nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒10‒18
33 papers chosen by
Georg Man

  1. A time-varying skewness model for Growth-at-Risk By Martin Iseringhausen
  2. Addressing the Severity and Intensity of Poverty in Sub-Saharan Africa: How Relevant is the ICT and Financial Development Pathway? By Ofori, Isaac K.; Armah, Mark K.; Taale, Francis; Ofori, Pamela Efua
  3. Anti-Money Laundering Enforcement, Banks, and the Real Economy By Senay Agca; Pablo Slutzky; Stefan Zeume
  4. Market finance as a spare tyre? Corporate investment and access to bank credit in Europe By Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
  5. Banks’ consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing By Kowalewski; Pawel Pisany
  6. Relationship lending, Trust, and SME bank financing in the UK By Degryse, Hans; Matthews, Kent; Zhao, Tianshu
  7. Neither True-friend nor Fairweather friend: Relationship Banking and SME borrowing under Covid-19 By Zhao, Tianshu; Matthews, Kent; Munday, Max
  8. Learning from trees: A mixed approach to building early warning systems for systemic banking crises By Carmine Gabriele
  9. Artificial intelligence and systemic risk By Danielsson, Jon; Macrae, Robert; Uthemann, Andreas
  10. Digital finance, green finance and social finance: is there a link? By Ozili, Peterson K
  11. How the West India trade fostered last resort lending by the Bank of England By Sissoko, Carolyn; Ishizu, Mina
  12. A colonial cash cow: the return on investments in British Malaya, 1889–1969 By Rönnbäck, Klas; Broberg, Oskar; Galli, Stefania
  13. Wealth and History: An Update By Waldenström, Daniel
  14. "Sorry, You're Blocked." Economic Effects of Financial Sanctions on the Russian Economy By Mikhail Mamonov; Anna Pestova
  15. Preventive monetary and macroprudential policy response to anticipated shocks to financial stability By Konstantin Styrin; Alexander Tishin
  16. Macroeconomic policy under a managed float: a simple integrated framework By Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
  17. Capital Flows to Emerging Economies and Global Risk Aversion during the COVID-19 Pandemic By Carlos Alba; Gabriel Cuadra; Juan R. Hernández; Raúl Ibarra-Ramírez
  18. ESG and Sovereign Risk: What is Priced in by the Bond Market and Credit Rating Agencies? By Rapha\"el Semet; Thierry Roncalli; Lauren Stagnol
  19. Fiscal policy shocks and stock prices in the United States By Haroon Mumtaz; Konstantinos Theodoridis
  20. Political Uncertainty: A High Frequency Approach By Makram El-Shagi
  21. Productivity Growth and Capital Deepening in the Fourth Industrial Revolution By Martin Fleming
  22. The Interaction of Schumpeterian Institutional Entrepreneurship and Hayekian Institutional Change in Innovative Industries By Henrekson, Magnus; Lakomaa, Erik; Sanandaji, Tino
  23. Euro Area Housing Markets: Trends, Challenges and Policy Responses By Vítor Martins; Alessandro Turrini; Bořek Vašíček; Madalina Zamfir
  24. Desperate House Sellers: Distress Among Developers By Eileen van Straelen
  25. Red Giant By Bichler, Shimshon; Nitzan, Jonathan
  26. Financialisation and market concentration in the USA: A monetary circuit theory By Dögüs, Ilhan
  27. Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market By Senay Agca; Volodymyr Babich; John Birge; Jing Wu
  28. The Impact of COVID-19 on Supply Chain Credit Risk By Senay Agca; John Birge; Zi'ang Wang; Jing Wu
  29. The impact of agricultural credit on farm yield risk: A quantile regression approach in conjunction with propensity score matching By Shukla, Sumedha; Arora, Gaurav
  30. Modeling the impact of climatic and non-climatic factors on cereal production: evidence from Indian agricultural sector By Abbas Ali, Chandio; Yuansheg, Jiang; Asad, Amin; Waqar, Akram; Ilhan, Ozturk; Avik, Sinha; Fayyaz, Ahmad
  31. How can digital tools support Agricultural Value Chain Finance? Applications from Latin America By Villalba, Roberto; Venus, Terese; Sauer, Johannes
  32. Financial Inclusion and Gender Inequality in sub-Saharan Africa By Tendai Zawaira; Matthew Clance; Carolyn Chisadza; Rangan Gupta
  33. There and Back Again: The Making of Uganda’s Mobile Money Tax By Lees, Adrienne; Akol, Doris

  1. By: Martin Iseringhausen (ESM)
    Abstract: This paper studies macroeconomic risks in a panel of advanced economies based on a stochastic volatility model in which macro-financial conditions shape the predictive growth distribution. We find sizable time variation in the skewness of these distributions, conditional on the macro-financial environment. Tightening financial conditions signal increasing downside risk in the short term, but this link reverses at longer horizons. When forecasting downside risk, the proposed model, on average, outperforms existing approaches based on quantile regression and a GARCH model, especially at short horizons. In forecasting upside risk, it improves the average accuracy across all horizons up to four quarters ahead. The suggested approach can inform policy makers' assessment of macro-financial vulnerabilities by providing a timely signal of shifting risks and a quantification of their magnitude.
