|
on Financial Development and Growth |
| By: | Yusuf Kenan Bagir; Unal Seven |
| Abstract: | We study whether the linkage between financing and productivity growth strengthens as the severity of financial constraints increases by using firm-level administrative data from a large emerging economy. We also explore whether upstream firms’ financial constraints play a role in the linkage between finance and productivity. Using a combination of administrative databases of tax registry and firm-to-firm trade data of 896,317 Turkish firms from 2007 to 2018, employing various robustness tests and controlling for reverse causality, we find strong evidence that firms facing higher financial constraints exhibit a higher sensitivity of total factor productivity (TFP) growth to debt growth. Moreover, we show that a rise in upstream firms’ financial constraint level also leads to increased sensitivity of TFP growth to debt growth. Our results reveal important channels through which financial constraints could hinder productivity growth in Turkey. |
| Keywords: | TFP growth, Financial constraints, Debt growth |
| JEL: | D24 G30 O16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2132&r= |
| By: | Ibrahim Yarba |
| Abstract: | This study investigates the link between corporate indebtedness and investment by utilizing a novel firm-level data, which contains the universe of all incorporated manufacturing firms in Turkey over the last decade. The results of the panel regression model with multi-dimensional fixed effects provide significant evidence of an inverted-U relationship between indebtedness and investment, indicating that leverage increases investment up to a certain level, and after that further increase in leverage has an adverse impact on investment. This non-monotonic relationship is evident for all firm size groups. Conspicuously, the indebtedness level that becomes an impediment to investment is significantly lower for SMEs than large firms, which is in support of the arguments that small firms are more likely to be affected by debt overhang. Results also reveal that firms holding more cash can sustain higher level of debts without hurting investment activity. This is also the case for high capital-intensive firms and exporters. Findings of this paper highlight the importance of policies to make equity financing more attractive, incentivise the uptake and provision of equity capital from private investors, and deepen the capital markets. |
| Keywords: | Corporate debt, Firm investment; Cash policy; SMEs, Debt overhang |
| JEL: | C23 D22 E22 G31 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2131&r= |
| By: | H. Elif Ture |
| Abstract: | This paper revisits the stabilization role of public banks and analyzes whether weak public finances may hinder this role. During the global financial crisis (GFC), public banks were widely used to counter the private credit crunch and prop up the economy. Using cross-country bank-level data for 125 advanced and developing economies for 1999–2018, the paper finds public bank lending to be less procyclical than private bank lending on average, particularly during busts. A key result, however, is that in developing economies with high public debt levels, public bank lending has been more procyclical, particularly outside of the GFC period. This finding suggests high public debt can limit the stabilization role of public banks during domestic busts, likely reflecting higher financing costs public banks face and lower subsidies they receive in economies with tighter budget constraints. |
| Keywords: | Public banks;countercyclical lending;economic stabilization;high public debt;WP;public bank;bank lending;development bank;bank borrowing costs;doom loop |
| Date: | 2021–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/007&r= |
| By: | Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Elena Perazzi (Ecole Polytechnique Fédérale de Lausanne) |
| Abstract: | The impact of Central Bank Digital Currency (CBDC) is analyzed in a small open economy model with monopolistic competition in banking and where CBDC is an imperfect substitute with bank deposits. The design of CBDC is characterized by its interest rate, its substitutability with bank deposits, and its relative liquidity. We examine how interest-bearing CBDC would affect the banking sector, public finance, GDP and welfare. Welfare may improve through three channels: seigniorage; a lower opportunity cost of money; and a redistribution away from bank owners. In our numerical analysis we find a maximum welfare improvement of 60 bps in consumption terms. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2181&r= |
| By: | Lee, Keun |
