nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒01‒02
twenty-six papers chosen by
Georg Man

  1. Foreign Direct Investment and Inclusive Green Growth in Africa: Energy Efficiency Contingencies and Thresholds By Ofori, Isaac K.; Gbolonyo, Emmanuel Y.; Ojong, Nathanael
  2. The determinants of domestic saving in Kenya By Rodgers Musamali; Cecilia Mutia; Rose W. Ngugi
  3. The influence of COVID-19 on remittances: potential development outcomes By Mavrotas, George; Van den Bosch, Catherine
  4. Does FDI increase product innovation of domestic firms? Evidence from China By Lu, Yue; Deng, Lijing; Tang, Yao
  5. FDI Flows and the Effects of the Shadow Economy: Evidence from Gravity Modelling By Tobias Zander
  6. Is international tax competition only about taxes? A market-based perspective By Céline Azémar; Rodolphe Desbordes; Ian Wooton
  7. The growing importance of investment funds in capital flows By Richard Schmidt; Pinar Yesin
  8. Asset supply and liquidity transformation in HANK By Yu-Ting Chiang; Piotr Zoch
  9. Fiscal, Environmental, and Bank Regulation Policies in a Small Open Economy for the Green Transition By Patrick Gruning
  10. Financial integration, productive development and fiscal policy space in developing countries By Alberto Botta; Gabriel Porcile; Danilo Spinola; Giuliano Toshiro Yajima
  11. Estimating financial integration in Europe: How to separate structural trends from cyclical fluctuations By Lake, Alfred; Maurin, Laurent; Minnella, Enrico
  12. Quantifying Reduced-Form Evidence on Collateral Constraints By Sylvain Catherine; Thomas Chaney; Zongbo Huang; David Sraer; David Thesmar
  13. The scarring effects of deep contractions By Aikman, David; Drehmann, Mathias; Juselius, Mikael; Xing, Xiaochuan
  14. A Positive Effect of Uncertainty Shocks on the Economy: Is the Chase Over ? By Francisco Serranito; Julien Vauday; Nicolas Himounet
  15. Introduction of the composite indicator of cyclical systemic risk in Croatia: possibilities and limitations By Tihana Škrinjarić
  16. Real interest rates, bank borrowing, and fragility By Ahnert, Toni; Anand, Kartik; König, Philipp Johann
  17. Precision of public information disclosures, banks' stability and welfare By Moreno, Diego; Takalo, Tuomas
  18. Public funding of banks and firms in a time of crisis By Haavio, Markus; Ripatti, Antti; Takalo, Tuomas
  19. Does Bank Monitoring Affect Loan Repayment? By Nicola Branzoli; Fulvia Fringuellotti
  20. What drives bank lending policy? The evidence from bank lending survey for Poland By Ewa Wróbel
  21. The US Banks’ Balance Sheet Transmission Channel of Oil Price Shocks By Paolo Gelain; Marco Lorusso
  22. The Fisher Effect and the Financial Crisis of 2008 By Glasner, David
  23. Benefits and Costs of a Higher Bank Leverage Ratio By Miller, Steph; Barth, James
  24. Monetary policy and inequality: The Finnish case By Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha
  25. Undesired monetary policy effects in a bubbly economy By Giuseppe Ciccarone; Francesco Giuli
  26. Money, E-money, and Consumer Welfare By Carli, Francesco; Uras, Burak

  1. By: Ofori, Isaac K.; Gbolonyo, Emmanuel Y.; Ojong, Nathanael
    Abstract: Despite the growing number of empirical studies on foreign direct investment (FDI) and energy efficiency (EE) as they relate to green growth, there remains an empirical research gap with respect to whether EE can engender positive synergy with FDI to foster inclusive green growth (IGG) in Africa. Also, little has been done to show the IGG gains from improving EE in both the short and long terms. Thus, this paper aims to investigate whether there exists a relevant synergy between EE and FDI in fostering IGG in Africa by using macrodata for 23 countries from 2000 to 2020. According to our findings, which are based on dynamic GMM estimator, FDI hampers IGG in Africa, while EE fosters IGG. Notably, in the presence of EE, the environmental-quality-deterioration effect of FDI is reduced. Additional evidence by way of threshold analysis indicates that improving EE in Africa generates positive sustainable development gains in both the short and long terms. This study suggests that a country’s drive to attract FDI needs to be accompanied by appropriate policy options to promote energy efficiency.