    Keywords: Bayesian analysis, downside risk, macro-financial linkages, time variation
    JEL: C11 C23 C53 E44
    Date: 2021–06–10
  2. By: Ofori, Isaac K.; Armah, Mark K.; Taale, Francis; Ofori, Pamela Efua
    Abstract: The study examines the effectiveness of financial development, financial access, and ICT diffusion in reducing the severity and intensity of poverty in Sub-Saharan Africa (SSA). Using data from the World Bank’s World Development Indicators, and the Global Consumption and Income Project (1980–2019), we provide evidence robust to several specifications from the dynamic system GMM and the panel corrected standard errors estimation techniques to show that, compared to financial access, ICT usage, and ICT access, ICT skills is remarkable in reducing both the severity and intensity of poverty. The results further unveil that, though ICT skills reduce the intensity and severity of poverty in SSA, the effect is more pronounced in the presence of enhanced financial development and financial access. Policy recommendations are provided in line with the region’s green growth agenda and the rise in technological hubs of the region.
    Keywords: Financial Access, Financial Development, ICT, Inequality, Poverty, Africa
    JEL: C33 D31 F63 I30 O33
    Date: 2021–10–06
  3. By: Senay Agca (George Washington University); Pablo Slutzky (University of Maryland); Stefan Zeume (University of Illinois at Urbana Champaign)
    Abstract: We exploit a tightening of anti-money laundering (AML) enforcement that imposed disproportionate costs on small banks to examine the effects of a change in bank composition on real economic outcomes. In response to intensified enforcement, counties prone to high levels of money laundering experience a departure of small banks and increased activity by large banks. This results in an increase in the number of small establishments and real estate prices. Consistent with a household demand channel, wages and employment increase in the non-tradable sector. Last, we document secured lending as a potential driver of this outcome.
    Keywords: Money laundering, Financial Institutions, Real economy, Deposits and lending, Financial crime
    JEL: G21 G28
    Date: 2021
  4. By: Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
    Abstract: We estimate a FAVAR with Bayesian techniques in order to investigate the impact of loan supply conditions on euro area corporate investment and its financing structure. We identify shocks to overall demand and loan supply with sign and impact restrictions. Although tightened financial conditions have adversely impacted corporate investment during and after the sovereign debt crisis, the resulting impediments in loan supply, illustrated by lower loan volumes and higher spreads, have been partly alleviated by strengthened corporate debt issuance. We show that (1) part of the protracted increase in debt to loan ratio since the crisis reflects bottlenecks in the provision of bank credit and (2) the tightened loan supply has been more adverse for small corporations with limited market access. Overall, our analysis of macro-financial developments suggests the need for policy actions to deepen the European corporate debt market and enhance market access for smaller corporates. JEL Classification: E22, E66, G21
    Keywords: corporate debt issuance, FAVAR model, financing structure, size spread, small and medium size corporates
    Date: 2021–10
  5. By: Kowalewski (IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, Lille, France Univ. Lille, UMR 9221 - LEM - Lille Economie Management, Lille, France CNRS, UMR 9221 - LEM - Lille Economie Management, Lille, France Institute of Economics, Polish Academy of Sciences, Warsaw, Poland); Pawel Pisany (Institute of Economics, Polish Academy of Sciences, Warsaw, Poland)
    Abstract: We analyze competition in the consumer lending segment between banks and financial technology (or “fintech”) companies (or “fintechs”) as well as giant technology (or “bigtech”) companies (or “bigtechs”) providing alternative credit. We use a database combining bank-level characteristics and country-level proxies for 72 countries during 2013–2018. We find that in developed markets, the relations between fintech/bigtech credit providers and banks are similar and competitive in nature. However, banks’ consumer lending grows simultaneously with fintech credit market development in emerging economies but decreases in the aftermath of bigtech credit emergence. Fintech credit seems to penetrate market segments not serviced by banks; thus, it plays a complementary role, but only in emerging economies. Bigtechs compete even more with banks and push some banking offers out of the market, both in emerging and developed economies. Furthermore, we show that domestic and privately owned banks are more negatively affected by competition from technology-based lending, particularly bigtech, compared to foreign banks. Thus, bigtech lending may be treated as a serious competition for banks’ relationship lending, based on soft credit information processing, provisioned traditionally by local banks.
