nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒06‒12
twenty-six papers chosen by
Georg Man

  1. Firm Exit and Liquidity: Evidence from the Great Recession By Fernando Leibovici; David Wiczer
  2. Political institutions, financial liberalisation, and access to finance: firm-level empirical evidence By Olayinka Oyekola; Sofia Johan; Rilwan Sakariyahu; Oluwatoyin Esther Dosumu; Shima Amini
  3. Information Sharing, Access to Finance, Loan Contract Design, and the Labor Market By Thorsten Beck; Patrick Behr; Raquel de Freitas Oliveira
  4. What Is “Outlook-at-Risk?” By Nina Boyarchenko; Richard K. Crump; Leonardo Elias; Ignacio Lopez Gaffney
  5. Financial Crises and the Global Supply Network: Evidence from Multinational Enterprises By Sergi Basco; Giulia Felice; Bruno Merlevede; Martí Mestieri
  6. Contagion in Debt and Collateral Markets By Jin-Wook Chang; Grace Chuan
  7. Financial Fragility without Banks By Stein Berre; Asani Sarkar
  8. Jordan: Financial Sector Assessment Program-Financial System Stability Assessment By International Monetary Fund
  9. Credit Ratings and Investments By Anna Bayona; Oana Peia; Razvan Vlahu
  10. International Diversification, Reallocation, and the Labor Share By Joel M. David; Romain Ranciere; David Zeke
  11. Monthly Report No. 11/2022 - FDI in Central, East and Southeast Europe By Olga Pindyuk; Roman Stöllinger; Zuzana Zavarská
  12. The Decision to Remit: Is it a Matter of Interpersonal Trust? By Kasmaoui Kamal; Makhlouf Farid; Refk Selmi
  13. How much financial literacy matters? A simulation of potential influences on inequality levels By Gallo, Giovanni; Sconti, Alessia
  14. Asset Pricing in a Low Rate Environment By Marlon Azinovic; Harold L. Cole; Felix Kübler
  15. The concentration of personal wealth in Italy 1995–2016 By Acciari, Paolo; Alvaredo, Facundo; Morelli, Salvatore
  16. Sectoral Debt Capacity and Business Cycles: Developing Asia and the World Economy By Han, Bada; Ahmed, Rashad; Jinjarak, Yothin; Aizenman, Joshua
  17. Bank Regulation and Sovereign Risk: A Paradox By António Afonso; André Teixeira
  18. Global Commodity Markets and Sovereign Risk across 150 Years By Angélica Domínguez-Cardoza; Adelina Garamow; Josefin Meyer
  19. War Discourse and Disaster Premia: 160 Years of Evidence from Stock and Bond Markets By David Hirshleifer; Dat Y. Mai; Kuntara Pukthuanthong
  20. Insights from Newly Digitized Banking Data, 1867-1904 By Sergio A. Correia; Stephan Luck
  21. Is Quantitative Easing Productive? The Role of Bank Lending in the Monetary Transmission Process By Francisco Serranito; Philipp RODERWEIS; Jamel Saadaoui
  22. CBDC and business cycle dynamics in a New Monetarist New Keynesian model By Assenmacher, Katrin; Bitter, Lea; Ristiniemi, Annukka
  23. An Examination of First-Mover Advantage for a CBDC By Ken Isaacson; Jesse Leigh Maniff; Paul Wong
  24. Bank presence and health By Cramer, Kim Fe
  25. Too levered for Pigou: carbon pricing, financial constraints, and leverage regulation By Döttling, Robin; Rola-Janicka, Magdalena
  26. Financing the low-carbon transition in Europe By Carradori, Olimpia; Giuzio, Margherita; Kapadia, Sujit; Salakhova, Dilyara; Vozian, Katia

  1. By: Fernando Leibovici; David Wiczer
    Abstract: This paper studies the role of credit constraints in accounting for the dynamics of firm exit during the Great Recession. We present novel firm-level evidence on the role of credit constraints on exit behavior during the Great Recession. Firms in financial distress, with tighter access to credit, are more likely to default than firms with more access to credit. This difference widened substantially in the Great Recession while, in contrast, default rates did not vary much by size, age, or productivity. We identify conditions under which standard models of firms subject to financial frictions can be consistent with these facts.
