nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2021‒11‒22
thirty-one papers chosen by
Georg Man

  1. Оценка влияния финансов на экономический рост через призму инвестиций, кредитов и денежной массы // Assessing the influence of finance on economic growth through the prism of investments, credits and money supply By Оразалин Рустем // Orazalin Rustem
  2. Safe Assets at Financial Globalization By Ly Dai Hung
  3. Endogenous Growth, Downward Wage Rigidities and Optimal Inflation By Mr. Sebastian Weber; Mirko Abbritti; Agostino Consolo
  4. Predictive power of the Financial Activity Indexes - A case study of banking crisis in multiple countries - By Ryuichiro Hirano; Yoshihiko Hogen; Nao Sudo
  5. Credit gaps as banking crisis predictors: a different tune for middle- and low-income countries By Vincent Bouvatier; Sofiane El Ouardi
  6. Loose Financial Conditions, Rising Leverage, and Risks to Macro-Financial Stability By Yizhi Xu; Samuel Mann; Pierre Guérin; Ken Zhi Gan; Manchun Wang; Mr. Adolfo Barajas; Woon Gyu Choi
  7. Are Bank Bailouts Welfare Improving? By Shukayev, Malik; Ueberfeldt, Alexander
  8. Public Milton Friedman on Bailouts By Hugh Rockoff
  9. Financial integration and the co-movement of economic activity: Evidence from U.S. states By Götz, Martin; Gozzi, Juan Carlos
  10. Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries By Mr. Futoshi Narita; Sebastian Horn
  11. Identifying the external and internal drivers of exchange rate volatility in small open economies: Evidence from Jamaica By Uluc Aysun
  12. Do Higher Public Debt Levels Reduce Economic Growth? By Philipp Heimberger
  13. Debt Dynamics in Emerging and Developing Economies: Is R-G a Red Herring? By Ms. Marialuz Moreno Badia; Yuan Xiang; Juliana Gamboa-Arbelaez
  14. Debt-Stabilizing Properties of GDP-Linked Securities: A Macro-Finance Perspective By Sarah Mouabbi; Jean-Paul Renne; Jean-Guillaume Sahuc
  15. Updated Methodology for Assigning Credit Ratings to Sovereigns By Karim McDaniels; Nico Palesch; Sanjam Suri; Zacharie Quiviger; John Walsh
  16. Changing Environment for Opening of Chinese Financial Sector and Implications By Hyun, Sangbaek; Na, Suyeob; Kim, Young Sun; Cho, Koun; Seo, Bongkyo
  17. Measuring Market Liquidity and Liquidity Mismatches across Sectors By Arthur Akhmetov; Anna Burova; Natalia Makhankova; Alexey Ponomarenko
  18. Ascendant altruism and asset price bubbles By Bosi, Stefano; Ha-Huy, Thai; Pham, Cao-Tung; Pham, Ngoc-Sang
  19. Essays on macro-finance and market anomalies By Tancheva, Z.
  20. The Impact of the ECB Banking Supervision Announcements on the EU Stock Market By Angelo Baglioni; Andrea Monticini; David Peel
  21. Price Stability of Cryptocurrencies as a Medium of Exchange By Tatsuru Kikuchi; Toranosuke Onishi; Kenichi Ueda
  22. Crypto-exchanges and Credit Risk: Modelling and Forecasting the Probability of Closure By Fantazzini, Dean; Calabrese, Raffaella
  23. How Does Private Firm Disclosure Affect Demand for Public Firm Equity? Evidence from the Global Equity Market By Kim, Jinhwan; Olbert, Marcel
  24. Distant Lending for Regional Small Businesses Using Public Credit Guarantee Schemes: Evidence from Japan By TSURUTA Daisuke
  25. Early-Life War Experiences and Corporate Financial Outcomes By Arman ESHRAGHI; TAKAHASHI Hidetomo; XU Peng
  26. Fintech and Financial Inclusion in Latin America and the Caribbean By Mrs. Marina V Rousset; Frederic Lambert; Jose Torres; Luis Herrera; Grey Ramos; Mr. Dmitry Gershenson
  27. Assessing the nexus between mobile financial service usage and inflation – evidence from Bangladesh By Ehsan, Zaeem-Al
  28. Financial inclusion and legal system quality: are they correlated? By Ozili, Peterson Kitakogelu
  29. Do Banks Price Environmental Transition Risks? Evidence from a Quasi-Natural Experiment in a Chinese Province By Maria Teresa Punzi; Bihong Huang; Yu Wu
  30. Climate change, central banking and financial supervision: beyond the risk exposure approach By Yannis Dafermos
  31. Quantifying the Determinants of Climate Change Adaptation Strategies and Farmers’ Access to Credit in South Africa By Ojo, Temitope; Adetoro, Adetoso A. Adetoro, Adetoso A.; Ogundeji, Abiodun A.; Belle, Johannes A.

