nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒03‒28
25 papers chosen by
Georg Man

  1. "Financial Barriers to Structural Change in Developing Economies: A Theoretical Framework" By Giuliano Toshiro Yajima; Lorenzo Nalin
  2. Long-run scarring effects of meltdowns in a small-scale nonlinear quadratic model By Francesco Simone Lucidi; Willi Semmler
  3. Banking Sector Concentration, Credit Supply Shocks and Aggregate Fluctuations By Alfarano, Simone; Blanco-Arroyo, Omar
  4. Housing, Distribution and Welfare By Nobuhiro Kiyotaki; Alexander Michaelides; Kalin Nikolov
  5. A DSGE model with partial euroization: the case of the Macedonian economy By Mihai Copaciu; Joana Madjoska; Mite Miteski
  6. Online Appendix to "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism" By Qichun He; Yulei Luo; Jun Nie; Heng-fu Zou
  7. Macroeconomic Effect of Uncertainty and Financial Shocks: a non-Gaussian VAR approach By Olli Palm\'en
  8. Identification through the Forecast Error Variance Decomposition: an Application to Uncertainty By Andrea Carriero; Alessio Volpicella
  9. Financial Transaction Tax, macroeconomic effects and tax competition issues: a two-country financial DSGE model By Olivier Damette; Karolina Sobczak; Thierry Betti
  10. Duration of WTO Membership and Investment-Oriented Remittances Flows By Gnangnon, Sèna Kimm
  11. The Macro-Economic Effects of UK Aid Returning to 0.7 per cent of GNI By Holland, Dawn; te Velde, Dirk Willem
  12. The influence of financial corporations on IMF lending: Has it changed with the global financial crisis? By Lena Lee Andresen
  13. Can a country borrow forever? The unsustainable trajectory of international debt: the case of Spain By Vicente Esteve; María A. Prats
  14. China’s Model of Managing the Financial System By Markus K. Brunnermeier; Michael Sockin; Wei Xiong
  15. Essays on bank regulation and supervision By Avezum, Lucas
  16. Shadow banking and the four pillars of traditional financial intermediation By Emmanuel Farhi; Jean Tirole
  17. Contractual Restrictions and Debt Traps By Ernest Liu; Benjamin N. Roth
  18. Contingent Relations Between Microcredit and Entrepreneurial Re-Engagement in Traditional Rural Contexts: An Exploration of the Case of Peasants From Madagascar By Patrick Valeau; Cousin Germain Ravonjiarison
  19. Microfinance institution and moneylenders in a segmented rural credit market By Abhirupa Das; Uday Bhanu Sinha
  20. Business investment, the user cost of capital and firm heterogeneity By Alari Paulus
  21. Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth By Bertrand Garbinti; Pierre Lamarche; Fredérique Savignac
  22. The Effect of COVID-19 on Foreign Direct Investment By Hayakawa, Kazunobu; Lee, Hyun-Hoon; Park, Cyn-Young
  23. Exchange Rates and Asset Prices in a Global Demand System By Ralph S. J. Koijen; Motohiro Yogo
  24. ESG and Systemic Risk By George-Marian Aevoae; Alin Marius Andries; Steven Ongena; Nicu Sprincean
  25. ICT and education as determinants of environmental quality: The role of financial development in selected Asian countries By Zafar, Muhammad Wasif; Zaidi, Syed Anees Haider; Mansoor, Sadia; Sinha, Avik; Qin, Quande

  1. By: Giuliano Toshiro Yajima; Lorenzo Nalin
    Abstract: Liabilities denominated in foreign currency have established a permanent role on emerging market firms' balance sheets, which implies that changes in both global liquidity conditions and in the value of the currency may have a long-lasting effect for them. In order to consider the financial conditions that may encourage (discourage) structural change in a small, open economy, we adopt the framework put forward by the "monetary theory of distribution" (MTD). More specifically, we follow the formulation adopted by Dvoskin and Feldman (2019), whereby the financial system is intended as a basic sector that promotes innovation (Schumpeter 1911). In accordance with this, financial conditions are binding only for the innovative entrepreneurs, whose methods of production are not dominant and hence they need to borrow from banks to kickstart their production. Through this device, our model offers an explanation of the technological lock-in experienced by a small, open economy that takes international prices as given.