    Keywords: Africa; Energy efficiency; FDI; Inclusive Green Growth; Greenhouse Gases; Environmental Sustainability
    JEL: F2 F21 O11 O44 O55 Q01 Q43 Q56
    Date: 2022–07–17
  2. By: Rodgers Musamali; Cecilia Mutia; Rose W. Ngugi
    Abstract: The savings-growth nexus is widely acknowledged, both in policy and in the literature. But Kenya's numerous policy initiatives to encourage savings mobilization are yet to yield the expected outcomes. This paper identifies the key drivers of domestic saving in Kenya, exploiting fintech as an alternative channel for savings mobilization, and drawing lessons from the Kenyan experience so far.
    Keywords: Domestic savings, Growth, Policy, Fintech, Kenya
    Date: 2022
  3. By: Mavrotas, George; Van den Bosch, Catherine
    Abstract: Recent years have witnessed a growing importance of remittances with remittance flows to low and middle income countries in particular surpassing both Official Development Assistance (ODA) and Foreign Direct Investment (FDI). However, the very recent developments associated with the unprecedented COVID-19 pandemic had a major impact on various fronts including remittances, particularly in some countries and regions, thus resulting in potential negative economic and social effects. Against this background, the paper contributes to the growing recent literature on the impact of the pandemic in developing countries by trying to examine the influence of COVID-19 on remittances and provide insights into the potential developmental effects this could have in recipient countries. In particular the paper tries to address the following research questions: (1) In what way has the pandemic influenced trends in remittances? and (2) what potential influence does the COVID-19-induced drop in remittances have on development? To address the above questions we discuss the insights emerging from global studies on the economic and social impacts of remittances and we also use some new data currently available to demonstrate the potential impact of the pandemic on development outcomes. We found that both the annual remittance data and the survey data from the World Bank provide evidence that remittance inflows in a substantial number of countries decreased in 2020. Our simple empirical analysis based on the limited data currently available suggests a non-existent or, at best, weak positive relationship between the decline in remittances and food insecurity. In addition, we found a moderate positive correlation between these remittance reductions and households’ inability to pay for medical care. A moderate negative correlation was also found to exist between COVID-19-induced changes in remittances and educational activity. Needless to say, in view of the various data limitations, the reported findings are only tentative and they should be treated as such. Hopefully, as better and more data become available in the near future, researchers will be able to address these important research questions in more detail so we can delve deeper into the overall impact of the pandemic on remittances at the global, regional and country level.
    Keywords: COVID-19, remittances
    Date: 2022–10
  4. By: Lu, Yue; Deng, Lijing; Tang, Yao
    Abstract: Exploiting a change in policy governing the entry of foreign direct investment (FDI) in 2002, we apply the difference-in-differences model to estimate the effect of FDI on the product scope of domestic Chinese firms. In industries that experienced relaxation in FDI regulations, the average product scope increased by 5% which indicates a rise in product innovation. FDI's spillovers along vertical linkages are also important, as we find that the product scope of firms is positively affected by FDI in upstream industries, but negatively affected by FDI in downstream industries. Further analysis shows that the negative effect of FDI in downstream industries is mainly concentrated in industries with a high level of processing trade, as firms in those industries rely more on imported inputs and have less contact with domestic suppliers. The main channels of effect are firm-level R&D and industry-level technological distance, as the entry of FDI leads to an improvement in these variables. Positive effects are found in medium- and low-tech industries but not in high-tech industries, indicating that indigenous effort is important for product innovation in high-tech industries.
