nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒09‒27
28 papers chosen by
Georg Man

  1. Chinese Foreign Direct Investment and Economic Growth of Bangladesh: A VECM Analysis By Sakib, Mohammad Nazmus; pande, Saikat; kumar, Rimon; Arif, Dr. Kazi mostafa
  2. Seguros, Crecimiento Económico, Desarrollo Humano y Calidad Institucional: Evidencia Internacional y Convergencia Relativa By Alfredo Baronio; Flavio Buchieri; Gustavo Ferro; Ana Vianco
  3. Does Foreign Debt Contribute to Economic Growth? By Tomoo Kikuchi; Satoshi Tobe
  4. Exchange rate fluctuations and economic growth in the Democratic Republic of Congo By Mbuyi Allegra Kabamba; L. Deborah Matadi
  5. Catching the Drivers of Inclusive Growth in Sub-Saharan Africa: An Application of Machine Learning By Isaac K. Ofori
  6. Key Drivers of Industrial Growth: A case of Botswana's manufacturing sector By Goitseone Khanie
  7. The Long-Term Effects of Industrial Policy By Jaedo Choi; Andrei A. Levchenko
  8. Mind the financing gap: Enhancing the contribution of intangible assets to productivity By Lilas Demmou; Guido Franco
  9. Turbulent Business Cycles By Ding Dong; Zheng Liu; Pengfei Wang
  10. Costly default and skewed business cycle By Patrick Fève; Pablo Garcia Sanchez; Alban Moura; Olivier Pierrard
  11. Online Appendix to "An Empirical Equilibrium Model of Formal and Informal Credit Markets in Developing Countries" By Fan Wang
  12. Determinants of the credit cycle: a flow analysis of the extensive margin By Cuciniello, Vincenzo; di Iasio, Nicola
  13. Credit demand versus supply channels: Experimental- and administrative-based evidence By Michelangeli, Valentina; Peydró, José-Luis; Sette, Enrico
  14. The countercyclical capital buffer and the composition of bank lending By Raphael Auer; Alexandra Matyunina; Steven Ongena
  15. Misdiagnosing Bank Capital Programs By Jeremy I. Bulow; Paul D. Klemperer
  16. Financial Stability Governance and Central Bank Communications By Stijn Claessens; Ricardo Correa; Juan M. Londono
  17. Dynamic effects of network exposure on equity markets By Kangogo, Moses; Volkov, Vladimir
  18. Downward Interest Rate Rigidity By Grégory Levieuge; Jean-Guillaume Sahuc
  19. Consumption, personal income, financial wealth, housing wealth, and long-term interest rates: A panel cointegration approach for 50 US states By Dimitra Kontana; Stilianos Fountas
  20. Global Distributions of Capital and Labor Incomes: Capitalization of the Global Middle Class By Marco Ranaldi
  21. The Wealth Inequality of Nations By Fabian T. Pfeffer; Nora Waitkus
  22. House prices and misallocation: The impact of the collateral channel on productivity By Sergi Basco; David López-Rodríguez; Enrique Moral-Benito
  23. House prices and rents: a reappraisal By Bertrand Achou; Hippolyte d'Albis; Eleni Iliopulo
  24. Regionally Heterogeneous Housing Cycles and Stabilization Policies By Hyunduk Suh
  25. Evaluating green innovation and performance of financial development: mediating concerns of environmental regulation By Hsu, Ching-Chi; Ngo, Quang-Thanh; Chien, FengSheng; Li, Li; Mohsin, Muhammad
  26. ECB’s economy-wide climate stress test By Alogoskoufis, Spyros; Dunz, Nepomuk; Emambakhsh, Tina; Hennig, Tristan; Kaijser, Michiel; Kouratzoglou, Charalampos; Muñoz, Manuel A.; Parisi, Laura; Salleo, Carmelo
  27. The Ascent of Islamic Social Finance Reserach By Ahmet Faruk Aysan; Jamila Abubakar; Ahmet Aysan
  28. A Bibliometric Analysis of Fintech and Blockchain in Islamic Finance By Aysan, Ahmet Faruk; Unal, Ibrahim Musa

  1. By: Sakib, Mohammad Nazmus; pande, Saikat; kumar, Rimon; Arif, Dr. Kazi mostafa
