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on Financial Development and Growth |
| By: | Vats, Nishant; Kundu, Shohini |
| Abstract: | This paper explores the transmission of non-capital shocks through banking networks. We develop a methodology to construct non-capital (idiosyncratic) shocks, using labor productivity shocks to large firms. We document a change in the relationship between foreign idiosyncratic shocks and domestic economic growth between 1978 and 2000. Contemporaneous changes in banking integration drive this phenomenon as geographically diversified banks divert funds away from economies experiencing negative shocks towards other unaffected economies. Our GIV estimates suggest that a 1% increase in bank loan supply is associated with a 0.05-0.26 pp increase in economic growth. Lastly, this can potentially explain the Great Moderation. JEL Classification: E32, E44, F36, G21, G28, O47, R11, R12 |
| Keywords: | credit, cross-border spillovers, deregulation, financial intermediation, growth, idiosyncratic shocks, the Great Moderation |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021128&r= |
| By: | Mr. Damien Capelle |
| Abstract: | This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect. |
| Keywords: | franchise value; recapitalization channel; net worth; price-drop channel; real asset; Asset prices; Competition; Shadow banking; Investment banking; Bank deposits; Global |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/102&r= |
| By: | Thibaud Cargoet (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Simon Cornée (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Franck Martin (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Tovonony Razafindrabe (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Fabien Rondeau (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Christophe Tavéra (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France) |
| Abstract: | Cet article ́etudie les implications macro ́economiques associées à la présence d’un secteur bancaire dual au sein d’une ́economie. Ce secteur regroupe à parts égales des banques mutualistes et coopératives (credit unions) et des banques de type capitaliste (cette situation s’observe notamment pour la France). Nous adoptons un modélisation macroéconomique de type DSGE idans laquelle les banques mutualistes et coopératives sont différenciées des banques traditionnelles de la manière suivante : elles pratiquent une interm ́ediation financière traditionnelle centrée sur le couple crédits/dépôts avec un recours plus faible aux activités de portefeuilles ; elles se concentrent principalement sur le financement des ménages et des petites et moyennes entreprises ; elles ont enfin un pass-through de taux d’int érêt plus faible que les banques traditionnelles. Les simulations du modèle montrent que cette configuration du secteur bancaire diminue le caractère contra-cyclique de la politique mon ́etaire mais elle constitue en revanche un facteur stabilisant pour l’économie. This article studies the macroeconomic implications generated by a dual banking sector. By dual sector, we refer to a banking sector including mutual and cooperative banks (credit unions) and traditional banks operate in substantially equal parts (as the case of France for example). We propose a DSGE macroeconomic model integrating a dual banking sector. Mutual and cooperative banks are differentiated from capitalist banks in the following way: they practice traditional financial intermediation centered on the loan - deposit pair with less recourse to portfolio activities; they mainly focus on financing households and small and medium-sized enterprises; Finally, they have a lower interest rate pass-through than traditional banks. Model simulations show that this configuration of the banking sector reduces the counter-cyclical property of monetary policy, but on the other hand it constitutes a stabilizing factor for the economy. |
| Keywords: | Banking sector, Credit Unions, DSGE Model, Monetary Policy |
| JEL: | E47 E52 G2 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2021-03&r= |
| By: | Grytten, Ola Honningdal (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | The present paper seeks to investigate the importance of financial instability during four banking crises, with focus on the small open economy of Norway. The crises elaborated on are the Post First world war crisis of the early 1920s, the mid 1920s Monetary crisis, the Great Depression of the 1930s and the Scandinavian banking crisis of 1987-1993. <p> The paper firstly offers a brief description of the financial instability hypothesis as applied by Minsky, Kindleberger, and in a new explicit dynamic financial crisis model. Financial instability creation basically happens in times of overheating, overspending and over lending, i.e., during significant booms, and have devastating effects after markets have turned into a state of crises. <p> Thereafter, the paper tests the validity of the financial instability hypothesis by using a quantitative structural time series model. The test reveals upheaval of financial and macroeconomic indicators prior to the crises, making the economy overheat and create asset bubbles due to huge growth in debt. These conditions caused the following banking crises. <p> Finally, the four crises are discussed qualitatively. The conclusion is that significant increase in money supply and debt caused overheating, asset bubbles and finally financial and banking crises which spread to the real economy. |