    Keywords: alternative credit, fintech, bigtech, financial inclusion, local banks, competition, relationship lending, soft credit information
    JEL: G21 G23 O33
    Date: 2021–10
  6. By: Degryse, Hans; Matthews, Kent (Cardiff Business School); Zhao, Tianshu
    Abstract: It is well recognized that relationship banking helps to relieve the credit constraints faced by SMEs to access bank finance. Trust is an important part of relationship banking. However, the term trust is nebulous, and relationship banking means different things to different banks and different borrowers. How trust enables the credit market for SMEs through relationship banking is largely unexplored. Using a unique primary dataset of SMEsin the UK, we construct a measure of trust-based relationship banking from the perspective of the borrower. We examine the drivers of trust-based relationship banking in terms of organizational trust in the relationship manager, defined as the delegation of operational autonomy, along with local market and social capital factors, and the style of the bank-borrower relationship. Along with bank, firm, and market factors, trust-based relationship banking helped to reduce the credit constraints faced by SMEs in the decade following the global financial crisis.
    Keywords: Trust, Relationship Banking, SME Financing, Bank Organization
    JEL: G21 G29 L14
    Date: 2021–10
  7. By: Zhao, Tianshu; Matthews, Kent (Cardiff Business School); Munday, Max
    Abstract: A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of ‘true love’ or rather are the parties more akin to ‘fair-weather friends’? Data from the UK SME Finance Monitor from 2018Q2-2020Q3 is used to examine this question. Our analysis suggests that relationship banking was important for the acquisition of bank credit pre-Covid-19 but was of limited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.
    Keywords: Covid-19, Relationship Banking, SMEs
    JEL: G21 G28 G40
    Date: 2021–10
  8. By: Carmine Gabriele (ESM)
    Abstract: Banking crises can be extremely costly. The early detection of vulnerabilities can help prevent or mitigate those costs. We develop an early warning model of systemic banking crises that combines regression tree technology with a statistical algorithm (CRAGGING) to improve its accuracy and overcome the drawbacks of previously used models. Our model has a large set of desirable features. It provides endogenously-determined critical thresholds for a set of useful indicators, presented in the intuitive form of a decision tree structure. Our framework takes into account the conditional relations between various indicators when setting early warning thresholds. This facilitates the production of accurate early warning signals as compared to the signals from a logit model and from a standard regression tree. Our model also suggests that high credit aggregates, both in terms of volume and as compared to a long-term trend, as well as low market risk perception, are amongst the most important indicators for predicting the build-up of vulnerabilities in the banking sector.
    Keywords: Early warning system, banking crises, regression tree, ensemble methods
    JEL: C40 G01 G21 E44 F37
    Date: 2019–10–30
  9. By: Danielsson, Jon; Macrae, Robert; Uthemann, Andreas
    Abstract: Artificial intelligence (AI) is rapidly changing how the financial system is operated, taking over core functions for both cost savings and operational efficiency reasons. AI will assist both risk managers and the financial authorities. However, it can destabilize the financial system, creating new tail risks and amplifying existing ones due to procyclicality, unknown-unknowns, the need for trust, and optimization against the system.