    Abstract: The main objective of this study was to find out the impact of Chinese FDI on the economic growth of Bangladesh where yearly time series data is used over a period from 1997 to 2020. To obtain those objectives, this study implies the Johansen Co-integration test and vector error correction model as statistical techniques. This study explores that there is a positive and significant long-run relationship among Chinese FDI, Total FDI, Openness of trade, and economic growth of Bangladesh but those variables have no impact on Bangladesh economic growth in the short run. These results also identify there is a long-term granger causality occurring from Chinese FDI, TFDI, and trade openness to the GDP of Bangladesh. Our estimating error correction results is -.72 which conclude that in the long run, the economy is restored around .72 percent of the previous year's disequilibrium within the model and normalized co-integrating coefficient forecast a one percent increase in CFDI and one percent increase in TFDI elicit 0.04% and 0.17% increase in GDP respectively. So that, for enhancing GDP and economic development of Bangladesh our government should influence to bring out the Chinese FDI in our country and make effective policy that can create a strong long-run relationship between two countries.
    Keywords: Chinese FDI, Cointegration, error correction model, Bangladesh economic growth
    JEL: E22 E27 O1
    Date: 2021–03–01
  2. By: Alfredo Baronio; Flavio Buchieri; Gustavo Ferro; Ana Vianco
    Abstract: Analizamos en primer lugar la documentada relación de contribución del sector asegurador al crecimiento económico. En segundo lugar, incursionamos en los nexos entre el seguro y la calidad institucional. En tercer lugar, entramos en un mundo mucho menos estudiado: los vínculos entre el seguro y el desarrollo humano de una sociedad. En cuarto lugar, mostramos los nexos empíricos, con las estadísticas más recientes y las técnicas al día, entre seguro, crecimiento, desarrollo humano y calidad institucional.
    Date: 2021–09
  3. By: Tomoo Kikuchi; Satoshi Tobe
    Abstract: We study the relationship between foreign debt and GDP growth using a panel dataset of 122 countries from 1980 to 2015. We find that economic growth correlates positively with foreign debt and that the relationship is causal in nature by using the sovereign credit default swap spread as an instrumental variable. Furthermore, we find that foreign debt increases investment and then GDP growth in subsequent years. Our findings suggest that sovereign default risks are responsible for "upstream" capital flows that contribute to GDP growth in OECD countries.
    Date: 2021–09
  4. By: Mbuyi Allegra Kabamba (UNIKIN - Université de Kinshasa); L. Deborah Matadi
    Abstract: This paper studies the effects of the exchange rate on economic growth. Our empirical analysis focuses on the Democratic Republic of Congo (DRC) from 1990 to 2019 and uses the Ordinary Least Squares (OLS) method. The results show that exchange rate fluctuations have a negative effect on economic growth. In light of these results, we proposed a number of recommendations, including strengthening resilience through diversification of economic activity, building up budgetary reserves and increasing the level of international reserves. The latter, which can currently cover only three weeks of imports of goods and services, should be gradually increased to a long-term perspective.
    Abstract: RESUME Cet article étudie les effets du taux de change sur la croissance économique. Notre analyse empirique porte sur la République Démocratique du Congo (RDC) de 1990 à 2019 et s'est appuyée sur la méthode des Moindres Carrés Ordinaires (MCO). Les résultats démontrent que les fluctuations du taux de change ont un effet négatif sur la croissance économique. Au regard de ces résultats, nous avons proposé quelques recommandations dont le renforcement de la résilience par la diversification de l'activité économique, la constitution des réserves budgétaires et le relèvement du niveau des réserves internationales. Ces dernières, qui ne peuvent couvrir actuellement que 3 semaines d'importation des biens et services, devraient être progressivement portées au-delà dans une perspective de long terme.