| Keywords: | Financial crises; banking crises; financial stability; macroeconomic; economic history; monetary expansion |
| JEL: | E44 E51 E52 F34 G15 N24 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2021_018&r= |
| By: | Dean Parker; Moritz Schularick |
| Abstract: | The term spread is the difference between interest rates on short- and long-dated government securities. It is often referred to as a predictor of the business cycle. In particular, inversions of the yield curve—a negative term spread—are considered an early warning sign. Such inversions typically receive a lot of attention in policy debates when they occur. In this post, we point to another property of the term spread, namely its predictive ability for financial crisis events, both internationally and in historical U.S. data. We study the predictive power of the term spread for financial instability events in the United States and internationally over the past 150 years. |
| Keywords: | yield curve; financial crisis |
| JEL: | E58 E5 N0 G01 |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93395&r= |
| By: | Ms. Sally Chen; Katsiaryna Svirydzenka |
| Abstract: | Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output gap are the best leading indicators in advanced markets; in emerging markets, these are equity and property prices and credit gap. Moreover, aggregating this information flags financial crisis many years before the crisis. Lastly, we find that the length of financial cycles is of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers. |
| Keywords: | equity price cycle; property price cycle; banking crisis; BIS-definition credit cycle; C. cycle property; Financial cycles; Banking crises; Credit; Land prices; Business cycles; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/116&r= |
| By: | Xu, Chenzi (Stanford University) |
| Abstract: | I show that a disruption to the financial sector can reshape the patterns of global |
| Abstract: | trade for decades. I study the first modern global banking crisis originating in London in 1866 and collect archival loan records that link multinational banks headquartered there to their exports financing abroad. Countries exposed to bank failures in London immediately exported significantly less and did not recover to pre-crisis trend levels. Their market shares within each destination were significantly lower for four decades. Decomposing the persistent losses shows that they primarily stem from lack of extensive margin growth relative to unexposed countries, as importers sourced more from new and unexposed trade partners. Exporters producing more substitutable goods, those with little access to alternative forms of credit, and those trading with more distant partners experienced more persistent losses, consistent with the existence of sunk costs and the importance of finance for intermediating trade. |
| JEL: | F14 G01 G21 N20 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3995&r= |
| By: | Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano |
| Abstract: | This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution. |
| Keywords: | credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data |
| JEL: | E24 E44 G21 J21 J31 J63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_169v1&r= |
| By: | Joao Ayres (Inter-American Development Bank); Gajendran Raveendranathan (McMaster University) |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:20-136&r= |
| By: | Yasin KürÅŸat Önder; Maria Alejandra Ruiz-Sanchez; Sara Restrepo-Tamayo; Mauricio Villamizar-Villegas |
| Abstract: | We investigate the impact of fiscal expansions on firm investment by exploiting firms that have multiple banking relationships. Further, we conduct a localized RDD approach and compare the lending behavior of banks that barely met and missed the criteria of being a primary dealer, as well as barely winners and losers at government auctions. Our results indicate that a 1 percentage point increase in banks’ bonds-to-assets ratio decreases loans by up to 0.4%, which leads to significant declines in firm investment, profits and wages. Our findings are grounded in a quantitative model with financial and real sectors with which we undertake a welfare analysis and compute the cost of government borrowing on the overall economy. **** RESUMEN: Es este estudio investigamos el