    Keywords: firm exit; credit constraints; financial distress; Great Recession; financial frictions
    JEL: E32 G01 G33 L25
    Date: 2023–05
  2. By: Olayinka Oyekola (Department of Economics, University of Exeter); Sofia Johan (College of Business, Florida Atlantic University); Rilwan Sakariyahu (Business School, Edinburgh Napier University); Oluwatoyin Esther Dosumu (Alliance Manchester Business School, University of Manchester); Shima Amini (Department of Finance, University of Leeds)
    Abstract: Worldwide, lack of access to finance has been identified by many firms as the most detrimental obstacle facing business entities. This article studies how political institutions and financial liberalisation alleviate or deepen financial constraints faced by firms. We hypothesise that a complementarity exists between political institutions and financial liberalisation in constructing barriers to firms securing bank financing. Evidence from an international sample of over 63, 000 firms in 75 countries, establishes that political institutions, proxied by democracy level in a country, and financial liberalisation, proxied by entry and participation of foreign banks, are significant factors in explaining cross-country disparities in firm-level credit accessibility. Importantly, we find a strong support for our proposition, documenting a remarkably significant and sizeable positive interaction effect between foreign bank presence and the level of democracy for access to finance. These results are robust against various forms of sensitivity checks. Overall, our study provides fresh insights into the financing effects of foreign bank activities interacted with democracy on firms. We conclude that these results may be of considerable benefit to policymakers, especially within developing, and emerging, economies, who are searching for economic growth, to re-evaluate what are the primary lending obstacles for their small and medium-sized enterprises.
    Keywords: financial liberalisation, foreign banks, political institutions, access to finance, credit constraints, firm-level data
    JEL: G21 G23 G32 O16
    Date: 2023–05–15
  3. By: Thorsten Beck; Patrick Behr; Raquel de Freitas Oliveira
    Abstract: Exploiting an exogenous change in the reporting threshold of Brazil’s public credit registry, we show an increase in borrowing for newly included risky firms and lower interest rates for safer
    Date: 2023–04
  4. By: Nina Boyarchenko; Richard K. Crump; Leonardo Elias; Ignacio Lopez Gaffney
    Abstract: The Federal Open Market Committee (FOMC) has increased the target range for the federal funds rate by 4.50 percentage points since March 16, 2022. In tightening the stance of monetary policy, the FOMC balances the risk of inflation remaining persistently high if the economy continues to run “hot” against the risk of unemployment rising as the economy cools. In this post, we review a quantitative approach to measuring the evolution of risks to real GDP growth, the unemployment rate, and inflation that is inspired by our previous work on “Vulnerable Growth.” We find that, in February, downside risks to real GDP growth and upside risks to unemployment moderated slightly, and upside risks to inflation continued to decline.
    Keywords: risks to the economic outlook
    JEL: E2 G1
    Date: 2023–02–15
  5. By: Sergi Basco; Giulia Felice; Bruno Merlevede; Martí Mestieri
    Abstract: This paper empirically examines the effects of financial crises on the organization of production of multinational enterprises. We construct a panel of European multinational networks from 2003 through 2015. We use as a financial shock the increase in risk premia between August 2007 and July 2012 and build a multinational-specific shock based on the network structure before the shock. Multinationals facing a larger financial shock perform worse in terms of revenue, employment, and growth in the number of affiliates. Lower growth in the number of affiliates operates through a negative effect on domestic and foreign affiliates, and is concentrated in affiliates in a vertical relationship with the parent. These effects built up slowly over time. Negative effects are driven by multinationals with initially more leveraged parents, who reduce relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity.