  1. By: Оразалин Рустем // Orazalin Rustem (National Bank of Kazakhstan)
    Abstract: В данном исследовании изучается динамика инвестиций в основной капитал, кредитов экономике и денежной массы, а также прямых иностранных инвестиций и их роли в обеспечении экономического роста. Результаты исследования показывают, что до глобального кризиса 2008-2009 годов финансовый цикл был перегрет в условиях неограниченного доступа на внешние рынки капитала и явного проявления признаков «голландской болезни» в экономике. В последующем ребалансировка потоков капитала и завершение сырьевого «суперцикла» повлияли на деловую активность и спрос на заемные ресурсы. На основе модели Солоу выявлено, что, несмотря на снижение темпов инвестиций, кредитов и в целом денежной массы, вклад финансов в экономический рост повышается. Однако, рост вклада инвестиций в основной капитал не приводит к пропорциональному росту экономики, что указывает на убывающую отдачу инвестиций. Оценки показывают, что основная причина снижения долгосрочного экономического роста заключается не в снижении объемов финансирования экономики, а преимущественно в снижении производительности факторов производства. Было показано, что увеличение инвестиций, кредитов и денежной массы не может поддерживать высокий уровень экономического роста и заменить рост производительности в долгосрочной перспективе. // This study examines the dynamics of fixed capital investments, credits to the economy and money supply as well as foreign direct investments and their role in ensuring the economic growth. The results of the study show that before the global crisis of 2008-2009, the financial cycle was overheated due to an unlimited access to external capital markets and clear signs of the Dutch disease in the economy. Subsequently, the rebalancing of capital flows and the completion of the commodity "super cycle" affected the business activity and the demand for borrowed resources. Based on the Solow model, it was found out that, despite a decrease in the rates of investments, loans and the money supply in general, the contribution of finance to the economic growth is increasing. However, a larger contribution by fixed capital investments does not lead to a proportional economic growth, which indicates a diminishing return on investment. Assessments show that the main reason for the decline in long-term economic growth is not a reduction in the volume of financing of the economy, but mainly a decrease in the factor productivity. It has been shown that an increase in investments, loans and money supply cannot maintain a high level of the economic growth and replace the productivity growth in the longterm perspective.
    Keywords: экономический рост, инвестиции, кредиты экономике, монетизация, economic growth, investments, credits to the economy, monetization
    JEL: O11 O16 O41
    Date: 2021
  2. By: Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam)
    Abstract: The paper explores the impact of safe assets on the economic growth on the financial globalization context. The method employs both cross-section and panel data regression on a data sample of 150 economies, both advanced and developing ones, over the 1990-2019 period. The robustness analysis is carried out by controlling for different sub-sampling data, including advanced economies compared with emerging and developing economies, and 3 consecutive 10-year periods from 1990 to 2019. The empirical evidence establishes an inverted-U-shaped dependence pattern of economic growth on the assets safety, measured by the sovereign debts rating. The economic growth is first increasing then decreasing on the assets safety, with the turning point being the value at 12.0 of sovereign debts rating. Thus, the assets safety only exerts a positive impact on the economic growth for the low safety level. The paper makes contribution on the economic growth literature by uncovering an inverted-U-shaped pattern of economic growth, and also on the safe assets literature by charactering the impact of sovereign debts rating, a proxy for the safety of government debts, on the economic growth.
    Keywords: Economic Growth,Safe Assets,Globalizaton,Cross-Section Regression.