    Keywords: ES/K002309/1; EP/P031730/1; UKRI fund
    JEL: F3 G3
    Date: 2021–08–28
  10. By: Ozili, Peterson K
    Abstract: Identifying the intersection between digital finance, green finance and social finance is important for promoting sustainable financial, social and environmental development. This paper suggests a link between digital finance, green finance and social finance. Using a simple conceptual model, I show that digital finance offers a smooth, efficient and seamless channel for individuals and corporations to fund social projects that deliver a social dividend, and green projects that promote a sustainable environment. The implication is that digital finance is both an enabler and a channel for efficient green financing and social financing.
    Keywords: green finance, social finance, digital finance, sustainable development, environment, sustainable finance, innovation
    JEL: G02 G20 G21 Q56
    Date: 2021
  11. By: Sissoko, Carolyn; Ishizu, Mina
    Keywords: West India trade; lender of last resort; banking crises; banking system
    JEL: N23 N73
    Date: 2021–01
  12. By: Rönnbäck, Klas; Broberg, Oskar; Galli, Stefania
    Abstract: Historical rates of return on investments have received increasing scholarly attention in recent years. Much literature has focused especially on colonies, where institutions have been argued to facilitate severe exploitation. In the present study, we examine the return on investments in an Asian colony, British Malaya, from 1889 to 1969 for a large sample of companies. Our results suggest that the return on investments in Malaya might have been among the highest in the world during the period studied. Nevertheless, this finding fits badly with theories of imperial exploitation and can only to a limited extent be explained by a higher risk premium. Instead, we argue that the main driver of the very high return on investments in Malaya was rather the substantial rise in global market prices of the output of the two main sectors of the Malayan economy, rubber and tin. The way that the process of decolonization unfolded in Malaya did, furthermore, not lead to any major nationalization of foreign-held assets, and did thereby not disrupt the return on investment in the region in the same way as decolonization did to the return on investment in some other colonies.
    Keywords: Asia; colonialism; imperialism; Malaya; return on investments; twentieth century
    JEL: N0
    Date: 2021–02–12
  13. By: Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: This paper analyzes new evidence on long-run trends in aggregate wealth accumulation and wealth inequality in Western countries. The new findings suggest that wealth-income ratios were lower before World War I than previously claimed, that wealth concentration fell over the past century and has remained low in Europe but increased in the United States, that wealth has changed from being dominated by elite-owned fortunes to consist mainly of popular wealth, and that capital shares in national income have been relatively stable over time, especially in the postwar era. These findings cast doubt on claims that a low-tax, low-regulation capitalism will generate extreme capital accumulation, and that persistent wealth equalization requires large shocks to capital coming from wars or progressive taxation. Instead, institutions that promote household wealth accumulation from below appear to be key for understanding the long-run evolution of wealth in Western societies.
    Keywords: Wealth-income ratios; Wealth Inequality; Capital share; Economic history
    JEL: D30 E21 N30
    Date: 2021–10–14
  14. By: Mikhail Mamonov; Anna Pestova
    Abstract: How large are the macroeconomic effects of financial sanctions and how one can distinguish the sanction shocks from other aggregate shocks affecting the economy at the same time? We employ a Bayesian (S)VAR model to estimate the effects of the Western financial sanctions imposed on the Russian economy in 2014 (first wave) and 2017 (second wave). The sanctions decreased the Russia’s corporate external debt and raised the country spread, but their effects were confounded by falling oil prices in 2014 (negative terms-of-trade, TOT, shock) and rising oil prices in 2017. We begin disentangling the sanction and TOT effects with a conditional forecasting approach, in which we simulate pseudo out-of-sample projections of domestic macroeconomic variables conditioned (i) solely on the oil price changes and then (ii) on both oil prices and external debt deleveraging. For each endogenous variable, we treat the difference between the two projections as the effect of sanctions. We then apply a structural approach to identify sanction shocks. Our results consistently indicate that the sanction effects were negative and non-negligible across the two sanction waves, being sizeable for the financial variables (real interest rate and corporate external debt) and moderate for the real variables (output, consumption, investment, trade balance, and the ruble real exchange rate). We argue that the estimated effects of sanctions are in line with the theoretical predictions from the literature on country spread shocks in open economies.
