nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2022‒07‒18
25 papers chosen by
Georg Man

  1. Modélisation des effets des réformes institutionnelles sur le développement financier pour la croissance économique en zone CEMAC By Tchouassi, Gérard; Tomo, Christian Parfait
  2. The Inflation-Economic Growth Relationship: Estimating the Inflation Threshold in Vietnam By Mai, Nhat Chi
  3. On the Macroeconomic Effects of Shadow Banking Development By Georgios Magkonis; Eun Young Oh; Shuonan Zhang
  4. Endogenous Liquidity and Capital Reallocation By Wei Cui; Randall Wright; Yu Zhu
  5. The Secular Decline in Private Firm Leverage By Christine L. Dobridge; Erik P. Gilje; Andrew Whitten
  6. In search of frictions By Clément Mazet-Sonilhac
  7. Dating Business Cycles in the United Kingdom, 1700-2010 By Stephen Broadberry; Jagjit S. Chadha; Jason Lennard; Ryland Thomas
  8. Macroprudential Policy and Aggregate Demand By Andre Teixeira; Zoe Venter
  9. When Could Macroprudential and Monetary Policies Be in Conflict? By Jose Garcia Revelo; Grégory Levieuge
  10. Financialization in emerging Europe By Kazandziska, Milka
  11. Who Holds Sovereign Debt and Why It Matters By Xiang Fang; Bryan Hardy; Karen K. Lewis
  12. Asset Pricing with Free Entry and Exit of Firms By Lorant Kaszab; Ales Marsal; Katrin Rabitsch
  13. Asset Pricing with Costly and Delayed Firm Entry By Lorant Kaszab; Ales Marsal; Katrin Rabitsch
  14. A Monetary Policy Asset Pricing Model By Ricardo J. Caballero; Alp Simsek
  15. Exchange rate disconnect in general equilibrium By Itskhoki, Oleg; Mukhin, Dmitry
  16. International monetary policy and cryptocurrency markets: dynamic and spillover effects By Elsayed, Ahmed H.; Sousa, Ricardo M.
  17. Non-life Insurance Market and Macroeconomic Indicators in Baltic States By Dimitar Mihaela Simionescu
  18. Blended finance funds and facilities: 2020 survey results By Faty Dembele; Timothy Randall; David Vilalta; Vanessa Bangun
  19. Policy brief on access to finance for inclusive and social entrepreneurship: What role can fintech and financial literacy play? By OECD; European Commission
  20. Kingdom of Lesotho: Selected Issues By International Monetary Fund
  21. The Determinants of Unemployment Rate in Developing Economies: Does Banking System Credit Matter? By Chukwuebuka Bernard Azolibe; Stephen Kelechi Dimnwobi; Chidiebube Peace Uzochukwu-Obi
  22. Export Decision and Credit Constraints under Institution Obstacles By Phan, Trang Hoai; Stachuletz, Rainer; Nguyen, Hai Thi Hong
  23. Saving on the Phone - Evidence from Ghanaian Cocoa Farmers By Possner, Annkathrin; Rosero, Gabriel; Musshoff, Oliver
  24. Transmission of Flood Damage to the Real Economy and Financial Intermediation: Simulation Analysis using a DSGE Model By Ryuichiro Hashimoto; Nao Sudo
  25. Thermal Stress and Financial Distress: Extreme Temperatures and Firms’ Loan Defaults in Mexico By Sandra Aguilar-Gomez; Emilio Gutierrez; David Heres; David Jaume; Martin Tobal

  1. By: Tchouassi, Gérard; Tomo, Christian Parfait
    Abstract: This article studies the effects on economic growth of institutional reforms of financial development in the Central African Economic and Monetary Community. The results obtained using the method of generalized moments on a balanced panel show that the institutional reforms of financial development have contributed to economic growth. However, credit to the private sector does not contribute to economic growth. Furthermore, the results indicate that public spending and trade openness of economies do not contribute to economic growth. On the one hand, States must pursue reforms relating to financial development, in particular the extent of interoperability and interbanking of electronic payment systems and means of payment in order to take advantage of the digitalization of the economy to increase financial inclusion. On the other hand, States should take advantage of the continental free trade area.