    Keywords: Foreign direct investment, product scope, Chinese firms
    JEL: F2 L5 O3
    Date: 2022–11–26
  5. By: Tobias Zander (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: This paper analyzes the question of if the size of shadow economy has an effect on foreign direct investment (FDI) flows and what effects, if any, there are. Since about 1990, FDI has become the second crucial pillar of economic globalization in OECD countries and worldwide; such FDI inward and outward flows contribute to higher per capita income and international technology transfer. To analyze this question, both fixed effects as well as dyadic fixed effects gravity models are used on an OECD-only dataset that allow for data on bilateral, bidirectional FDI flows for the years from 1992-2018. The empirical results suggest a positive effect of the shadow economy for FDI target countries and a negative effect for FDI origin countries. Additional findings via an interaction term show that the shadow economy can counteract negative effects of an increase in government size on FDI inflows. In a policy perspective, changes of the size of the shadow economy – typically taking place in periods of recession, in a high taxation environment or in the context of a pandemic shock – should be carefully monitored by economic policymakers as well as by policy monitoring international organizations such as the IMF and the EBRD. If a group of (OECD) countries decides to adopt anti-shadow economy economic policies, there will be pressure on other (OECD) countries to also adopt similar policies since the difference between the size of the shadow economy in the source country and the host country has a negative impact on FDI inflows. Thus, FDI could indirectly be a catalyst for reforms.
    Keywords: International Economics, Foreign Direct Investment, Gravity Model, Shadow Economy
    JEL: C23 E26 F21 F23
    Date: 2022–08
  6. By: Céline Azémar (Adam Smith Business School - University of Glasgow, ESC [Rennes] - ESC Rennes School of Business); Rodolphe Desbordes (SKEMA Business School); Ian Wooton (University of Strathclyde [Glasgow])
    Abstract: This paper revisits tax competition among governments for foreign direct investment (FDI) by considering the role played by the economic dynamism of competitors on the setting of corporate tax rates (CTRs). Using a database with worldwide coverage over the period 1995–2014, we find that strong growth performance of neighbouring countries is associated with a lower CTR, especially in developed countries. This spatial effect is particularly manifest if competing countries are large and open to capital flows. These results appear to hold in most regions of the world and suggest that governments perceive foreign economic dynamism as a threat, leading them to reduce their CTRs to maintain their FDI attractiveness.
    Keywords: Tax competition,Country size,Foreign direct investment,Developing countries,Free-trade zones,Spatial lag
    Date: 2020–12
  7. By: Richard Schmidt; Pinar Yesin
    Abstract: In this paper, we first document the growing importance of foreign-domiciled investment funds in countries' portfolio liabilities over time and then show empirical evidence that cross-border fund flows are coincident with asset price movements. To measure the external liabilities of countries to foreign-domiciled funds, we complement conventional balance of payments and international investment position data with granular and real-time fund flows data. We find that the external exposure of countries to investment funds has been steadily increasing both for advanced and emerging market economies. Furthermore, we find that this increased external exposure is coincident with higher exchange rate fluctuations, lower bond yields and higher stock returns. Because sustainability-themed investment funds are growing faster than conventional investment funds, we also focus on Environmental, Social and Governance (ESG) funds and construct an index of sustainable finance that can distinguish between its domestic and cross-border components. Our index reveals that ESG funds domiciled in European countries tend to invest predominantly in domestic markets, whereas ESG investment in emerging market economies to a large extent originates from foreign-domiciled investment funds.