    Keywords: Foreign Exchange Policy; Currency Mismatches; Structural Change
    JEL: F37 F31 E7
    Date: 2022–03
  2. By: Francesco Simone Lucidi; Willi Semmler
    Abstract: We build a small-scale nonlinear quadratic (NLQ) model in which credit feedback and regime switches in the output gap a ect the adjustment path of the economy towards a steady state. The central bank solves a finite-horizon decision problem where the policy rate also can be zero or negative. We estimate this model by nonlinear seemingly unrelated regression method (NLSUR) and using the parameters to explore policy scenarios. The latter projects long-run dynamics after a large demand contraction leading to scarring effects in the economy. We point out three main results. First, while scars are dominant when the central bank follows a standard Taylor rule, unconventional monetary policy (UMP) mitigates the output decline in both the short and the long run. Second, a zero natural rate of interest alone curtails the central bank's ability to adjust the economy. Third, financial constraints leave the deepest scars even if UMP is active.
    Keywords: credit cycles; credit spread; inflation targeting; nonlinear Phillips curve; unconventional monetary policy
    JEL: E42 E52 E58
    Date: 2022–03
  3. By: Alfarano, Simone; Blanco-Arroyo, Omar
    Abstract: This paper studies whether the raise in concentration experienced by the Spanish banking sector has lead to the increase of bank-specific credit supply shocks contribution to aggregate credit supply. We decompose aggregate credit volatility and find that (i) the Spanish banking sector is granular, (ii) the direct effect of bank-specific shocks accounts for the overwhelming majority of the variation in aggregate volatility, contrary to the manufacturing sector, and (iii) the raise in concentration translated into an increase of bank-specific shocks contribution to aggregate volatility.
    Keywords: Granular Residual, Idiosyncratic Shocks, Banking Sector, Manufacturing Sec- tor, Concentration, Aggregate Fluctuations
    JEL: E44 G21
    Date: 2022–02–12
  4. By: Nobuhiro Kiyotaki (Princeton University); Alexander Michaelides (Imperial College London); Kalin Nikolov (European Central Bank)
    Abstract: Housing is a long-lived asset whose value is sensitive to variations in long-term growth and interest rates. When a large fraction of the population is leveraged, housing price fluctuations cause large-scale redistribution and consumption volatility. We examine policies to mitigate the impact of housing fluctuations on vulnerable households. We find that the most practical way to insure the young and the poor from the housing cycle is through a well-functioning rental market. In practice, home-ownership subsidies keep the rental market small and the housing cycle affects aggregate consumption. Removing home-ownership subsidies hurts older home-owners, while leverage limits hurt younger home-owners.
    Keywords: Housing prices, credit constraints, distribution, rental markets, welfare
    JEL: D15 D58 E02 E21
    Date: 2020–04
  5. By: Mihai Copaciu (National Bank of Romania); Joana Madjoska; Mite Miteski (National Bank of the Republic of North Macedonia)
    Abstract: This paper describes the theoretical structure and estimation results for a DSGE model for the Macedonian economy. Having as benchmark the model of Copaciu et al. (2015), modified to allow for a fixed exchange rate, we are able to match relatively well the volatility observed in the data. Given the monetary policy regime in place, the debt deflation channel is more important relative to the financial accelerator one when compared to the flexible exchange rate case. The lack of balance sheet effects results in no significant differences in terms of net worth evolution across the two types of entrepreneurs when impulse response functions are evaluated. However, the shocks related to the financial sector appear to be especially important for investment, for the domestic interest rate and interest rate spreads, illustrating the relevance of including financial frictions in the model. With the exchange rate not acting as a shock absorber, the external shocks are more relevant for the CPI inflation and the domestic interest rate. The drop in GDP associated with the pandemic mainly reflects the negative innovations to the consumption preference shock and to the permanent technology shock.