impacto que tiene el gasto fiscal sobre la inversión, enfocándonos en firmas colombianas que han tenido múltiples relaciones bancarias. Además, realizamos un enfoque localizado de regresión discontinua en el cual comparamos el comportamiento crediticio de bancos que apenas cumplieron y no cumplieron con los criterios para ser un creador de mercado, así como bancos que apenas ganaron y perdieron en las subastas de TES en el mercado primario. Nuestros resultados indican que un aumento de 1 punto porcentual en la razón de bonos sobre activos de los bancos reduce los créditos hasta en un 0,4%, lo que conduce a caídas significativas en la inversión de las empresas, las ganancias y los salarios. Racionalizamos nuestros hallazgos en un modelo cuantitativo con sectores financieros y reales, y con el que realizamos un análisis de bienestar y también calculamos el costo del endeudamiento público en la economía. |
| Keywords: | fiscal multipliers, regression discontinuity design, crowding-out channel, Regresión Discontinua, multiplicador fiscal, crowding-out |
| JEL: | E44 F34 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1182&r= |
| By: | Xavier Ragot (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Ricardo Pinois (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | World public debt has increased by 30% of world GDP between 2007 and2017. During the same period, the real interest rate on public debt has fallenby roughly 200 basis points, whereas it should have increased by 100 basispoints according to previous estimates. It reveals that demand for public debthas increased faster than supply. Where does the increase in savings comefrom? To answer this question, we construct the world financial marketequilibrium to identify the country and agents across countries who increasedtheir saving rate. Using the equality between the sum of private and publicsaving and investment at the world level, we find four lessons. First, the worldinvestment rate has been slightly increasing during the period, with animpressive shift of investment to China. The investment rate of China was 4% of world GDP in 2007. It jumps to 12% in 2017. Second, during the period, the world experienced an impressive reduction of global imbalances. The Chinesesaving rate increased less than Chinese investment and the US saving rate increased more than US investment. Third, the increase in the world saving rate comes from highly indebted countries before 2007, mostly from the US and southern Europe. The increase in the current account of Italy, Spain and Greece (from a negative territory) is the order of magnitude of the increase in the US current account. Fourth, there is no clear relationship between the householdsaving rate and national government borrowing, thus not confirming the Ricardian equivalence view. Finally, it seems that the factors generating a highnet saving rate in China are temporary, whereas the deleveraging of US andsouthern Europe may be long-lasting. As a consequence, one can expect lowinterest rates for a long period of time. |
| Keywords: | Public debt,Incomplete markets,Optimal policy |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403641&r= |
| By: | Michael Kremer; Jack Willis; Yang You |
| Abstract: | Empirical tests in the 1990s found little evidence of poor countries catching up with rich - unconditional convergence - since the 1960s, and divergence over longer periods. This stylized fact spurred several developments in growth theory, including AK models, poverty trap models, and the concept of convergence conditional on determinants of steady-state income. We revisit these findings, using the subsequent 25 years as an out-of-sample test, and document a trend towards unconditional convergence since 1990 and convergence since 2000, driven by both faster catch-up growth and slower growth of the frontier. During the same period, many of the correlates of growth - human capital, policies, institutions, and culture - also converged substantially and moved in the direction associated with higher income. Were these changes related? Using the omitted variable bias formula, we decompose the gap between unconditional and conditional convergence as the product of two cross-sectional slopes. First, correlate-income slopes, which remained largely stable since 1990. Second, growth-correlate slopes controlling for income - the coefficients of growth regressions - which remained stable for fundamentals of the Solow model (investment rate, population growth, and human capital) but which flattened substantially for other correlates, leading unconditional convergence to converge towards conditional convergence. |
| JEL: | E02 O11 O4 O43 O47 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29484&r= |
| By: | Mr. Anil Ari; Gabor Pula |