    Keywords: Investment funds, portfolio investment, fund flows, ESG funds, financial markets
    JEL: F32 G15 G23
    Date: 2022
  8. By: Yu-Ting Chiang; Piotr Zoch
    Abstract: We study how the financial sector affects fiscal and monetary policy in heterogeneous agent New Keynesian (HANK) economies. We show that, in a large class of models of financial intermediation, relevant features of the financial sector are summarized by the elasticities of a liquid asset supply function. The financial sector in these models affects aggregate responses only through its ability to perform liquidity transformation (i.e., issue liquid assets to finance illiquid capital). If liquid asset supply responds inelastically to returns on capital (low cross-price elasticities), disturbances in the liquid asset market generate large responses in aggregate demand through adjustments in capital prices. Assumptions about the financial sector are not innocuous quantitatively. In commonly used setups that imply different liquid asset supply elasticities, aggregate output responses to an unexpected deficit-financed government transfer can differ by a factor of three.
    Keywords: financial frictions; liquidity; monetary policy; fiscal policy; Heterogeneous-agent New Keynesian (HANK) model
    JEL: E2 E6 H3 H6
    Date: 2022–11–28
  9. By: Patrick Gruning (Latvijas Banka)
    Abstract: This study develops a small open economy dynamic stochastic general equilibrium model with green and brown intermediate goods, banks subject to capital requirements, and public investment. The domestic economy might face domestic or foreign carbon taxes and an emissions cap. The model is used to analyze which environmental, fiscal, and bank regulation policies are effective facilitators of the domestic economy’s green transition and the costs involved. Among the policies that can generate an exogenously imposed and fixed emissions reduction, most costly is the exogenous world brown energy price increase, followed by the emissions cap reduction, while the introduction of domestic carbon taxes does not change GDP in the long run. The reason for this stark difference is that domestic carbon taxes and emissions cap violation penalties are used to stimulate public green investment. However, only domestic carbon tax revenues are substantial as brown entrepreneurs do not violate theemissions cap in equilibrium. Bank regulation policies and other fiscal policies are not capable of generating large emissions reductions. During the green transition induced by domestic carbon taxes, the first years of the transition are characterized by a run on brown energy in anticipation of higher prices in the future.
    Keywords: small open economy, climate transition risk, energy, environmental policy, bank regulation, public investment
    JEL: E30 F41 G28 H23 H41 Q50
    Date: 2022–12–01
  10. By: Alberto Botta; Gabriel Porcile; Danilo Spinola; Giuliano Toshiro Yajima
    Abstract: This paper offers a simple, tractable post-Keynesian model, which highlights the importance of structural change and productive development in defining the dynamics of the Real Exchange Rate (RER) and foreign debt in a small open developing economy. The argument is that in countries that keep the capital account open and rely on austerity policies to induce a notional surplus in the Balance of Payment, the RER can hardly be used as a tool aimed at smoothing the impacts of changes in international financial markets (as argued in the classical macroeconomic trilemma). In our model, capital flows and fluctuations in the RER endogenously feed back into each other and give rise to cyclical macroeconomic volatility. Fiscal austerity supposedly taming external imbalances exacerbates such instability. More diversified productive structures and stronger non-price competitiveness open more space for expansionary fiscal policies, make the economy more resilient to finance-led macroeconomic cycles, and make external debt more sustainable. Capital controls together with stronger price sensitivity of net exports can further stabilize the economy. The paper carries important policy implications, in particular for the combination of industrial and macroprudential policies in peripheral economies, whose pattern of specialization is highly dependent on a few, low-tech commodities. The adoption of industrial policies to foster non-price competitiveness and diversification is critical to sustain macroeconomic stability, both in the short and the long run.
    Keywords: Structural Change; Capital Inflows; Macroprudential Policies
    JEL: F32 F38 O30
    Date: 2022–12
  11. By: Lake, Alfred; Maurin, Laurent; Minnella, Enrico
    Abstract: We construct a new indicator of de facto financial integration in the EU. The resulting indicator is pro-cyclical as it evolves along the cyclical pattern of economic activity in the European Union. It is then appended to a set of relevant financial and macroeconomic variables, within a FAVAR framework, to allow us to separate the impact of cyclical boom-bust shocks from structural integration shocks. Increasing structural financial integration tends to improve risk absorption and reduce income disparities among European countries. However, our analysis suggests that most of the movements in the indicator reflect business cycle dynamics, not proper integration. Given the estimated beneficial effects of stronger structural financial integration, these results highlight the need to develop further policies to foster it in the EU.