    Keywords: Exchange rate,OLS,economic growth,DRC.,Taux de change,MCO,croissance économique,RDC.
    Date: 2021–09–16
  5. By: Isaac K. Ofori (University of Insubria, Varese, Italy)
    Abstract: A conspicuous lacuna in the literature on Sub-Saharan Africa (SSA) is the lack of clarity on variables key for driving and predicting inclusive growth. To address this, I train the machine learning algorithms for the Standard lasso, the Minimum Schwarz Bayesian Information Criterion (Minimum BIC) lasso, and the Adaptive lasso to study patterns in a dataset comprising 97 covariates of inclusive growth for 43 SSA countries. First, the regularization results show that only 13 variables are key for driving inclusive growth in SSA. Further, the results show that out of the 13, the poverty headcount (US$1.90) matters most. Second, the findings reveal that ‘Minimum BIC lasso’ is best for predicting inclusive growth in SSA. Policy recommendations are provided in line with the region’s green agenda and the coming into force of the African Continental Free Trade Area.
    Keywords: Clean Fuel, Economic Growth, Machine Learning, Lasso, Sub-Saharan Africa, Regularization, Poverty.
    JEL: C01 C14 C51 C52 C55 F43 O4 O55
    Date: 2021–01
  6. By: Goitseone Khanie (Botswana Institute for Development Policy Analysis)
    Abstract: The paper examines the key determinants of industrial growth in Botswana, using manufacturing sector value added as the proxy for industrial growth. It employs the Autoregressive Distributed Lag (ARDL) cointegration approach using annual time series data for the period 1983 to 2015. Empirical results show that industrial growth is driven by financial sector development, human capital development, trade openness and foreign direct investment. Specifically, domestic credit to the private sector as a percentage of GDP and secondary school enrolment ratio are found to be significantly related to manufacturing value added as a percentage of GDP both in the long run and short run. While the relationship is limited to long run for total trade to GDP, it only exits in the short run for FDI net inflows. The study therefore recommends that policy makers should design and ensure proper implementation of financial sector development strategies that can help ease access to credit for manufacturing enterprises in the country. There is also a need for a holistic approach in the design and implementation of innovation and human resource development policies in order to provide a conducive environment for skills acquisition, innovation and technological advancements in the manufacturing sector. Trade policies and export promotion strategies should heighten productivity and value addition in the manufacturing sector, so as to make local firms internationally competitive. Finally, with regards to FDI, the Government of Botswana should create an environment that could entice multinationals to invest in the local manufacturing industry. This, however, should be coupled with protectionist policies to avoid crowding out local manufacturers and exposing them to foreign competition.
    Keywords: Industrialisation; Industrial growth; Manufacturing sector; Botswana
    Date: 2020–03
  7. By: Jaedo Choi; Andrei A. Levchenko
    Abstract: This paper provides causal evidence of the impact of industrial policy on firms' long-term performance and quantifies industrial policy's long-term welfare effects. Using a natural experiment and unique historical data during the Heavy and Chemical Industry (HCI) Drive in South Korea, we find large and persistent effects of firm-level subsidies on firm size. Subsidized firms are larger than those never subsidized even 30 years after subsidies ended. Motivated by this empirical finding, we build a quantitative heterogeneous firm model that rationalizes these persistent effects through a combination of learning-by-doing (LBD) and financial frictions that hinder firms from internalizing LBD. The model is calibrated to firm-level micro data, and its key parameters are disciplined with the econometric estimates. Counterfactual analysis implies that the industrial policy generated larger benefits than costs. If the industrial policy had not been implemented, South Korea's welfare would have been 22-31% lower, depending on how long-lived are the productivity benefits of LBD. Between one-half and two-thirds of the total welfare difference comes from the long-term effects of the policy.
