nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒10‒16
24 papers chosen by
Georg Man,

  1. A Quality Dimension? A Re-appraisal of Financial Development and Economic Growth Nexus in a Quality-Quantity Setting By Rosen Azad Chowdhury, Dilshad Jahan, Tapas Mishra, Mamata Parhi; Dilshad Jahan; Tapas Mishra; Mamata Parhi
  2. Credit Supply Shocks and Firm Dynamics: Evidence from Brazil By Samuel Bazzi; Marc-Andreas Muendler; Raquel F. Oliveira; James E. Rauch
  3. Unbalanced Financial Globalization By Damien Capelle; Bruno Pellegrino
  4. Capital Inflows and Income Inequality:Evidence from Panel VAR Approach By Jinyeong Yun
  5. Financial Integration, Excess Consumption Volatility, and the World Real Interest Rate By YAMADA, Haruna
  6. The Zero-Beta Interest Rate By Sebastian Di Tella; Benjamin M. Hébert; Pablo Kurlat; Qitong Wang
  7. Illiquid Lemon Markets and the Macroeconomy By Aimé Bierdel; Andres Drenik; Juan Herreño; Pablo Ottonello
  8. A Theory of Safe Asset Creation, Systemic Risk, and Aggregate Demand By Levent Altinoglu
  9. Macroprudential stress‑test models: a survey By Aikman, David; Beale, Daniel; Brinley-Codd, Adam; Covi, Giovanni; Hüser, Anne‑Caroline; Lepore, Caterina
  10. Corporate credit growth determinants in Ukraine: bank lending survey data application By Anatolii Hlazunov
  11. Measuring the link between cyclical systemic risk and capital adequacy for Ukrainian banking sector By Alona Shmygel
  12. A Bayesian DSGE Approach to Modelling Cryptocurrency By Stylianos Asimakopoulos; Marco Lorusso; Francesco Ravazzolo
  13. Kingdom of Bahrain: Selected Issues By International Monetary Fund
  14. Does Social Identity Constrain Rural Entrepreneurship? The Role of Financial Inclusion By Sandhya Garg; Samarth Gupta; Sushanta Mallick
  15. Traditions and Innovations: The Rise and Decline of the Shanxi Piaohao (Banks) in the Context of Growing Sino-Foreign Economic Interaction, the 1840s to 1910s By Meng Wu
  16. Financial Exclusion and Inflation Costs By Diogo Baerlocher
  17. Inflation and Real Activity over the Business Cycle By Francesco Bianchi; Giovanni Nicolo; Dongho Song
  18. Assessing targeted longer-term refinancing operations: Identification through search intensity By Laine, Olli-Matti; Nelimarkka, Jaakko
  19. Nonbank Lenders as Global Shock Absorbers: Evidence from US Monetary Policy Spillovers By David Elliott; Ralf R. Meisenzahl; José-Luis Peydró
  20. Open banking, shadow banking and regulation By Eccles, Peter; Grout, Paul; Zalewska, Anna; Siciliani, Paolo
  21. An Early Form of European Champions? Banking Clubs between European Integration and Global Banking (1960s-1990s) By Alexis Drach
  22. FinTech-Issued Personal Loans in the U.S. By Jessica N. Flagg; Simona Hannon
  23. The Fiscal Cost of Public Debt and Government Spending Shocks By Venance Riblier
  24. Why Do Governments Cut Their Deficits? Lessons for High-Debt Countries in a Post-Pandemic World By Benedict Clements; Sanjeev Gupta; João Tovar Jalles; Victor Mylonas

  1. By: Rosen Azad Chowdhury, Dilshad Jahan, Tapas Mishra, Mamata Parhi (Department of Economics, Swansea University); Dilshad Jahan (Department of Economics, Swansea University); Tapas Mishra (Southampton Business School, University of Southampton); Mamata Parhi (Roehampton Business School, University of Roehampton)
    Abstract: Despite the existence of a robust body of theoretical and empirical literature on the subject, there is an unresolved ambiguity on the exact nature of the relationship between financial development and economic growth. In this context, this paper re-examines the relationship by emphasizing on the ‘quality’ essence of financial development - a role, notwithstanding its significance (especially for developing countries), has clearly been underemphasized. We advance a measure of this ‘quality’ attribute by degrees of cost efficiencies and profit functions. The quality proxy is combined with a measure of quantity attribute of financial development in the form of broad money growth and bank credit to the private sector. Both measures portend relative stability of banks concerning efficiency in fund channeling. Using data for 191 banks spread over eight South and South-East Asian countries for a period of ten years and employing System GMM panel estimations, we demonstrate that a mixture of both quality and quantity of financial development holds key information on the exact direction of travel of economic growth among these countries. Further, results from panel VAR estimation provide robustness to our predictions.