    JEL: F14 F23 F44 L22 L23
    Date: 2023–05
  6. By: Jin-Wook Chang; Grace Chuan
    Abstract: This paper investigates contagion in financial networks through both debt and collateral markets. We find that the role of collateral is mitigating counterparty exposures and reducing contagion but has a phase transition property. Contagion can change dramatically depending on the amount of collateral relative to the debt exposures. When there is an abundance of collateral (leverage is low), then collateral can fully cover debt exposures, and the network structure does not matter. When there is an adequate amount of collateral (leverage is moderate), then collateral can mitigate counterparty contagion, and having more links in the network reduces contagion, as interlinkages act as a diversifying mechanism. When collateral is not enough (leverage is high) and agents in the network are too interconnected, then the collateral price can plummet to zero and the whole network can collapse. Therefore, we show the importance of the interaction between the level of collateral and interconnectedness across agents. The model also provides the minimum collateral-to-debt ratio (haircut) to attain a robust macroprudential state for a given network structure and aggregate state.
    Keywords: Collateral; Financial network; Fire sale; Systemic risk
    JEL: D49 D53 G01 G21 G33
    Date: 2023–04–11
  7. By: Stein Berre; Asani Sarkar
    Abstract: Proponents of narrow banking have argued that lender of last resort policies by central banks, along with deposit insurance and other government interventions in the money markets, are the primary causes of financial instability. However, as we show in this post, non-bank financial institutions (NBFIs) triggered a financial crisis in 1772 even though the financial system at that time had few banks and deposits were not insured. NBFIs profited from funding risky, longer-dated assets using cheap short-term wholesale funding and, when they eventually failed, authorities felt compelled to rescue the financial system.
    Keywords: nonbank financial institutions; nonbank financial institutions (NBFIs); crisis of 1772; financial intermediation; economic history
    JEL: G01 G2 N00
    Date: 2023–04–17
  8. By: International Monetary Fund
    Abstract: The banking sector dominates Jordan’s financial system, and its strength is essential to support macroeconomic stability and the peg to the U.S. dollar. The authorities have implemented measures to enhance the system’s resilience and oversight since the 2008–09 FSAP, allowing it to withstand large shocks (Global Financial Crisis, Arab Spring, war in Syria and influx of refugees, COVID-19). Global growth headwinds, high energy and food prices as well as sharply rising interest rates are pressuring nonfinancial sector balance sheets.
    Date: 2023–04–21
  9. By: Anna Bayona; Oana Peia; Razvan Vlahu
    Abstract: We study how inflated credit ratings affect investment decisions in bond markets using experimental coordination games. Theoretical models that feature a feedback effect between capital markets and the real economy suggest that inflated ratings can have both positive and negative real effects. We compare markets with and without a credit rating agency and find that ratings significantly impact investor behaviour and capital allocation to firms. We show that the main mechanism through which these real effects materialize is a shift in investors’ beliefs about the behaviour of other investors rather than firms’ underlying fundamentals. Our experimental results sug- gest that the positive impact of inflated ratings is likely to dominate in the presence of feedback effects since ratings act as a strong coordination mechanism resulting in enhanced market outcomes.
    Keywords: Credit ratings; Imperfect information; Investor beliefs; Firm financing
    JEL: D81 D82 D83 G24
    Date: 2023–05
  10. By: Joel M. David; Romain Ranciere; David Zeke
    Abstract: How does growing international financial diversification affect firm-level and aggregate labor shares? We study this question using a novel framework of firm labor choice in the face of aggregate risk. The theory implies a cross-section of labor risk premia and labor shares that appear as markups in firm-level data. International risk sharing leads to a reallocation of labor towards riskier/low labor share firms alongside a rise in within-firm labor shares, matching key micro-level facts. We use cross-country firm-level data to document a number of empirical patterns consistent with the theory, namely: (i) riskier firms have lower labor shares and (ii) international financial diversification is associated with a reallocation towards risky/low labor share firms. Our estimates suggest the reallocation effect has dominated the within effect in recent decades; on net, increased financial integration has reduced the corporate labor share in the U.S. by about 2.5 percentage points, roughly one-third of the total decline since the 1970s.