    JEL: O14 O25
    Date: 2021–09
  8. By: Lilas Demmou; Guido Franco
    Abstract: Intangible assets are an important driver of productivity and ultimately output growth. Yet, despite their aggregate rise in the past decades, productivity has continued to grow modestly in the majority of OECD countries. This is in part because many firms – particularly young and small ones - are often held back from building up intangible assets, as financing their production or acquisition is more difficult than for tangibles. Building on the analytical framework recently developed by the OECD (Demmou, Stefanescu and Arquié, 2019; Demmou, Franco and Stefanescu, 2019) and extending the empirical analysis, the paper provides evidence that easing financing restrictions is particularly beneficial for productivity in sectors that rely more intensively on intangible assets, indirectly pointing to the existence of a “financing gap” due to financial frictions. This aggregate productivity impact reflects both increases in the productivity of each firm and better allocation of labour across firms. Recognizing cross-country differences in the structure of financial systems, the policy discussion focuses on how to make the three main sources of external finance available to firms -- bank lending, equity financing, and direct government support -- more suited to fit the needs of an intangible-based economy. Finally, the paper briefly discusses the extent to which the COVID-19 crisis may have created specific challenges for intangible investment, making policy interventions in these areas more relevant and urgent.
    Keywords: finance, Intangible assets, productivity
    JEL: D24 G30 O30 O47
    Date: 2021–09–28
  9. By: Ding Dong; Zheng Liu; Pengfei Wang
    Abstract: Recessions are associated with sharp increases in turbulence that reshuffles firms' productivity rankings. To study the business cycle implications of turbulence shocks, we use Compustat data to construct a measure of turbulence based on the (inverse of) Spearman correlations of firms' productivity rankings between adjacent years. We document evidence that turbulence rises in recessions, reallocating labor and capital from high-to low-productivity firms and reducing aggregate TFP and the stock market value of firms. A real business cycle model with heterogeneous firms and financial frictions can generate the observed macroeconomic and reallocation effects of turbulence. In the model, increased turbulence makes high-productivity firms less likely to remain productive, reducing their expected equity values and tightening their borrowing constraints relative to low-productivity firms. Thus, labor and capital are reallocated to low-productivity firms, reducing aggregate TFP and generating a recession with synchronized declines in aggregate output, consumption, investment, and labor hours, in line with empirical evidence.
    Date: 2021–09–07
  10. By: Patrick Fève (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Pablo Garcia Sanchez (Unknown); Alban Moura (Unknown); Olivier Pierrard (Unknown)
    Abstract: We augment a simple Real Business Cycle model with financial intermediaries that may default on their liabilities and a financial friction generating social costs of default. We derive a closed-form solution for the general equilibrium of the economy, providing analytical results. Endogenous default generates a negative skew for aggregate variables and a positive skew for credit spreads, as documented in the empirical literature. Larger financial frictions strengthen asymmetry, which amplifies the welfare cost of fluctuations. Macro-prudential regulation alleviates both the cost of fluctuations and business-cycle asymmetry, at the expense of a steady-state distortion. Finally, we prove analytically the existence of an optimal level of regulation, which increases with the size of the financial friction.