    Keywords: Quality and quantity of financial development; Economic growth; Efficiency; Developing countries; Panel VAR
    Date: 2023–09–12
  2. By: Samuel Bazzi; Marc-Andreas Muendler; Raquel F. Oliveira; James E. Rauch
    Abstract: We explore how financial constraints distort the entry decisions among otherwise productive entrepreneurs and limit growth of promising young firms. A model of liquidity-constrained entrepreneurs suggests that the easing of credit constraints can induce more entry of firms with greater long-run growth potential than the easing of conventional entry barriers would bring about. We explore this growth mechanism using a large-scale program to expand the supply of credit to small and medium enterprises in Brazil. Local credit supply shocks generate greater firm entry but also greater exit with no effect on short-run employment growth in the formal sector. However, credit expansions increase average capability among entering firms, which enter at larger size, survive longer, and grow faster. These firm dynamics are more pronounced in areas with weaker credit markets ex ante and consistent with local bank branches using cheap targeted credit lines to expand lending more broadly. Our findings provide new evidence on the general equilibrium effects of credit supply expansions.
    JEL: D21 D22 D92 L25 L26 M13 O12
    Date: 2023–09
  3. By: Damien Capelle; Bruno Pellegrino
    Abstract: We examine the impact of the last five decades of financial globalization on world GDP and income distribution, using a novel multi-country dynamic general equilibrium model that incorporates a demand system for international assets. We introduce, estimate and validate new country-level measures of inward and outward Revealed Capital Account Openness (RKO), derived from wedge accounting. The implementation of our framework requires only minimal data, which is available as early as 1970 (national income accounts, external assets and liabilities positions). Our RKO wedges reveal enormous heterogeneity in the pace of capital account liberalization, with richer countries liberalizing much faster than poorer ones. We call this pattern Unbalanced Financial Globalization. We then simulate a counterfactual trajectory of the world economy where the RKO wedges are fixed at their pre-globalization levels. We find that unbalanced financial globalization led to a worsening of capital allocation, a 2.8% lower world GDP, a 12% rise in the cross-country dispersion of GDP per capita, lower wages in poorer countries and lower cost of capital in high-income countries. These findings starkly contrast with the predictions of standard models of financial markets integration, where capital account barriers decline symmetrically across countries. In a counterfactual scenario where countries open their capital account in a symmetric or convergent fashion, we find diametrically opposite effects: significant improvements in capital allocation efficiency and lower cross-country inequality, higher wages in poor countries, etc... Our results highlight the pivotal role played by country heterogeneity in shaping the real consequences of capital markets integration.
    Keywords: capital flows, capital allocation, capital misallocation, globalization, international finance, open economy
    JEL: F20 F30 F40 F60
    Date: 2023
  4. By: Jinyeong Yun (University of Giessen)
    Abstract: In this paper, I document empirical evidence that an external shock in capital inflows leads to an increase in income inequality in advanced economies and causes a decline in income inequality in emerging market economies. I estimate a panel VAR model with an annual dataset on 53 countries over the period 1990-2020 to study the effects of capital inflows on income inequality within countries. To distinguish the external capital inflow shocks driven by global financial conditions from other shocks, I identify the structural external shocks to capital inflows using sign restrictions. The analysis is performed separately in advanced and emerging market economies since the two groups show significant differences in the level of economic development and the degree of capital market openness. The results are statistically and economically significant. By income class, a capital inflow shock increases primarily the income share of the rich in advanced economies and the poorest half in emerging market economies. These empirical findings suggest that capital inflows have different impacts on income inequality across countries, and policymakers should pay attention to the possibility of adverse distributional effects of capital inflows.