    Keywords: Institutional reforms, Financial development, Economic growth, Panel data, GMM, CEMAC
    JEL: D51 D82 F43 G2
    Date: 2022–06–21
  2. By: Mai, Nhat Chi
    Abstract: Utilizing annual data over the period 1990–2015 and employing the threshold model developed by Sarel (1996) with some modifications, this paper estimates the inflation threshold in Vietnam and simultaneously examines the linkage between inflation and economic growth. The findings show that the estimated inflation threshold stays at 3%–4%, above which the positive effect of inflation on economic growth vanishes, and this effect starts fading at 5.5%–7.5%. The findings of this paper regarding the inflation threshold and the inflation-economic relationship are expected to help the State Bank of Vietnam (SBV) in conducting its monetary policy, especially the inflation policy. Moreover, the findings also help the government evaluate the role of the gross domestic product’s determinants in promoting the economic growth.
    Date: 2021–12–19
  3. By: Georgios Magkonis (University of Portsmouth); Eun Young Oh (University of Portsmouth); Shuonan Zhang (University of Portsmouth)
    Abstract: We build and estimate a dynamic stochastic general equilibrium model with risky innovation and shadow credits to study the macroeconomic implications of shadow banking (SB), particularly on productivity. Our analysis is motivated by negative relationships between SB development and innovation outcome or total factor productivity (TFP) growth. In our model, information asymmetry associated with technology utilization leads to an agency problem in which shadow intermediation reduces banks’ incentives to screen project quality. An SB boom crowd-out traditional financial services, decreases inno- vation quality and technology efficiency, and thereby reduces TFP. In the light of model mechanisms, we analyse cross-country differences and deliver important implications of SB. SB development mainly driven by financial factors (e.g., the US case) leads to significant loss on TFP while that relatively prompted by real-sided factors (e.g., China and the EA cases), could be less harmful.
    Keywords: Shadow Banking; Total Factor Productivity; Endogenous Growth; Financial Development; Bayesian Methods
    JEL: C32 E32 O40
    Date: 2022–07–06
  4. By: Wei Cui; Randall Wright; Yu Zhu
    Abstract: We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions. We distinguish between full and partial sales (one firm gets all or some of the other’s capital). Both exhibit interesting long- and short-run patterns in data that the model can match. Depending on monetary and credit conditions, more partial sales occur when liquidity is tight. Quantitatively, we find significant steady-state and business-cycle implications. We also investigate the impact of search, taxation and persistence in firm-specific shocks.
    Keywords: Business fluctuations and cycles; Monetary policy
    Date: 2022–06
  5. By: Christine L. Dobridge; Erik P. Gilje; Andrew Whitten
    Abstract: Using firm-level administrative tax data on the 43% of business liabilities in the United States tied to privately held firms, we document dramatic reductions in leverage since the Great Recession. Leverage for the average private firm fell fifteen percent between 2004 and 2018. In contrast, leverage among public firms rose during this period. The decline in leverage among private firms is inconsistent with theories that suggest firm leverage tracks pro-cyclical credit market conditions. Younger and smaller private firms see especially large declines in leverage, and we find that reduced leverage among private firms is correlated with lower investment. Our findings have important implications for theories on how firm leverage and investment relate to economic fluctuations.