    Keywords: Real Business Cycle model,Default,Financial frictions,Asymmetry,Optimal regulation
    Date: 2021–02
  11. By: Fan Wang (University of Houston)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2021
  12. By: Cuciniello, Vincenzo; di Iasio, Nicola
    Abstract: Using loan-level data covering almost all loans to households and businesses from banks in Italy over the past 20 years, we offer new empirical evidence that credit declines during a recession primarily because of the reduction in the net creation of borrowers. We then build on a flow approach to decompose the net creation of borrowers into gross flows across three statuses: (i) borrower, (ii) applicant and (iii) neither borrower nor applicant (i.e. inactive firms or households in the bank credit market). Along the macroeconomic dimension of these gross flows, we document four cyclical facts. First, fluctuations in the number of new borrowers (inflows) account for the bulk of volatility in the net creation of borrowers. Second, the volatility of borrower inflows is two times as large as the volatility of obligors exiting from the credit market (outflows). Third, borrower inflows are highly procyclical and tend to lead the business cycle. Fourth, decreases in the probability of a match between borrower and lender during recessions are a leading explanation for the role of borrower inflows. JEL Classification: E51, E32, E44
    Keywords: Borrower flows, business cycles, credit cycles, credit market participation
    Date: 2021–09
  13. By: Michelangeli, Valentina; Peydró, José-Luis; Sette, Enrico
    Abstract: We identify the relative importance for lending of borrower (demand) versus bank (supply) factors. We submit thousands of fictitious mortgage applications, changing one borrower-level factor at time, to the major Italian online mortgage platform. Each application goes to all banks. We find that borrower and bank factors are equally strong in causing and explaining loan acceptance. For pricing, borrower factors are instead stronger. Moreover, banks supplying less credit accept riskier borrowers. Exploiting the administrative credit register, we show borrower-lender assortative matching, and that the bank-level strength measure, estimated on the experimental data, determines credit supply and risk-taking to real firms.
    Keywords: credit,banks,mortgages,SMEs,risk-taking
    JEL: G21 G51 E51
    Date: 2021
  14. By: Raphael Auer (Swiss National Bank; Bank for International Settlements (BIS)); Alexandra Matyunina (University of Zurich; Swiss Finance Institute); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Do targeted macroprudential measures impact non-targeted sectors too? We answer this question by investigating the compositional changes in the supply of credit by Swiss banks, exploiting their differential exposure to the activation in 2013 of the countercyclical capital buffer (CCyB) which targeted banks’ exposure to residential mortgages. We find that the additional capital requirements stemming from the activation of the CCyB causes higher growth in banks’ commercial lending. While banks lend more to all categories of firms, including larger corporate borrowers in the syndicated loan market, smaller and riskier firms are the primary beneficiaries of the new macroprudential measure. However, the interest rates and other costs of obtaining credit for these firms increase as well.
    Keywords: macroprudential policy, spillovers, credit, bank capital, systemic risk, syndicated loan market
    JEL: E51 E58 E60 G01 G21 G28
    Date: 2021–09
  15. By: Jeremy I. Bulow; Paul D. Klemperer
    Abstract: Banks’ reluctance to repair their balance sheets, combined with deposit insurance and regulatory forbearance in recognizing greater risks and losses, can lead to solvency problems that look like liquidity (bank-run) crises. Regulatory forbearance incentivizes banks to both retain risky loans and reject new good opportunities. With sufficient regulatory forbearance, partially-insured banks act exactly as if they are fully insured. Stress tests certify that uninsured creditors will be paid, not that banks are solvent, and have ambiguous effects on the efficiency of investment.
    JEL: G10 G21 G28 G32
    Date: 2021–09
  16. By: Stijn Claessens; Ricardo Correa; Juan M. Londono
    Abstract: We investigate how central banks' governance frameworks influence their financial stability communication strategies and assess the effectiveness of these strategies in preventing a worsening of financial cycle conditions. We develop a simple conceptual framework of how central banks communicate about financial stability and how communication shapes the evolution of the financial cycle. We apply our framework using data on the governance characteristics of 24 central banks and the sentiment conveyed in their financial stability reports. We find robust evidence that communications by central banks participating in interagency financial stability committees more effectively mitigate a deterioration in financial conditions and advert a potential financial crisis. After observing a deterioration in conditions, such central banks also transmit a calmer message, suggesting that the ability to use policy tools other than communications strengthens incentives not to just "cry wolf".
    Keywords: Financial Stability Governance; Natural Language Processing; Central Bank Communications; Financial Cycle
    JEL: G15 G28
    Date: 2021–09–10
  17. By: Kangogo, Moses (Tasmanian School of Business & Economics, University of Tasmania); Volkov, Vladimir (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: Until recently, there has been a growing research focusing on how to predict systemic risks to minimise the recurrence of financial crises, while the importance of understanding how network exposure contributes to the spread of financial distress in the financial system has been largely underestimated. This paper investigates whether network exposure contributes to both shock transmission and absorption. We utilise data from 45 economies and our findings show that both network intensity and interconnectedness in the financial system have impact on increasing network exposure. We also demonstrate how to estimate network intensity in the financial system. Our results indicate that an increased network intensity parameter is associated to period when the financial system is under stress.