    Date: 2020–09
  3. By: Mr. Sebastian Weber; Mirko Abbritti; Agostino Consolo
    Abstract: Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity (DWR) which challenges these results. The model features a non-vertical long-run Phillips curve between inflation and unemployment and a trade-off between price distortions and output hysteresis that change the welfare-maximizing inflation level. For a plausible set of parameters, the optimal inflation target is in excess of two percent, a target value commonly used across central banks. Deviations from the optimal target carry welfare costs multiple times higher than in traditional NK models. The main reason is that endogenous growth and DWR generate asymmetric and hysteresis effects on unemployment and output. Price level targeting or a Taylor-rule responding to the unemployment rate can handle better the asymmetric and hysteresis effects in our model and deliver significant welfare gains. Our results are robust to the inclusion of the effective lower bound on the monetary policy interest rate.
    Keywords: NK model; inflation level; invariance hypothesis; target value; target carry welfare cost; Inflation targeting; Inflation; Wage rigidity; Wages; Wage adjustments; Global
    Date: 2021–08–06
  4. By: Ryuichiro Hirano (Bank of Japan); Yoshihiko Hogen (Bank of Japan); Nao Sudo (Bank of Japan)
    Abstract: In the Financial System Report, the Bank of Japan monitors developments of the Financial Activity Indexes (FAIXs), which showed large deviations from the trend during Japan fs bubble period of the late 1980s, as a means to detect early warning signals of financial imbalances caused by overheating of domestic financial activities. This article constructs corresponding FAIXs in 17 countries and asks if they are able to predict a banking crisis in these countries. The result shows that among the FAIXs, total credit to GDP ratio, which is an indicator that is considered to capture credit activities of the private sector as a whole, has a reasonable degree of predictive power for these crises. The nature of banking crises differs, however, and these indicators do not necessarily have high predictive power for banking crises that occur when domestic financial activity is not overheated. In addition, the probability of a banking crisis occurring rises when the "red" signal of the total credit to GDP ratio lasts for a prolonged period or when this "red" signal happens together with "red" signals of other indicators.
    Keywords: Financial Imbalance; Banking Crisis; Heat map
    JEL: G01 G21 G32
    Date: 2021–11–19
  5. By: Vincent Bouvatier; Sofiane El Ouardi
    Date: 2021
  6. By: Yizhi Xu; Samuel Mann; Pierre Guérin; Ken Zhi Gan; Manchun Wang; Mr. Adolfo Barajas; Woon Gyu Choi
    Abstract: After a steady increase following the global financial crisis, private nonfinancial sector leverage rose further during the COVID-19 on the back of easy financial conditions induced by unprecedented policy support. We investigate the empirical relationships between increased leverage, financial conditions, and macro-financial stability in a sample of major advanced and emerging market economies. We find that loose financial conditions contribute to leverage buildups and generate an intertemporal tradeoff: financial stability risk is lessened in the near term but exacerbated in the medium term. The tradeoff is amplified during credit booms, when debt service burdens are particularly high, or when the share of foreign currency debt is high in emerging markets. Selected macroprudential tools can arrest leverage buildups and mitigate the tradeoff.
    Keywords: leverage buildup; A. Macroprudential policy; loose financial conditions; Policy implication; B. Macroprudential policy; Credit booms; Macroprudential policy; Central bank policy rate; Macroprudential policy instruments; Financial sector stability; Global
    Date: 2021–08–20
  7. By: Shukayev, Malik (University of Alberta, Department of Economics); Ueberfeldt, Alexander (Bank of Canada)
    Abstract: The financial sector bailouts seen during the Great Recession generated substantial opposition and controversy. We assess the welfare benefits of government-funded emergency support to the financial sector, taking into account its effects on risk-taking incentives. In our quantitative general equilibrium model, the financial crisis probability depends on financial intermediaries' balance sheet choices, influenced by capital adequacy constraints and ex ante known emergency support provisions. These policy tools interact to make financial sector bailouts welfare improving when capital adequacy constraints are consistent with the current Basel III regulation, but potentially welfare decreasing with looser capital adequacy regulation existing before the Great Recession.