    JEL: G3 G30 G31 G32
    Date: 2022–05
  6. By: Clément Mazet-Sonilhac (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This thesis consists of four chapters that study how imperfect information affects both credit and goods markets. The contribution of chapter 1 is to extend the study of search frictions to credit markets. Motivated by empirical evidence I document on local credit markets in France, I propose a theory of firm-bank matching subject to search frictions. I estimate structurally my model on French data using the staggered rollout of Broadband Internet, from 1997 to 2007, as a shock that reduced search frictions. I show that both the allocation of credit the cost of debt for small businesses were affected by this shock. In chapter 2, we document that banks specialize locally by industry to reduce asymmetric information, and that this specialization shapes the equilibrium amount of borrowing by small firms. For identification, we exploit the reallocation of local clients from closed down branches to nearby branches of the same bank. We show that branch reallocation leads, on average, to a decline in small firm borrowing that is twice larger for firms reallocated to branches less specialized in their industry than the original one. In chapter 3, we study the macro implications of credit relationship flows. We show that banks actively adjust their lending supply along both extensive and intensive margins and that gross flows associated with credit relationships (i) are volatile and pervasive throughout the cycle, and (ii) can account for up to 46% of the cyclical and 90% of the long-run variations in aggregate bank credit. We also highlight the role of the extensive margin in the transmission of monetary. Finally, we study in chapter 4 the role of Broadband Internet in reducing search frictions faced by French importers. We use the staggered rollout of broadband internet to estimate its causal effect on the importing behavior of affected firms. We find that broadband expansion increases firm-level imports by around 25%. We further find that the "sub-extensive" margin (number of products and sourcing countries per firm) is the main channel of adjustment
    Abstract: Les quatre chapitres de cette thèse étudient les effets des frictions informationnelles dans les marchés du crédit et des biens. Le chapitre 1 étend l'étude des « frictions de recherche » aux marchés du crédit. Motivé par des évidences empiriques que je documente sur les marchés locaux du crédit, je propose une théorie de l'appariement entreprise-banque soumis à des frictions de recherche. J'estime structurellement mon modèle et montre qu'une baisse des frictions de recherche affecte l'allocation du crédit et les taux des prêts octroyés. Dans le chapitre 2, nous étudions la spécialisation locale des banques par industrie. Nous montrons que cette spécialisation affecte le montant d'équilibre des crédits octroyés aux petites entreprises. Pour l'identification, nous exploitons la réallocation des clients d'agences bancaires fermées vers des agences voisines. Nous montrons que la réaffectation des agences bancaires entraîne, en moyenne, une baisse du crédit octroyé aux petites entreprises, l'effet étant doublé pour les entreprises réaffectées vers des agences moins spécialisées dans leur secteur que leur agence d'origine. Dans le chapitre 3, nous étudions l'effet des frictions informationnelles sur l'allocation du crédit aux entreprises. Nous proposons une nouvelle perspective macroéconomique sur le processus d'intermédiation du crédit. Nous montrons que les banques ajustent activement leur offre de crédit selon les marges extensives et intensives et nous soulignons l'importance des flux bruts associés aux relations de crédit. Finalement, nous étudions dans le chapitre 4 le rôle de l'Internet haut-débit dans la réduction des frictions de recherche auxquelles sont confrontés les importateurs français. Nous montrons que l'expansion du haut débit a provoqué l'augmentation des importations des entreprises d'environ 25% et nous constatons que la marge "sub-extensive" (nombre de produits et de pays d'approvisionnement par entreprise) est le principal canal d'ajustement.
    Keywords: Informational frictions,Corporate finance,International trade,Broadband internet,Frictions informationnelles,Finance d'entreprise,Commerce international,Internet haut-débit
    Date: 2021–06–25
  7. By: Stephen Broadberry; Jagjit S. Chadha; Jason Lennard; Ryland Thomas
    Abstract: This paper constructs a new chronology of business cycles in the United Kingdom from 1700 on an annual basis and from 1920 on a quarterly basis. The new chronology points to a number of observations about the business cycle. First, the cycle has significantly increased in duration and amplitude over time. Second, contractions have become less frequent but are as persistent and costly as at other times in history. Third, the typical recession has been tick-shaped with a short contraction and longer recovery. Fourth, the major causes of downturns have been sectoral shocks, financial crises and wars.
    Keywords: business cycles, economic history, united kingdom
    JEL: E32 N13 N14
    Date: 2022–06
  8. By: Andre Teixeira (Universidade de Lisboa); Zoe Venter (Universidade Catolica Portuguesa)
    Abstract: This paper assesses the impact of macroprudential policy (MaPP) on aggregate demand in the EU between 2000-2019. Using a difference-in-differences approach, we find that MaPP reduces household consumption and increases firm investment. These effects are relatively mild in the short run but become more pronounced in the long run. Our findings point to a weaker macroeconomic impact than suggested in previous studies.
    Keywords: macroprudential policy; aggregate demand; difference-in-difference approach
    JEL: E
    Date: 2022
  9. By: Jose Garcia Revelo; Grégory Levieuge
    Abstract: This paper aims to provide a comprehensive analysis of the potential conflicts between macroprudential and monetary policies within a DGSE model with financial frictions. The identification of conflicts is conditional on different types of shocks, policy instruments, and policy objectives. We first find that conflicts are not systematic but are fairly frequent, especially in the case of supply-side and widespread shocks such as investment efficiency and bank capital shocks. Second, monetary policy and countercyclical capital requirements generate conflicts in many circumstances. By affecting interest rates, they both “get in all the cracks”, albeit with their respective targets generally moving in opposite directions. Nonetheless, monetary policy could reduce its adverse financial side effects by responding strongly to the output gap. Third, countercyclical loan-to-value caps, as sector-specific instruments, cause fewer conflicts. Thus, they can be more easily implemented without concerns about generating spillovers, whereas smooth coordination is required between state-contingent capital requirements and monetary policy.
