nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒03‒21
nineteen papers chosen by
Georg Man

  1. Financial Market Inclusion and Economic Growth: Evidence from Algeria By CHIAD, Faycal; Aouissi, Amine; Lahsasna, Ahcene
  2. Access to Fintech and Poverty : Evidence from the Arrival of 4G Networks in Indonesia By Fatkhurrohman
  3. Credit Booms, Financial Crises and Macroprudential Policy By Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
  4. The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk By Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera
  5. Una aplicación de la metodología Growth at Risk a Uruguay By María Victoria Landaberry; Rodrigo Lluberas; Micaela Vidal
  6. The World Uncertainty Index By Hites Ahir; Nicholas Bloom; Davide Furceri
  7. Financial frictions in a commodity exporting small open economy: the Case of Kazakhstan By Erlan Konebayev
  8. The Impact of Financial Inclusion on Household Health Expenditures in Africa By Ofeh M. Edoh; Tii N. Nchofoung; Ofeh E. Anchi
  9. Tourism management for financial access in Sub-Saharan Africa: inequality thresholds By Simplice A. Asongu; Mushfiqur Rahman; Okeoma J-P Okeke; Afzal S. Munna
  10. European political economy of finance and financialization By Schelkle, Waltraud; Bohle, Dorothee
  11. Is Fiscal Austerity Really Self-Defeating? By Piergallini, Alessandro
  12. The Saving Glut of the Rich By Atif Mian; Ludwig Straub; Amir Sufi
  13. The Great Gatsby Curve By Steven N. Durlauf; Andros Kourtellos; Chih Ming Tan
  14. The Dollar Debt of Companies in Latin America: the warning signs By Giraldo, Iader; Turner, Philip
  15. The End of Privilege: A Reexamination of the Net Foreign Asset Position of the United States By Andrew Atkeson; Jonathan Heathcote; Fabrizio Perri
  16. A silver transformation: Chinese monetary integration in times of political disintegration, 1898–1933 By Ma, Debin; Zhao, Liuyan
  17. State Dependent Effects of Monetary Policy: the Refinancing Channel By Martin Eichenbaum; Sergio Rebelo; Arlene Wong
  18. Monetary Architecture and the Green Transition By Murau, Steffen; Haas, Armin; Guter-Sandu, Andrei
  19. Physical risks from climate change faced by Japan's financial institutions: Impact of floods on real economy, land prices, and FIs' financial conditions By Takuro Ashizawa; Kakuho Furukawa; Ryuichiro Hashimoto; Yoshiyasu Koide; Tomomi Naka; Kenji Nishizaki; Nao Sudo; Genichiro Suzuki

  1. By: CHIAD, Faycal; Aouissi, Amine; Lahsasna, Ahcene
    Abstract: In this paper, we investigated the relationship between financial inclusion (FI), trade openness (TO), human development (HD), and GDP growth in Algeria. Our data set covers annual times series data from 1980 to 2018. The autoregressive distributed lag (ARDL) bounds test was used to examine the cointegration between variables due to mixed orders of integration I(0) and I(1).The results indicate that financial inclusion, trade openness, human development have a positive and significant impact on economic growth in the short and long-run, thereby confirming the strength of the finance-growth connections. Granger-causality test confirms that there is bi-directional causality between financial inclusion and economic growth.
    Keywords: Financial inclusion, Economic Growth, ARDL, Algeria
    JEL: O10
    Date: 2021
  2. By: Fatkhurrohman (University of Warwick)
    Abstract: This paper investigates the effect of the arrival of 4G networks on poverty rates by exploiting the gradual adoption of 4G networks in 514 districts/cities in Indonesia. Robust differences-in-differences estimates indicate that 4G network adoption has a significant negative influence on poverty rates – which we argue is due to the increased access to Fintech afforded by the 4G network, hus increasing poor people's access to credit. Moreover, Fintech capitalizes on mobile app-based services, a vastly growing business that has gained popularity since 2015. In addition, this paper also finds that Fintech promotes internet-based job opportunities for impoverished individuals, increasing their income and alleviating poverty in Indonesia.