    Date: 2023–04–20
  11. By: Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw); Zuzana Zavarská (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: ​This issue of the wiiw Monthly Report replaces our earlier series of the wiiw FDI Report. FDI in Central, East and Southeast Europe Chart of the month Growing role of China as investor in CESEE by Olga Pindyuk Russia’s war in Ukraine causes a reversal of FDI trends by Olga Pindyuk Russia’s war in Ukraine interrupted the recovery of FDI in CESEE and has prompted significant shifts in the FDI structure. Russia has witnessed the large-scale divestment of foreign capital, and FDI inflows into EU-CEE have also suffered; meanwhile, in the second quarter the Western Balkans and Turkey recorded higher inflows on an annual basis. Some parts of the CESEE region may be able to benefit from accelerated green transition and the relocation of companies away from the war zone. No sign of functional upgrading in EU-CEE countries so far by Roman Stöllinger and Zuzana Zavarská The types of greenfield FDI projects that the EU countries of Central and Eastern Europe (EU-CEE) have been able to attract over the past two decades are consistently different from those in the Western EU member states. Greenfield FDI coming into EU-CEE is heavily skewed toward routine production activities; meanwhile FDI in the remaining activities involved in the production process homes in on other EU countries. This pattern of functional specialisation by EU-CEE is sub-optimal and requires a rethinking of FDI policy to enable functional diversification. Monthly and quarterly statistics for Central, East and Southeast Europe
    Keywords: greenfield investments; FDI inflows; FDI stocks, functional specialisation, fabrication activities, headquarter activities
    Date: 2022–11
  12. By: Kasmaoui Kamal (ESC PAU - Ecole Supérieure de Commerce, Pau Business School); Makhlouf Farid (ESC PAU - Ecole Supérieure de Commerce, Pau Business School); Refk Selmi (ESC PAU - Ecole Supérieure de Commerce, Pau Business School)
    Abstract: This article seeks to assess the role of the level of interpersonal trust in a country in the remittance landscape. Using historical data from the 2010-2014 wave of the World Value Survey (WVS) for interpersonal trust, our findings underline the substitution role played by interpersonal trust with remittances. More accurately, remittances tend to drop when the rate of interpersonal trust in the country of origin is high. Overall, a rise in trust is likely to underpin social cohesion, limiting therefore the need for remittances. Potential elements including human capital, cultural factors, the quality of institutions, the financial development and the inequality have been advanced to explain the obtained findings.
    Keywords: Interpersonal trust, Remittances, Social capital
    Date: 2023
  13. By: Gallo, Giovanni; Sconti, Alessia
    Abstract: This paper aims to identify the potential influence of financial literacy's marginal change on households' income (wealth) inequality levels both at the mean value and along with the distribution value. Using data from the Bank of Italy Survey of Households Income and Wealth (SHIW)'s 2016 wave - which includes the Big Three questions, a widely used measure of financial literacy - we show that replacing 10% of respondents reporting no correct answers with respondents reporting two correct answers out of three correct answers would increase the mean value of the household equivalized disposable income by 0.8% (160€ per year). Additionally, the mean value would increase by +1.5% (285€ per year) if we replace 10% of respondents reporting no correct answers with those reporting three correct answers. These results are not trivial. A lump sum leading to the same household income increase would cost on average EUR 4.1 to 7.3 billion per year in Italy. Finally, heterogeneous analysis reveals that an increase in financial literacy levels is expected to have different outcomes across the population, engendering often a greater reduction of inequality levels among the most vulnerable groups. As a natural policy implication, our results strongly support mandatory financial education in schools.
