nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒03‒07
twenty-six papers chosen by
Georg Man

  1. Are Financial Development and Financial Stability Complements or Substitutes in Poverty Reduction? By Singh, Sunny; Jha, Chandan
  2. Be Nice to thy Neighbours: Spatial impact of Foreign Direct Investment on Poverty in Africa By Arogundade, Sodiq
  3. Poverty, wealth inequality, and financial inclusion among castes in Hindu and Muslim communities in Uttar Pradesh, India By Tiwari, Chhavi; Goli, Srinivas; Siddiqui, Mohammad Zahid; Salve, Pradeep
  4. Digital finance, development and climate change By Sébastien GALANTI; Ҫiğdem Yilmaz ӦZSOY
  5. The rise of digital finance: Financial inclusion or debt trap By Pengpeng Yue; Aslihan Gizem Korkmaz; Zhichao Yin; Haigang Zhou
  6. Financing the economy in debt times: the crucial role of public-private partnerships By Yawovi Mawussé Isaac Amedanou
  7. Fiscal rules and international financial market access By Pegdéwendé Nestor Sawadogo
  8. How giant discoveries of natural resources impact sovereign debt ratings in developing and emerging countries ? By Regina Seri
  9. Estimating growth at risk with skewed stochastic volatility models By Wolf, Elias
  10. Predicting Default Probabilities for Stress Tests: A Comparison of Models By Martin Guth
  11. Dynamic Mixture Vector Autoregressions with Score-Driven Weights By Alexander Georges Gretener; Matthias Neuenkirch; Dennis Umlandt
  12. Global production linkages and stock market co-movement By Raphael Auer; Bruce Muneaki Iwadate; Andreas Schrimpf; Alexander F. Wagner
  13. Detecting and Measuring Financial Cycles in Heterogeneous Agents Models: An Empirical Analysis By Filippo Gusella
  14. Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms By Andrea Ajello; Nina Boyarchenko; François Gourio; Andrea Tambalotti
  15. Heterogeneous Effect of Uncertainty on Corporate Investment: Evidence from Listed Firms in the Republic of Korea By Kim, Cheonkoo; Park, Jungsoo; Park, Donghyun; Tian, Shu
  17. Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy By Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto
  18. Prudential Regulation and Bank Efficiency : Evidence from WAEMU Zone By Said-Nour Samake
  19. Capital flows and institutions By Deniz Igan; Alexandre R. Lauwers; Damien Puy
  20. Exorbitant privilege? Quantitative easing and the bond market subsidy of prospective fallen angels By Viral V Acharya; Ryan Niladri; Matteo Crosignani; Tim Eisert; Renée Spigt
  21. Financialisation as a (it’s-not-meant-to-make-sense) gigantic global joke By Palma, J. G.
  22. From exit to control: The structural power of finance under asset manager capitalism By Braun, Benjamin
  23. Zombie-Lending in the United States -- Prevalence versus Relevance By Maximilian G\"obel; Nuno Tavares
  24. ESG activity and bank lending during financial crises By Gamze Danisman; Amine Tarazi
  25. Determining the economic impact of cryptocurrency adoption on international trade from a gravity model framework By Chen, Eric R.
  26. The Emerging Autonomy–Stability Choice for Stablecoins By Maarten van Oordt

  1. By: Singh, Sunny; Jha, Chandan
    Abstract: This paper studies the association between financial development, financial stability, and poverty for a sample of 136 developed and developing countries over the period 1995-2018. Most of the existing studies in this literature have focused on financial development. Few recent studies have looked at the effects of financial stability. However, none of the existing studies has looked at the interaction effect of the two on poverty. Our contribution to this literature is manifold. First and foremost, we investigate whether financial development and financial stability are substitutes or complement in reducing poverty and find evidence in favour of the former: financial development has greater effects on poverty alleviation in a more fragile financial system and vice-versa. Second, using two different measures of financial stability, we show that financial stability is associated with lower levels of poverty. And, finally, while previous studies have presumed that the effect of financial development on poverty is homogeneous at various levels of poverty, we show that financial development and financial stability both have heterogeneous effects on poverty depending on the level of poverty considered.