    Keywords: financial sanctions; corporate external debt; country spread shocks; terms-of-trade shocks; Bayesian (S)VAR; sign restrictions; conditional forecasting; small open economy;
    Date: 2021–09
  15. By: Konstantin Styrin (Bank of Russia, Russian Federation); Alexander Tishin (Bank of Russia, Russian Federation)
    Abstract: In this paper, we develop a simple framework to study the optimal macroprudential and monetary policy interactions in response to financial shocks. Our model combines nominal rigidities and capital accumulation, features that have usually been studied separately in previous literature. In our model, we show that agents do not internalise how their asset purchases affect asset prices. Thus, when crises occur, there are fire sales: less demand for capital further reduces prices and agents are worse off. Policy interventions (both monetary and macroprudential) can improve allocations by restricting borrowing ex-ante (during the accumulation of risks and imbalances) and stimulating the economy ex-post (during crises). As a result, we find a complementary relationship between ex-ante monetary policy and preventive macroprudential policy. We also compare this result with a flexible-price model and a frictionless model and conduct several sensitivity analysis exercises.
    Keywords: Macroprudential policy, monetary policy, pecuniary externalities, nominal rigidities, financial frictions, capital accumulation.
    JEL: E44 E58 G28 D62
    Date: 2021–09
  16. By: Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
    Abstract: This paper presents a simple integrated macroeconomic model of a small, bank-dependent open economy with a managed float and financial frictions. The model is used to study, both analytically and diagrammatically, the macroeconomic effects of five types of policy instruments: fiscal policy, monetary policy, macroprudential regulation, foreign exchange intervention, and capital controls, in the form of a tax on bank foreign borrowing. We also consider a drop in the world interest rate and examine how these instruments can be adjusted jointly to restore the initial equilibrium. Although this analysis is only partial (given, in particular, the static nature of the model and the absence of an explicit account of policy preferences), it provides new insights on how macroeconomic policies operate under a managed float and financial frictions, and how these policies can complement each other in response to capital inflows driven by "push" factors. In particular, the analysis shows that, to stabilize the economy, whether monetary policy should be contractionary or expansionary depends on which other instruments are available to policymakers. The joint use of macroprudential regulation and capital controls is also shown to provide a potent combination to manage capital inflows.
    JEL: E63 F38 F41
    Date: 2021–09
  17. By: Carlos Alba; Gabriel Cuadra; Juan R. Hernández; Raúl Ibarra-Ramírez
    Abstract: This paper analyzes recent changes in the relative importance of the determinants of capital flows to emerging market economies. For this purpose, we estimate vector autoregressive (VAR) models for the period 2009-2020. Based on these models, we estimate the effects on debt flows from shocks to their determinants. Then, we quantify the contribution of each of the variables included in the model to explain the evolution of these flows in each month of the sample through a historical decomposition analysis. The main results indicate that the contribution of global risk aversion to explain the evolution of debt flows increased during March 2020 compared to the past, although its relative importance has decreased since, particularly as the performance of financial markets improved.
    JEL: F21 F32 F41 G15
    Date: 2021–10
  18. By: Rapha\"el Semet; Thierry Roncalli; Lauren Stagnol
    Abstract: In this paper, we examine the materiality of ESG on country creditworthiness from a credit risk and fundamental analysis viewpoint. We first determine the ESG indicators that are most relevant when it comes to explaining the sovereign bond yield, after controlling the effects of traditional fundamental variables such as economic strength and credit rating. We also emphasize the major themes that are directly useful for investors when assessing the country risk premium. At the global level, we notice that these themes mainly belong to the E and G pillars. Those results confirm that extra-financial criteria are integrated into bond pricing. However, we also identify a clear difference between high-and middle-income countries. Indeed, whereas the S pillar is lagging for the highest income countries, it is nearly as important as the G pillar for the middle-income ones. Second, we determine which ESG metrics are indirectly valuable for assessing a country's solvency. More precisely, we attempt to infer credit rating solely from extra-financial criteria, that is the ESG indicators that are priced in by credit rating agencies. We find that there is no overlap between the set of indicators that predict credit ratings and those that directly explain sovereign bond yields. The results also highlight the importance of the G and S pillars when predicting credit ratings. The E pillar is lagging, suggesting that credit rating agencies are undermining the impact of climate change and environmental topics on country creditworthiness. This is consistent with the traditional view that social and governance issues are the main drivers of the sovereign risk, because they are more specific and less global than environmental issues. Finally, taking these different results together, this research shows that opposing extra-financial and fundamental analysis does not make a lot of sense.