    Keywords: Macroprudential Policy, Loan-to-Value, Countercyclical Buffer, Monetary Policy, Conflicts, DSGE Model
    JEL: E44 E58 E61
    Date: 2022
  10. By: Kazandziska, Milka
    Abstract: This paper contributes to the financialization literature exploring the dynamics of financialization in eight emerging European economies (EEEs) compared to the Anglo-Saxon countries. Our analysis encompasses the decade before and the years following the financial crisis in 2008, including the latest developments in conjunction with the Covid-pandemic. Hungary, Bulgaria, Croatia, Turkey, and to a lesser extent, Czech Republic and Poland experienced strong financial inflows, and an accumulation of foreign liabilities. Foreign financial flows in Russia were not as significant for the process of financialization, but rather the state itself. In this paper we identify two types of financialization: 'foreign-finance-led' and 'state-led' financialization, where 'foreign-finance-led' financialization is characterized by increase in net capital inflows and subsequently, foreign indebtedness, whereas the government (the state) in the 'state-led' financialization has a predominant role in the financialization process. Most of the EEEs fit the 'foreign-finance-led' financialization, but with a tendency of a significant state involvement in the financial systems during the Covid-pandemic. Based on the analysis of financialization in EEEs, our findings show that EEEs had variegated financialization dynamics. Financialization in the EEEs was less pronounced compared to United States and United Kingdom. Despite this fact, the dynamics of financialization took a significant pace in the EEEs in the years following the financial crisis of 2008, with rising debt levels during the Covid-pandemic.
    Keywords: financialization,financial crises,emerging countries,Central Eastern Europe
    JEL: E44 F34 F36 F65 G01 G20 P51 P52
    Date: 2022
  11. By: Xiang Fang; Bryan Hardy; Karen K. Lewis
    Abstract: This paper studies the impact of investor composition on the sovereign debt market and the implied funding costs to borrowers. We construct an aggregate data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over twenty years. We find that private non-bank investors absorb most of the increase in sovereign debt supply. We further find that foreign non-bank investor demand is most responsive to the yield for emerging market (EM) debt, while yield elasticity for all investors is much lower for advanced economy debt. We show that EM sovereigns are highly vulnerable to losing their foreign non-bank investors.
    JEL: F34 F41 G11 G15
    Date: 2022–05
  12. By: Lorant Kaszab (Department of Economics, Vienna University of Economics and Business, Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business, National Bank of Slovakia); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business)
    Abstract: We study the asset-pricing implications of changes in the variety of consumption goods which happens through free entry and exit of firms. Fluctuations in varieties drive a wedge between the measured and model-based (including variety growth) consumer price index making the pricing kernel as well as asset prices more volatile without driving up the volatility of consumption growth. Different from earlier endowment economy models of variety growth our model contains production which i) generates the correlations important for the explanation of the high mean and volatility of equity premium endogenously, and ii) leads to an increase of about 140 basis points in the risk-premia relative to the endowment model.
    Keywords: firm entry-exit, risk premium
    JEL: E32 E60 G12
    Date: 2022–05
  13. By: Lorant Kaszab (Department of Economics, Vienna University of Economics and Business, Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business, National Bank of Slovakia); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business)
    Abstract: Survey evidence tells us that stock prices reflect the risks investors associate with long-run technological change. However, there is a shortage of models that can rationalise long-run risks. Unlike the previous literature assuming a fixed number of products our model allows for new product varieties that appear in the form of new firms which face entry costs and delay in the entry process. The fixed variety model has a significant limitation in translating macroeconomic volatility into asset return volatility. Our model with growing varieties induces endogenous low-frequency fluctuations in productivity driving large persistent variations in consumption growth and asset prices. It also changes the valuation of assets through the increase in the volatility of the pricing kernel (with a positive long-run component) and leads to higher excess returns. Our model is motivated with a simple recursively identifed VAR model containing quarterly US data 1992Q3-2019Q4 with the following list of variables: total factor productivity, consumption, a measure of firm entry, and the excess return on stocks.