| Abstract: | Ukraine’s economic performance has been anemic since the early 1990s. A major impediment to productivity growth has been low investment, held back by lack of strong and independent institutions. This paper aims to assess the major areas of institutional weakness in Ukraine and quantify the long-term growth impact of catching-up to Poland in terms of the quality of major economic institutions and market development. Our analysis identifies the legal system as the area where the institutional quality is weakest compared to Poland, followed distantly by market competition, openness to trade and financial depth. Using a methodology that accounts for positive spillovers between the structural reform areas, we estimate that even under the most optimistic scenario, where institutional gaps are fully addressed, Ukraine would need 15 years to catch up to Poland’s current income level. |
| Keywords: | growth impact; reform gap; reform scenario; scenario Ukraine; indicator value; Structural reforms; Total factor productivity; Commodity markets; International reserves; Corruption; Eastern Europe |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/100&r= |
| By: | Jeong, Hyung-gon (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Lee, Cheol-won (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Park, Min-suk (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | North Korean authorities have been seeking changes in North Korea’s economic policy since the Kim Jong Un regime took power. Along with decentralization, the government is trying to increase efficiency and productivity within the socialist economic system, and as part of this policy it has designated 27 economic development zones to attract foreign investment. Foreign direct investment plays a crucial role in economic growth for low-income countries such as North Korea, which lacks capital and technology. This study discusses North Korea's foreign investment policy and tasks ahead of its government to revitalize the economy, based on the premise that nuclear negotiations between North Korea and the US proceed smoothly. First of all, in order to derive policy tasks, we compared and analyzed the achievements and policies of transition countries in Asia and Eastern Europe in terms of attracting FDI, also analyzing the determinants of FDI inflows, after which we present policy tasks for North Korean authorities. As South Korea may very well become the largest investor in North Korea, our study also discusses tasks for the Korean government to pursue in order for Korean companies to successfully invest in North Korea. |
| Keywords: | North Korea; US; FDI; socialist economic system; economic development zone; nuclear negotiation |
| Date: | 2020–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwe:2020_032&r= |
| By: | Haruka Takayama (Economics Faculty, University at Albany, SUNY, U.S.A., Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN) |
| Abstract: | When a multinational firm invests abroad, it can either establish a new facility (greenfield investment, GF) or purchase a local firm (cross-border merger and acquisition, M&A). Using a novel US firm-level dataset, I provide the first evidence that multinationals with higher levels of intangible capital systematically invest through GF rather than through M&A. Motivated by this empirical result, I develop and quantify a general equilibrium search model of a multinational firm's choice between M&A and GF. The model implies that equilibrium FDI patterns can be suboptimal from the host country's perspective. In particular, since the gap between the productivities of multinationals and local firms is larger in less developed countries, policymakers there can increase welfare by incentivizing FDI through M&A. By allowing highly productive multinationals to use local intangible capital, this policy increases aggregate productivity more than the laissez-faire outcome. |
| Keywords: | FDI; Cross-border M&A; Greenfield FDI; Intangible capital |
| JEL: | F14 F21 F23 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2021-24&r= |
| By: | Cecchetti, Stephen G.; Suarez, Javier |
| Abstract: | In this report we outline how a formulating normative measure of macroprudential policy stance requires a framework containing objectives, tools and transmission mechanisms. To complement the currently prevailing narrative approach, we apply lessons from the monetary policy to macroprudential policy. We begin with by proposing that the ultimate objective of macroprudential policy is to minimise the frequency and severity of economic losses arising from severe financial distress and then integrate the concept of growth-at-risk into the framework. Implementation of our framework for the evaluation of the macroprudential policy stance faces a series of challenges, including availability of the appropriate data, that policymakers generally have multiple objectives and tools, and the uncertain responses of economic agents to macroprudential policy actions. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkasc:202111&r= |