    Keywords: Capital inflows, Income inequality, Panel VAR, Sign restrictions
    JEL: D63 F32 F38
    Date: 2023
  5. By: YAMADA, Haruna
    Abstract: Contrary to classical macroeconomic theory, the volatility of consumption relative to income has risen in emerging markets despite the international financial integration. This study presents a theoretical mechanism of this phenomenon by developing a small open economy model with an occasionally binding borrowing constraint, named the Interest Coverage Ratio-based borrowing constraint. Calibration exercises show that financial integration improves consumption smoothing and mitigates income shocks. Meanwhile, the foreign debt limit is more sensitive to changes in the world real interest rate. An increase in the world real interest rate tightens the borrowing constraint and decreases consumption significantly for the repayment. Financial integration would make consumption more vulnerable to the world real interest rate changes, resulting the higher volatility in emerging markets.
    Keywords: Financial Integration, Excess Consumption Volatility, Emerging Market Economy, World Real Interest Rate, Occasionally Binding Borrowing Constraint
    JEL: E21 E41 E44 F62
    Date: 2023–09
  6. By: Sebastian Di Tella; Benjamin M. Hébert; Pablo Kurlat; Qitong Wang
    Abstract: We use equity returns to construct a time-varying measure of the interest rate that we call the zero-beta rate: the expected return of a stock portfolio orthogonal to the stochastic discount factor. The zero-beta rate is high and volatile. In contrast to safe rates, the zero-beta rate fits the aggregate consumption Euler equation remarkably well, both unconditionally and conditional on monetary shocks, and can explain the level and volatility of asset prices. We claim that the zero-beta rate is the correct intertemporal price.
    JEL: E30 E4 G12
    Date: 2023–08
  7. By: Aimé Bierdel; Andres Drenik; Juan Herreño; Pablo Ottonello
    Abstract: We study the macroeconomic implications of asymmetric information in capital markets. We build a quantitative capital-accumulation model in which capital is traded in illiquid markets, with sellers having more information about capital quality than buyers. Asymmetric information distorts the terms of trade for sellers of high-quality capital, who list higher prices and are willing to accept lower trading probabilities to signal their type. Led by the model's predictions, we measure the distortions from asymmetric information by studying the relationship between listed prices and trading probabilities in a unique dataset of individual capital units listed for trade. By combining the empirical measurement with the model, we show that information asymmetries can play a quantitatively large role during economic crises when the degree of asymmetric information deteriorates.
    JEL: D82 E22 E32
    Date: 2023–09
  8. By: Levent Altinoglu
    Abstract: This paper presents a theory of safe asset creation and the interactions between systemic risk and aggregate demand. The creation of private safe assets by financial intermediaries requires them to take leverage, which generates a risk of future crisis (systemic risk) in which intermediaries liquidate assets to service their debt. In contrast, the creation of public safe assets by the government does not generate systemic risk as the government's power to tax allows it to better absorb losses. The level of systemic risk determines the neutral rate of interest through households' precautionary saving and aggregate demand. The model features a two-way interaction between systemic risk and aggregate demand. Monetary and fiscal policy can stabilize aggregate demand and reduce systemic risk by altering the mix of private and public safe assets held by savers. When monetary policy is constrained, the economy can enter a risk-driven stagnation trap in which economic stagnation arises due to excessive systemic risk. Macroprudential policies which reduce systemic risk can stimulate aggregate demand.