    Date: 2021–10
  19. By: Haroon Mumtaz (Queen Mary University); Konstantinos Theodoridis (ESM)
    Abstract: This paper uses structural vector autoregressive models (SVARs) to show that the response of US stock prices to fiscal shocks changed in 1980. Over the period 1955-1979, an expansionary spending or revenue shock was associated with higher stock prices. After 1980, the response of stock prices to the same shock became negative. Using a dynamic stochastic general equilibrium (DSGE) model with a detailed fiscal sector, we show the pre-1980 results may be driven by an expansion in supply after the fiscal shock. In contrast, endogenous growth mechanisms appear to be weaker in the post-1980 period with positive fiscal shocks pushing down consumption, total factor productivity (TFP), and causing inflation and the real interest rate to rise.
    Keywords: Fiscal policy shocks, Stock prices, VAR, FAVAR, DSGE
    JEL: E24 E32 J64 C11
    Date: 2021–05–17
  20. By: Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: In this paper we assess the impact of election uncertainty on financial markets using the almost unique natural experiment provided by the 2020 US presidential election. Overshadowed by the COVID-19 crisis and the corresponding changes in election law and behavior – especially with respect to mail-in voting – the counting process generated huge swings in the expected election outcome. All those were purely driven by counting, i.e. after the voting process was finished, giving us the rare opportunity to observe truly exogenous swings in election risk. We show that election risk has a negative impact on economic expectations and that expectations in favor of Trump did not correlate with the positive economic implications that the literature has demonstrated for previous Republican candidates.
    Keywords: Election risk, high frequency data, COVID-19
    JEL: D72 G12 G41
    Date: 2021–10
  21. By: Martin Fleming (The Productivity Institute, The University of Manchester)
    Keywords: industrial revolution, productivity, industry 4.0, capital deepening, technological innovation, creative destruction
    Date: 2021–09
  22. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Lakomaa, Erik (Institute for Economic and Business History Research (EHFF)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF))
    Abstract: Innovation often takes place in entrepreneurial ecosystems. We use the history of the Silicon Valley venture capital model and the Hollywood motion picture industry to illustrate how specialized institutions that regulate these entrepreneurial ecosystems emerged through actions by business entrepreneurs, rather than being designed by policymakers. Schumpeterian entrepreneurs not only create new companies; they also create new institutions as an integral part of the restructuring process. At times, efforts of identifiable entrepreneurs are crucial, while in other instances institutional change results from a Hayekian process of emergence fueled by business entrepreneurs’ efforts. Some institutions remain informal, whereas others become formalized. The greater room to forge institutions through business practices may in part account for the higher rates of entrepreneurship observed in common law countries.
    Keywords: Entrepreneurship policy; High-impact entrepreneurship; Innovation; Institutional entrepreneurship; Schumpeterian entrepreneurship
    JEL: L26 M13 O31 P14
    Date: 2021–10–12
  23. By: Vítor Martins; Alessandro Turrini; Bořek Vašíček; Madalina Zamfir
    Abstract: The paper discusses the relevance of housing markets for macroeconomic developments from a euro area perspective, reviews trends in house prices and mortgage credit, and discusses policy approaches to prevent housing booms and deal with busts. After years of unsustainably strong house price growth in several Member States in a context of easing credit conditions, downward house price corrections took place after the 2008 financial crisis. A recovery in house prices started after 2013 under different conditions compared with the pre-financial crisis context. The house price recovery appeared to be driven to a greater extent by structural factors and to a lesser extent by buoyant household loans, as credit growth has been lagging behind house price growth in most countries. Prospects for house price growth after the COVID-19 outburst are clouded by uncertainty in light of the changing outlook when economic fundamentals and policy responses play in opposite directions. The current context is also diffeent compared with the period before the global financial crisis because macro-prudential frameworks have been strengthened and macroprudential tools are increasingly used across the euro area. The effectiveness of policy tools needed to address risks linked to boom-bust dynamics in the real estate sector depends on their interaction, design and timely implementation. Policy composition and policy design also appear crucial in dealing with possible trade-offs among policy objectives, including between macro-financial stability and housing affordability.
    JEL: R21 R31 C32 E37 E58
    Date: 2021–09
  24. By: Eileen van Straelen
    Abstract: Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones. Firms also smooth shocks across projects only during the crisis and not during the boom. These results together suggest firm internal capital markets spread negative economic shocks across space.