| Abstract: | East Asian economies had shown remarkable performance of high growth and low inequality, thereby forming a separate East Asian capitalism group within the VoC typologies. There are strong signs that these economies have recently been converging to the LME group, featuring low growth and high inequality, features shared by East Asian economies since the 2000s. Financialisation is arguably one cause for these outcomes of low growth and high inequality. This paper re-evaluates East Asian capitalism in the context of the Covid-19 pandemic, which has suddenly halted globalisation and further questioned the superiority of shareholder capitalism associated with financialisation and globalisation. It proposes rebalancing between shareholder and stakeholder capitalism. By doing so, East Asian economies can be reborn as a hybrid capitalism, with East Asian capitalism at its original core, to restore their growth momentum in an inclusive way. It is also argued that the post-pandemic retreat of globalisation is a good opportunity to restore autonomy in domestic economic policymaking over interest rates and exchange rates, while imposing some adjustments over formerly excessive capital mobility. |
| Keywords: | East Asian model; globalization; Covid-19; shareholder capitalism; stake-holder capitalism. |
| JEL: | F32 F59 O16 O19 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110770&r= |
| By: | Bridges, Jonathan (Bank of England); Green, Georgina (Bank of England); Joy, Mark (Bank of England) |
| Abstract: | Using a panel dataset of 26 advanced economies over the five decades preceding the Covid crisis, we show that inequality rises following recessions and that rapid credit growth in the run up to a downturn exacerbates that effect. A one standard deviation credit boom leads to a 40% amplification of the distributional fallout in the bust that follows. These links between inequality, credit and downturns are particularly significant for recessions associated with financial crises. We also find some evidence that low bank capital ahead of a downturn amplifies the inequality increase that follows. These insights add a new dimension to policy cost-benefit analysis, at the distributional level. Newly established macroprudential regimes have been empowered with tools to safeguard financial stability by bolstering both lender and borrower resilience. Using those tools may have distributional effects, potentially limiting individual borrowing choices. Our findings make clear, however, that not using those tools can lead to distributional costs, in the event of an untamed crisis. |
| Keywords: | Recessions; local projections; inequality; macroprudential policy |
| JEL: | D63 G01 N10 |
| Date: | 2021–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0949&r= |
| By: | Olivier Godechot (Sciences Po - Sciences Po); Nils Neumann (Sciences Po - Sciences Po); Paula Apascaritei; István Boza; Martin Hällsten; Lasse Henriksen; Are Hermansen; Feng Hou; Jiwook Jung; Eunmi Melzer; Halil Mun; Matthew Sabanci; Max Soener; Naomi Kodama; Alena Křížková; Zoltán Lippényi; Elvira Marta; Silvia Melzer; Eunmi Mun; Halil Sabanci; Matthew Soener; Max Thaning |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03462501&r= |
| By: | Olivier Godechot (Sciences Po - Sciences Po); Nicolas Woloszko |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03462502&r= |
| By: | Lee, Seungcheol; Luetticke, Ralph; Ravn, Morten O. |
| Abstract: | We introduce frictional financial intermediation into a HANK model. Households are subject to idiosyncratic and aggregate risk and smooth consumption through savings and consumer loans intermediated by banks. The banking friction introduces an endogenous countercyclical spread between the interest rate on savings and on loans. This interacts with incomplete markets because borrowers and savers face different intertemporal prices, and induces a time-varying mass point of high MPC households. Aggregate shocks through their impact on the spread give rise to consumption inequality. We show this mechanism to be empirically relevant. Ex-ante macro prudential regulation reduces welfare by reducing consumption smoothing. JEL Classification: C11, D31, E32, E63 |
| Keywords: | business cycles, incomplete markets, macroprudential regulation, monetary policy, financial frictions |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212622&r= |
| By: | Mahdi Nezafat; Ctirad Slavik |
| Abstract: | We develop a production based asset pricing model with financially constrained firms to explain the observed high equity premium and low risk-free rate volatility. Investment opportunities are scarce and firms face productivity and liquidity shocks. A negative liquidity shock forces firms to liquidate a fraction of their assets. We calibrate the model to U.S. data and find that it generates an equity premium and a level and volatility of risk-free rate comparable to those observed in the data. The model also fits key aspects of the behavior of aggregate quantities, in particular, the volatility of aggregate consumption and investment. |
| Keywords: | general equilibrium; business cycles; production based asset pricing; equity premium and risk-free rate puzzles; |
| JEL: | E20 E32 G12 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp711&r= |
| By: | Ian Dew-Becker; Alireza Tahbaz-Salehi; Andrea Vedolin |