    Keywords: Financial Development; Financial Stability; Poverty Gap Ratio; Panel Quantile Regression
    JEL: G20 I30 O1 O11
    Date: 2021–10–20
  2. By: Arogundade, Sodiq
    Abstract: This study examines the spatial impact of FDI on the poverty of 44 African countries. In achieving this, the study uses the Driscoll-Kraay fixed effect instrumental variable regression, instrumental variable generalised method of moments estimator (IV-GMM), and the spatial durbin model. The empirical investigation of this study yielded four significant findings: (1) neighbouring countries’ FDI has a positive and significant impact on the incidence and intensity of host country’s poverty. (2) Improved institutional quality in neighbouring countries has a significant impact on FDI-poverty reduction nexus of the host country. (3) the empirical results lend support for a significant spatial spillover of poverty in the region. (4) the marginal effect results indicate that countries within the region are no longer in isolation or independent, i.e., the level of poverty in a particular country is influenced by its determinants in the neighbouring country. This result is robust to the alternative proximity matrix, which is the inverse distance. Since there is spatial interdependence among African countries, we recommend that African governments through the African Union (AU) should not only champion the institutional reform in the region, but also establish a binding mechanism to ensure reform implementation.
    Keywords: FDI, Driscoll-Kraay fixed effect instrumental variable regression, IV-GMM, Spatial Durbin Model, Poverty, Institutional quality, Africa
    JEL: F00 F3 F30 P0 P00
    Date: 2021–12–08
  3. By: Tiwari, Chhavi; Goli, Srinivas; Siddiqui, Mohammad Zahid; Salve, Pradeep
    Abstract: This study estimates poverty, wealth inequality, and financial inclusion, for the first time, at the sub-caste level in both Hindus and Muslims using a unique survey data collected from 7124 households in Uttar Pradesh, India, during 2014-2015. The results confirm the existing hypothesis that Brahmins, Thakurs, and other Hindu general castes have higher wealth accumulation, lower poverty, and lesser exclusion from formal financial services than Dalits. Exclusion from formal financial services forces Dalits to depend primarily on informal financial sources for borrowing—which leads to financial misfortune and further dragging them into a vicious cycle of poverty.
    Date: 2022–01–04
  4. By: Sébastien GALANTI; Ҫiğdem Yilmaz ӦZSOY
    Keywords: , , CO2, climate change, economic development, growth, Africa, energy, digital finance, mobile money, cryptocurrency
    Date: 2022
  5. By: Pengpeng Yue; Aslihan Gizem Korkmaz; Zhichao Yin; Haigang Zhou
    Abstract: This study focuses on the impact of digital finance on households. While digital finance has brought financial inclusion, it has also increased the risk of households falling into a debt trap. We provide evidence that supports this notion and explain the channel through which digital finance increases the likelihood of financial distress. Our results show that the widespread use of digital finance increases credit market participation. The broadened access to credit markets increases household consumption by changing the marginal propensity to consume. However, the easier access to credit markets also increases the risk of households falling into a debt trap.
    Date: 2022–01
  6. By: Yawovi Mawussé Isaac Amedanou (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper aims to show that there is a great interest for countries to rely on Public-Private Partnerships (PPPs) as a tool for financing the economy, especially in times of debt. First, we conceptualize through game theory a better risk management between the public and private sectors in case of co-investment. Second, building on Iossa & Martimort (2009), we demonstrate that PPPs investments produce greater economic and social gains than pure public investments by providing incentives and transferring risks to the private sector. The implications of the model are diverse: financing the provision of public infrastructure through PPPs allows for sharing the associated risks, improves the quality and reduce the costs of the provision of public goods. The model has been empirically tested on 14 Sub-Saharan African countries over the period 1990 − 2017. The impact of PPP investments is significantly higher than that of pure public investments. The evidence also shows that the positive impact of PPP investments strengthens economic growth as the public debt grows to a point where there is no longer any significant pro-growth impact.