    Keywords: Business Cycle,FAVAR Models,Financial Markets,Macroeconomic Shocks
    JEL: E44 F36 F44 G15
    Date: 2022
  12. By: Sylvain Catherine (University of Pennsylvania [Philadelphia]); Thomas Chaney (USC - University of Southern California, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Zongbo Huang (The Chinese University of Hong Kong [Hong Kong], Shenzhen University [Shenzhen]); David Sraer (University of California [Berkeley] - University of California, CEPR - Center for Economic Policy Research - CEPR, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research); David Thesmar (MIT - Massachusetts Institute of Technology, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research - CEPR)
    Abstract: This paper quantifies the aggregate effects of financing constraints. We start from a standard dynamic investment model with collateral constraints. In contrast to the existing quantitative literature, our estimation does not target the mean leverage ratio to identify the scope of financing frictions. Instead, we use a reduced-form coefficient from the recent corporate finance literature that connects exogenous debt capacity shocks to corporate investment. Relative to a frictionless benchmark, collateral constraints induce losses of 7.1% for output and 1.4% for total factor productivity (TFP) (misallocation). We show these estimated losses tend to be more robust to misspecification than estimates obtained by targeting leverage.
    Date: 2022–08
  13. By: Aikman, David; Drehmann, Mathias; Juselius, Mikael; Xing, Xiaochuan
    Abstract: We find that deep contractions have highly persistent scarring effects, depressing the level of GDP at least a decade hence. Drawing on a panel of 24 advanced and emerging economies from 1970 to the present, we show that these effects are nonlinear and asymmetric: there is no such persistence following less severe contractions or large expansions. While scarring after financial crises is well known, it also occurred after the deep contractions of the 1970s and 1980s that followed energy price shocks and restrictive monetary policy to combat high inflation. These results are very robust and have important implications for policy making and macro modelling.
    Keywords: Hysteresis,nonlinearity,financial crises,monetary policy,oil shocks
    JEL: E32 E37 G01
    Date: 2022
  14. By: Francisco Serranito; Julien Vauday; Nicolas Himounet
    Abstract: How large and persistent are the effects of uncertainty shocks on the economy? Are the effects of macroeconomic uncertainty shocks different from those of financial uncertainty shocks? In the empirical literature there was a consensus on an estimated negative impactof uncertainty on macroeconomic variables. Recently, some studies identifying shocks with a novel methodology, namely the events constraint approach, find that macroeconomic uncertainty shocks may trigger an increase in the industrial production. The goal of this paperis to question this striking result. We have identified two main shortcomings in this literature that could explain the positive correlation between macroeconomic uncertainty and economic activity. We show that this method of identification can be sensitive dependingon how to identify and select the structural uncertainty shocks in a SVAR model. Our main conclusion is that the controversial result of a positive effect of macroeconomic uncertainty on economic activity does not yet seem to be proven. Whether financial or macroeconomic,there is no evidence allowing for rejection of the hypothesis that they have a negative impact on economic activity.