| By: | Mr. Francisco Roch; Giselle Montamat |
| Abstract: | We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). On the one hand, there exist welfare gains from internalizing how borrowing decisions in good times affect the value of collateral during a crisis. On the other hand, interventions by a robust planner that has in mind a model far from the true underlying distribution of shocks, can result in negligible welfare gains, or even losses. This is because a policy that is robust to misspecification, as in Hansen and Sargent (2011), is optimal under a "worst-case'' scenario but not under alternative distributions of the state. A robust planner introduces taxes that are 5 percentage points higher but does not achieve a significant increase in welfare gains compared to a non-robust planner when the true underlying model is not the worst-case. If households also make choices that are robust to model misspecification, the gains are significantly reduced and a highly-robust planner "underborrows" and induces welfare losses. If, however, the worst-case scenario is indeed realized, then welfare gains are the largest possible. |
| Keywords: | Robustness; Model Uncertainty; Macroprudential Policy; Sudden Stops. |
| Date: | 2021–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/055&r= |
| By: | Lucyna Gornicka; Peichu Xie |
| Abstract: | Sector-specific macroprudential regulations increase the riskiness of credit to other sectors. Using firm-level data, this paper computed the measures of the riskiness of corporate credit allocation for 29 advanced and emerging economies. Consistently across these measures, the paper finds that during credit expansions, an unexpected tightening of household-specific macroprudential tools is followed by a rise in riskier corporate lending. Quantitatively, such unexpected tightening during a period of rapid credit growth increases the riskiness of corporate credit by around 10 percent of the historical standard deviation. This result supports early policy interventions when credit vulnerabilities are still low, since sectoral leakages will be less important at this stage. Further evidence from bank lending standards surveys suggests that the leakage effects are stronger for larger firms compared to SMEs, consistent with recent evidence on the use of personal real estate as loan collateral by small firms. |
| Keywords: | standards survey; credit vulnerability; leakage effect; credit riskiness; bond credit ratio ma; Credit; Macroprudential policy; Bank credit; Macroprudential policy instruments; Corporate sector; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/113&r= |
| By: | Bulow, Jeremy (Stanford University); Klemperer, Paul (Oxford University) |
| 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 suffcient regulatory forbearance, partially-insured banks act exactly as if they are fully insured. Stress tests certify that uninsured creditors will be paid, not solvency, and have ambiguous effects on the efficiency of investment. |
| JEL: | G10 G21 G28 G32 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3983&r= |
| By: | David Chen; Christian Friedrich |
| Abstract: | We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. Using panel data for the six largest Canadian banks and their foreign activities in up to 94 countries, we explore the variation in CCyB rates across countries to overcome the identification challenge associated with limited time-series evidence on the use of the CCyB in individual jurisdictions. Our main sample focuses on the period from 2013Q2 to 2019Q3, when CCyB rates experienced a prolonged tightening cycle. We show that in response to a 1-percentage-point tightening announcement in a foreign CCyB, the growth rate of cross-border lending between Canadian banks’ head offices and borrowers in CCyB-implementing countries decreases by between 12 and 17 percentage points. Most importantly, due to the CCyB’s unique reciprocity rule, which also subjects foreign banks to domestic regulation, the direction of this effect differs from that of other forms of foreign capital regulation that have been previously examined in the literature. When investigating the underlying transmission channels of a CCyB change, we find that, in particular, large banks are more able than small banks to shield their cross-border lending against the impact of foreign CCyB changes. Finally, when focusing on the loosening cycle in CCyB rates that emerged in early 2020, we show that our findings on the differential effects for large and small banks also carry over to the COVID-19 episode—a time when various jurisdictions rapidly released their CCyBs to stabilize their banks’ lending activities. |
| Keywords: | Credit risk management; Financial institutions; Financial stability; Financial system regulation and policies; International topics |
| JEL: | E32 F21 F32 G28 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-61&r= |
| By: | Jan J. J. Groen; Adam I. Noble |