    Keywords: DSGE model, Financial frictions, Partial euroization, Small open economy, Bayesian estimation
    JEL: E0 E3 F0 F4 G0 G1
    Date: 2022
  6. By: Qichun He (Central University of Finance and Economics); Yulei Luo (University of Hong Kong); Jun Nie (Federal Reserve Bank of Kansas City); Heng-fu Zou (Central University of Finance and Economics)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2022
  7. By: Olli Palm\'en
    Abstract: The Great Recession highlighted the role of financial and uncertainty shocks as drivers of business cycle fluctuations. However, the fact that uncertainty shocks may affect economic activity by tightening financial conditions makes empirically distinguishing these shocks difficult. This paper examines the macroeconomic effects of the financial and uncertainty shocks in the United States in an SVAR model that exploits the non-normalities of the time series to identify the uncertainty and the financial shock. The results show that macroeconomic uncertainty and financial shocks seem to affect business cycles independently as well as through dynamic interaction. Uncertainty shocks appear to tighten financial conditions, whereas there appears to be no causal relationship between financial conditions and uncertainty. Moreover, the results suggest that uncertainty shocks may have persistent effects on output and investment that last beyond the business cycle.
    Date: 2022–02
  8. By: Andrea Carriero (Queen Mary University of London and University of Bologna); Alessio Volpicella (University of Surrey)
    Abstract: We develop a novel approach to achieve point identification in a Structural Vector Autoregression, based on imposing constraints on the forecast error variance decomposition. We characterize the properties of this approach and provide Bayesian algorithms for estimation and inference. We use the approach to study the effects of uncertainty shocks, allowing for the possibility that uncertainty is an endogenous variable, and distinguishing macroeconomic from financial uncertainty. Using US data we find that macroeconomic uncertainty is mostly endogenous, and that overlooking this fact can lead to distortions on the estimates of its effects. We show that the distinction between macroeconomic and financial uncertainty is empirically relevant. Finally, we study the relation between uncertainty shocks and pure financial shocks, showing that the latter can have attenuated effects if one does not take into account the endogeneity of uncertainty.
    JEL: C11 C32 E32 E37 E44
    Date: 2022–03
  9. By: Olivier Damette; Karolina Sobczak; Thierry Betti
    Abstract: We document how introducing a financial transaction tax affects real and financial activity in a general equilibrium framework. Our model replicates some interesting stylised facts about financial markets. Informed, or rational, traders follow the standard rational expectations, while exogenous disturbances, such as optimism or pessimism shocks, affect the expectations of noise traders. An entry cost is introduced to endogenise the entry of noise traders in the financial markets. In contrast to the previous literature, financial contagion and international spillovers are considered in a two-country financial DSGE model. A welfare analysis is performed and we show that the effects of the financial transaction tax on welfare are non-linear and mainly depend on the composition of the financial market. In addition, introducing a financial transaction tax allows volatility to be reduced in both the real and financial sectors, and this result is robust to several model specifications. In a context where only one country implements the tax, we identify some externalities, as the country with the tax is likely to export stability or instability through the flows of traders. Like in the Heckscher-Ohlin-Samuelson (HOS) model in which capital and labor move internationally when countries trade, we assume that there are trader flows when traders invest abroad. As a consequence, noise traders can implicitly move to the foreign country to escape the tax, and this means that countries have conflicting interests. When markets are liquid with a large proportion of noise traders, countries do not internalise that they export noise traders and then some instability to the other market and so they set a tax rate that is higher than the optimal. At the opposite end of the scale, when markets are less liquid and the proportion of noise traders is small, some positive externalities (like financial stability) are overlooked, and so the tax rate is set too low and is sub-optimal. A cooperative situation where countries set a common tax rate is the best solution ans is welfare-enhancing. These results have important policy implications, since the existence of the tax competition issues revealed by our two-country framework might explain why the European Commission proposal initially discussed in 2011 is so contested and has been rejected by several countries.