    Keywords: Fintech ; Financial Inclusion ; Poverty ; Welfare ; Indonesia JEL Classification: O33 ; O36 ; O53 ; I31 ; I32
    Date: 2021
  3. By: Mark Gertler (New York University); Nobuhiro Kiyotaki (Princeton University); Andrea Prestipino (Federal Reserve Board)
    Abstract: We develop a model of banking crises which Is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in a crisis. That is, there are “good†booms as well as “bad†booms in the language of Gorton and Ordonez (2019). We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macropudential policy.
    Keywords: banking crisis, credit booms
    JEL: E00 G21
    Date: 2020–03
  4. By: Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera
    Abstract: We study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. We analyze a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic using unique transaction-level data of demand and supply of credit, matched with administrative tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6% of GDP and increasing firm leverage. Despite increased lending to riskier firms at the micro level, macroeconomic risks remain small. Several factors mitigate aggregate risk: the small weight of riskier firms, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk. We quantitatively confirm our empirical findings with a model of heterogeneous firms and endogenous default.
    JEL: E44 E5 G01
    Date: 2022–02
  5. By: María Victoria Landaberry (Banco Central del Uruguay); Rodrigo Lluberas (Banco Central del Uruguay); Micaela Vidal (Banco Central del Uruguay)
    Abstract: Este trabajo presenta la aplicación de la metodología Growth at Risk (GaR) para la economía uruguaya con datos trimestrales entre junio de 1999 y diciembre de 2019. De acuerdo a los resultados obtenidos, el Índice de Inestabilidad Financiera contiene información relevante sobre los riesgos a la baja y al alza en el crecimiento económico. El modelo presenta un buen desempeño en la proyección del crecimiento económico en el horizonte de un año, una vez que se incorpora la información correspondiente al primer trimestre, a la vez que permite analizar los efectos sobre la distribución de probabilidad del crecimiento de distintos escenarios de riesgo, por lo que sería una herramienta útil para adicionar al monitoreo de la estabilidad financiera en Uruguay.
    Keywords: condiciones financieras, regresión por cuantiles, vulnerabilidad financiera, estabilidad financiera
    JEL: E44 G01 G1 B26
    Date: 2021
  6. By: Hites Ahir; Nicholas Bloom; Davide Furceri
    Abstract: We construct the World Uncertainty Index (WUI) for an unbalanced panel of 143 individual countries on a quarterly basis from 1952. This is the frequency of the word “uncertainty” in the quarterly Economist Intelligence Unit country reports. Globally, the Index spikes around major events like the Gulf War, the Euro debt crisis, the Brexit vote and the COVID pandemic. The level of uncertainty is higher in developing countries but is more synchronized across advanced economies with their tighter trade and financial linkages. In a panel vector autoregressive setting we find that innovations in the WUI foreshadow significant declines in output. This effect is larger and more persistent in countries with lower institutional quality, and in sectors with greater financial constraints.
    JEL: E0
    Date: 2022–02
  7. By: Erlan Konebayev (NAC Analytica, Nazarbayev University)
    Abstract: This paper adds the banking sector to a commodity-exporting small open economy DSGE model and estimates it using the data for Kazakhstan between 2001 and 2019. The resulting model produces one-step-ahead predictions that are a good fit for the banking sector variables. We find that the oil price and risk premium shocks are the drivers of much of the economic activity in Kazakhstan - they explain a large part of the variation in most of the macro variables considered. A comparison with the baseline model that has no banking sector shows that the influence of the risk premium shock on real variables can be overestimated when financial frictions are excluded. The above-mentioned two shocks, along with the fiscal policy shock, have also significantly contributed to historical fluctuations in real GDP growth, although with no particular trend in the direction or magnitude of their effects.