    Keywords: fire sales externality; short-term bank funding; endogenous financial crises; bank regulation; bailouts; government guarantees
    JEL: D62 E32 E44 G01
    Date: 2021–11–16
  8. By: Hugh Rockoff (Rutgers University)
    Abstract: This paper analyzes the evolution of Milton Friedman’s thinking about bailouts. It covers bailouts of commercial banks, shadow banks and other financial firms, manufacturing firms, governments, financial markets, and other cases where the term is commonly used. It is based on his academic writings and on the many interviews, op-eds, letters to the editor, and so on through which he communicated his views during and after his transition from professor to public intellectual. Select number of author(s): : 1
    Keywords: Milton Friedman, Bailouts
    JEL: B22
    Date: 2020–04–17
  9. By: Götz, Martin; Gozzi, Juan Carlos
    Abstract: We analyze the effect of the geographic expansion of banks across U.S. states on the co-movement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for financially dependent industries. Finally, we show that integration increases the similarity of bank lending fluctuations between states and contributes to the transmission of deposit shocks across states.
    Keywords: banking integration,synchronization,financial deregulation,business cycles
    JEL: E32 F36 F44 G21
    Date: 2021
  10. By: Mr. Futoshi Narita; Sebastian Horn
    Abstract: Over the past two decades, many low-income developing countries have substantially increased openness towards external financing and have received large capital inflows. Using bank-level micro data, this paper finds that capital inflows have been associated with financial deepening through increases in bank loans, deposits, and wholesale funding. Domestic banks increase loans more than foreign banks. There are only modest signs of a build-up in financial vulnerabilities. Causality is examined through an instrumental variable approach and an augmented inverse-probability weighting estimator. These approaches indicate only limited evidence for global push effects, pointing towards the importance of domestic pull factors.
    Date: 2021–09–24
  11. By: Uluc Aysun (University of Central Florida, Orlando, FL)
    Abstract: This paper estimates a 3-country DSGE model to identify the drivers of exchange rate volatility in small open economies (SOE). In addition to the usual cross-country linkages through trade and asset holdings, the model features common shocks that a¤ect economies symmetrically. Using data from Jamaica, the US and the G-7 region (excluding the US), the paper finds that external financial shocks are the primary drivers of exchange rate fluctuations in the SOE. While domestic financial shocks are bigger contributors than US and G-7 specific shocks, shocks that are common across the US and the G-7 generally play the main role. Nonfinancial shocks, domestic and external, are inconsequential for exchange rate volatility. Inferences from a vector autoregressive model with exogenous variables are consistent with these results.
    Keywords: Jamaica, exchange rates, DSGE, small open economy, G-7, Bayesian estimation.
    JEL: E32 E44 F33 F44
    Date: 2021–11
  12. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: While the effect of higher public debt levels on economic growth has received much attention, the literature partly points to contradictory results. This paper applies meta-regression methods to 826 estimates from 48 primary studies. The unweighted mean of the reported results suggests a 10 percentage points increase in public-debt-to-GDP is associated with a decline in annual growth rates by 0.14 percentage points, with a 95% confidence interval from 0.10 to 0.18 percentage points. However, we cannot reject a zero effect after correcting for publication bias. Furthermore, the meta-regression analysis shows that tackling endogeneity between public debt and growth makes estimates lean less towards the negative side. In testing for non-linear effects, our results do not point to a universal public-debt-to-GDP threshold beyond which growth slows threshold estimates are sensitive to data and econometric choices. These findings imply a lack of evidence of a consistently negative growth effect of higher public-debt-to-GDP.
    Keywords: Public debt; economic growth; meta-analysis
    JEL: E62 F34 O11 O47
    Date: 2021–11
  13. By: Ms. Marialuz Moreno Badia; Yuan Xiang; Juliana Gamboa-Arbelaez
    Abstract: In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability. Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role. But is this enough to prevent countries from falling into debt distress? Drawing from a sample of 150 emerging and developing economies going back to the 1970s, we find that interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis. But in the face of persistent primary deficits, debt service tends to rise abruptly—particularly in emerging markets—and a fiscal crisis ensues. There is also evidence that a large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities. These findings underscore that, though not necessarily a red-herring, low interest-growth differentials cannot fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts.