    Keywords: Financial literacy, Household finance, Wealth inequality, Income inequality, RIF regressions
    JEL: D31 D63 G53 G51
    Date: 2023
  14. By: Marlon Azinovic (University of Pennsylvania); Harold L. Cole (University of Pennsylvania; National Bureau of Economic Research); Felix Kübler (University of Zurich; Swiss Finance Institute)
    Abstract: We examine asset prices in environments where the risk-free rate lies considerably below the growth rate. To do so, we introduce a tractable model of a production economy featuring heterogeneous trading technologies, as well as idiosyncratic and aggregate risk. We show that allowing for the possibility of firms exiting is crucial for matching key macroeconomic moments and, simultaneously, the risk-free rate, the market price of risk, and price-earnings ratios. In particular, our model allows us to consider calibrations that match the high observed market price of risk and average interest rates as low as 2-3.5 percent below the average growth rate. High values for risk aversion or non-standard preferences are not necessary for this. We use the model to examine the wealth distribution and asset prices in economies with very low real rates. We also examine under which conditions realistic calibrations allow for an infinite rollover of government debt. For our benchmark calibration, rollover is impossible even if the average risk-free rate lies 3.5 percent below the average growth rate.
    Keywords: Asset pricing, low rates, r-g, limited participation, market price of risk
    JEL: E6 E44 G12
    Date: 2023–05
  15. By: Acciari, Paolo; Alvaredo, Facundo; Morelli, Salvatore
    Abstract: Italy is one the countries with the highest wealth-to-income ratio in the developed world, but knowledge about the size distribution of wealth is currently limited. In this paper we estimate the distribution of personal wealth between 1995 and 2016, a period of economic turbulence and structural reforms. For this, we use a novel source on the full records of inheritance tax files, combined with surveys and national accounts. Unlike available statistics from household surveys alone, our estimates point to a sharp inversion of fortunes between the top and the bottom of the wealth distribution since the mid-1990s. Whereas the level of wealth concentration in Italy is in line with other European countries, its time trend appears more in line with the U.S., showing a large increase. Moreover, Italy stands out as one of the countries with the strongest decline in the wealth share of the bottom 50% of the population. A range of alternative series of wealth concentration, including estimates applying no adjustments and imputations, confirm our main findings. The paper also sheds new light on the determinants of wealth inequality trends. First, we show that although average wealth increases with age, dispersion within age groups remains very high; hence age plays a marginal role in explaining wealth concentration. Second, we show that house prices explain little of the change in wealth across the distribution since 1995. Changes in equity prices account for a large share of wealth growth above the 99th percentile. However, all in all, changes in the volume of assets and savings appear to be the predominant force behind the increase in wealth inequality, even at the top. The probability of top earners to climb to the top of the wealth distribution has doubled since the 2000s. Third, we document the growing role of life-time wealth transfers receipts, their increasing concentration at the top, and their increasingly favourable tax treatment for the wealthy.
    Keywords: wealth inequality; wealth distribution; top wealth shares; distributional national accounts; estate concentration; inheritance and gifts; inheritance tax
    JEL: D30 H24 N30
    Date: 2023–04–01
  16. By: Han, Bada (Economic Research Institute, Bank of Korea); Ahmed, Rashad (US Department of the Treasury); Jinjarak, Yothin (Asian Development Bank); Aizenman, Joshua (University of Southern California)
    Abstract: This paper reviews the patterns of sectoral debts and growth and the mechanisms explaining the adverse effects of debt burdens on growth rates. The empirical analysis covers a sample of 55 emerging and frontier market economies. Future economic growth is more sensitive to rising household debt than corporate debt. However, these effects are highly heterogenous across economies and depend on relative income. For the developing economies with a gross domestic product per capita in 2010 below $10, 000 (purchasing power parity-adjusted in 2017 international dollar), the coefficients of all types of sectoral debts are negative and significant at least at the 5% level. For developing economies at higher income levels, household debts matter more than other sectoral debts for subsequent economic growth.
    Keywords: household debts; corporate debts; public debts; financial stability; credit cycles
    JEL: E44 F34 G51 H63
    Date: 2023–05–12
  17. By: António Afonso; André Teixeira
    Abstract: This paper investigates the impact of banking prudential regulation on sovereign risk. We show that prudential regulation reduces sovereign risk and induces governments to spend more. As a result, countries with tight prudential regulation have lower primary budget balances and accumulate more government debt over time. This means that prudential regulation reduces private debt, while paradoxically increasing government debt. We explore several explanations for this paradox. Our results suggest that prudential regulation enables governments to accumulate debt because they improve the nation’s credit rating and its borrowing conditions in sovereign bond markets.