    Keywords: DSGE; Bayesian analysis; small open economy; Kazakhstan
    JEL: C11 E30 E32 E37
    Date: 2021–12
  8. By: Ofeh M. Edoh (Yaounde, Cameroon); Tii N. Nchofoung (University of Dschang, Cameroon); Ofeh E. Anchi (University of Bamenda, Cameroon)
    Abstract: This study examines the impact of financial inclusion on household health expenditure in 17 African countries. It argues that financial inclusion is an active influencer of individuals’ health demand and that Gross Domestic Product (GDP) per capita and voluntary health insurance schemes tend to be active transmission channels through which financial inclusion affects household health expenditures. The study used an instrumental variable (2SLS) technique for the analysis over a period from 2008 to 2017.Results from the study show that being financially included leads to increase household health expenditures. Suggestions for policy emerging from this study to governments in Africa are on the aspect of fostering financial inclusion to a wider population alongside enhancing the Universal Health Coverage (UHC) plan to ease the burden of out-of-pocket payments on households.
    Keywords: Financial inclusion, Health expenditure, Out-of-pocket (OOP) payments, 2SLS
    JEL: G15 I13 C23
    Date: 2021–01
  9. By: Simplice A. Asongu (Yaounde, Cameroon); Mushfiqur Rahman (London, UK); Okeoma J-P Okeke (London, UK); Afzal S. Munna (London, UK)
    Abstract: The study provides insights into how tourism can be managed to improve financial access in sub-Saharan Africa. The empirical evidence is based on the generalised method of moments. To make this assessment, inequality dynamics (i.e. the Gini coefficient, the Atkinson index and Palma ratio) are interacted with tourism (tourism receipts and tourists’ arrivals) to establish inequality levels that should not be exceeded in order for tourism to promote financial access in the sampled countries. From the findings, inequality levels that should not be exceeded for tourism to promote financial access are provided: (i) 0.666 of the Atkinson index and 5.000 of the Palma ratio for tourism receipts to promote financial access and (ii) for tourist arrivals to enhance financial access, 0.586, 0.721 and 6.597 respectively, of the Gini coefficient, the Atkinson index, and the Palma ratio. Policy implications are discussed.
    Keywords: Tourism; Management; Financial access; Inequality; Africa; Sustainable Development
    JEL: O10 O40 Z3 Z32
    Date: 2021–01
  10. By: Schelkle, Waltraud; Bohle, Dorothee
    Abstract: This special issue leverages the variation across Europe to expand on the conceptualisation of and the empirical knowledge about finance and financialization. As we will show, focussing on Europe can offer a richer understanding of the reach of financialization than the prevalent focus on the Anglo-American world, with surprising insights that may be of more general relevance to other world regions. More specifically, a focus on Europe allows new insights on the reach of financialization, central actors that brought it about, and the choices and trade-offs that have shaped the process.
    Keywords: banking; European integration; financialization; financial crisis; power; public finances; welfare state
    JEL: J1 F3 G3
    Date: 2020–08–04
  11. By: Piergallini, Alessandro
    Abstract: This paper analyzes local and global equilibrium dynamics in an optimizing endogenous growth model under expenditure-based fiscal austerity feedback policies expressed relative to the private capital stock — prescribing spending cuts in reaction to public debt accumulation. Because the present value of equilibrium primary surpluses turns to be a nonlinear function of debt, two steady state equilibria are shown to emerge, one exhibiting low debt and high growth, one exhibiting high debt and low growth. Local analysis reveals that the low-debt/high-growth steady state is saddle-path stable while the high-debt/low-growth steady state is unstable — the latter thus indicating the possibility of self-defeating austerity, characterized by off-equilibrium upward spirals in debt because of persistent policy-induced adverse effects on growth dividends and fiscal revenues. However, when global nonlinear dynamics are taken into account, it is demonstrated that the two steady states are endogenously connected. In particular, global analysis reveals that even if the high-debt/low-growth steady state is locally unstable, there exists a unique and possibly non-monotonic saddle connection making the economy converge to the low-debt/high-growth steady state. The existence of the saddle connection guarantees global determinacy of perfect foresight equilibrium should the high-debt/low-growth steady state be a node, ruling out multiple explosive paths incompatible with the government's intertemporal budget constraint and the private agents' transversality condition. The foregoing results are robust with respect to the adoption of an output-based — rather than a capital-based — policy function as long as the rule is nonlinear and sufficiently reactive to debt changes.