    Keywords: dampening debt; interest-growth differential; debt build-up; debt-stabilizing role; debt Decomposition; Debt sustainability analysis; Real interest rates; Contingent liabilities; Global
    Date: 2021–09–07
  14. By: Sarah Mouabbi; Jean-Paul Renne; Jean-Guillaume Sahuc
    Abstract: We study the debt-stabilizing properties of indexing debt to GDP using a consumption-based macrofinance model. Three results stand out. First, GDP-linked bond prices would embed sizeable and timevarying risk premiums of about 40 basis points. Second, for a fixed budget surplus, issuing GDPlinked securities does not necessarily imply more beneficial debt-to-GDP ratios in the medium- to long-run. Third, the debt-stabilizing budget surplus is more predictable under such issuances at the expense of being higher on average. Our findings call into question the view that GDP-linked securities tame debt.
    Keywords: GDP-linked securities, term structure, consumption-based model, debt stabilization.
    JEL: E43 G12 G18 H63
    Date: 2021
  15. By: Karim McDaniels; Nico Palesch; Sanjam Suri; Zacharie Quiviger; John Walsh
    Abstract: The investment of foreign exchange reserves or other asset portfolios requires an assessment of the credit quality of investment counterparties. Traditionally, foreign exchange reserve and other asset managers relied on credit rating agencies (CRAs) as the main source of information for credit assessments. In October 2010, the Financial Stability Board issued principles to reduce reliance on CRA ratings in standards, laws and regulations, in support of financial stability. Moreover, best practices in the asset management industry suggest that investors should understand the credit risks they are exposed to and, more broadly, that they should rely on internal credit assessments to inform investment decisions. In support of these objectives, the Bank of Canada first published its sovereign rating methodology in 2017. It provided a detailed technical description of the process developed to assign internal credit ratings to sovereigns, using only publicly available data. This publication updates the internal sovereign rating methodology to stay abreast of evolving best practices and leverage internal experience. This updated methodology proposes three key innovations: (i) a new approach to assessing a sovereign’s fiscal position, (ii) adjustments to the approach to assessing monetary policy flexibility and (iii) the explicit consideration of climate-related factors.
    Keywords: Credit risk management; Foreign reserves management
    JEL: G28 G32 F31
    Date: 2021–11
    Abstract: The opening of China's financial sector has progressed at a very slow pace, unlike the manufacturing and trade sectors that have pushed for an active opening to the outside world. The Chinese economy has been growing rapidly while serving as a global production base, but since 2012, it has become necessary to modify its approaches to achieve growth as it enters an era of medium-speed growth. Recently, new reform and opening measures have been taken in various fields to improve the quality of the Chinese economy, and the need for reform and opening in the financial sector has also increased. Internally, the financial system centered on China's state-owned commercial banks has focused on indirect financing, which has served as a major obstacle to upgrading China's economy and industry to the next level, further increasing the need for reform and opening of the financial sector. Moreover, externally, the U.S.-China conflict which began in earnest in 2018, is applying strong pressure toward reform and opening in China's financial sector. The Chinese government began to show a proactive attitude toward financial opening amid such internal needs and external pressure, and an important development was seen in China's financial opening when President Xi Jinping declared further opening measures at the Boao Forum in April 2018. The Chinese financial authorities have prepared follow-up measures related to financial opening, and the Chinese government's efforts toward financial opening in the three years from 2018 to 2020 yielded more results than the ten-year opening period since its accession to the WTO. Against this backdrop, this study examines the main contents of China's financial opening process, which has been accelerating recently, and derives evaluation and implications.
    Keywords: China; financial; opening; Chinese economy; conflict; Boao Forum
    Date: 2021–04–22
  17. By: Arthur Akhmetov (Bank of Russia, Russian Federation); Anna Burova (Bank of Russia, Russian Federation); Natalia Makhankova (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: We offer tools for measuring, monitoring and analysing the liquidity of financial markets in the context of various liquidity aspects. The liquidity mismatch concept makes it possible to assess how liquidity risk acceptance varies across economic sectors. We calculate liquidity indices – that is, liquidity mismatch indicators, and conduct a comparative analysis of the degree of liquidity risk acceptance by various sectors of the Russian economy. The values of liquidity indices in the household sector vary significantly across countries, depending on the degree of population involvement in the stock market. We use the proposed tools to assess the development of financial market segments in Russia and conduct cross-country comparisons of the degree of liquidity of capital markets. Higher liquidity of financial markets is associated with a higher development of these markets; however, this is fraught with liquidity risks that may lead to financial losses. Considering the concept of liquidity in various aspects, we expand the discussion of the availability and development of long-term investment financing in Russia.