    Keywords: bank regulation, fiscal policy, macroprudential policy, sovereign debt, sovereign risk.
    JEL: E52 E58 E62 H3 G28
    Date: 2023–05
  18. By: Angélica Domínguez-Cardoza; Adelina Garamow; Josefin Meyer
    Abstract: How do commodity price movements affect sovereign default risk over the long-run? Using a novel dataset covering 41 countries and 42 raw commodities, we take a comprehensive long-run view to shed light on this so far understudied relationship between commodity risk and sovereign risk across 150 years. We create a novel country-specific commodity price index that allows us to take advantage of countries’ variation in their commodity export compositions. Our results are twofold: first, commodity price fluctuations show a persistent association with sovereign borrowing costs for countries that are commodity export dependent across the last one and a half centuries. Second, historically this relationship was driven by agricultural price movements; today it is driven by mineral and energy price movements.
    Keywords: Sovereign Risk, commodity prices
    JEL: E44 F41 F34 H63 G12
    Date: 2022
  19. By: David Hirshleifer; Dat Y. Mai; Kuntara Pukthuanthong
    Abstract: Using a semi-supervised topic model on 7, 000, 000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock and bond market returns to test rational and behavioral hypotheses about market valuation of disaster risk. Focusing on media discourse addresses the challenge of sample size even when major disasters are rare. Our methodology avoids look-ahead bias and addresses semantic shifts. War discourse positively predicts market returns, with an out-of-sample R2 of 1.35%, and negatively predicts returns on short-term government and investment-grade corporate bonds. The predictive power of war discourse increases in more recent time periods.
    JEL: G0 G00 G01 G02 G1 G10 G11 G13 G4 G41
    Date: 2023–05
  20. By: Sergio A. Correia; Stephan Luck
    Abstract: Call reports—regulatory filings in which commercial banks report their assets, liabilities, income, and other information—are one of the most-used data sources in banking and finance. Though call reports were collected as far back as 1867, the underlying data are only easily accessible for the recent past: the mid-1980s onward in the case of the FDIC’s FFIEC call reports. To help researchers look farther back in time, we’ve begun creating a complete digital record of this “missing” call report data; this data release covers 1867 through 1904, the bulk of the National Banking Era. Here, we describe the digitization process and highlight some of the interesting features of that era from a research perspective.
    Keywords: banking; data; National banks; call reports
    JEL: N0 G2
    Date: 2023–03–06
  21. By: Francisco Serranito; Philipp RODERWEIS; Jamel Saadaoui
    Abstract: The European Central Bank’s (ECB) quantitative easing (QE) program was supposed to stimulate the real economy and be able to control inflation rates. Nevertheless, primarily the financial sector has benefited from the asset purchase program. Transmission was not taking place as desired, with commercial banks as money creators and thus liquidity distributors at the center of its inefficiency. Accordingly, this article aims to examine the transmission of central bank money to the euro area economy via the banking system and the corresponding bank lending channel (BLC). To bring clarity to the economic debate about the effectiveness of the BLC, bank lending and additional macroeconomic variables are divided into productive and unproductive. We analyze how these data react to an exogenous monetary policy shock in excess reserves, which is identified using different identification schemes before deploying least-square and penalized local projection (LP) methods. Following the estimation results, it can be concluded that a liquidity increase via quantitative easing cannot stimulate economic activity-enhancing lending in the euro area but, on the contrary, tends to disincentivize it. On the other hand, it drives lending to an unproductive sector. Additionally, this is confirmed by the fact that prices, especially in the housing sector, react significantly positively to a QE shock, whereas, on the contrary, producer prices in the industrial sector and inflation are not affected by unconventional monetary policy.