    Keywords: Financial markets, financial networks, financial stability
    JEL: G15 G10 G01 C21
    Date: 2021
  18. By: Grégory Levieuge; Jean-Guillaume Sahuc
    Abstract: Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their rates more slowly and less completely to short-term market rates decreases than to increases. We investigate the macroeconomic consequences of this downward interest rate rigidity by introducing asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating the model to the euro area economy, we find that the difference in the initial response of GDP to positive and negative economic shocks of similar amplitude can reach up to 25%. This means that a central bank would have to cut its policy rate much more to obtain a symmetric medium-run impact on GDP. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions.
    Keywords: Downward Interest Rate Rigidity, Asymmetric Adjustment Costs, Banking Sector, DSGE Model, Euro Area
    JEL: E32 E44 E5
    Date: 2021
  19. By: Dimitra Kontana (Department of Economics, University of Macedonia); Stilianos Fountas (Department of Economics, University of Macedonia)
    Abstract: This study investigates the long-run and short-run relationship between consumption, income, financial and housing wealth, and a long-term interest rate for the 50 US states. Using an updated set of quarterly data from 1975 to 2018, we perform panel cointegration analysis allowing for cross-sectional dependence. We obtain the following results. First, there is strong evidence for cointegration among consumption and its determinants. Second, estimates of the housing wealth and financial wealth elasticity of consumption range from 0.072 to 0.115 and 0.044 to 0.080, respectively. Finally, Granger causality tests show that there is a bidirectional short-term causality between per capita consumpti on, income, and financial wealth in the short run and between all the variables in the long run.
    Keywords: Consumption; Financial Wealth; Housing Wealth; Wealth effects; 10-year Treasury Constant Maturity Rate; Panel Cointegration; Granger Causality.
    JEL: E21 E44 R31
    Date: 2021–09
  20. By: Marco Ranaldi
    Abstract: This article studies global distributions of capital and labor income among individuals in 2000 and 2016. By constructing a novel database covering approx-imately the 80% of the global output and the 60% of the world population, two major findings stand out. First, the world underwent a spectacular process of cap-italization. The share of world individuals with positive capital income rose from 20% to 32%. Second, the global middle class benefited the most, in relative terms, from such capitalization process. In China, the average growth rate of capital in-come was 20 times higher than in western economies. The global composition of capital and labor income is, therefore, more equal today than it was twenty years ago, and the world is moving towards a global multiple-sources-of-income society.
    JEL: D31
    Date: 2021–03
  21. By: Fabian T. Pfeffer; Nora Waitkus
    Abstract: Comparative research on income inequality has produced several coherent frameworks to study the institutional determinants of income stratification. In contrast, no such framework and much less empirical evidence exist to explain cross-national differences in wealth inequality. This situation is particularly lamentable as cross-national patterns of inequality in wealth diverge sharply from those in income. We seek to pave the way for new explanations of cross-national differences in wealth inequality by tracing them to the influence of different wealth components. Drawing on the literatures on financialization and housing, we argue that housing equity should be the central building block of the comparative analysis of wealth inequality. Using harmonized data on fifteen countries included in the Luxembourg Wealth Study (LWS), we first demonstrate a lack of association between national levels of income and wealth inequality and concentration. Using decomposition approaches, we then estimate the degree to which national levels of wealth inequality and concentration relate to cross-national differences in wealth portfolios and the distribution of specific asset components. Considering the role of housing equity, financial assets, non-housing real assets, and non-housing debt, we reveal that cross-national variation in wealth inequality and concentration is centrally determined by the distribution of housing equity.