| Abstract: | This paper studies asymmetry in economic activity over the business cycle. It develops a tractable multisector model of the economy in which complementarity across inputs causes aggregate activity to be left skewed with countercyclical volatility. We then examine implications of the model regarding the time-series skewness of activity at the sector level, cyclicality of dispersion and skewness across sectors, and the conditional covariances of sector growth rates, finding support for each in the data. The empirical skewness of employment growth, industrial production growth, and stock returns increases with the level of aggregation, which is consistent with the model's implication that it is the nonlinearity in the production structure of the economy that generates the skewness. Other prominent models of asymmetry are not able to simultaneously match the range of empirical facts that the production network model can. |
| JEL: | E10 E23 E32 E44 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29499&r= |
| By: | Mr. Irineu E de Carvalho Filho; Hans Weisfeld; Fei Liu; Mr. Fabio Comelli; Mr. Andrea F Presbitero; Alexis Meyer-Cirkel; Mrs. Sandra V Lizarazo Ruiz; Klaus-Peter Hellwig; Rahul Giri; Chengyu Huang |
| Abstract: | In recent years, Fund staff has prepared cross-country analyses of macroeconomic vulnerabilities in low-income countries, focusing on the risk of sharp declines in economic growth and of debt distress. We discuss routes to broadening this focus by adding several macroeconomic and macrofinancial vulnerability concepts. The associated early warning systems draw on advances in predictive modeling. |
| Keywords: | Early warning systems; crisis prediction; machine learning; low-income countries; inflation crisis; stress episode; crisis concept; crisis probability; missed crisis; LIC inflation trend; Inflation; Banking crises; Commodity prices; Global |
| Date: | 2020–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2020/289&r= |
| By: | Kotaro Ishi; Carlo Pizzinelli; Tariq Khan |
| Abstract: | To complement the early warning signals literature, we study the determinants of banking and currency crises for small states and currency boards. Building on the crisis dataset by Laeven and Valencia (2020), we estimate a binominal logit model to identify the determinants of crises, and as a case study, we apply our models to the Eastern Caribbean Currency Union (ECCU). Our findings largely confirm past studies’ results that both external and domestic fundamentals matter in predicting crisis likelihood, but we find that small states and fixed exchange rate regimes are more sensitive to these fundamentals, compared to larger economies. Our empirical results also suggest that for currency board economies, keeping a high level of the foreign reserve cover—the “backing ratio” defined as official foreign reserves as a share of central bank demand liabilities—is critical to reduce the likelihood of both banking and currency crises. The backing ratio is particularly important during years of global economic downturn. |
| Keywords: | Banking crises, currency crises, early warning signals, currency boards, small states |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/276&r= |
| By: | Simon Gilchrist; Bin Wei; Vivian Z. Yue; Egon Zakrajšek |
| Abstract: | In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by over 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium – a measure of the risk-bearing capacity of U.S. financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds. |
| JEL: | E43 E44 F33 G12 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29501&r= |
| By: | Lennard, Jason; Kenny, Seán; Esteves, Rui |
| Abstract: | Default is as old as sovereign debt. Since 1820, sovereigns have spent 18% of time in a state of default. Despite the scale of the problem, the causes and consequences of defaults are still imperfectly understood. In this paper we quantify the aggregate cost of defaults, based on a sample of 50 sovereigns between 1870 and 2010. Since defaults are endogenous to the business cycle, we use the narrative approach to identify plausibly exogenous episodes. We find significant and persistent costs of defaults starting at 1.6% of GDP and peaking at 3.3% before recovering to the pre-crisis level after five years. Moreover, we identify a large heterogeneity of costs by the cause of default. Higher costs are associated with defaults initiated by negative supply shocks, political crises, or adverse terms of trade. In contrast, domestic demand shocks have a moderate effect that is quickly reversed. |
| JEL: | E32 F41 H63 N10 N20 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112784&r= |
| By: | Francisco Roldán |