    Keywords: Public-private partnership,Pure public investment,Cooperatie game,Risk management,Economic growth,Public debt,Fiscal constraints
    Date: 2022–01
  7. By: Pegdéwendé Nestor Sawadogo (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Fiscal policy is a powerful instrument to regulate the economic activity in order to address many development challenges and promote sound macroeconomic conditions in developing countries. A large literature examines the role of fiscal rules in improving fiscal outcomes. Fiscal rules impose numerical limits on budgetary aggregates. However, few studies investigate the link between fiscal rules and financial market access. This paper aims to explore the effects of various types of fiscal rules and their interactions on financial market access in developing countries. Our findings confirm that the adoption of fiscal rules is an instrument for policy makers to improve developing countries' financial market access.
    Abstract: La politique budgétaire est un instrument puissant pour réguler l'activité économique afin de faire face aux nombreux défis de développement et promouvoir des conditions macroéconomiques saines dans les pays en développement. Une vaste littérature examine le rôle de l'adoption des règles budgétaires dans l'amélioration des performances budgétaires. On entend par règles budgétaires des contraintes numériques sur les agrégats comme le déficit ou la dette publique. Cependant, très peu d'études ont exploré le lien entre l'adoption de règles budgétaires et l'accès aux marchés financiers internationaux. Cet article entend explorer à la fois les effets de l'adoption de différents types de règles budgétaires ainsi que leurs interactions sur l'accès aux marchés financiers par les pays en développement. Nos résultats montrent que l'adoption et la bonne mise en œuvre des règles budgétaires est un instrument permettant un meilleur accès aux marchés financiers internationaux.
    Keywords: Règles fiscales
    Date: 2020–06
  8. By: Regina Seri (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper sheds light on the effects of giant discoveries of natural resources (oil natural gas, minerals) on sovereign debt ratings in the short and long run. To do so, it employs 28 developing and emerging countries over the period 1990-2014 and applies a random effect ordered Probit model on different sets of samples. It shows evidence of the differentiated effects (positive and negative) of giant discoveries on ratings. These differentiated effects are linked to the behavior of macroeconomic and political indicators resulting from the actions and policies taken in the aftermath of the discoveries. It also finds evidence of the learning effects of giant discoveries in countries with increasing sovereign debt ratings. What seems to matter is not only the resources but also how governments respond to the news of the discovery of those resources. Therefore, taking the right actions and policies will help countries to prevent a deterioration of their financial conditions.
    Keywords: Giant discoveries,Natural resources,Sovereign debt ratings,Developing countries,Random effect ordered response models
    Date: 2021–02
  9. By: Wolf, Elias
    Abstract: This paper proposes a Skewed Stochastic Volatility (SSV) model to model time varying, asymmetric forecast distributions to estimate Growth at Risk as introduced in Adrian, Boyarchenko, and Giannone's (2019) seminal paper "Vulnerable Growth". In contrary to their semi-parametric approach, the SSV model enables researchers to capture the evolution of the densities parametrically to conduct statistical tests and compare different models. The SSV-model forms a non-linear, non-gaussian state space model that can be estimated using Particle Filtering and MCMC algorithms. To remedy drawbacks of standard Bootstrap Particle Filters, I modify the Tempered Particle Filter of Herbst and Schorfheide's (2019) to account for stochastic volatility and asymmetric measurement densities. Estimating the model based on US data yields conditional forecast densities that closely resemble the findings by Adrian et al. (2019). Exploiting the advantages of the proposed model, I find that the estimated parameter values for the effect of financial conditions on the variance and skewness of the conditional distributions are statistically significant and in line with the intuition of the results found in the existing literature.
    Keywords: Growth at Risk,Macro Finance,Bayesian Econometrics,Particle Filters
    JEL: C10 E32 E58 G01
    Date: 2022
  10. By: Martin Guth
    Abstract: Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is the translation of macroeconomic variables into default probabilities for credit risk by using macrofinancial linkage models. A key requirement for such models is that they should be able to properly detect signals from a wide array of macroeconomic variables in combination with a mostly short data sample. The aim of this paper is to compare a great number of different regression models to find the best performing credit risk model. We set up an estimation framework that allows us to systematically estimate and evaluate a large set of models within the same environment. Our results indicate that there are indeed better performing models than the current state-of-the-art model. Moreover, our comparison sheds light on other potential credit risk models, specifically highlighting the advantages of machine learning models and forecast combinations.