    Keywords: Fiscal Austerity; Feedback Policy Rules; Endogenous Growth; Multiple Equilibria; Local Dynamics; Global Dynamics.
    JEL: C62 E62 H63 O40
    Date: 2020–11–14
  12. By: Atif Mian (Princeton University); Ludwig Straub (Harvard University); Amir Sufi (Chicago Booth)
    Abstract: Rising income inequality since the 1980s in the United States has generated a substantial increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been as large as the global saving glut, and it has not been associated with an increase in investment. Instead, the saving glut of the rich has been linked to the substantial dissaving and large accumulation of debt by the non-rich. Analysis using variation across states shows that the rise in top income shares can explain almost all of the accumulation of household debt held as a financial asset by the household sector. Since the Great Recession, the saving glut of the rich has been financing government deficits to a greater degree.
    Keywords: Saving, Household Debt
    JEL: D31 E21 E44 G51
    Date: 2021–02
  13. By: Steven N. Durlauf; Andros Kourtellos; Chih Ming Tan
    Abstract: This paper provides a synthesis of theoretical and empirical work on the Great Gatsby Curve, the positive empirical relationship between cross-section income inequality and persistence of income across generations. We present statistical models of income dynamics that mechanically give rise to the relationship between inequality and mobility. Five distinct classes of theories, including models on family investments, skills, social influences, political economy, and aspirations are developed, each providing a behavioral mechanism to explain the relationship. Finally, we review empirical studies that provide evidence of the curve for a range of contexts and socioeconomic outcomes as well as explore evidence on mechanisms.
    JEL: D3 H0 J0 R0
    Date: 2022–02
  14. By: Giraldo, Iader; Turner, Philip
    Abstract: A decade of low interest rates in the major currencies and failings in the regulatory oversight of international bond markets have led investors to take more and more risk in their search for higher yields. Non-financial corporations (NFC's) in Latin America have taken full advantage, and their dollar indebtedness is now heavier than for corporations in most other emerging market regions. This paper documents the many warning signs of macroeconomic and financial instability in the region from such indebtedness. Macroeconomic data show that the NFC sector has become much more leveraged and faces increased currency mismatches. Microeconomic data drawn from a sample of more than 160 companies confirm that several balance sheet indicators have deteriorated for firms in both the tradable and the non-tradable sectors. As dollar debts were rising, profits were declining, capital expenditures falling and solvency risk rising. This situation warrants careful and continuous monitoring by the authorities in the region. Macroprudential policies in Latin America need to address with urgency the vulnerabilities created by international market-based finance and ensure that local banks remain resilient to external financial shocks. Interest rates will rise and, given the recent warnings of the Bank for International Settlements (BIS) and the Financial Stability Board (FSB), some regulatory tightening affecting bond markets is likely.
    Keywords: Non-financial corporate debt, Latin America, currency mismatches, global liquidity, corporate balance sheets, FSB, IMF, BIS
    JEL: D25 E44 F30 F34 F65 G15 G18 G28
    Date: 2022–03
  15. By: Andrew Atkeson; Jonathan Heathcote; Fabrizio Perri
    Abstract: The US net foreign asset position has deteriorated sharply in the years following the Global Financial Crisis and is currently negative 65 percent of US GDP. This deterioration primarily reflects changes in the relative values of large gross international equity positions, as opposed to net new borrowing. In particular, a sharp increase in equity prices that has been US specific has inflated the value of US foreign liabilities. We develop an international macro finance model to interpret these trends, and argue that the rise in equity prices in the United States likely reflects rising profitability of domestic firms rather than a substantial accumulation of unmeasured capital by those firms. Under that interpretation, the revaluation effects that have driven down the US net foreign asset position are associated with large unanticipated transfers of US output to foreign investors.