| Abstract: | Sovereign debt crises coincide with deep recessions. I propose a model of sovereign debt that rationalizes large contractions in economic activity via an aggregate-demand amplification mechanism. The mechanism also sheds new light on the response of consumption to sovereign risk, which I document in the context of the Eurozone crisis. By explicitly separating the decisions of households and the government, I examine the interaction between sovereign risk and precautionary savings. When a default is likely, households anticipate its negative consequences and cut consumption for self-insurance reasons. Such shortages in aggregate spending worsen economic conditions through nominal wage rigidities and boost default incentives, restarting the vicious cycle. I calibrate the model to Spain in the 2000s and find that about half of the output contraction is caused by default risk. More generally, sovereign risk exacerbates volatility in consumption over time and across agents, creating large and unequal welfare costs even if default does not materialize. |
| Keywords: | Sovereign risk;default;heterogeneous agents;precautionary motives;aggregate demand;WP;default probability;government debt;debt price;default incentive;open economy |
| Date: | 2020–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2020/293&r= |
| By: | Philippe Bacchetta (University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Margaret Davenport (University of Lausanne); Eric van Wincoop (University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)) |
| Abstract: | Recently portfolio choice has become an important element of many DSGE open economy models. Yet, a substantial body of evidence is inconsistent with standard frictionless portfolio choice models. In this paper we introduce a quadratic cost of changes in portfolio allocation into a two-country DSGE model. We investigate the level of portfolio frictions most consistent with the data and the impact of portfolio frictions on asset prices and net capital flows. We find the portfolio friction accounts for (i) micro evidence of portfolio inertia by households, (ii) macro evidence of the price impact of financial shocks and related disconnect of asset prices from fundamentals, (iii) a broad set of moments related to the time series behavior of saving, investment and net capital flows, and (iv) other phenomena relating to excess return dynamics. Financial and saving shocks each account for close to half of the variance of net capital flows. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2180&r= |
| By: | Mr. Shanaka J Peiris; Miss Sanaa Nadeem; Mr. Pragyan Deb |
| Abstract: | Asian economies are increasingly integrated to the global economy through trade and financial linkages, exposing them to the international financial cycle. This paper explores how external shocks are transmitted to Asian economies and whether the use of policies, such as the monetary policy interest rate, foreign exchange intervention (FXI) and macroprudential measures (MPMs), can mitigate the impact of these external shocks. It uses panel quantile regressions on a sample of 14 Asian advanced and emerging economies (AEs and EMs) to assess the impact of financial and real shocks on investment and GDP growth at the median and 5th percentile tail. It finds that external financial shocks tend to have a larger effect on Asian economies than real shocks, and that the main transmission channels through which shocks are propagated are capital flows (particularly via corporate and bank balance sheets) for EMs, and credit for AEs. It also finds evidence that for Asian EMs, FXI may help dampen the capital flows and real exchange rate channels and mitigate financial shocks in the short run, and monetary policy transmission tends to be relatively weak; meanwhile MPMs can help mitigate the credit channel for both AEs and EMs. |
| Keywords: | Spillovers;international financial cycle;balance sheet;transmission channels;foreign exchange intervention;monetary policy;macroprudential measures;capital flows measures;WP;investment EMs;EM investment;transmission mechanism;exchange rate channel;EM growth |
| Date: | 2021–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/003&r= |
| By: | Pinchetti, Marco (Bank of England); Szczepaniak, Andrzej (Ghent University) |
| Abstract: | This paper sheds lights on the open economy dimension of the Fed information effect, by evaluating its international spillovers on exchange rates, capital flows, and global economic activity. We provide empirical evidence that in response to unexpected increases in the Federal Funds rate associated with Fed information shocks, the dollar depreciates instead of appreciating. We show that this phenomenon occurs because Fed announcements affect investors’ risk appetite. Expansionary Fed information shocks increase investors’ risk appetite and drive capital towards foreign markets in pursuit of higher yields. Conversely, contractionary Fed information shocks decrease investors’ risk appetite and drive capital towards safe-haven currencies, causing an appreciation of the dollar and safe-haven currencies vis-à-visforeign currencies. We provide evidence that the Fed information effect is associated with large spillovers onto global safe-haven currencies, risk premia, cross-border credit, and ultimately, on global economic activity. These findings highlight the presence of global spillovers of the Fed information effect. |
| Keywords: | Monetary policy; information effects; international spillovers; flight to quality; high-frequency identification; sign restrictions; bayesian VAR |