    Keywords: ?rm entry, equity premium, Epstein-Zin, New Keynesian
    JEL: E13 E31 E43 E44 E62
    Date: 2022–05
  14. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We propose a model where monetary policy is the key determinant of aggregate asset prices (financial conditions). Spending decisions are made by a group of agents ("households") that respond to aggregate asset prices, but with noise, delays, and inertia. Asset pricing is determined by a different group of forward-looking agents ("the market"). The central bank ("the Fed") targets asset prices to close the output gap. Our model explains several facts, including why the Fed stabilizes asset price fluctuations driven by financial market shocks ("the Fed put/call"), but destabilizes asset prices in response to aggregate demand or supply shocks that induce macroeconomic imbalances (as in the late stages of the Covid-19 recovery). Although the Fed targets asset prices, it "cooperates" with the market to achieve its desired asset price. When the market and the Fed have different beliefs, the market perceives monetary policy "mistakes" that influence the policy rate the Fed needs to set. These perceived "mistakes" induce a policy risk premium and may generate a "behind the curve" phenomenon.
    JEL: E32 E43 E44 E52 G12
    Date: 2022–06
  15. By: Itskhoki, Oleg; Mukhin, Dmitry
    Abstract: We propose a dynamic general equilibrium model of exchange rate determination that accounts for all major exchange rate puzzles, including Meese-Rogoff, Backus-Smith, purchasing power parity, and uncovered interest rate parity puzzles. We build on a standard international real business cycle model with home bias in consumption, augmented with shocks in the financial market that result in a volatile near-martingale behavior of exchange rates and ensure their empirically relevant comove-ment with macroeconomic variables, both nominal and real. Combining financial shocks with conventional productivity and monetary shocks allows the model to reproduce the exchange rate disconnect properties without compromising the fit of the business cycle moments.
    JEL: F3 G3 J1
    Date: 2021–08–01
  16. By: Elsayed, Ahmed H.; Sousa, Ricardo M.
    Abstract: Using daily data over the period August 5, 2013–September 27, 2019, this study investigates the dynamic spillovers between international monetary policies across four major economies (i.e. Eurozone, Japan, UK and US) and three key cryptocurrencies (i.e. Bitcoin, Litecoin and Ripple). In doing so, we apply a Time-Varying Parameter Vector Auto-Regression (TVP-VAR) model, a dynamic connectedness approach and network analysis. The empirical results indicate that cryptocurrency returns and monetary policy spillovers were particularly large when shadow policy rates became negative, moderated during the Fed's ‘tapering process’, and sharpened again more recently as cryptocurrency buoyancy returned. Gross directional spillovers suggest that shadow policy rates have more ‘to give than to receive’, while those from and to cryptocurrency returns are naturally volatile. There is also strong interconnectedness between monetary policy in either the US or the Eurozone and the UK, and between Bitcoin and Litecoin. However, the spillovers across monetary policy and cryptocurrencies tend to be muted. Finally, spillovers were only slightly larger during the Fed's ‘unconventional’ policy compared to the ‘standard’ era, but their composition qualitatively changed over time.
    Keywords: cryptocurrency; interconnectedness; international transmission; Monetary policy; spillovers; time-variation
    JEL: F3 G3
    Date: 2022–05–16
  17. By: Dimitar Mihaela Simionescu (Institute for Economic Forecasting of the Romanian Academy)
    Abstract: Knowing that insurance market might be sensitive to economic evolutions, the aim of this paper is to investigate the effect of few macroeconomic indicators on non-life insurance market in the Baltic States in the period 1993-2020. The results based on panel data models and panel cointegration suggest a low impact of economic growth on non-life insurance market described by direct premium written, insurance density, insurance penetration for non-life segment. Expenditure on tertiary education has a more significant impact on non-life insurance market, while growth in unemployment rates reduces the development of this market. All in all, this study validates the hypothesis that people with higher education are more eager to buy insurance products. On the other hand, the development of this sector has not determined yet sustainable development of the Baltic economies.