    JEL: F30 F40
    Date: 2022–02
  16. By: Ma, Debin; Zhao, Liuyan
    Abstract: This article provides the first systematic econometric study on the evolution of Chinese silver exchange and monetary regimes during the period 1898–1933. Using high-quality datasets of monthly and daily prices of silver dollars, we apply the threshold autoregressive models to estimate the silver points between Shanghai and 18 other cities in northern and central China. We find a noticeable improvement in monetary integration between Shanghai and Tianjin from the 1910s, which then spread to other cities in our sample throughout the 1920s and 1930s. We supplement our analysis with new datasets on volumes and costs of silver flows and with an in-depth historical narrative. This article re-evaluates the efficiency of the silver regime and China's economic performance in the Republican era.
    JEL: N15
    Date: 2020–05–01
  17. By: Martin Eichenbaum (Northwestern University); Sergio Rebelo (Northwestern University); Arlene Wong (Princeton University)
    Abstract: This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic lifecycle model that accounts for our findings and use it to study how the response of consumption to a change in mortgage rates depends on the distribution of savings from refinancing. These effects are strongly state dependent. We also use the model to study the impact of a long period of low interest rates on the potency of monetary policy. We find that this potency is substantially reduced both during the period and for a substantial amount of time after interest rates renormalize.
    Keywords: monetary policy, state dependency, refinancing
    JEL: E52 G21
    Date: 2020–08
  18. By: Murau, Steffen; Haas, Armin; Guter-Sandu, Andrei
    Abstract: How to finance the Green Transition towards net-zero carbon emissions remains an open question. The literature either operates within a market-failure paradigm that calls for a Pigou tax to help markets correct themselves, or via war finance analogies that offer a ‘triad’ of state intervention possibilities: taxation, treasury borrowing, and central bank money creation. These frameworks often lack a thorough conceptualisation of endogenous credit money creation, for instance when resorting to loanable funds theory, and disregard the systemic and procedural dimensions of financing the Green Transition. We propose that ‘monetary architecture’, which perceives the monetary and financial system as a constantly evolving and historically specific hierarchical web of interlocking balance sheets, offers a more comprehensive framework to conceptualize the systemic and procedural financing challenges. Using the US as an example, we draw implications of a systemic financing view while considering a division of labor between ‘firefighting’ institutions such as the Federal Reserve and the Treasury, and ‘workhorse’ institutions such as off-balance-sheet fiscal agencies, commercial banks, and shadow banks. We argue further that financing the Green Transition must undergo three ideal-typical phases—initial balance sheet expansion, long-term funding, and possibly final contraction—that require diligent macro-financial management to avoid financial instability.
    Date: 2022–02–16
  19. By: Takuro Ashizawa (Bank of Japan); Kakuho Furukawa (Bank of Japan); Ryuichiro Hashimoto (Bank of Japan); Yoshiyasu Koide (Bank of Japan); Tomomi Naka (Bank of Japan); Kenji Nishizaki (Bank of Japan); Nao Sudo (Bank of Japan); Genichiro Suzuki (Bank of Japan)
    Abstract: This article overviews implications of physical risks from climate change to Japan's financial institutions (FIs), focusing on the impacts of floods on the real economy, land prices and FIs' financial conditions. Floods cause massive direct damage to human lives and material resources. The empirical analyses using Japan's data suggest that the indirect effect of such damage on the real economy, land prices, and FIs' financial conditions has not been sizable over the analysis period, as the effect diminishes over time with the progress of reconstruction. The long-term simulation using a medium-scale macroeconomic model that takes into consideration possible climate changes and increases in flood damage in the future, however, suggests that the indirect effect can have a non-negligible impact on real GDP and FIs' net worth going forward. The outlook for the physical risks is extremely uncertain, varying depending on multiple factors including the pace of transition to a de-carbonized economy and interactions between the global average temperature and the frequency and scale of disasters, as well as productivity of the economy.
    Keywords: Climate change; Natural disaster; Physical risk; Financial stability
    JEL: E37 G21 Q54 R30
    Date: 2022–03–14

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