| JEL: | E52 F31 F32 F41 F44 |
| Date: | 2021–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0952&r= |
| By: | Santiago Camara |
| Abstract: | This paper quantifies the spillovers of US monetary policy in Emerging Market economies by exploiting the high-frequency movement of multiple financial assets around FOMC announcements. I show that identifying a US monetary policy tightening using only the high-frequency surprises of the Fed Funds Futures leads to puzzling dynamics: an economic expansion, an exchange rate appreciation and laxer financial conditions in Emerging Markets, in line with a recent literature. I challenge these results by using the identification methodology introduced by Jarocinski & Karadi (2020) which exploits both the high frequency movements of the FFF and the S&P 500. This methodology allows me to quantify the spillovers of two FOMC shocks: a pure US monetary policy and an information disclosure shock. On the one hand, a US tightening caused by a pure US monetary policy shock leads to an economic recession, an exchange rate depreciation and tighter financial conditions. On the other hand, a tightening of US monetary policy caused by the FOMC disclosing positive information about the state of the US economy is able to explain the recent puzzling dynamics. Augmenting the benchmark model with additional variables I show that the financial channel is the main propagation mechanism of US interest rates into Emerging Markets across the two FOMC shocks. Furthermore, the quantitative impact of these FOMC shocks depend on the Emerging Market's exchange rate regime and its dependency on commodity good exports. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.08631&r= |
| By: | Ms. Deniz O Igan; Mr. Gee Hee Hong; Do Lee |
| Abstract: | How does unconventional monetary policy affect corporate capital structure and investment decisions? We study the transmission channel of quantitative easing and its potential diminishing returns on investment from a corporate finance perspective. Using a rich bank-firm matched data of Japanese firms with information on corporate debt and investment, we study how firms adjust their capital structure in response to the changes in term premia. Investment responds positively to a reduction in the term premium on average. However, there is a significant degree of cross-sectional variation in firm response: healthier firms increase capital spending and cash holdings, while financially vulnerable firms take advantage of lower long-term yields to refinance without increasing investment. |
| Keywords: | Transmission of unconventional monetary policy;Quantitative easing;Reversal rate;Zombie firms;Corporate balance sheet;Term premium;Corporate investment;WP;zombie firm;firm level;capital structure;coverage ratio |
| Date: | 2021–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/044&r= |
| By: | Sophia Chen; Do Lee |
| Abstract: | We provide broad-based evidence of a firm size premium of total factor productivity (TFP) growth in Europe after the Global Financial Crisis. The TFP growth of smaller firms was more adversely affected and diverged from their larger counterparts after the crisis. The impact was progressively larger for medium, small, and micro firms relative to large firms. It was also disproportionally larger for firms with limited credit market access. Moreover, smaller firms were less likely to have access to safer banks: those that were better capitalized banks and with a presence in the credit default swap market. Horseraces suggest that firm size may be a more important and robust vulnerability indicator than balance sheet characteristics. Our results imply that the tightening of credit market conditions during the crisis, coupled with limited credit market access especially among micro, small, and medium firms, may have contributed to the large and persistent drop in aggregate TFP. |
| Keywords: | Credit constraint;Financial crisis;Firm size;Intangibles;Producvitity;SMEs;WP;TFP growth;creditor bank;size premium;credit market access;micro firm;vulnerability indicator |
| Date: | 2020–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2020/294&r= |
| By: | Bui, Anh Tuan; Pham, Linh Chi; Ta, Thi Khanh Van |
| Abstract: | Using firm-level data on 11,000 companies across seven countries in South Asia, this paper explores the effects of access to finance on employment growth and performance at the firm level. The paper focuses on how the impact of financing obstacles varies across firm sizes. The results show that higher obstacles in access to finance reduces employment growth and performance for firms of all sizes, especially micro and small firms. We find significant differences between firms with less than 10 employees and small firm, which suggests that significant reforms are needed to drive micro firm growth to small and medium enterprises. |
| Keywords: | Access to finance obstacles,employment growth,Total factor of productivity |
| JEL: | J21 J41 M51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:991&r= |