    Date: 2020–12
  22. By: Sergi Basco (Universitat de Barcelona); David López-Rodríguez (Banco de España); Enrique Moral-Benito (Banco de España)
    Abstract: This paper empirically investigates the impact of local house price booms on capital misallocation within manufacturing industries. Using the geographic variation provided by the salient Spanish housing boom (2003-2007), we show that manufacturing firms exposed to positive local house price shocks received more credit from banks and their investment grew more intensively when they had a larger proportion of collateralizable real estate assets. We exploit the geographical variation in both house prices and pre-boom urban land supply at municipality level to document that this collateral channel was exacerbated for firms located in urban land-constrained geographical areas where real estate appreciation was larger. The interaction of geographical conditions, that led to heterogeneous housing booms, with the collateral channel on investment resulted in an increasing dispersion of the capital-labor ratio within industries. A simple counterfactual calculation suggests that the misallocation generated by the collateral channel on investment could account for between one-quarter and half of the fall in TFP experienced in the Spanish manufacturing sector over the housing boom.
    Keywords: housing boom, misallocation, collateral channel, productivity
    JEL: E22 E44 O16
    Date: 2021–09
  23. By: Bertrand Achou; Hippolyte d'Albis; Eleni Iliopulo
    Abstract: In this work we introduce rental markets in a general equilibrium model with borrowing constraints and infinitely lived agents. We estimate our model using standard Bayesian methods and match US data on recent decades. We highlight a crucial relationship that strongly links interest rates, house prices, and rents. It represents agents’ arbitrage when choosing their degree of participation in the housing market (i.e., their real estate holdings). This framework is particularly well suited for explaining recent trends in housing markets. It also allows us to parsimoniously track the unequal impact of shocks on agents’ decisions and welfare, depending on their housing status.
    Keywords: Housing, Rental Markets, Collateral Constraints, Financial Frictions
    JEL: E3 G1 C1 I3
    Date: 2021
  24. By: Hyunduk Suh (Inha University)
    Abstract: Housing cycles can vary significantly across regions. This study investigates the macroeconomic implications of regionally heterogeneous housing cycles and stabilization policies. The general equilibrium model includes two separate regions, idiosyncratic shocks in regional housing markets, and inter-regional housing investments by households. Counterfactual simulations suggest that regional housing cycles can be a source of economic inequality between regions and the level of financial status by affecting consumption, housing service, debt and welfare asymmetrically across agents. Region-specific stabilization policies such as property tax, countercyclical loan-to-value, and housing supply policies can mitigate regional housing cycles, but it takes large policy responses if the cycle is caused by housing exuberance (demand) shocks. Those policies also have asymmetric welfare effects, while housing supply policy is the most beneficial to agents in the region that experiences the cycle. Leaning against the wind monetary policy is relatively ineffective in stabilizing regional housing prices and higher interest rates during housing price appreciations lower the welfare of borrowers in all regions.
    Keywords: Regionally heterogeneous housing cycles, monetary policy, macroprudential policy, housing
    JEL: E32 R31
    Date: 2021–09
  25. By: Hsu, Ching-Chi; Ngo, Quang-Thanh; Chien, FengSheng; Li, Li; Mohsin, Muhammad
    Abstract: This research measures the relationship between green innovation and the performance of financial development by using an econometric estimation during the year of 2000 to 2018 in 28 Chinese provinces. It is intended to explore the relative role of green technological innovation in driving green financial development in the west and central China, as well as how it influences economic growth in these regions. Ordinary least square (OLS) framework was utilized in mainland China to perform empirical studies by using an econometric estimation. This study claims that China has adopted research-based education system, while those for economic growth and expenditure in the regions while the innovation parts results shows that the tertiary education were 12.42% and 13.53% versus the 10.50% and 10.6% in the eastern area. The research-based education increases the patents in green innovation and boosts the environmental policy. The financial development led to green technological development and innovation. Green innovation and financial development decrease the emissions, and it is apparent that as environmental regulations stimulate technical development, the superiority of human resources increases. The findings indicate that green financing reduces short-term lending, thus limiting clean energy overinvestment, while the long-term loans have little impact on renewable energy overinvestment, and the intermediary effect is unmaintainable. Meanwhile, the green financial growth will reduce renewable energy overinvestment and increase renewable energy investment productivity to certain amount.