| Abstract: | Despite China’s tighter financial policies and the Evergrande troubles, Chinese financial stress measures have been remarkably stable around average levels. Chinese financial conditions, though, are affected by global markets, making it likely that low foreign financial stress conditions are blurring the state of Chinese financial markets. In this post, we parse out the domestic component of a Chinese financial stress measure to evaluate the downside risk to future economic activity. |
| Keywords: | financial conditions; growth-at-risk; China |
| JEL: | E2 G1 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93391&r= |
| By: | Thomas McGregor |
| Abstract: | We investigate the role of business dynamism in the transmission of monetary policy by exploitingthe variation in firm demographics across U.S. states. Using local projections, we find that a larger fraction of young firms significantly mutes the effects of monetary policy on the labor market and personal income over the medium term. The firm entry rate and the employment share of young firms are key factors underpinning these results, which are robust to a battery of robustness tests. We develop a heterogeneous-firm model with age-dependent financial frictions that rationalizes the empirical evidence. |
| Keywords: | firm demographics; business dynamism; monetary policy; local projections; U.S. states.; U.S. states; monetary policy shock; entry rate; population demographics; policy function; startup firm; exit rate; firm productivity; growth rate; Employment; Wages; Personal income; Credit ratings; Global |
| Date: | 2021–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/063&r= |
| By: | Iván Arribas (IVIE, ERI-CES and Department of Economic Analysis, Universitat de València, Spain); Emili Tortosa-Ausina (IVIE, Valencia and IIDL and Department of Economics, Universitat Jaume I, Castellón, Spain); TingTing Zhu (Leicester Castle Business School, DeMontfort University, UK) |
| Abstract: | We revisit the determinants of capital structure for European SMEs. Our work differs from previous contributions in the field by considering several measures of leverage (short-term debt, long-term debt, and total debt) and employing panel Bayesian model averaging, in an effort to address regression model uncertainty. Examining a rich set of firm-specific, country-specific, and institutional determinants of capital structure in 15 European Union countries over the period 2002–2019, we find that the effects of the different variables considered on leverage are intricate. First, only certain variables are important in explaining capital structure, based on their high posterior inclusion probabilities (above 0.5). Second, the effect of some variables differs depending on the measure of leverage considered. Under Bayesian model averaging, results are based on all possible models, rather than a particular one, and give a much greater depth of information. Therefore, our methods help to provide some additional guidance on the existing competing theories (trade-off, pecking-order, agency), which seems appropriate as empirical studies to date have not been conclusive. Our findings are especially pertinent in the European context where the predominance of SMEs, which are vulnerable to economic downturns, makes it particularly relevant to understand what determines their capital structure. |
| Keywords: | Bayesian model averaging, capital structure, European Union, SMEs |
| JEL: | G32 G33 D21 D22 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2021/11&r= |
| By: | Kraemer-Eis, Helmut; Botsari, Antonia; Gvetadze, Salome; Lang, Frank; Torfs, Wouter |
| Abstract: | This working paper provides you with an overview of the main markets relevant to the EIF. It starts by discussing the general market environment, then looks at the markets for SME equity and debt products. In addition, it focusses on a number of thematic policy areas of interest to the EIF, such as Inclusive Finance, Fintech and Green finance & investment. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202175&r= |
| By: | Torfs, Wouter |
| Abstract: | This working paper elaborates on the most recent update of the EIF SME Access to Finance (ESAF) Index, a composite indicator used to monitor the state of SME external financing markets in the 27 EU countries. The current update, using the latest available data, constitutes the eight iteration of this exercise. The paper provides some background information underlying the ESAF results for 2020, which are the latest available data at the time of writing. The results capture the initial impact of COVID-19 crisis and the subsequent policy response. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202176&r= |
| By: | John Kuada (Aalborg, Denmark) |