    Keywords: Financial crises; Safe assets; Systemic risk; Fiscal policy; Macroprudential policy; Unconventional monetary policy; Demand-driven recession
    JEL: E44 G01 G21 E58 G28 G18
    Date: 2023–09–22
  9. By: Aikman, David (King’s College, London); Beale, Daniel (Bank of England); Brinley-Codd, Adam (Bank of England); Covi, Giovanni (Bank of England); Hüser, Anne‑Caroline (Bank of England); Lepore, Caterina (International Monetary Fund)
    Abstract: We survey the rapidly developing literature on macroprudential stress‑testing models. In scope are models of contagion between banks, models of contagion within the wider financial system including non‑bank financial institutions such as investment funds, and models that emphasise the two-way interaction between the financial sector and the real economy. Our aim is twofold: first, to provide a reference guide of the state of the art for those developing such models; second, to distil insights from this endeavour for policymakers using these models. In our view, the modelling frontier faces three main challenges: (a) our understanding of the potential for amplification in sectors of the non-bank financial system during periods of stress, (b) multi-sectoral models of the non-bank financial system to analyse the behaviour of the overall demand and supply of liquidity under stress and (c) stress‑testing models that incorporate comprehensive two-way interactions between the financial system and the real economy. Emerging lessons for policymakers are that, for a given-sized shock hitting the system, its eventual impact will depend on (a) the size of financial institutions’ capital and liquidity buffers, (b) the liquidation strategies financial institutions adopt when they need to raise cash and (c) the topology of the financial network.
    Keywords: Stress testing; system-wide models; contagion; systemic risk; market-based finance; real-financial linkages; sectoral interlinkages; macroprudential policy
    JEL: G21 G22 G23 G32
    Date: 2023–08–11
  10. By: Anatolii Hlazunov (National Bank of Ukraine)
    Abstract: This study investigates the determinants of corporate lending in Ukraine with a focus on distinguishing between supply and demand factors. I use a two-step process to build a credit standards index (CSI) based on disaggregated data from the Ukrainian bank lending survey (BLS). This paper describes factors that are significant for corporate lending development in Ukraine. It contributes to the existing literature by developing a measure of corporate loan supply and analyzing its ability to explain corporate credit growth in Ukraine by using bank-level BLS data. First, I employ a panel ordered logit model to transform categorical data into a continuous index that measures the likelihood of credit standards tightening. Second, I examine how this index affects new corporate lending in both national and foreign currencies. I find that the credit standard index is influenced by exchange rate movements (with depreciations leading to tighter standards), bank liquidity, and bank competition. I also demonstrate that the CSI has a negative impact on corporate loans in national currency, with a more pronounced effect for smaller banks
    Keywords: Supply and demand of corporate lending; bank lending survey data
    JEL: G22 E44 C33
    Date: 2023–09–14
  11. By: Alona Shmygel (National Bank of Ukraine)
    Abstract: In this paper we investigate the impact of cyclical systemic risk on future bank profitability for a large representative panel of Ukrainian banks between 2001 and 2023. Our framework relies on two general methods. The first method is based on linear local projections which allows us to study the estimated negative impact of cyclical systemic risk on bank profitability. The second method is based on the original IMF's Growth-at-Risk approach, utilizing quantile local projections to assess the impact of cyclical systemic risk on the tails of the future bank-level profitability distribution. Additionally, we enhance the macroprudential toolkit with a novel approach to calibrating the countercyclical capital buffer (CCyB). Furthermore, we develop the "Bank Capital-at-Risk" and "Share of vulnerable banks" indicators. These indicators are valuable tools for monitoring the build-up of systemic risk in the banking sector.
    Keywords: Systemic risk; Linear projections; Quantile regressions; Bank capital; Macroprudential policy
    JEL: E58 G21 G32
    Date: 2023–09–28
  12. By: Stylianos Asimakopoulos; Marco Lorusso; Francesco Ravazzolo
    Abstract: We develop and estimate a DSGE model to evaluate the economic repercussions of cryptocurrency. In our model, cryptocurrency offers an alternative currency option to government currency, with endogenous supply and demand. We uncover a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. We find that an increase in cryptocurrency productivity induces a rise in the relative price of government currency with respect to cryptocurrency. Since cryptocurrency and government currency are highly substitutable, the demand for the former increases whereas it drops for the latter. Our historical decomposition analysis shows that fluctuations in the cryptocurrency price are mainly driven by shocks in cryptocurrency demand, whereas changes in the real balances for government currency are mainly attributed to government currency and cryptocurrency demand shocks.