    Keywords: Financial Transaction Tax, DSGE, Welfare, Noise Traders, Tax coordination, EU tax project.
    JEL: E22 E44 E62
    Date: 2022–03–24
  10. By: Gnangnon, Sèna Kimm
    Abstract: This article examines the effect of the duration of the membership in the World Trade Organization (WTO) on investment-oriented remittances inflows (i.e., the portion of total remittances invested by remittance-receiving households in business activities). The analysis covers 120 countries over the period 1996-2019, and employs the two-step system generalized methods of moments estimator. It provides support for the hypothesis that by improving the stability and predictability of the business environment (i.e., by reducing tariffs volatility, trade uncertainty and economic uncertainty) would provide strong incentives to remittance-receiving households to invest a fraction of their total remittances in business activities. This positive effect of the membership duration on investment-oriented remittances inflows appears to strong for less developed countries. Additionally, longstanding WTO Members enjoy higher investment-oriented remittances inflows when they have large populations (a proxy for larger amounts of total remittances inflows), and experience high trade volumes, and a higher economic growth performance. These findings complement previous works that highlighted the relevance of the WTO in promoting the development of the private sector in its member states (including developing members and the poorest among them).
    Keywords: Duration of WTO membership,Investment-oriented remittances inflows,Tariffs volatility,Trade uncertainty,Economic uncertainty,Developing countries
    JEL: D31 E22 O11 O16
    Date: 2022
  11. By: Holland, Dawn; te Velde, Dirk Willem
    Abstract: The UK has recently reduced its foreign aid budget from 0.7 per cent of gross national income (GNI) to 0.5 per cent, with a view to going back to 0.7 per cent when the fiscal context allows, estimated to be in 2024/5. The provision of aid is motivated by a wide range of factors that include moral, historical, strategic and security reasons. The primary aim of this paper is to complement the broad existing literature that focuses on the social and ethical aspects of aid by exploring aid flows from a macroeconomic perspective. The analysis reveals that the decision to cut UK aid will provide negligible direct savings for the UK, comes at a cost to the UK economy, and poses significant humanitarian and social costs in many poor countries. Aid delivers good value for money. Every £1 spent on aid delivers at least triple its value in the aid recipient regions. In addition, when we take international spillovers of aid into account, well-directed aid delivers a net positive return to the donor countries. Every £1 of ODA that is restored over the period 2021/22-2023/24, can be expected to provide recipient regions with the equivalent of £2.98-£5.31 in goods and services, and raise UK GDP by 1-13 pence. The estimates suggest that the decision to cut the UK ODA budget has cost in the range of £322 million to £423 million in lost UK exports, while up to 1.5 million more people in sub-Saharan Africa may suffer hunger as a result.
    Keywords: Foreign aid, uk economy, humanitarian costs
    JEL: E12 E60 F35
    Date: 2022–03
  12. By: Lena Lee Andresen
    Abstract: The global financial crisis of 2007-2008 might constitute another structural change in IMF lending after the Latin American debt crisis and the end of the Cold War. Using a panel dataset of 120 countries with IMF programmes from 1993 to 2016, I find that with the crisis, the importance of financial corporations in IMF lending decisions has risen as major IMF shareholders seek to protect the exposure of their banks, which increased strongly in the years before the crisis. To impress global financial markets, they influence programme design towards more money and more conditions, specifically prior actions. This serves to keep the programme country's market access and avoid default. While financial corporate interests are also associated with a larger programme size for all countries, a positive link with more conditions is only found for countries for which market access matters. For countries with limited market access, IMF staff's technocratic interest in limited conditionality dominates.
