&D, human capital, and technology spillovers in influencing India's long-run productivity growth. The primary contributions of the article are: (1) analyzing the applicability of various endogenous growth models in the Indian context, while only R&D driven endogenous growth models have been studied so far, (2) highlighting the role of technology spillovers through FDI and import channels in affecting India's productivity at the aggregate level, as opposed to the existing industry level analysis and, (3) the first study to identify the potential non-linear effects of the variables of interest. The main findings are: (a) FDI and human capital influence India's long-term productivity growth, while R&D based models or technology spillovers via the import channel show mixed evidence of support, (b) the decline in FDI has had a more adverse effect on the economy than the positive effect of increased FDI. Therefore, sustained increase in human capital and FDI is recommended. |
| Keywords: | Asymmetries, Endogenous growth, R&D, Human capital, FDI, Technology spillovers |
| JEL: | C5 C6 E3 E61 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-004&r=all |
| By: | Sanghyun Hong (University of Canterbury); W. Robert Reed (University of Canterbury); Bifei Tian; Tingting Wu; Gen Chen |
| Keywords: | Meta-analysis, FDI, Entrepreneurship |
| JEL: | L26 F21 C10 |
| Date: | 2021–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:21/03&r=all |
| By: | Christian Abele; Agnes Benassy-Quere; Lionel Fontagné; Lionel Gérard Fontagné |
| Abstract: | We analyse the impact of both the Global Financial Crisis of 2008 and the European sovereign and banking crisis of 2011-13 on firm-level productivity in France, Italy and Spain. We show that relying on a single break date in 2008 misses both the Eurozone crisis and countries' institutional specificities. Although leverage and financial constraints affect firm-level productivity negatively, high-leverage firms suffer more from financial constraints only in Italy, when they are relatively small or when their debt is of short maturity. These results call for approaches taking into consideration country-level characteristics of financial institutions and time varying financing constraints of the firms, instead of pooling data and adopting a common break date. One size does not fit all when it comes to identifying the impact of financial crises on firm level productivity. |
| Keywords: | total factor productivity, firm-level data, financial constraints, crises |
| JEL: | E22 E23 E44 D24 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8891&r=all |
| By: | Eppinger, Peter S.; Neugebauer, Katja |
| Abstract: | How do financial market conditions affect real economic performance? Empirical investigations of this question have often relied on measures of external financial dependence (EFD) that are constructed using U.S. data and applied to other countries under the assumption of a stable industry ranking across countries. This paper exploits unique, comparable survey data from seven European countries to show that correlations of EFD across countries are weak, casting some doubt on this assumption. We then use the novel survey-based EFD index to show that the global financial crisis had a disproportionately negative impact on the real performance of financially dependent firms. Further investigations highlight the importance of supply chains in propagating the credit shock. |
| Keywords: | External financial dependence,financial constraints,financial crisis,firm performance |
| JEL: | G10 G30 L25 F14 G01 D22 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:141&r=all |
| By: | Katuala, Hénock M. |
| Abstract: | La récente crise financière s’est accompagnée des chocs affectant les marchés interbancaires et immobiliers des économies, suite à quoi, des modèles avec des marchés financiers imparfaits ont été utilisés pour étudier des questions d’actualité importantes (Gerali et al., 2010; Christiano et al., 2010). De ce fait, il a été admis que le développement et les frictions du système financier peuvent avoir un impact décisif sur la croissance économique et sur la stabilité de l’économie (Bernanke et al., 1999; Gertler and Karadi, 2011). En recourant au modèle DSGE de type Néokeynésien pour une petite économie fermée, nous analysons les implications macroéconomiques des chocs affectants le système financier et vérifions la convergence entre les régularités cycliques théoriques et celles empiriques afin de valider le modèle pour le cas de la RDC. Nos résultats attestent que les chocs affectant l’économie réelle exercent une influence sur la dynamique du secteur financier alors que les frictions financières n’ont aucune incidence sur le cadre macroéconomique. Aussi, le recourt au Matching moment nous a permis d’affirmer que les régularités cycliques issues des moments théoriques et empiriques convergent. |
| Keywords: | Frictions financières; Dynamique macroéconomique; Modèle DSGE Néokeynésien; Régularités cycliques; Comouvements; Volatilité; Persistance |
| JEL: | C61 E32 E44 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:066&r=all |
| By: | Nurdaulet Abilov (NAC Analytica, Nazarbayev University) |