    Keywords: Internal capital markets; Financial crises; Financial constraints; Housing markets; Product pricing
    JEL: R30 G30 G31 G01 E30
    Date: 2021–10–13
  25. By: Bichler, Shimshon; Nitzan, Jonathan
    Abstract: In 2012, we published a paper in the Journal of Critical Globalization Studies titled 'Imperialism and Financialism: The Story of a Nexus'. Our topic was the chameleon-like Marxist notion of imperialism and how its different theories related to finance. Here is the article's summary: Over the past century, the nexus of imperialism and financialism has become a major axis of Marxist theory and praxis. Many Marxists consider this nexus to be a prime cause of our worldly ills, but the historical role they ascribe to it has changed dramatically over time. The key change concerns the nature and direction of surplus and liquidity flows. The first incarnation of the nexus, articulated at the turn of the twentieth century, explained the imperialist scramble for colonies to which finance capital could export its excessive surplus. The next version posited a neo-imperial world of monopoly capitalism where the core's surplus is absorbed domestically, sucked into a black hole of military spending and financial intermediation. The third script postulated a World System where surplus is imported from the dependent periphery into the financial core. And the most recent edition explains the hollowing out of the U.S. core, a red giant that has already burned much of its own productive fuel and is now trying to financialize the rest of the world in order to use the system's external liquidity. The paper outlines this chameleon-like transformation, assesses what is left of the nexus and asks whether it is worth keeping. (p. 42) In the second part of the paper, we looked a little closer at the red-giant argument. Specifically, we wanted to gauge the degree to which U.S. capital had declined and examine whether this decline indeed forced the rest of the world to financialize. And what we found surprised us: the 'financial sector' did seem to become more important everywhere, but its rise was led not by the United States, but by the rest of the world! Our article was published almost a decade ago, so we though it would be interesting to update our figures and see what has changed, if anything.
    Keywords: globalization,imperialism,financialization,United States
    JEL: P16 P26 P48 G3 F5 G1
    Date: 2021
  26. By: Dögüs, Ilhan
    Abstract: This paper explains the emergence of financialisation of nonfinancial corporations (NFCs) in the USA by way of the increased pension fund savings of white-collar workers which can be considered by Monetary Circuit Theory (MCT) as 'leakages' causing equity issuances to be replenished. The indirect causal nexus can briefly be explained that pension fund savings of white-collar workers have been facilitated by the increasing wage differential between white-collar and blue-collar workers which is driven by the increased market concentration. Since pension funds savings are channelled to financial markets instead of being spent for consumption goods, liquidity deficits of firms being replenished throughout stock markets and because of excess inflows into financial markets, profit expectations of NFCs from liquid financial assets have come to exceed the quasi-rent expectations from illiquid capital assets due to depressed demand for consumption goods. This paper stands as a reconstructive summary of findings of three published articles on each arguments of causal nexus and a contribution to MCT which has not yet considered market concentration.
    Keywords: financialisation,market concentration,white-collar workers,wage differential,Monetary Circuit Theory
    JEL: E44 J31 L1
    Date: 2021
  27. By: Senay Agca (George Washington University); Volodymyr Babich (Georgetown University); John Birge (University of Chicago); Jing Wu (Chinese University of Hong Kong)
    Abstract: Using a panel of Credit Default Swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are −36 and −38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains, and is amplified if supply-chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply-chain tiers for adverse shocks but attenuates for favorable shocks.
    Keywords: supply chains, credit risk, CDS, propagation, supply networks
    JEL: E43 E51 G12 G14 G23 G24 G32 L11 L22
    Date: 2021
  28. By: Senay Agca (George Washington University); John Birge (University of Chicago); Zi'ang Wang (Chinese University of Hong Kong); Jing Wu (Chinese University of Hong Kong)
    Abstract: Global supply chains expose firms to multi-regional risks, but also provide benefits by creating a buffer against local shocks. The COVID-19 pandemic and its differential impact on different parts of the world provide an opportunity for insight into supply chain credit risk, and how operational and structural characteristics of global supply chains affect this risk. In this paper, we examine supply chain credit risk during different phases of the COVID-19 pandemic by focusing on Credit Default Swap (CDS) spreads and US-China supply chain links. CDS spreads reflect both the probability of default and expected loss given default, and are available with daily frequency, which allows the assessment of supply chain partners' credit risk in a timely manner. We find that CDS spreads for firms with China supply chain partners increase with the economic shutdown in China during the pandemic, and the spreads go down when the economic activity resumed with the re-opening in China. We consider Swift, Even Flow (SEF) and Social Network Theories (SNT) within our context. Supporting SEF theory, we find that the impact of pandemic-related disruptions to even flow of goods and materials reflected in supply chain credit risk is mitigated for firms with lower inventory turnover and those with better ability to work with longer lead times and operating cycles. Examining supply chain structural characteristics through SNT reveals that spatial and horizontal complexity, as well as network centrality (degree, closeness, betweenness, information) mitigate the impact of supply chain vulnerabilities on supply chain credit risk.