    Keywords: Conditionality, global finance, IMF, political economy
    JEL: F33 F34 F53 G15
    Date: 2022
  13. By: Vicente Esteve (Universidad de Valencia and Universidad de Alcalá, Spain); María A. Prats (Universidad de Murcia, Spain)
    Abstract: We address the issue of the sustainability Spain's external debt, using data for the period 1970-2020. To detect episodes of potentially explosive behavior of the Spanish net foreign assets over GDP ratio and the current account balance over GDP ratio, as well as episodes of external adjustments over this long period, we employ a recursive unit root test approach. Our empirical analysis leads us to conclude that there is some evidence of bubbles in the ratio between Spanish net foreign assets and the GDP. In contrast, the evidence that the ratio between the Spanish current account balance and the GDP had explosive subperiods is very weak.The episode of explosive behavior identified in the position of net foreign assets during the period 2002-2015 was the result of the country's economic expansion 1995-2007. The results also show an external adjustment during the period 2008-2019 after the start of a cyclical economic recession.
    Keywords: external imbalances; sustainability; intertemporal external budget constraint; explosiveness; recursive unit root test
    JEL: F32 F36 F37 F41 C22
    Date: 2022–03
  14. By: Markus K. Brunnermeier (Princeton University); Michael Sockin (University of Texas at Austin); Wei Xiong (Princeton University)
    Abstract: China's economic model involves active government intervention in financial markets. We develop a theoretical framework in which interventions prevent a market breakdown and a volatility explosion caused by the reluctance of short-term investors to trade against noise traders. In the presence of information frictions, the government can alter market dynamics since the noise in its intervention program becomes an additional factor driving asset prices. More importantly, this may divert investor attention away from fundamentals and totally toward government interventions (as a result of complementarity in investors' information acquisition). A trade-off arises: government's objective to reduce asset price volatility may worsen, rather than improve, information efficiency of asset prices.
    Keywords: China, financial markets
    JEL: G01 G14 G28
    Date: 2020–05
  15. By: Avezum, Lucas (Tilburg University, School of Economics and Management)
    Date: 2022
  16. By: Emmanuel Farhi (Harvard University [Cambridge], NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research); Jean Tirole (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IAST - Institute for Advanced Study in Toulouse)
    Abstract: Traditional banking is built on four pillars: SME lending, insured deposit taking, access to lender of last resort, and prudential supervision. This paper unveils the logic of the quadrilogy by showing that it emerges naturally as an equilibrium outcome in a game between banks and the government. A key insight is that regulation and public insurance services (LOLR, deposit insurance) are complementary. The model also shows how prudential regulation must adjust to the emergence of shadow banking, and rationalizes structural remedies to counter bogus liquidity hoarding and financial contagion: ring-fencing between regulated and shadow banking and the sharing of liquidity in centralized platforms.
    Keywords: Narrow banks,CCPs,Ring-fencing,Migration,Supervision,Deposit insurance,Lender of last resort,Retail and shadow banks
    Date: 2021–11
  17. By: Ernest Liu (Princeton University); Benjamin N. Roth (Harvard University)
    Abstract: Microcredit and other forms of small-scale finance have failed to catalyze entrepreneurship in developing countries. In these credit markets, borrowers and lenders often bargain over not only the interest rate but also implicit restrictions on types of investment. We build a dynamic model of informal lending and show this may lead to endogenous debt traps. Lenders constrain business growth for poor borrowers yet richer borrowers may grow their businesses faster than they could have without credit. The theory offers nuanced comparative statics and rationalizes the low average impact and low demand of microfinance despite its high impact on larger businesses.