    Keywords: non-life insurance market, direct premium written, insurance density, insurance penetration
    JEL: C51 C53
    Date: 2022–06
  18. By: Faty Dembele; Timothy Randall; David Vilalta; Vanessa Bangun
    Abstract: Initially launched in 2017, the OECD annual Blended finance Funds and Facilities Survey compiles and analyses information on collective investment vehicles, one of the primary channels for blended finance. In 2020, the third annual edition captured 198 vehicles, representing USD 75 billion assets under management. The survey helps policy makers and private sector actors better grasp the size and shape of a segment of the blended finance market. By bringing together data of different development actors that, collectively, are a significant contributor to sustainable finance, this survey makes an important contribution to enhancing understanding and transparency. Transparency is increased through the data collection and analysis, and understanding is increased through the aggregation of the data that highlight the main investments trends. The quantitative analysis is complemented by OECD statistics on private finance mobilised by official development interventions, as well as by information provided by other specialised institutions. This new evidence confirms trends observed on the broader blended finance market in terms of priority sectors, geographical coverage and the Sustainable Development Goals targeted. This year’s edition also explores additional aspects such as investors, clients and investment instruments, and has a particular focus on gender.
    Keywords: blended finance, development finance, dfis, funds and facilities, private sector mobilization, sdgs
    JEL: E44 F35 F63 F65 F68 O16 O2 F3
    Date: 2022–06–22
  19. By: OECD; European Commission
    Abstract: This policy brief on access to finance for inclusive and social entrepreneurship was produced by the OECD and the European Commission. It presents evidence on the access to finance challenges faced by entrepreneurs from under-represented and disadvantaged groups and social entrepreneurs, and discusses how public policy could harness the potential of fintech to address these challenges. This covers crowdfunding, blockchain and the application of big data to finance for inclusive and social entrepreneurship. The policy brief also discusses the growing need for governments to strengthen financial literacy among the target groups of inclusive and social entrepreneurship policy, including with respect to fintech. Different policy approaches are discussed, including embedding financial literacy training in financial intermediation.
    Date: 2022–07–04
  20. By: International Monetary Fund
    Abstract: Selected Issues
    Date: 2022–06–07
  21. By: Chukwuebuka Bernard Azolibe (Nnamdi Azikiwe University Awka, Nigeria); Stephen Kelechi Dimnwobi (Nnamdi Azikiwe University Awka, Nigeria); Chidiebube Peace Uzochukwu-Obi (Nnamdi Azikiwe University Awka, Nigeria)
    Abstract: In developing countries, banks play a major role by acting as a conduit for the effective mobilization of funds from the surplus sectors of an economy for onward lending to the deficit sectors for productive investments that will in turn increase the level of employment and economic growth. There has being a rising trend in unemployment rate in Nigeria and South Africa and hence, the need for the study to assess the effectiveness of banking system credit in curbing unemployment rate by making a comparative analysis of Nigeria and South Africa covering period of 1991 to 2018. The study employed the unit root test, Johansen cointegration test, vector error correction model and VAR impulse response function in determining the relationship between the variables. The major findings revealed that banking system credit matters in curbing unemployment rate in South Africa than in Nigeria. Also, other macroeconomic factors such as lending rate, inflation rate, Government expenditure and population growth were significant enough in influencing unemployment rate in South Africa than in Nigeria. While foreign direct investment was a significant factor in reducing unemployment rate in Nigeria than in South Africa. The cointegration test showed a long-run relationship between the variables in both countries while the speed of adjustment coefficient of the vector error correction model is faster in South Africa than in Nigeria. Previous empirical studies on the relationship between banking system credit and unemployment rate have focused much on other regions such as Asia and Europe. Thus, the study is unique as it focused on the African region and also made a comparative analysis by testing the Keynesian theory of employment, interest and money on two emerging African economies which are Nigeria and South Africa.
    Keywords: Banking system credit, unemployment rate, macroeconomic factors, comparative analysis
    JEL: E51 E24 E6
    Date: 2022–01
  22. By: Phan, Trang Hoai; Stachuletz, Rainer; Nguyen, Hai Thi Hong
    Abstract: The growing demand for goods and technology increases capital requirements, especially in exporting enterprises. However, many firms have difficulty accessing external capital due to institutional obstacles. This study analyzes two main issues: the influence of institutional obstacles on credit constraints and the relationship between credit constraints and export decisions, adopting firm-level data from 131 countries. The study’s remarkable contribution is to cluster the data into four country groups based on their national income. The typical specification of each group can lead to more precise results, thereby highlighting the role of institutions. More advanced, this study complements the literature’s gap in the relationship between credit constraints and exports by controlling for institutions as interactive variables in the model. This work upgrades assessments to be more accurate, thereby providing more valuable information to policymakers. In addition, credit constraints are measured by both quantitative and qualitative methods. The essential role of firm size is emphasized in further analysis. This study approaches the Probit method. Furthermore, an instrumental variable is used to solve the endogeneity problem. The results found that a weak institution prevents access to finance, especially in middle-income countries. In addition, firms’ access to capital negatively affects exports in all regions. The finding in the group of rich countries is most pronounced.