    Keywords: market liquidity, liquidity mismatch, liquidity risks, bank-based and market- based financing, financial instruments, balances of financial assets and liabilities
    JEL: G10 G23 O16
    Date: 2021–11
  18. By: Bosi, Stefano; Ha-Huy, Thai; Pham, Cao-Tung; Pham, Ngoc-Sang
    Abstract: We consider an overlapping generations economy with altruism towards parents and a long-lived asset that delivers no dividends (pure bubble asset). We explore the role of ascendant altruism on the dynamics properties of equilibrium and rational bubbles in the cases of exogenous and endogenous growths.
    Keywords: Overlapping generations, ascendant altruism, capital accumulation, growth, rational bubbles
    JEL: D64 E44 G10
    Date: 2021–11–01
  19. By: Tancheva, Z. (Tilburg University, School of Economics and Management)
    Date: 2021
  20. By: Angelo Baglioni (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Andrea Monticini (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); David Peel
    Abstract: We study the impact of ECB’s supervisory announcements on the Bank Stock index, from 2013 through 2017. Our evidence shows that the news, related to supervisory actions, do have highly significant effects on the market price of banks, contributing to the volatility of the Bank Stock Index for Europe and Italy. Most announcements signal the need to raise more regulatory capital and lead to negative returns in the stock market, thus increasing the cost of raising new capital. Our study is related to previous ones (by Bernanke and Kuttner) focusing on the impact of monetary policy announcements on the stock exchange.
    Keywords: Banking Supervision, ECB, GARCH, Stock Market.
    JEL: G21 G28
    Date: 2021–11
  21. By: Tatsuru Kikuchi (Faculty of Economics, The University of Tokyo); Toranosuke Onishi (Tokio Marine & Nichido Fire Insurance Co., Ltd.); Kenichi Ueda (Faculty of Economics, The University of Tokyo)
    Abstract: We present positive evidence of price stability of cryptocurrencies as a medium of exchange. For the sample years from 2016 to 2020, the prices of major cryptocurrencies are found to be stable, relative to major financial assets. Specifically, after filtering out the less-than-one-month cycles, we investigate the daily returns in US dollars of the major cryptocurrencies (i.e., Bitcoin, Ethereum, and Ripple) as well as their comparators (i.e., major legal tenders, the Euro and Japanese yen, and the major stock indexes, S&P 500 and MSCI World Index). We examine the stability of the filtered daily returns using three different measures. First, the Pearson correlations increased in later years in our sample. Second, based on the dynamic time-warping method that allows lags and leads in relations, the similarities in the daily returns of cryptocurrencies with their comparators have been present even since 2016. Third, we check whether the cumulative sum of errors to predict cryptocurrency prices, assuming stable relations with comparators’ daily returns, does not exceeds the bounds implied by 1 the Black-Scholes model. This test, in other words, does not reject the efficient market hypothesis.
    Date: 2021–11
  22. By: Fantazzini, Dean; Calabrese, Raffaella
    Abstract: While there is an increasing interest in crypto-assets, the credit risk of these exchanges is still relatively unexplored. To fill this gap, we consider a unique data set on 144 exchanges active from the first quarter of 2018 to the first quarter of 2021. We analyze the determinants of the decision of closing an exchange using credit scoring and machine learning techniques. The cybersecurity grades, having a public developer team, the age of the exchange, and the number of available traded cryptocurrencies are the main significant covariates across different model specifications. Both in-sample and out-of-sample analyses confirm these findings. These results are robust to the inclusion of additional variables considering the country of registration of these exchanges and whether they are centralized or decentralized.