    Date: 2023–09
  13. By: International Monetary Fund
    Abstract: Interest in CBDC is growing globally including in Bahrain, which has made considerable strides in the areas of payment service digitalization and fintech. While a CBDC could bring about various benefits, it may also imply risks. The analysis presented in this paper aims to assess some of these benefits and risks for Bahrain. It will quantify the potential impact of introducing a CBDC on the financial system and monetary policy transmission using a model specifically calibrated and estimated for Bahrain. It finds that a CBDC's perceived utility by the population is key for wide adoption. While high adoption and remuneration can help enhance monetary policy transmission, they may imply a drag on banking system profitability. A careful and analytically informed design could enhance adoption while limiting risks to financial stability.
    Date: 2023–09–18
  14. By: Sandhya Garg; Samarth Gupta; Sushanta Mallick (Institute of Economic Growth, Delhi)
    Abstract: This paper examines whether better financial access can mitigate the impact of social identity on entrepreneurship. Using a novel dataset of Indian villages and distance to bank branches, we find that proximity to a bank branch improves non-agricultural entrepreneurship of underprivileged caste groups in India, with a significant entry occurring in sectors which were dominated by the privileged caste groups. We find that this effect is mediated by the uptake of institutional credit by under-privileged groups. Our results show that the financial inclusion can break rigid social norms around caste and occupation in India.
    Date: 2023
  15. By: Meng Wu
    Abstract: Shanxi piaohao, also known as the Shanxi banks, were arguably China’s most important indigenous financial institutions in the nineteenth century. In a weak state with little legislation to regulate private enterprises, these privately owned banks established a nationwide remittance network by relying on its informal rules. Drawing on comprehensive primary sources, this paper is the first to examine piaohao's institutional arrangement. My study shows that by designing comprehensive rules on draft enforcement, piaohao prevented draft defaulting and fraud problems. A strict discipline mechanism and a performance-and-tenure-based incentive structure enabled them to overcome the commitment problems of distant employees. Piaohao performed well financially and dominated the Chinese remittance market for a century. However, with the blow of the Xinhai Revolution and the rise of modern Chinese banks, they declined and disappeared collectively from the Chinese financial market in the early twentieth century.
    Keywords: micro-business history; business enterprises in China; contract enforcement; remittance; commitment problem
    JEL: M51 N25 N85
    Date: 2023–09
  16. By: Diogo Baerlocher (Department of Economics, University of South Florida)
    Abstract: This paper constructs two models of financial exclusion to assess the welfare costs of inflation. In the first, inflation costs are measured within a classical endowment economy. The second includes a production sector and costly credit. Both models are calibrated to account for inflation costs in a high-inflation economy (developing country) and in a low-inflation economy (developed economy). In an endowment economy, when inflation is reduced from 1.5% to zero in a developed economy, the welfare costs for agents with (without) financial access are 0.36% (1.1%) consumption equivalent variation (CEV). In a model with costly credit, the welfare costs for agents with (without) financial access are 0.7% (1.36%) CEV. For developing countries, when inflation is reduced from 6.2% to zero, the welfare costs for agents with (without) financial access are 1.3% (5%) in an endowment economy. In the costly-credit model, the welfare costs for agents with (without) financial access are 0.44% (6%) CEV. The main finding is that there is a substantial asymmetry in welfare costs between individuals with and without access to financial services, especially in developing countries.
    Keywords: Financial Exclusion, Inflation Costs, Costly Credit
    JEL: D53 E31 E51 G23
    Date: 2023–09
  17. By: Francesco Bianchi; Giovanni Nicolo; Dongho Song
    Abstract: We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and theoretically how to reconcile these differences.
    Keywords: inflation; real activity; business cycles; trend-cycle VAR
    JEL: E31 E32 C32
    Date: 2023–03
  18. By: Laine, Olli-Matti; Nelimarkka, Jaakko
    Abstract: We evaluate the effects of targeted credit injections of the central bank in the euro area. The aggregate policy impacts of credit easing on financial markets, bank lending and key macroeconomic variables are measured with a novel identification approach based on high-frequency web search data. Our results suggest that the targeted longer-term refinancing operations of the European Central Bank between 2014 and 2021 eased credit conditions in financial markets and had economically and statistically significant positive effects on GDP growth, bank lending and firm investment.