    Keywords: credit markets, developing countries
    JEL: E51 O12
    Date: 2020–07
  18. By: Patrick Valeau (UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes); Cousin Germain Ravonjiarison
    Abstract: A travers l'étude exploratoire des parcours de quinze paysans malgaches ayant bénéficié de plusieurs microcrédits, nous questionnons les relations possibles entre ce dispositif et le réengagement entrepreneurial des bénéficiaires dans le cadre de très petites entreprises agricoles au sein de sociétés rurales traditionnelles. Transposant le modèle établi par Valéau (2007) à ce contexte, nous focalisons notre attention sur les dimensions psychologiques de ce processus. Nous examinons tout d'abord les doutes et les contradictions liées aux conditions de vie, mais aussi à un contexte traditionnel rural où l'innovation n'est pas la norme. Nos résultats montrent qu'à partir de conditions relativement similaires, les individus rencontrés se différencient progressivement les uns des autres au regard de leur réengagement entrepreneurial et, ce faisant, des stratégies et des performances de leur très petite entreprise. Nous identifions trois formes de réengagements tour à tour fondés sur la subsistance, la diversification et la croissance. Différentes pistes pour de futures recherches et des implications pratiques en matière de sélection et d'accompagnement des bénéficiaires sont discutées en opposant à un point de vue exclusivement commercial, des approches sociales et solidaires.
    Date: 2021
  19. By: Abhirupa Das (Department of Economics, Delhi School of Economics); Uday Bhanu Sinha (Department of Economics, Delhi School of Economics)
    Abstract: The poor heavily rely on informal sources for their capital needs as they lack collateral required by formal institutions. Furthermore, local moneylenders operate in distinct market segments and borrowing opportunities may not be equal for every household.The role of a microfinance institution (MFI) operating in such environment becomes even more crucial. The effectiveness of MFIs in rescuing poor borrowers from ‘clutches of’ moneylenders has been a much-debated topic over the last few decades. This paper attempts to contribute to this debate by presenting a model of competition between a socially motivated MFI and profit-maximising moneylenders in the presence of marketsegmentation. We characterise equilibrium conditions in the presence of market segmentation under scenarios where only moneylenders operate, only MFI operates and finally the case where both co-exist. We find unambiguous benefits arising from the entry of a welfare maximising entity such as an MFI. We also see the values of having local agents like moneylenders on the ground who have information gathering advantages. We conclude that an effective system of both these entities working together can bring about increases in efficiency and welfare. Key Words: microfinance, market segmentation, collateral substitution, mandatory savings, information asymmetry, moral hazard, adverse selection JEL Codes: D82, O16
    Date: 2022–03
  20. By: Alari Paulus
    Abstract: The sensitivity of business fixed investment to one of its key determinants, the user cost of capital, has been little investigated with firm-level data that captures firm heterogeneity to the full extent. I study the determinants of business fixed investment in Estonia, using the universe of business statements for non-financial firms in 1994-2020 from administrative records. The results with various panel data models provide strong support for a theoretical long-term relationship between the gross investment rate, and changes in production output and the user cost of capital. I find that the capital stock is modestly responsive to changes in output and the user cost of capital, with elasticities less than 0.5 in absolute size, and that different estimation strategies yield broadly similar results. Elasticities differ by firm size, but sectoral variation is relatively limited. User cost elasticities also exhibit notable variation over time, while output elasticities are much more stable. I also find that investments in machinery and equipment are more elastic than investments in buildings and structures.
    Keywords: business investment, user cost of capital, corporate taxation, firm panel data
    JEL: D22 E22 H32
    Date: 2022–03–24
  21. By: Bertrand Garbinti (CREST-ENSAE-Institut Polytechnique Paris); Pierre Lamarche (CREST-INSEE); Fredérique Savignac (Banque de France)
    Abstract: We study how the marginal propensity to consume out of wealth (MPC) varies across households depending on the level and composition of their wealth. We build a unique household-level panel dataset which combines wealth and consumption surveys for five European countries to estimate country-specific marginal propensity to consume out wealth. We use instrumented household-level panel regressions. First, we show that the MPC out of total wealth is higher for lowwealth households, whatever the country. Second, we find that the MPC out of housing assets is significant and decreasing along the wealth distribution in all countries. Third, we show that the observed cross-country heterogeneity in MPC is strongly correlated with the use of mortgages, suggesting a collateral channel. Finally, we conduct a simulation exercise to investigate to what extent heterogeneous MPC and wealth inequality affect consumption inequality.