| Abstract: | Purpose – The purposes of this paper are to review the streams of studies that link financial inclusion to small enterprise growth in Sub-Sahara Africa (SSA), to identify the research gaps they provide, and to prepare an agenda for future research in the field. Design/methodology/approach – The study employs systematic literature search method to identify relevant literature from journals. It then adopts a narrative approach for the review, highlighting the findings from the prior studies and gaps requiring research attention. Findings – The discussions reveal that there is a need for future studies that can unpack small enterprise growth determinants, identify growth-enabling entrepreneurial characteristics and examine the contextual variabilities that shape their effectiveness. Originality/value – There is currently no comprehensive/integrated review exploring the link between financial inclusion and small enterprise growth in SSA. This review therefore provides insights that contribute to the development of this stream of research. |
| Keywords: | Financial inclusion, entrepreneurship, small businesses, enterprise growth, Africa |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:21/084&r= |
| By: | Davoli, Maddalena (Goethe University Frankfurt); Rodríguez-Planas, Núria (Queens College, CUNY) |
| Abstract: | Using data from 74 countries, we uncover important differences in the association between financial literacy and preferences by the level of economic development. We find that patience is only salient in wealthier countries, i.e. countries with their GDP per capita above the sample median. In such cases, countries with higher level of patience display higher levels of financial literacy. Importantly, this association is not driven by a multitude of institutional or cultural factors known to be related to financial literacy. In impoverished countries, we document a higher level of financial literacy in countries with higher levels of risk-taking but with lower levels of trust, positive reciprocity, and altruism. Countries' legal origin drives most of the association with risk-taking and about two fifths of the relationship with trust and positive reciprocity. At the same time, the country's religious composition drives the association between altruism and financial knowledge. Our findings underscore that financial education programs need to be tailored to the cultural aspect of group preferences and suggest what type of traits policies and programs ought to be reinforced in poorer countries. |
| Keywords: | financial literacy, preferences, and economic development |
| JEL: | D14 E2 I22 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14759&r= |
| By: | Kotaro Ishi; Mr. Takuji Komatsuzaki; Mr. Ippei Shibata; Suchanan Tambunlertchai; Jasmin Sin |
| Abstract: | This paper revisits the competitive environment of the banking system in Latin America and the Caribbean (LAC) and investigates the early impact of fintech development in the region thus far. Against the backdrop of high net interest margins (NIMs) and limited financial depth in the region, panel regressions broadly confirm results of existing literature on the association of NIMs with the changes in the financial sector structure, including market concentration, administrative costs, and foreign banks, although differences between domestic and foreign banks narrowed after the 2008-09 Global Financial Crisis. Difference-in-difference regressions and case studies on Brazil and Mexico suggest that fintech is associated with a reduction in NIMs and defensive responses by incumbent banks that benefit consumers. The case studies also shed light on regulatory approaches and prudential considerations in fostering financial innovation and banking sector competition. |
| Keywords: | banking sector competition; panel regression; net interest margins; market share; r p rotec tio n; Fintech; Commercial banks; Foreign banks; Competition; Real interest rates; Caribbean; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/114&r= |
| By: | Hisahiro Naito; Askar Ismailov; Albert Benson Kimaro |
| Abstract: | This study examines the effect of the use of mobile money services on borrowing and saving using data from Tanzania. We estimate the causal effect of the use of mobile money on borrowing, saving, and receiving remittances by applying a two-stage least squares estimation using the shortest distance to the border of the areas with multiple mobile networks, which is a proxy for accessibility to a mobile network, as an instrumental variable, while controlling for distance to financial institutions, population density of the residence, night light luminosity, and other important covariates. We find that when a household experiences a negative shock, mobile money non-users increase borrowing, while mobile money users do not. Further, the use of mobile money increases the probability of saving in mobile money savings accounts and receiving remittances, while it decreases the probability of saving in less liquid assets such as livestock. On the other hand, we find that the effect of the use of mobile money on receiving remittances is the same for those who experience a negative shock and those who do not. These results indicate that the use of mobile money increases the receipt of remittances regardless of negative shocks and changes the saving portfolio, allowing a household to prepare for negative shocks. Hence, a household that uses mobile money does not need to increase borrowing in the face of a negative shock. Consistent with this interpretation, we find that experiencing a negative shock does not decrease the livelihood of mobile money users, while it does reduce that of non-users. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:tsu:tewpjp:2021-002&r= |