    Date: 2022–02
  11. By: Alexander Georges Gretener; Matthias Neuenkirch; Dennis Umlandt
    Abstract: We propose a novel dynamic mixture vector autoregressive (VAR) model in which time-varying mixture weights are driven by the predictive likelihood score. Intuitively, the state weight of the k-th component VAR model in the subsequent period is increased if the current observation is more likely to be drawn from this particular state. The model is not limited to a specific distributional assumption and allows for straightforward likelihood-based estimation and inference. We conduct a Monte Carlo study and find that the score-driven mixture VAR model is able to adequately filter the mixture dynamics from a variety of different data generating processes which most other observation-driven dynamic mixture VAR models cannot appropriately cope with. Finally, we illustrate our approach by an application where we model the conditional joint distribution of economic and financial conditions and derive generalized impulse responses.
    Keywords: Dynamic Mixture Models; Generalized Autoregressive Score Models; Macro-Financial Linkages; Nonlinear VAR
    JEL: C32 C34 G17
    Date: 2022
  12. By: Raphael Auer; Bruce Muneaki Iwadate; Andreas Schrimpf; Alexander F. Wagner
    Abstract: Although real integration conceptually plays an important role for the comovement of international equity markets, documenting this link empirically has proven challenging. We construct a new dataset of theory-guided, relevant measures of bilateral trade in final and intermediate goods and services. With these measures, we provide evidence of a strong link between changes in real integration – in particular global value chains – and equity market comovement. This also holds when controlling for financial openness and other factors that could confound the role of real openness. These results suggest that supply chain disruptions, for instance due to political tensions and the COVID-19 crisis, might also affect the interconnections between stock markets via rippling through the global production network.
    Keywords: financial integration, global value chains, international asset pricing, international trade, real integration, spillovers, stock market comovement, supply chains.
    JEL: F10 F36 F65 G10 G12 G15
    Date: 2022–02
  13. By: Filippo Gusella
    Abstract: This paper proposes a macroeconometric analysis to depict and measure possible financial cycles that emerge due to the dynamic interaction between heterogeneous market participants. We consider 2-type heterogeneous speculative agents: Trend followers tend to follow the price trend while contrarians go against the wind. As agents' beliefs are unobserved variables, we construct a state-space model where heuristics are considered as unobserved state components and from which the conditions for endogenous cycles can be mathematically derived and empirically tested. Further, we specifically measure the length of endogenous financial cycles. The model is estimated using the equity price index for the 1960–2020 period for the UK, France, Germany, and the USA. We find empirical evidence of endogenous financial cycles for all four countries, with the highest frequencies in the USA and the UK.
    Keywords: Heterogeneous Agent Models, Heterogeneous Expectations, Endogenous Cycles, State Space Model, Period of Cycles
    JEL: C13 C32 G10 G12 E32
    Date: 2022
  14. By: Andrea Ajello; Nina Boyarchenko; François Gourio; Andrea Tambalotti
    Abstract: This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit provision, lowers asset prices, and depresses economic activity and inflation. Finally, monetary policy may affect the buildup of vulnerabilities, but the sign of the impact along some of its transmission channels is theoretically ambiguous and may vary with the state of the economy.