| By: | Bui, Anh Tuan; Pham, Linh Chi; Ta, Thi Khanh Van |
| Abstract: | This paper explores the impact of financial and legal obstacles that affect small and medium enterprises (SMEs) in middle-income East Asian countries by utilizing the most recent and unique dataset from the World Bank Enterprise Surveys. We particularly assess whether and at what level the effects on SMEs differ from those on large firms; We also examine how financial and institutional development levels contribute to firm performance. Our findings provide important guidance for regulators, including the authorities of middle-income nations, who seek to facilitate SMEs' development. |
| Keywords: | Sales Growth,Employment Growth,Financial Obstacles,Legal Obstacles |
| JEL: | G38 G01 G00 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:990&r= |
| By: | Yang, Yunfan |
| Keywords: | Consumer/Household Economics |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae21:315392&r= |
| By: | E Philip Davis; Ka Kei Chan; Dilruba Karim |
| Abstract: | Studies of the effect of macroprudential policy on bank risk tend to disregard the potential complementary role of bank competition, which could influence policy's effectiveness in achieving its financial stability objectives. Accordingly, we assess the relation of macroprudential policy and competition to bank risk jointly from a sample of 1373 banks from 13 East Asian countries, using the latest IMF dataset of macroprudential policy from 1990 to 2018. Among our results, we have found that whereas macroprudential policies did commonly have a beneficial effect on risk at a bank level controlling for competition, there are a number of cases where policies were deleterious through increased risk. Notably in the developing and emerging East Asian countries and in the short term, the interactions between competition and macroprudential measures often show a lesser response in terms of risk reduction for banks with more market power, a form of "competition-stability". We suggest that this links in turn to ability of such banks to undertake risk-shifting in response to macroprudential policy. On the other hand, we find for banks in advanced East Asian countries some tendency in the long term for banks facing intense competition to take relatively more risks in face of macroprudential measures, i.e. "competition fragility". These findings provide important implications for regulators. |
| Keywords: | Macroprudential policy, bank risk, Z score, bank competition |
| JEL: | E44 E58 G17 G28 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:533&r= |
| By: | Miss Estelle X Liu |
| Abstract: | The latest advancement in financial technology has posed unprecedented challenges for incumbent banks. This paper analyzes the implications of these challenges on bank competitveness, and explores the factors that could support digital advancement in banks. The analysis shows that the traditionally leading role of banks in advancing financial technology has diminished in recent years, and suggests that onoing efforts to catch up to the digital frontier could lead to a more concentrated banking industry, as smaller and less tech-savvy banks struggle to survive. Cross-country evidence has suggested that banks in high-income economies appear to have been the digital leaders, likely benefiting from a sound digital infrastructure, a strong legal and business environment, and healthy competition. Nonetheless, some digital leaders may fall behind in the coming years in adopting newer technologies due to entrenched consumer behavior favoring older technologies, less active fintech and bigtech companies, and weak bank balance sheets. |
| Keywords: | Banks;WP;bank digitalization;digitalization progress;bank service digitalization;bank characteristic;bank competitiveness; Digitalization; bank concentration; bank condition; bank firm; Emerging technologies; Financial sector development; Global |
| Date: | 2021–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/046&r= |
| By: | Elikplimi K. Agbloyor (University of Ghana, Legon, Ghana); Simplice A. Asongu (Yaoundé, Cameroon); Peter Muriu (University of Nairobi, Kenya) |
| Abstract: | This study provides insights into the sustainability of microfinance institutions (MFIs) in Africa with specific emphasis on documented measures of MFI sustainability, stylized facts surrounding the phenomenon, perspectives on the growth of MFIs, determinants of the growth of MFIs and the impact of MFIs. |
| Keywords: | Sustainability; Growth; MFIs; Africa |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/083&r= |
| By: | Copelovitch, Mark; Rickard, Stephanie |