    Keywords: Uncertainty, SVAR, Narrative Sign Restrictions, Economic Activity
    JEL: D80 E32
    Date: 2022
  15. By: Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska)
    Abstract: Macroprudential policy has the important task of monitoring the accumulation of cyclical systemic risks, using a wide range of indicators. Decisions on the use of instruments that seek to mitigate the pro-cyclicality of the system should be made according to properly defined and stable indicators that signal future trends in the cycle itself. In its Recommendation, the European Systemic Risk Board considers several important categories of indicators for monitoring cyclical risks. Since the credit gap, the main indicator of cyclical risks, has shown numerous shortcomings in practice over the years, composite indicators have been developed in the literature. As there has been no such composite indicator in Croatia so far, this research considers several popular approaches to constructing composite indicators of cyclical risks for Croatia. As there are several different approaches currently available, this research considers their characteristics, advantages and shortcomings, with special reference to Croatian data. Comparing the composite financial cycle indicator, the cyclogram, the systemic cyclical risk indicator, as well as additional possibilities of data aggregation in terms of principal component analysis and the overheating index, the results indicate that the issue of defining an adequate indicator for Croatia is a demanding task. This is due to the short time series, the absence of characteristics of other types of crises that are available for other countries, the instability of certain variables relevant for monitoring cyclical risks, complexity of communication with the public, etc. Finally, based on the discussion, the best indicator is chosen, and the possibilities of calibrating the countercyclical capital buffer are considered. This paper provides an overview of different approaches, with a special focus on a comparison of them, which has not been dealt with in the literature. It provides proposals for improving individual indicators and analyses the possibility of calibrating the countercyclical capital buffer.
    Keywords: systemic risk, macroprudential policy, countercyclical capital buffer, composite indicators, cyclical risks
    JEL: C14 C32 E32
    Date: 2022–11–29
  16. By: Ahnert, Toni; Anand, Kartik; König, Philipp Johann
    Abstract: How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank’s optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of borrowing, both of which influence bank fragility in opposite directions. Thus, the marginal impact of changes to the interest rate on bank fragility depends on the level of the interest rate. Finally, we derive testable implications that may guide future empirical work. JEL Classification: G01, G21, G28
    Keywords: bank borrowing, fragility, funding liquidity risk channel, global games, real interest rates, rollover risk
    Date: 2022–12
  17. By: Moreno, Diego; Takalo, Tuomas
    Abstract: We study the optimal precision of public information disclosures about banksíassets quality. In our model the precision of information a§ects banksí cost of raising funding and asset proÖle riskiness. In an imperfectly competitive banking sector, banksístability and social surplus are non-monotonic functions of precision: an intermediate precision (or low-to-intermediate precision if banks contract their repayment promises on public information) maximizes stability, and also yields the maximum surplus when the social cost of bank failure c is large. When c is small and the banksíasset risk taking is not too sensitive to changes in the precision, the maximum surplus (and maximum risk) are reached at maximal precision. In a perfectly competitive banking sector in which banksíasset risk taking is not too sensitive to the precision of information, the maximum surplus (and maximum risk) are reached at maximal precision, while maximum stability is reached at minimal precision.
    Keywords: financial stability,stress tests,bank transparency,banking regulation
    JEL: G21 G28 D83
    Date: 2021
  18. By: Haavio, Markus; Ripatti, Antti; Takalo, Tuomas
    Abstract: We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more effective in stabilizing the economy than direct funding to firms, but it also creates larger distortions. We show that the optimal, social-welfare-maximizing, structure of a public funding program depends on its size. Small funding programs should target banks while large programs should be directed at non-financial firms.
    Keywords: economic crises,optimal public funding,financial frictions,macro-financial linkages
    JEL: E44 G21 G28 G38 H12 H81
    Date: 2022
  19. By: Nicola Branzoli; Fulvia Fringuellotti
    Abstract: Banks monitor borrowers after originating loans to reduce moral hazard and prevent loan losses. While monitoring represents an important activity of bank business, evidence on its effect on loan repayment is scant. In this post, which is based on our recent paper, we shed light on whether bank monitoring fosters loan repayment and to what extent it does so.
    Keywords: bank monitoring; nonperforming loans; tax policy; financial intermediation; banks
    JEL: G2 G3
    Date: 2022–12–02
  20. By: Ewa Wróbel (Narodowy Bank Polski)
    Abstract: Based on aggregate data from the lending survey for Poland and using a series of structural vector autoregressive models, we show that credit market sentiments, bank capital position and quality of banks’ balance sheets are the most important drivers of bank lending standards, terms and conditions for the corporate sector. Also, we demonstrate that albeit with some delay, monetary policy shocks affect bank lending policy and additionally have some bearing on credit market sentiments, quality of bank balance sheets and competition. Innovations to the business sector activity and to demand for credit play a minor role for bank lending policy.