    Keywords: Exchange; Bitcoin; Crypto-assets; Crypto-currencies; Credit risk; Bankruptcy; Default Probability
    JEL: C21 C35 C51 C53 G23 G32 G33
    Date: 2021
  23. By: Kim, Jinhwan (Stanford Graduate School of Business); Olbert, Marcel (London Business School)
    Abstract: We investigate the relationship between private firms’ disclosures and the demand for the equity of their publicly traded peers. Using data on the global movement of public equity, we find that a one standard deviation increase in private firm disclosure transparency – proxied by the number of disclosed private firms’ financial statement line items — reduces global investors’ demand for public equity by 13% to 16% or by $206 million to $253 million in dollar terms. These findings are consistent with private firm disclosures generating negative pecuniary externalities – global investors reallocate their capital away from public firms to more transparent private firms — and less consistent with these disclosures creating positive information externalities that would benefit public firms. Consistent with this interpretation, we find that the reduction in demand for public equity is offset by a comparable increase in capital allocation to more transparent private firms. Using staggered openings of the Bureau van Dijk database offices in each investee country as a plausibly exogenous shock to private firm disclosures, we conclude that the negative relationship between private firm disclosures and public equity demand is likely causal.
    JEL: F21 F30 G15 G30 M16 M40 M41
    Date: 2021–04
  24. By: TSURUTA Daisuke
    Abstract: In this paper, we investigate to what extent banks use public credit guaranteed loans for distant small business borrowers. Existing studies argue that when banks provide loans for these borrowers, the information asymmetry between them is severe. These studies then empirically show how banks can mitigate this problem. In this analysis, we focus instead on the role of Japan's public credit guarantee scheme in mitigating these same information problems. If banks provide credit guaranteed loans, they suffer few losses from borrower default because the public credit guarantee corporations (not the small business borrowers) make payments to the banks. Therefore, banks can provide loans to distant borrowers even if the information asymmetry is severe. To conduct our analysis, we use semiannual bank-region level data from Japan, which allows us to control for several unobserved fixed effects. The results show that the credit guarantee loan size is larger if banks provide loans to distant small business borrowers. In addition, the default rate is higher when banks provide credit guaranteed loans to distant borrowers. These results suggest that banks successfully mitigate the losses of distant lending using the public credit guarantee scheme.
    Date: 2021–10
  25. By: Arman ESHRAGHI; TAKAHASHI Hidetomo; XU Peng
    Abstract: This paper examines early-life exposure to war experiences among a comprehensive sample of corporate managers and their subsequent tendency towards leverage, cash-holding, investments and M&A activity. Drawing data from the well-document and severe Japanese experience in WW2, we show managers who survived such experiences in their pre-adolescence demonstrate distinct behavioral patterns of financial decision-making in later life. Specifically, they tend to borrow more, hold less cash, invest more in capital expenditure but engage less in M&A deals. This can be understood in the context of ‘what doesn’t kill you makes you stronger' and in this case, more risk-seeking. Extended analyses confirm that the tendency could be driven by managerial traits of being locally altruistic. In the economic significance tests, we find that the tendency is welcomed by stock market participants.
    Date: 2021–10
  26. By: Mrs. Marina V Rousset; Frederic Lambert; Jose Torres; Luis Herrera; Grey Ramos; Mr. Dmitry Gershenson
    Abstract: Despite some improvement since 2011, Latin America and the Caribbean continue to lag behind other regions in terms of financial inclusion. There is no clear evidence that fintech developments have supported greater financial inclusion in LAC, contrary to what has been observed elsewhere in the world. Case studies by national policy experts suggest that barriers to entry in the financial sector, along with a constraining regulatory environment, may have hindered a faster adoption of fintech. However, fintech development seems to have accelerated in the wake of the COVID-19 pandemic and with the support of recent policy initiatives.