    Keywords: unconventional monetary policy, bank lending, local projection, identification, zero- and sign restrictions
    JEL: C32 E44 E51 E52
    Date: 2023
  22. By: Assenmacher, Katrin; Bitter, Lea; Ristiniemi, Annukka
    Abstract: To study implications of an interest-bearing CBDC on the economy, we integrate a New Monetarist-type decentralised market that explicitly accounts for the means-of-exchange function of bank deposits and CBDC into a New Keynesian model with financial frictions. The central bank influences the store-of-value function of money through a conventional Taylor rule while it affects the means-of-exchange function of money through CBDC operations. Peak responses to monetary policy shocks remain similar in the presence of an interest-bearing CBDC, implying that monetary transmission is not impaired. At the same time however, the provision of CBDC helps smooth responses to macroeconomic shocks. By supplying CBDC, the central bank contributes to stabilising the liquidity premium, thereby affecting bank funding conditions and the opportunity costs of money, which dampens and smoothes the reaction of investment and consumption to macroeconomic shocks. JEL Classification: E58, E41, E42, E51, E52
    Keywords: Central bank digital currency, DSGE, monetary policy, search and matching
    Date: 2023–05
  23. By: Ken Isaacson; Jesse Leigh Maniff; Paul Wong
    Abstract: This paper explores whether there could be a first-mover advantage for a jurisdiction issuing a central bank digital currency (CBDC) compared to other jurisdictions that subsequently issue their own CBDC. Conventional academic literature provides a framework by which one can assess a CBDC in the domestic payments market, the international payments market, and the technology markets that support payments. However, a CBDC may be more than just a means of payment and thus first-mover advantage is examined for both the asset component of reserve currency and a future financial system built on CBDCs. Overall, the first mover literature does not suggest that there is a compelling first-mover advantage for issuing a CBDC.
    Date: 2022–11–25
  24. By: Cramer, Kim Fe
    Abstract: This paper demonstrates that increasing bank presence in underserved areas can substantially improve households’ health. I apply a regression discontinuity design to a policy of the Reserve Bank of India. Six years after the policy introduction, treatment districts have 19% more branches than control districts. Households’ probability of suffering from a non-chronic disease in a given month is 36% lower. I show evidence that two understudied aspects of banking play a role: banks provide health insurance to households and credit to hospitals. In equilibrium, I observe an increase in health care demand and supply.
    Keywords: financial development; banks; health; insurance; credit
    JEL: G21 O16 I10
    Date: 2023–04–19
  25. By: Döttling, Robin; Rola-Janicka, Magdalena
    Abstract: We analyze jointly optimal carbon pricing and leverage regulation in a model with financial constraints and endogenous climate-related transition and physical risks. The socially optimal emissions tax is below the Pigouvian benchmark (equal to the direct social cost of emissions) when emissions taxes amplify financial constraints, or above this benchmark if physical climate risks have a substantial impact on collateral values. Additionally introducing leverage regulation can be welfare-improving only if tax rebates are not fully pledgeable. A cap-and-trade system or abatement subsidies may dominate carbon taxes because they can be designed to have a less adverse effect on financial constraints. JEL Classification: D62, G28, G32, G38, H23
    Keywords: carbon pricing, climate risk, financial constraints, financial regulation, Pigouvian tax
    Date: 2023–05
  26. By: Carradori, Olimpia; Giuzio, Margherita; Kapadia, Sujit; Salakhova, Dilyara; Vozian, Katia
    Abstract: Using evidence from the EU emissions trading system, we collect verified emissions of close to 4000 highly polluting and mostly non-listed firms responsible for 26% of EU’s emissions. Over the period 2013 - 2019, we find a non-linear relationship between leverage and emissions. A firm with higher leverage has lower emissions in subsequent years. However, when leverage exceeds 50%, a further increase is associated with higher emissions. Our difference-in-differences approach sheds light on the existence of a group of firms that are too indebted to successfully accomplish the low-carbon transition, even when they face a steep increase in the cost of their emissions. JEL Classification: C58, E58, G32, Q51, Q56, Q58
    Keywords: climate change, debt finance, EU ETS, low-carbon transition, transition finance
    Date: 2023–05

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