    Keywords: consumption, marginal propensity to consume out of wealth, collateral channel, household surveys
    JEL: D12 E21 C21
    Date: 2022–01–19
  22. By: Hayakawa, Kazunobu (Institute of Developing Economies); Lee, Hyun-Hoon (Kangwon National University); Park, Cyn-Young (Asian Development Bank)
    Abstract: This study empirically examines how the coronavirus disease (COVID-19) has impacted foreign direct investment (FDI), using the quarterly data on bilateral FDI flows from 173 home to 192 host countries from the first quarter of 2019 to the second quarter of 2021. We measure the severity of COVID-19 damage using three indicators—the number of confirmed cases, the number of deaths, and the stringency index of government policies that restrict people’s activities. We also differentiate FDI flows via two different entry modes—greenfield FDI and cross-border mergers and acquisitions (M&A). We find heterogeneous effects of COVID-19 impacts on FDI by sector and entry mode. The severity of COVID-19 in host countries adversely affected FDI in the manufacturing sector regardless of the entry mode, but the effect of home countries’ COVID-19 situation on FDI was insignificant. On the other hand, in the service sector, the severity of COVID-19 in both host and home countries has significantly negative impact on greenfield FDI, not on cross-border M&A.
    Keywords: COVID-19; greenfield FDI; cross-border M&A
    JEL: F21 F23 I15
    Date: 2022–03–17
  23. By: Ralph S. J. Koijen (University of Chicago); Motohiro Yogo (Princeton University)
    Abstract: Using international holdings data, we estimate a demand system for financial assets across 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices, interpreting major economic events such as the European sovereign debt crisis, and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates, debt quantities, and foreign exchange reserves) account for 55 percent of the variation in exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. The average convenience yield is 2.15 percent on US long-term debt and 1.70 percent on US equity.
    Keywords: demand system, international
    JEL: E52 F31 G12
    Date: 2020–06
  24. By: George-Marian Aevoae (Alexandru Ioan Cuza University - Faculty of Economics and Business Administration); Alin Marius Andries (Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Nicu Sprincean (Alexandru Ioan Cuza University of Iasi)
    Abstract: How do changes in Environmental, Social and Governance (ESG) scores influence banks’ systemic risk contribution? We document a beneficial impact of the ESG Combined Score and Governance pillar on banks’ contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007-2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. A similar relationship for banks’ exposure to systemic risk is also found. Our findings stress the importance of integrating banks’ ESG disclosure into regulatory authorities’ supervisory mechanisms as qualitative information.
    Keywords: Systemic Risk; Financial Stability, Corporate Social Responsibility (CSR), Environmental, Social and Governance (ESG) Scores
    JEL: G01 G21 M14
    Date: 2022–03
  25. By: Zafar, Muhammad Wasif; Zaidi, Syed Anees Haider; Mansoor, Sadia; Sinha, Avik; Qin, Quande
    Abstract: Rising environmental concerns due to extensive energy consumption and carbon emission in the process of developing information communication and technology (ICT) cannot be overshadowed by its significant contribution in economic growth. This study is an attempt to explore long run influences of ICT and education on environmental quality. By incorporating the role of financial development, energy consumption and income into the function of carbon emissions, the results obtained by the continuously updated and fully modified (Cup-FM) test indicate that economic growth, education and energy consumption stimulates carbon emissions intensity in Asian countries (1990-2018). The second-generation unit root tests and Lagrange Multiplier (LM) bootstrap cointegration method investigate stationary properties and cointegration. Our findings suggest that investment in technology and financial markets require policymakers' attention as we have empirically established long-run inverse impacts of financial development and ICT on carbon emissions. Furthermore, the study suggests a focus on clean energy policy as the rising pollution levels due to fossil fuel hampers long-run productivity. This paper contributes to the existing literature by proposing that ICT-led economic policies may help solve environmental quality and economic growth issues.
    Keywords: Environmental Quality; ICT; Education; Financial development; Economic growth
    JEL: Q5
    Date: 2022

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