| Abstract: | We analyze the role of banking sector and credit in business cycle fluctuations in Kazakhstan by adopting the dynamic stochastic general equilibium (DSGE) model with financial frictions and banks. We introduce financial frictions that lead to the amplification of the effects of shocks in the economy. We find that bank capital adjustment costs are essential in the model due to the large capital adjustment cost parameter. This implies that banks' capital adjusts very slowly to exogenous shocks in the economy. We also analyze impulse responses of endogenous variables to exogenous shocks, including a negative bank capital shock, in order to understand the propagation mechanisms of the shocks. The results from the historical decomposition exercise show us that the financial shocks have played an important role in business cycle fluctuations in Kazakhstan since 2015. |
| Keywords: | DSGE; financial frictions; banking sector; Kazakhstan |
| JEL: | C11 E32 E37 E44 E51 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ajx:wpaper:8&r=all |
| By: | Hinterschweiger, Marc (Bank of England); Khairnar, Kunal (Toulouse School of Economics); Ozden, Tolga (University of Amsterdam); Stratton, Tom (Bank of England) |
| Abstract: | We develop a two-sector DSGE model with a detailed banking sector along the lines of Clerc et al (2015) to assess the impact of macroprudential tools (minimum, countercyclical and sectoral capital requirements, as well as a loan-to-value limit) on key macroeconomic and financial variables. The banking sector features residential mortgages and corporate lending subject to staggered interest rates à la Calvo (1983), which is motivated by the sluggish movement of lending rates due to fixed interest rate loan contracts. Other distortions in the model include limited liability, bankruptcy costs and penalty costs for deviations from regulatory capital. We estimate the model using Bayesian methods based on quarterly UK data over 1998 Q1–2016 Q2. Our contributions are threefold. We show that: (i) co-ordination of macroprudential tools may have a welfare-improving effect, (ii) macroprudential tools would have improved some macroeconomic indicators but, within our model, not have prevented the Global Financial Crisis, (iii) staggered interest rates may alter the transmission of macroprudential tools that work through interest rates. |
| Keywords: | Sectoral DSGE model; macroprudential policy; interest rate stickiness |
| JEL: | E32 E58 G18 G21 |
| Date: | 2021–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0904&r=all |
| By: | Francesco Campigli (Scuola Normale Superiore, Pisa, Italy); Gabriele Tedeschi (Department of Economics, Universitat Jaume I, Castellón, Spain); Maria Cristina Recchioni (Department of Economics and Social Sciences, U. Politecnica Delle Marche, Ancona, Italy) |
| Abstract: | This paper aims to shed light on the bidirectional relationship between the yield curve and the macroeconomic dynamics. By calibrating the hybrid Heston model proposed by Recchioni and Tedeschi (2017) on the Greek, Portuguese and German government bond yields with different maturities, we show that the values of the estimated parameters contain different information on the economic conditions of the investigated area. Firstly, the estimated parameters reflect the opinion of the financial markets on the credibility of the monetary policies adopted to face crises and, in particular, their effectiveness in the short, medium and long term. Secondly, they are useful in anticipating the phases of instability characterizing the selected countries. Finally, these parameters, although obtained just estimating the model on the yield time series, are directly related to the macroeconomic performances of the zone. Overall, our results reassign a role to the financial variables in macroeconomic models. |
| Keywords: | Stochastic volatility model, Yield dynamics and macroeconomic performances in the Eurozone, Early warning indicator |
| JEL: | C52 C63 G15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2021/03&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo |
| Abstract: | We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is. |
| Keywords: | Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier |
| JEL: | C32 E32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8885&r=all |
| By: | Montagna, Mattia (European Central Bank); Torri, Gabriele (University of Bergamo); Covi, Giovanni (Bank of England) |
| Abstract: | Systemic risk in the banking sector is usually associated with long periods of economic downturn and very large social costs. On one hand, shocks coming from correlated exposures towards the real economy may induce correlation in banks’ default probabilities thereby increasing the likelihood for systemic tail events like the 2008 Great Financial Crisis. On the other hand, financial contagion also plays an important role in generating large-scale market failures, amplifying the initial shocks coming from the real economy. To study the sources of these rare phenomena, we propose a new definition of systemic risk (ie the probability of a large number of banks going into distress simultaneously) and thus we develop a multilayer microstructural model to study empirically the determinants of systemic risk. The model is then calibrated on the most comprehensive granular dataset for the euro-area banking sector, capturing roughly 96% or €23.2 trillion of euro-area banks’ total assets over the period 2014–2018. The outputs of the model decompose and quantify the sources of systemic risk showing that correlated economic shocks, financial contagion mechanisms, and their interaction are the main sources of systemic events. The results obtained with the simulation engine resemble common market-based systemic risk indicators and empirically corroborate findings from existing literature. This framework gives regulators and central bankers a tool to study systemic risk and its developments, pointing out that systemic events and banks’ idiosyncratic defaults have different drivers, hence implying different policy responses. |