    Keywords: Monetary policy; Asset prices; Financial stability; Financial crises; Credit; Leverage; Liquidity
    JEL: E44 E52 E58 G20
    Date: 2022–02–15
  15. By: Kim, Cheonkoo (Korea Chamber of Commerce and Industry); Park, Jungsoo (Sogang University); Park, Donghyun (Asian Development Bank); Tian, Shu (Asian Development Bank)
    Abstract: In this paper, we analyze the effect of financial uncertainty on corporate investment using firm-level panel data from the Republic of Korea. We find that financial uncertainty has a significant negative effect on corporate investment, and that the effect is heterogeneous across firms of different sizes. Small firms and large firms are more exposed to the negative effect of uncertainty than are medium-sized firms. The negative effect of uncertainty on large firms slightly declined after the global financial crisis, but it increased for small and medium-sized enterprises (SMEs). Financial constraints and investment irreversibility amplify the negative effect of uncertainty. The inverted U-shaped curve of the uncertainty effect along the firm-size spectrum can be understood as follows: Small firms are more financially constrained and large firms’ investments are more irreversible in nature. Lastly, contrary to widespread belief, uncertainty has waned since 1990, dampening the trend of declining investment ratios. To counter the negative effect of uncertainty on SMEs, policies need to be directed toward the development of capital markets and bond markets for SMEs. Furthermore, SME policies should be redirected to target competitiveness, not protection.
    Keywords: uncertainty; corporate investment; financial constraints; investment irreversibility
    JEL: E22 G31
    Date: 2022–02–21
  16. By: Arnita Rishanty (Bank Indonesia Institute, Bank Indonesia); Sekar Utami Setiastuti (Department of Economics, Universitas Gadjah Mada.); Nur M. Adhi Purwanto (Bank Indonesia)
    Abstract: This study aims to develop an environmental dynamic stochastic general equilibrium (E-DSGE) model with heterogeneous production sectors and evaluate possible central bank and fiscal policies towards green and sustainable production. We estimate the model for the Indonesian economy and assess the effects of macroeconomic uncertainty in terms of productivity, monetary, macroprudential, fiscal policy, and financial shocks in a setup that includes policies supporting green firms. We find that aggregate output, consumption, and investment react negatively to a positive monetary policy and government spending shock. Further, we show that emission tax may dampen the contraction of green output due to contractionary monetary and fiscal policy. The effect of green financing subsidy, however, looks trivial
    Keywords: DSGE model, Bayesian estimation, Monetary policy, Fiscal policy, Environ- mental policy
    JEL: E32 E50 Q58
  17. By: Andrea Fabiani; Martha López Piñeros; José-Luis Peydró; Paul E. Soto
    Abstract: We study how capital controls and domestic macroprudential policy tame credit supply booms, respectively targeting foreign and domestic bank debt. For identification, we exploit the simultaneous introduction of capital controls on foreign exchange (FX) debt inflows and an increase of reserve requirements on domestic bank deposits in Colombia during a strong credit boom, as well as credit registry and bank balance sheet data. Our results suggest that first, an increase in the local monetary policy rate, raising the interest rate spread with the United States, allows more FX-indebted banks to carry trade cheap FX funds with more expensive peso lending, especially toward riskier, opaque firms. Capital controls tax FX debt and break the carry trade. Second, the increase in reserve requirements on domestic deposits directly reduces credit supply, and more so for riskier, opaque firms, rather than enhances the transmission of monetary rates on credit supply. Importantly, different banks finance credit in the boom with either domestic or foreign (FX) financing. Hence, capital controls and domestic macroprudential policy complementarily mitigate the boom and the associated risk-taking through two distinct channels.
    Keywords: Capital controls; macroprudential and monetary policy; carry trade; credit supply; risk-taking
    JEL: E52 E58 F34 F38 G21 G28
    Date: 2022–02
  18. By: Said-Nour Samake (UB - Université de Bordeaux)
    Abstract: This paper aims to analyze the impact of prudential regulation on banking efficiency in the West African Economic and Monetary Union (WAEMU). Using system GMM estimator and panel data from 98 banks in WAEMU zone, we find that prudential regulation related to (i) Loan loss provisions (LLPR) positively affect banking efficiency. While (ii) Capital requirements (CAP); (iii) Liquidity requirements (LIQ); (iv) Loan restrictions (LOANR) and (v) Limits on leverage (LLV) negatively influence banking efficiency in the WAEMU zone. Moreover, we find that small and low-risk banks benefit in terms of efficiency, from stringent prudential regulation, while high-risk banks and large banks are the main losers. Similarly, we also find that, in the face of strict prudential regulation, government and domestic banks are inefficient, while the efficiency of foreign and privately managed banks improves. Overall, our findings support the idea that prudential regulation must be well calibrated and adapted to the specific characteristics of banks so that it does not impede banking efficiency and the proper functioning of the banking system, but also, by the same token, financial stability in the WAEMU zone.