    Keywords: Financial development; Environmental regulation; Green economic performance; GMM; Econometric estimation
    JEL: E0
    Date: 2021–06–05
  26. By: Alogoskoufis, Spyros; Dunz, Nepomuk; Emambakhsh, Tina; Hennig, Tristan; Kaijser, Michiel; Kouratzoglou, Charalampos; Muñoz, Manuel A.; Parisi, Laura; Salleo, Carmelo
    Abstract: Climate change is one of the greatest challenges facing humankind this century. If left unchecked, it is likely to result in more frequent and severe climatic events, with the potential to cause substantial disruption to our economies, businesses and livelihoods in the coming decades. Yet the associated risks remain poorly understood, as climate shocks differ from the financial shocks observed during previous crises. This paper describes the ECB’s economy-wide climate stress test, which has been developed to assess the resilience of non-financial corporates (NFCs) and euro area banks to climate risks, under various assumptions in terms of future climate policies. This stress test comprises three main pillars: (i) climate-specific scenarios to project climate and macroeconomic conditions over the next 30 years; (ii) a comprehensive dataset that combines climate and financial information for millions of companies worldwide and approximately 1,600 consolidated euro area banks; (iii) a novel set of climate-specific models to capture the direct and indirect transmission channels of climate risk drivers for firms and banks. JEL Classification: C53, C55, G21, G38, Q54
    Keywords: climate scenarios, climate stress-test, physical risk, transition risk
    Date: 2021–09
  27. By: Ahmet Faruk Aysan (Department of Economics - Boğaziçi University [Istanbul]); Jamila Abubakar; Ahmet Aysan
    Abstract: This paper is a bibliometric study of the literature in Islamic social finance. The study analyses 595 articles, conference papers, and book chapters in Islamic social finance from 1991 to 2020 published in 262 Scopus indexed journals. The authors sourced the bibliographic data using the keywords "Islam and social finance," "waqf," "zakat," "microfinance," and variations thereof. This study is essential, especially in the wake of COVID-19 pandemic and the pandemic-induced economic disruption leading to increased global income and social inequalities, putting even more pressure on the SDGs funding gap. Novel solutions to plug the funding Gap are being sought, and recent literature has shown Islamic social finance's potential as a solution to the SDG's funding gap. The study finds that researchers in the field closely link Islamic social finance with sustainability and sustainable development concepts, as evidenced in keywords used by authors. We also find that Malaysia and Indonesia are leading the research in ISF. The study aims to map the field of Islamic social finance and provide a reference point for future researchers to identify the gaps in the literature and their role in enriching academic discourse in ISF to position Islamic finance appropriately in the sphere of development economics.
    Keywords: Islamic social finance,Zakat,Waqf,Islamic microfinance,bibliometric,trends,sustainable
    Date: 2021–09–12
  28. By: Aysan, Ahmet Faruk; Unal, Ibrahim Musa
    Abstract: This paper conducts a bibliometric research in the literature on Fintech and Islamic finance. The data of this study consists of relevant articles obtained from the Scopus database as of February 2021. A keywords bundle related to Islamic finance and keyword has been used for the search, resulting in 89 publishments included in this research. Results show the stunning increase in the Islamic Fintech publishments after 2017, mainly in the fields of cryptocurrencies, micro-finance, impact investing, and SRI investing, and so on. The two main centers of Islamic Fintech research are Malaysia-Indonesia Region and the GCC area. The increasing number of Islamic Fintech publishments show the potential of the field for the industry's future.
    Keywords: Fintech, Islamic, bibliometric, blockchain, cryptocurrency
    JEL: G20
    Date: 2021–09–06

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