| Keywords: | Systemic risk; financial contagion; microstructural models |
| JEL: | D85 G17 G33 L14 |
| Date: | 2021–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0906&r=all |
| By: | Cécile Couharde; Hamza Bennani; Yoan Wallois |
| Abstract: | We introduce an original dataset based on the qualitative content of the Regional Economic Outlook (REO) reports published by the International Monetary Fund (IMF). Exploiting this rich database, we gauge several measures of IMF sentiment based on the REO reports towards 16 countries in three regions, Asia and Pacific, Europe and Western Hemisphere, from 2007 to 2018 and examine their impact on financial markets. We find that the qualitative content of the REO reports has significant repercussions on stock market returns in Europe and bond yields in Asia and Pacific over short time horizons, these impacts disappearing over time. We also demonstrate that the impact of IMF sentiment is robust to the use of analternative sentiment measure that focuses exclusively on negative words. |
| Keywords: | Financial markets, High frequency, IMF, Sentiment index, Text analysis |
| JEL: | F53 G15 Z13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-6&r=all |
| By: | Samira Hellou |
| Abstract: | The development of financial markets and banking activity coupled with the strengthening of banking regulations has largely affected the new structure of external financing of emerging countries. Indeed, the financial markets influence the behavior of international banks in a context of regulatory strengthening which implies a contraction of the bank flows volume and a decrease in the maturity of these flows. The empirical results, for 37 emerging countries, confirm that financial markets have influenced differently the volume and the term structure of bank flows from developed to emerging countries according to the regulatory context. |
| Keywords: | Financial markets, Banking flows, Emerging countries |
| JEL: | E22 O16 G11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-5&r=all |
| By: | Hidehiko Matsumoto (GRIPS) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:19-52&r=all |
| By: | Mupenda, Olivier Munene |
| Abstract: | Debt reduces the productivity of a country. In this French version of Mupenda (2021): "Is slow economic growth originating from the total external debt stock in the Democratic Republic of Congo?", with the addition of the 2011 UN Security Council report on the Democratic Republic of Congo, we will provide the translated version of how a country's inability to service its debt has consequences on its productivity. With empirical evidence, our analysis will be looking at the Congolese standard of living from its independence in 1960 to the historical democratic transfers of power in late 2018 to understand the effects of external debts in the Congolese economic growth. |
| Keywords: | la République Démocratique du Congo PIB par Habitant Croissance Economique Stock Total de la dette extérieure Analyse Regressive |
| JEL: | A1 O4 Y1 |
| Date: | 2021–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106354&r=all |
| By: | King Yoong Lim; Chunping Liu |
| Abstract: | Based on a novel theoretical framework with a dual-objective donor giving grant (driven by benevolent objective) and loan aid (profitability motive), as well as a public private partnership-like investment structure and multi-region feedback mechanism, we estimate a panel structural VAR model of grant aid, loan aid, private consumption, and aggregate capital stock using data of nine economic communities/regions covering the 1961-2017 period. By allowing for cross-heterogeneity and interdependencies across regions, we identify empirical commonalities and differences across regions. Amidst a generally weak aid-investment link, we find loan aid to Granger-cause capital accumulation, and among African regions it is the most (least) productive-in terms of within- and spillover effects-in the IGAD (ECOWAS) region. In addition, our results suggest deeper regional integration between the Sub-Saharan African regions than the collective Latin American & Caribbean regions and the two Southern Asian regions (Southeast Asia and South Asia) examined. |
| Keywords: | foreign aid, donor objectives, investment, regional integration, structural VAR. |
| JEL: | F35 O40 P45 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbs:wpaper:2021/01&r=all |
| By: | Nicolás de Roux; Nicola Limodio |
| Abstract: | We exploit a large and unexpected increase in the Colombian insurance threshold to investigate how depositors respond to higher deposit insurance. Monthly depositor-level records from a major bank show that the level and growth rate of deposits rise with higher coverage. Individuals who were fully and nearly-fully insured before the policy drive this increment. A survey of bank customers indicates that higher deposits were replenished by lowering cash and other assets. We estimate an elasticity of deposit growth to deposit insurance of 0.4%, and fi nd a similar fi gure in the United States by leveraging the 2008 increase in deposit insurance. |
| Keywords: | Banking, Financial Regulation, Household Saving. |
| JEL: | G21 G28 G51 |
| Date: | 2021–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:018800&r=all |
| By: | Célestin Mayoukou (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université) |