    Keywords: Risk,Financial stability,Banks,Efficiency,Prudential regulation,WAEMU,CBWAS
    Date: 2022–01–23
  19. By: Deniz Igan; Alexandre R. Lauwers; Damien Puy
    Abstract: Does foreign capital improve the quality of domestic institutions? Consistent with an institutional quality channel of capital flows, we show that industries that are more dependent on "good" institutions to operate grow more than others after foreign capital flows into the private sector. The effects are stronger in countries that are further away from the institutional frontier (e.g., emerging markets), but they disappear and even turn negative in countries with very low initial institutional quality, suggesting that foreign capital inflows can exacerbate the ex-ante institutional deficit. We also find that institution-dependent industries grow less when capital flows to the official sector. Our findings support the view that foreign investors can be, under certain conditions, a catalyst for institutional reform and that the relaxation of government budget constraints generally weakens structural reform incentives.
    Keywords: capital flows, institutions, manufacturing, institutional dependence.
    JEL: F33 F60 G15 E02 O43
    Date: 2022–01
  20. By: Viral V Acharya; Ryan Niladri; Matteo Crosignani; Tim Eisert; Renée Spigt
    Abstract: We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels – risky firms just above the IG rating cutoff – enjoyed subsidised bond financing since 2009, especially when the scale of QE purchases peaked and from IG-focused investors that held more securities purchased in QE programs. The benefiting firms used this privilege to fund risky acquisitions and increase market share, exploiting the reluctance of credit rating agencies to downgrade post-M&A and adversely affecting competitors' employment and investment. Eventually, these firms suffered more severe downgrades at the onset of the pandemic.
    Keywords: corporate bond market, investment-grade bonds, large-scale asset purchases (LSAP), credit ratings, credit ratings inflation.
    JEL: E31 E44 G21
    Date: 2022–02
  21. By: Palma, J. G.
    Abstract: This paper analyses events in financial markets since the 2008 financial crisis in both the developed and the developing worlds, giving especial attention to the processes of ‘financialisation’; that is, to the combined effect of the growing size and dominance of the financial sector relative to the non-financial sector, and the diversification towards financial activities in non-financial corporations. The main conclusion is that we are paying the price (and a huge one) for two related phenomena; one belongs to the realm of ideology and knowledge, the other to ‘power play’.
    Keywords: manias, panics, financialisation, QE, excess liquidity, ‘disconnect’ between the financial and the real worlds, emerging markets, Latin America, Asia, Keynes, Kindleberger, Minsky, Buchanan
    JEL: E22 D70 D81 E51 F02 F21 F32 F40 F63 G15 G20 G30 L51 N20 O16
    Date: 2022–02–11
  22. By: Braun, Benjamin
    Abstract: Political economists have theorized the structural power of finance as a function of the scarcity of financial capital, which empowers its owners and intermediaries to (threaten) exit. This theory has trouble explaining the non-death of the rentier at a time when financial capital is abundant and lacks a credible exit option. This paper presents a theory updated for a world characterized by financial capital abundance, and by a shift in the predominant function of finance from banking to asset management. Today, asset managers pool financial capital on a scale that often puts them in a position of (near) control, while also maintaining a high degree of portfolio diversification. This defining feature of asset manager capitalism, although observable across asset classes, is most pronounced in the corporate economy. Whereas the control-based dominance of finance capital during the early 20th century was characterized by credit-debt relationships between banks and corporations, today asset managers’ equity holdings dominate; and whereas the shareholder capitalism of the late 20th century was characterized by impatient investors wielding the threat of exit, the power of asset managers in corporate governance is based on their large and illiquid, yet fully diversified shareholdings. Theorizing the structural power of finance as based on control and diversification helps explain both the rentier’s longevity and asset managers’ contribution to that outcome.