| By: | Dyna Heng; Serey Chea; Bomakara Heng |
| Abstract: | Interest rate caps, despite their intended objective of broadening financial inclusion, can have undesirable effects on financial inclusion under certain conditions. This paper examines the effect of microfinance-loan interest rate caps on financial inclusion in Cambodia. Based on a difference-in-difference analysis on bank and microfinance supervisory data, results show some unintended impact on financial inclusion. The cap led to a significant increase in non-interest fees charged on new loans following the introduction of an annual cap. Microfinance borrowers declined immediately, amid an increase in credit growth, as microfinance institutions targeted larger borrowers at the expense of smaller ones. Microfinance institutions, responded differently to the cap, considering their own operation and funding costs, and client base. Two years after the cap, institutions resumed lending to a wider group of borrowers with lower funding and operation costs brought by mobile payment development. |
| Keywords: | Financial Inclusion, Interest Rate Caps, Banking Sector; microfinance borrower; microfinance-loan interest rate caps; operation cost; supervisory data; impact of interest rate cap; Loans; Interest rate ceilings; Microfinance; Financial inclusion; Credit; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/107&r= |
| By: | Cariappa, A. G. Adeeth; Sendhil, R |
| Keywords: | Agricultural Finance |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315221&r= |
| By: | Senou, Melain Modeste; Manda, Julius |
| Keywords: | Agricultural Finance, Labor and Human Capital |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315077&r= |
| By: | Arogundade, Sodiq; Hassan, Adewale; Bila, Santos |
| Abstract: | This study examines the impact of diaspora income on the ecological footprint of 22 countries African countries. Methodologically, we used the Driscoll-Kraay (1998) fixed-effect model, fixed effect instrumental variable regression, Machado and Silva (2019) panel quantile regression, and Dumitrescu and Hurlin (2012) causality test. There are four main important findings from this empirical study: (1) diaspora income has a negative and statistical impact on ecological degradation, (2) financial development plays a crucial role in mitigating the environmental impact of diaspora income, and African countries must achieve an annual estimated threshold of financial development before they could reap the environmental quality impact of diaspora income, (3) the role of financial development in reducing the environmental degradation impact of diaspora income is less for higher polluting countries in Africa, (4) unidirectional causality from diaspora income to ecological footprint. In ensuring a sustainable environment, we recommend that African governments provide a tax credit to the recipient of the diaspora income who invests in environment-friendly technologies. |
| Keywords: | Diaspora income, Driscoll-Kraay fixed-effect model, fixed effect instrumental variable regression, Machado and Silva (2019) MMQR, Dumitrescu and Hurlin (2012) causality test, Financial development, Ecological footprint, Africa |
| JEL: | F64 Q5 Q56 |
| Date: | 2021–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110819&r= |
| By: | Miss Mali Chivakul; Ms. Deniz O Igan; Sophia Chen; Mr. Philip Barrett |
| Abstract: | Using a new daily index of social unrest, we provide systematic evidence on the negative impact of social unrest on stock market performance. An average social unrest episode in an typical country causes a 1.4 percentage point drop in cumulative abnormal returns over a two-week event window. This drop is more pronounced for events that last longer and for events that happen in emerging markets. Stronger institutions, particularly better governance and more democratic systems, mitigate the adverse impact of social unrest on stock market returns. |
| Keywords: | Social unrest; stock markets; abnormal returns; event study; institutions; cumulative abnormal returns; market model; stock index; income group; market liberalization reform; Stocks; Income; Global; Asia and Pacific |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/079&r= |