| Abstract: | International organizations make policy decisions that affect the lives of people around the world. We argue that these decisions depend, in part, on the political ideology of the organization's chief executive. In this study, we investigate the influence of the leader of one of the most powerful international organizations: the Managing Director of the International Monetary Fund (IMF). We find that when the Managing Director is politically left of center, the IMF requires less labor market liberalization from borrowing countries in exchange for a loan. We also find evidence suggesting that the Managing Director's influence on labor-related loan conditions is independent of the Fund's most powerful members, including the United States. While Managing Directors rarely engage in overtly political behavior, they appear to act as “partisan technocrats” whose ideology influences international financial rescues and specifically the conditions attached to countries’ loans, which shape the distributive consequences of IMF lending. |
| Keywords: | OUP deal |
| JEL: | J50 |
| Date: | 2021–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112215&r= |
| By: | Dávila, Eduardo; Walther, Ansgar |
| Abstract: | This paper studies leverage regulation and monetary policy when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal leverage regulation responds to arbitrary changes in investors’ and creditors’ beliefs and relate our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors and creditors, calls for tighter leverage regulation. Monetary policy should be tightened (loosened) in response to either investors’ or creditors’ optimism (pessimism). JEL Classification: G28, G21, E61, E52 |
| Keywords: | bailouts, distorted beliefs, leverage regulation, monetary policy, prudential policy |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021130&r= |
| By: | Mr. Itai Agur |
| Abstract: | The deferred recognition of COVID-induced losses at banks in many countries has reignited the debate on regulatory forbearance. This paper presents a model where the public's own political pressure drives regulatory policy astray, because the public is poorly informed. Using probabilistic game stages, the model parameterizes how time consistent policy is. The interaction between political motivations and time consistency is novel and complex: increased policy credibility can entice the politically-motivated regulator to act in the public's best interest, or instead repel it from doing so. Considering several regulatory instruments, the paper probes the nexus of political pressure, perverse bank incentives and time inconsistent policy. |
| Keywords: | Time inconsistency;Political economy;Financial stability;Bank regulation.;WP;risk profile;bank risk;bank insolvency;bank owner |
| Date: | 2021–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/001&r= |
| By: | Mr. Johannes Wiegand |
| Abstract: | Climate financing and compensation have emerged as key themes in the international climate mitigtion debate. According to one argument in support of compensation, advanced economies (AEs) have used up much of the atmosphere’s absorptive capacity, thus causing global warming and blocking a similar, fossil-fuel driven development path for emerging markets and developing economies (EMDEs). This paper develops a simple model of a sequential, fossil-fuel driven development process to discuss these issues systematically. The results suggest: (i) AEs have typically a stronger interest in climate change mitigation than EMDEs, (ii) from an equity perspective, compensation is called for only if EMDEs are relatively small; (iii) there can also be an efficiency case for compensation, however, with AEs buying EMDEs out of some of their GHG emissions; (iv) ultimately, a superior option—for both the world’s climate and growth prospects—is the development of clean energy technologies by AEs and their transfer to EMDEs. The latter requires strong mitigation efforts by AEs even if EMDEs fail to play along initially. |
| Keywords: | Development, Climate Change, Climate Change Mitigation, Climate Financing |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/280&r= |
| By: | International Monetary Fund |
| Abstract: | Are assets in a landlocked country subject to sea-level rise risk? In this paper, we study the cross-border spillovers of physical climate risks through international trade and supply chain linkages. As we base our findings on historical data between 1970 and 2018, we observe that globalization increased the similarity of countries’ global climate risk exposures. Exposures to foreign climatic disasters in major trade partner countries (both upstream and downstream) lower the home-country stock market valuation for the aggregate market and for the tradable sectors. We also find that exposures to foreign long-term climate change risks reduce the asset price valuations of the tradable sectors at home. Findings in this paper suggest that climate adaptation efforts in a country can have positive externalities on other countries’ macrofinancial performance and stability through international trade. |
| Keywords: | climate risk;financial spillover;supply chain;financial stability;WP;risk exposure;disaster damage;spillover index;exposure measure;assets ratio;expected return; Climate change; Stock markets; Foreign currency exposure; Financial sector; Natural disasters; Global |
| Date: | 2021–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/013&r= |