    Keywords: bank credit, lending standards, terms and conditions, structural vector autoregressive model
    JEL: E44 E51 G21
    Date: 2022
  21. By: Paolo Gelain; Marco Lorusso
    Abstract: We document the existence of a quantitative relevant banks' balance-sheet transmission channel of oil price shocks by estimating a dynamic stochastic general equilibrium model with banking and oil sectors. The associated amplification mechanism implies that those shocks explain a non-negligible share of US GDP growth fluctuations, up to 17 percent, instead of 6 percent absent the banking sector. Also, they mitigated the severity of the Great Recession’s trough. GDP growth would have been 2.48 percentage points more negative in 2008Q4 without the beneficial effect of low oil prices. The estimate without the banking sector is only 1.30 percentage points.
    Keywords: oil price shocks; DSGE models; financial frictions
    JEL: E32 E44 Q35 Q43
    Date: 2022–11–15
  22. By: Glasner, David (Mercury Publication)
    Abstract: In 2010 I wrote a paper “The Fisher Effect Under Deflationary Expectations†providing a conceptual framework for thinking about the financial panic of 2008 and the subsequent recession and weak recovery. The main theoretical point of the paper was that th
  23. By: Miller, Steph; Barth, James (Mercury Publication)
    Abstract: Abstract not available.
  24. By: Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha
    Abstract: We use Finnish household-level registry and survey data to study the effects of ECB's monetary policy on the distribution of income and wealth. We find that monetary easing has a large positive effect on aggregate economic activity in Finland, but its overall net impact on income and wealth inequality is negligible. Monetary easing increases households' gross income by reducing unemployment and leading to a general rise in wages, while at the same time it boosts asset prices. These different channels have counteracting effects on income and wealth inequality, as measured by the Gini coefficient and the ratios of income and wealth of the 90th percentile to the 50th percentile. The reduction in aggregate unemployment benefits especially households in lower income quintiles, where the initial rate of unemployment is high. Households in the upper income quintiles, where the rate of employment is higher, benefit relatively more from an increase in wages. An increase in house prices benefits all homeowners. In terms of net wealth, households with large mortgages, in the lower wealth quintiles, benefit the most from an increase in house prices due to a leverage effect. An increase in stock prices, in turn, benefits mainly households in the top wealth quintile.
    Keywords: monetary policy,income inequality,wealth inequality
    JEL: D31 E32 E52
    Date: 2022
  25. By: Giuseppe Ciccarone (Sapienza University of Rome); Francesco Giuli
    Abstract: Monetary policy can be responsible for asset price bubble episodes under specific monetary- financial conditions. We evaluate the effects of monetary policy shocks on asset price bubbles by estimating a Markov-switching Bayesian Vector Autoregression on US 1960-2019 data, where states fortheinteractionofassetpricesandmonetaryoutcomesaffecttherealizationofbubbles. WerationalizetheevidencewithaMarkov-switchingOverlappingGenerationsmodel,generating a bubblyandano-bubblyeconomywitharegime-specific monetary policy. By matching the empirical impulse responses,we find that the monetary-financial states of the economy can generate amplifiedinstabilityunderhighequitypremiaandassetpricebubble. In abubbly economy, a monetary tightening is ineffective in reducing stockprices, increasing real rates and inflating bubbles. Expectations to switch to a nobubbly scenario produce stabilizing effects.
    Keywords: monetary policy, assetpricebubble, Markov-switching, monetary-financial inter-action, policy credibility
    JEL: C32 D50 E42 E52 E65 G10
    Date: 2022–07
  26. By: Carli, Francesco; Uras, Burak (Tilburg University, School of Economics and Management)
    Date: 2022

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