    Date: 2022
  23. By: Possner, Annkathrin; Rosero, Gabriel; Musshoff, Oliver
    Abstract: The poor and rural population in Sub Saharan Africa suffers from low financial inclusion. Yet, excluding population parts from accessing formal financial services means lost opportunity for household level, as well as for the whole economy. Evidence suggests that formal saving helps to accumulate larger amounts: Recent studies show how saving contributes to smoothing consumption and increasing resilience. A powerful tool for enhancing marginalized groups’ financial inclusion are mobile financial services. In Ghana’s rapidly developing banking and savings sector open questions remain. We investigate factors affecting Ghanaian cocoa farmers decision to save, as well as their savings amount. Among other factors, we focus on different savings instruments such as mobile saving on the phone, bank accounts or the traditional group saving method Susu. We employ data from a structured telephone survey conducted in 2021 among 405 randomly sampled cocoa farmers. The results of a two-step Heckman approach show that, while Susu or a bank account enhance savings, saving on the phone is associated with lower amounts. However, female farmers seem to benefit from this technology. In the light of recent policies issued by the Ghanaian government, directed at fortifying the digital finance sector, our results provide valuable information for public policy makers as well as the private sector.
    Keywords: Agricultural Finance, Consumer/Household Economics
    Date: 2022–04
  24. By: Ryuichiro Hashimoto (Bank of Japan); Nao Sudo (Bank of Japan)
    Abstract: This paper quantitatively assesses the indirect effect of floods on the real economy and financial intermediation in Japan by estimating a dynamic stochastic general equilibrium (DSGE) model that incorporates a mechanism through which floods cause the capital stock and the public infrastructure to depreciate exogenously, using the data on flood damage recorded in the Flood Statistics released by the Japanese government. The result of the analysis is twofold. First, flood shocks dampen GDP from the supply side by reducing the capital stock inputs. The decline in GDP then impairs the balance sheets of firms and financial intermediaries, resulting in disruptions to financial intermediation and thus dampening GDP further from the demand side. Even when the direct damage due to floods is fully covered by insurance, the downward pressure on GDP endogenously deteriorates the balance sheets of these sectors, causing the same mechanism to operate. Second, the quantitative impacts of flood shocks on GDP up to now have been minor compared to the standard structural shocks that are considered important in existing macroeconomic studies, including shocks to total factor productivity (TFP) and the subjective discount factor. According to the estimates that use the relationship between the key variables in our model together with climate change scenarios published by an external organization, the impacts of these shocks could become somewhat larger in the future.
    Keywords: Climate change; Natural disasters; Physical risk; Financial System; DSGE model
    JEL: E32 E37 E44 Q54
    Date: 2022–06–03
  25. By: Sandra Aguilar-Gomez (University of California, San Diego); Emilio Gutierrez (Department of Economics, ITAM); David Heres (Banco de México, Financial Stability Department); David Jaume (Banco de México, Financial Stability Department); Martin Tobal (Banco de México, Financial Stability Department)
    Abstract: The frequency and intensity of extreme weather events are likely to increase with climate change. Although a growing body of literature shows that extreme weather has a negative impact on economic outcomes, there is lack of evidence about how it affects firm’s credit delinquency and credit use. This question is relevant for Low and Middle Income Economies, where institutions are frequently less prepared to deal with informational asymmetries and credit market are frequently shallow. We fill this gap by exploiting an extraordinarily detailed data set with loan-level information for the universe of loans extended by commercial banks to private firms in Mexico. Exploiting differences across Mexican counties over time, we find that anomalous days of extreme temperature increase the rate of non-performing loans and that this result is mainly driven by extreme heat. The effect is concentrated in the agricultural sector but there is also a nonnegligible impact on the non-agriculture industries that are more dependent on local demand. Our results are consistent with general equilibrium effects originated in agriculture that expand to non-agriculture sectors in agricultural regions.
    Keywords: Extreme temperatures, Default, Firm credit, Agriculture.
    JEL: D25 Q54 Q14
    Date: 2022–06

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