    Keywords: fintech development; policy initiative; financial product; cash transfer program; ACH Colombia; electronic cash; per capita income; credit card payment; Financial inclusion; Fintech; Financial sector; Caribbean; Middle East and Central Asia; Central America; South America; Asia and Pacific
    Date: 2021–08–20
  27. By: Ehsan, Zaeem-Al
    Abstract: This paper set out to uncover the nexus between the propensity of mobile financial service (MFS) usage and inflation in Bangladesh, if any. This paper hypothesizes that the usage of MFS will lead to an increase in the velocity of money, i.e., the ease of using MFS in lieu of cash will lead to money transferring ownership quicker. All things constant, this will lead to inflation—as stipulated by the quantity theory of money. To this end, monthly data pertaining to the general price index, number of MFS agents, number of average daily MFS transactions, number of MFS clients and number of banks supporting MFS transactions have been used ranging from FY16 to FY20, subject to availability. The objective of the paper was to understand the relationship between usage of MFS and inflation, if any. To this end, two models were developed and subsequently tested. Upon undertaking a Johannsen co-integration test, it was found that there is indeed one long run equilibrium relationship between the variables used as per the second model. The use of the Vector Auto Regression (VAR) on model 1 failed to upholster the hypothesis of the paper. The subsequent use of a Vector-Error Correction model (VECM) on model 2 to capture the nexus between the propensity of MFS usage and inflation in Bangladesh also failed to diagnose a statistically significant relationship between MFS velocity and inflation in Bangladesh.
    Keywords: Inflation, MFS, VAR, VECM
    JEL: D4 E51
    Date: 2021–11–01
  28. By: Ozili, Peterson Kitakogelu
    Abstract: This study investigates the correlation between financial inclusion and legal system quality among developed countries from 2004 to 2012. The findings reveal a positive correlation between financial inclusion and legal system quality. The findings suggest that improvements in legal system quality goes hand in hand with improvements in the level of financial inclusion. More specifically, higher supply of ATM per 100,000 adults is correlated with stronger insolvency resolution framework among G7, European and non-European countries. Also, the number of bank branch per 100,000 adults is positively correlated with strong rule of law and legal rights in non-European countries. Also, the number of ATMs per 100,000 adults is positively correlated with strength of insolvency resolution framework and negatively correlated with the time it takes to resolve insolvency before, during and after the global financial crisis.
    Keywords: Law, development, financial inclusion, ATM, bank branch, legal rights, legal system, rule of law, insolvency resolution.
    JEL: G20 G21 G28 K00 K12 K23 K40 K42 K49
    Date: 2021–12
  29. By: Maria Teresa Punzi; Bihong Huang; Yu Wu
    Abstract: This paper assesses the financial risks arising from transition toward a low-emission economy. The environmental DSGE model shows tightening environmental regulation impairs firms’ balance sheets, and consequently threatens financial stability in the short term. The empirical analysis indicates that following the implmentation of Clean Air Action Plan, the default rates of high-polluting firms in a Chinese province rose by around 80 percent. Joint equity commercial banks with higher level of independence were able to appropriately price in their exposure to transition risks, while the Big Five commercial banks failed to factor in such risks.
    Keywords: E-DSGE Model, Financial stability, Clean Air Action Plan
    Date: 2021–09–03
  30. By: Yannis Dafermos (Department of Economics, SOAS University of London)
    Abstract: It is now increasingly accepted that central banks and financial supervisors can no longer ignore climate change. However, there is no consensus on how they should address climate issues. On the one hand, there is a view that central banks and financial supervisors should mainly contribute to the assessment of the exposure of the financial system to climate-related financial risks, considering at the same time the possibility of incorporating climate risks into monetary policy and financial supervision and regulation. On the other hand, it is argued that central banks and financial supervisors need to take action such that they contribute directly to the decarbonisation of our economies and the prevention of climate systemic risks. In this paper, I analyse the main premises and implications of these two approaches and I explain why a systemic risk approach is necessary in the age of climate emergency. I also discuss the challenges involved in a policy agenda aiming at the reduction of climate systemic risks and I outline how these challenges can be tackled.
    Keywords: climate change, central banking, financial supervision, macroprudential regulation, systemic risk
    JEL: E5 E12 G18 Q54 Q57
    Date: 2021–09
  31. By: Ojo, Temitope; Adetoro, Adetoso A. Adetoro, Adetoso A.; Ogundeji, Abiodun A.; Belle, Johannes A.
    Keywords: Agricultural Finance, Environmental Economics and Policy
    Date: 2021–08

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