    Keywords: Supply Chains, Credit Risk, CDS, COVID-19, Pandemic
    JEL: E21 E51 F23 G12 G14 G23 G32 L11
    Date: 2021
  29. By: Shukla, Sumedha; Arora, Gaurav
    Keywords: Agricultural and Food Policy, Agricultural Finance, Research Methods/Statistical Methods
    Date: 2021–08
  30. By: Abbas Ali, Chandio; Yuansheg, Jiang; Asad, Amin; Waqar, Akram; Ilhan, Ozturk; Avik, Sinha; Fayyaz, Ahmad
    Abstract: The underpinned study examines the effects of climatic and non-climatic factors on Indian agriculture, cereal production, and yield using the country-level time series data of 1965–2015. With the autoregressive distributed lag (ARDL) bounds testing approach, the long-term equilibrium association among the variables has been explored. The results reveal that climatic factors like CO2 emissions and temperature adversely affect agricultural output, while rainfall positively affects it. Likewise, non-climatic factors, including energy used, financial development, and labor force, affect agricultural production positively in the long run. The estimated long-run results further demonstrate that CO2 emissions and rainfall positively affect both cereal production and yield, while temperature adversely affects. The results exhibit that the cereal cropped area, energy used, financial development, and labor force significantly and positively impact the long-run cereal production and yield. Finally, pairwise granger causality test confirmed that both climatic and non-climatic factors are significantly influencing agriculture and cereal production in India. Based on these results, policymakers and governmental institutions should formulate coherent adaptation measures and mitigation policies to tackle the adverse climate change effects on agriculture and its production of cereals.
    Keywords: Agricultural output; Climate change; Cereal production; ARDL method; India
    JEL: Q3
    Date: 2021
  31. By: Villalba, Roberto; Venus, Terese; Sauer, Johannes
    Keywords: Agricultural Finance, Marketing, Community/Rural/Urban Development
    Date: 2021–08
  32. By: Tendai Zawaira (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Matthew Clance (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Carolyn Chisadza (Department of Economics, University of Pretoria, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This study analyses the association between financial inclusion and gender inequality in sub-Saharan Africa. Our findings suggest that generally, most individuals in sub-Saharan Africa rely on informal sources of finance, such as savings at a savings club and borrowing from family and friends compared to formal financial sources. Moreover, women are more likely to turn to the informal sources compared to men which is a concern that needs to be addressed at policy level. Improving access to finance is at the center of improving gender equality and increasing the economic freedoms and opportunities that women have to contribute to their families and societies.
    Keywords: Gender, Financial development, Financial inclusion, Africa
    JEL: J16 O11
    Date: 2021–10
  33. By: Lees, Adrienne; Akol, Doris
    Abstract: Mobile money is widely seen as a powerful tool for enhancing financial inclusion and, potentially, improving the economic well-being of the poor. As the mobile money sector, and its turnover, have grown, certain governments have increasingly viewed mobile money transactions as a potentially convenient tax handle. The resulting tax measures are often controversial and draw sharp criticism from those who fear that they will undermine the growth of digital financial services. The case study of Uganda highlights an interesting example of this trend and demonstrates the importance of careful tax policy design. In early 2018, there was a consensus that Uganda’s tax effort remained some way below its revenue potential, and there was pressure to find new revenue sources. In July 2018, the government introduced an especially contentious new tax of 1 per cent on the value of all mobile money transactions, one of several excise duty amendments designed to increase revenue from the telecommunications and financial sectors. After widespread public outcry and significant implementation challenges, the tax was amended in November 2018 to apply only to mobile money withdrawals at a rate of 0.5 per cent.
    Keywords: Finance,
    Date: 2021

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