| Abstract: | Microfinance industry is changing progressively during this last thirty years. The depth of is intermediation is growing. Serving at the beginning of the informal customers ; he serves since several years yet, small and medium enterprise (SME). Multinational banks and international funds had also entering the microfinance industry by granting loans to microfinance institutions. The digital innovation had disrupted the sector who become adult. |
| Abstract: | L'industrie de la microfinance connait depuis 30 ans une mutation perpétuelle. L'échelle de son intermédiation s'est progressivement élargie. Centrée à ses débuts sur des acteurs du secteur informel ; cette activité touche désormais une large clientèle englobant même des PME exportatrices. Son mode de refinancement s'étend désormais au marché international des capitaux, puisque des Fonds d'investissement et des Banques multinationales alimentent les IMF en capitaux. La digitalisation et les plateformes de crédits en ligne ont aussi fait leur entrée dans la microfinance. Cette industrie n'est plus désormais une industrie dans l'enfance |
| Keywords: | Microfinance,intermediation,microfinance industry,intermadiation,industrie microfinancière |
| Date: | 2019–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02489308&r=all |
| By: | Célestin Mayoukou (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université) |
| Abstract: | La microfinance dans la sous-région Afrique centrale est aujourd'hui une industrie en voie de développement. Mais elle connaît une situation contrastée selon les pays.Dans la zone CEMAC cette industrie a connu une restructuration dans les années 2000 qui a abouti à la réglementation actuelle. L'industrie est structurée en trois types d'institutions qualifiéesde première, deuxième et troisième catégorie. |
| Date: | 2019–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02343376&r=all |
| By: | Sara Biancini; David Ettinger; Baptiste Venet |
| Abstract: | We suggest an explanation for the existence of “mission drift”, the tendency for Microfinance Institutions (MFIs) to lend money to wealthier borrowers rather than to the very poor. We focus on the relationship between MFIs and external funding institutions. We assume that both the MFIs and the funding institutions are pro-poor and agree on the optimal proportion of funds to be granted to the poorer borrower. However, asymmetric information on the effort chosen by the MFI to identify higher quality projects may increase the share of loans attributed to wealthier borrowers. This occurs because funding institutions have to build incentives for MFIs, creating a trade off between the quality of the funded projects and the attribution of loans to poorer borrowers. |
| Keywords: | microfinance, mission drift, moral hazard |
| JEL: | O12 O16 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8893&r=all |
| By: | Francesco Lamperti; Valentina Bosetti; Andrea Roventini; Massimo Tavoni; Tania Treibich |
| Abstract: | Which policies can increase the resilience of the financial system to climate risks? Recent evidence on the significant impacts of climate change and natural disasters on firms, banks and other financial institutions call for a prompt policy response. In this paper, we employ a macro-financial agent- based model to study the interaction between climate change, credit and economic dynamics and test a mix of policy interventions. We first show that financial constraints exacerbate the impact of climate shocks on the economy while, at the same time, climate damages to firms make the banking sector more prone to crises. We find that credit provision can both increase firms' productivity and their financial fragility, with such a trade-off being exacerbated by the effects of climate change. We then test a set of 'green' finance policies addressing these risks, while fostering climate change mitigation: i) green Basel-type capital requirements, ii) green public guarantees to credit, and iii) carbon-risk adjustment in credit ratings. All the three policies reduce carbon emissions and the resulting climate impacts, though moderately. However, their effects on financial and real dynamics is not straightforwardly positive. Some combinations of policies fuel credit booms, exacerbating financial instability and increasing public debt. We show that the combination of all three policies leads to a virtuous cycle of (mild) emission reductions, stable financial sector and high economic growth. Additional tools would be needed to fully adapt to climate change. Hence, our results point to the need to complement financial policies cooling down climate-related risks with mitigation policies curbing emissions from real economic activities. |
| Keywords: | Climate change; endogenous growth; financial stability; macroprudential policy; agent-based model. |
| Date: | 2021–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2021/05&r=all |
| By: | Eric Jondeau; Benoit Mojon; Cyril Monnet |
| Abstract: | The momentum toward greening the economy implies transition risks that are new threats to financial stability. In particular, the expectation that other investors may exclude high carbon corporate emitters from their portfolio creates a risk of runs on brown assets. We show that runs can be contained by a liquidity backstop with an access fee that is based on the firm's carbon intensity, while the interest rate on the liquidity lent through this facility is independent from its carbon intensity. |
| Keywords: | green finance, financial stability, bank runs, brown assets, liquidity provision |
| JEL: | G01 G18 G28 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:929&r=all |