    Date: 2021–10–12
  23. By: Maximilian G\"obel; Nuno Tavares
    Abstract: Extraordinary fiscal and monetary interventions in response to the COVID-19 pandemic have revived concerns about zombie prevalence in advanced economies. The literature has already linked this phenomenon - observed over the course of the last two decades - to impeding the performance of healthy firms in Japan and Europe. To make the case for the United States, we analyze banks' and capital markets' zombie-lending practices on the basis of a sample of publicly listed U.S. companies. Our results suggest that zombie prevalence and zombie-lending per se are not a defining characteristic of the U.S. economy. Nevertheless, we find evidence for negative spillovers of zombie-lending on productivity, capital-growth, and employment-growth of non-zombies as well as on overall business dynamism. It is predominantly the class of healthy small- and medium-sized companies that is sensitive to zombie-lending activities, with financial constraints further amplifying these effects.
    Date: 2022–01
  24. By: Gamze Danisman (Faculty of Economics, Administrative and Social Sciences, Kadir Has University, Turkey); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: This paper explores how banks' environmental, social, and governance (ESG) activities affect their lending during financial crises. We use a sample of 83 listed banks from 20 European countries for the 2002-2020 period and consider the global financial crisis of 2007-2009 and the European sovereign debt crisis of 2010-2012. We implement two-step system GMM dynamic panel data estimation techniques. We also address potential endogeneity issues using instrumental variables (IV) and two-stage least squares (2SLS) estimations by instrumenting ESG activity with board gender diversity. We find that lending falls to a lesser extent for banks with higher ESG scores during crisis times. Looking at the different potential channels shows that, during crises, banks more engaged in ESG activities are less affected in terms of credit and asset risk, and profitability. They also face a lower reduction in market funding, allowing them to downsize to a lesser extent during crises, and their deposit rates do not increase as much as in less ESG-engaged banks. Going deeper reveals that our findings are mainly driven by the environmental pillar component of ESG scores.
    Keywords: Environmental Social Governance (ESG) scores,Bank Lending,Bank Risk,Environmental pillar,Financial Crisis,European banks
    Date: 2022–01–28
  25. By: Chen, Eric R.
    Abstract: As cryptocurrencies develop and circulate at greater rates, countries have appeared to consider the technology as an adoptable medium of exchange. By expanding the influence of cryptocurrencies through adoption, countries raise its impact on the global economy. This paper is the first to apply an augmented version of the gravity model to examine the effects of global cryptocurrency adoption on international trade. This empirical study involves aggregating datasets on U.S. bilateral trade flows, gravity variable statistics, and the adoption of cryptocurrencies. In application of the gravity model, regression analyses are used on the aggregated data to test the magnitude of cryptocurrencies’ impact on trade. Based on the overall findings, the variables for cryptocurrency adoption produce negative coefficients suggesting a negative correlation between the adoption of cryptocurrencies and international trade. The central tendency in the empirical evidence offers the interpretation that countries with weak institutions to promote trade are more likely to adopt cryptocurrencies resulting in a negative association between cryptocurrency adoption and trade.
    Date: 2021–12–30
  26. By: Maarten van Oordt (Vrije Universiteit Amsterdam)
    Abstract: Lawmakers have called for better stablecoin regulation, but authorities tend to have little control over the global operators of distributed ledgers that process stablecoin transactions. This chapter illustrates how peg deviations may occur when the issuer of a fiat-backed stablecoin loses its access to the traditional payment system of the jurisdiction that issues the relevant fiat currency. The need for reliable access to the traditional payment system in order to maintain a stable peg provides an important foothold for regulators to exercise control over fiat-backed stablecoins. Conditional upon regulators having little control over the operators of some distributed ledgers, an autonomy–stability choice may emerge where users of stablecoins ultimately face a choice between regulated stablecoins with a stable value but little autonomy and alternative stablecoin arrangements with more autonomy but a less stable value.
    Keywords: Stablecoins, Cryptocurrency, Exchange rate, Distributed ledgers, Regulation
    JEL: E42 G23 G28
    Date: 2022–02–15

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