    Keywords: Monetary policy, High-frequency identification, TLTRO, Bank lending
    JEL: C36 E42 E51 E52 E58 G31
    Date: 2023
  19. By: David Elliott; Ralf R. Meisenzahl; José-Luis Peydró
    Abstract: We show that nonbank lenders act as global shock absorbers from US monetary policy spillovers. We exploit loan-level data from the global syndicated lending market and US monetary policy surprises. When US policy tightens, nonbanks increase dollar credit supply to non-US firms (relative to banks), mitigating the dollar credit reduction. This increase is stronger for riskier firms, proxied by emerging market firms, high-yield firms, or firms in countries with stronger capital inflow restrictions. However, firm-lender matching, zombie lending, fragile-nonbank lending, or periods of low vs higher local GDP growth do not drive these results. Furthermore, the substitution from bank to nonbank credit has firm-level real effects. Consistent with a funding-based mechanism, when US monetary policy tightens, non-US nonbanks increase short-term dollar debt funding, relative to banks. In sum, despite increased risk-taking by less regulated and more fragile nonbanks (relative to banks), access to nonbank credit reduces the volatility in capital flows—and associated economic activity—stemming from US monetary policy spillovers, with important implications for theory and policy.
    Keywords: nonbank lending; international monetary policy; Global financial cycle; Banks
    JEL: E5 F34 F42 G21 G23 G28
    Date: 2023–08
  20. By: Eccles, Peter (Bank of England); Grout, Paul (Bank of England); Zalewska, Anna (University of Leicester School of Business); Siciliani, Paolo (Bank of England)
    Abstract: We argue that open banking will create diverse banking models: competitive banks (serving depositors who adopt open banking) and monopolistic banks (serving the other depositors). In equilibrium, at the margin, the profit of competitive and monopolistic banks should be equal. Hence, the system-wide impact of any policy change cannot be judged solely by the impact on a typical monopolistic or competitive bank, the impact on relative profitability also matters since this can lead banks to move from one banking type to another. For example, an increase in capital requirements bites less on the profits of competitive than monopolistic banks. Some banks thus move to the (riskier) competitive sector which we show can increase overall risk in the system. A deposit rate ceiling dampens the impact of Bertrand competition, making competitive banks more profitable, so the (riskier) competitive sector grows. Hence, rather than making the system more stable, a marginal lowering of a deposit rate ceiling can increase risk. We also show that, in many scenarios, the regulator must choose between banks funding private sector projects or all banks being safe, the regulator cannot have both. This has implications for the optimal risk weights of sovereign debt. In our model, none of these effects are driven by the presence of unregulated assets/sectors nor on impacts on charter value, as is the case in papers that find outcomes that are the opposite of what was intended. We then introduce an unregulated, shadow banking sector into the model and show that the growth in shadow banking benefits monopolistic banks relative to competitive banks. This increases the size of the (low-risk) monopolistic sector, reducing overall risk in the system. We discuss policy implications.
    Keywords: Capital requirements; banking; open banking; shadow banking; competition; FinTech
    JEL: D43 G21 G28
    Date: 2023–09–08
  21. By: Alexis Drach (IDHES - Institutions et Dynamiques Historiques de l'Économie et de la Société - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay)
    Abstract: Between the late 1950s and the mid-1970s, most large European commercial banks created European banking clubs, which were hybrid cooperative organisations meant to respond to American competition and to the progress of European integration. Based on the archives of several commercial banks from France and the UK, this article examines how the three main European clubs (EBIC, Europartners, and ABECOR) emerged and developed in the 1960s and 1970s, and continued to exist despite increasing challenges in the 1980s. The article argues that banking clubs were an early attempt at creating truly `European' banks, or European champions, even though their experience was abandoned. They also participated in European integration in a different way than the one the European Commission promoted. These clubs were an important institutional response of European banks to both globalisation and European integration.
    Keywords: banking clubs, British banks, cartels, commercial banks, common banking market, competition law, consortium banks, cooperation, European banking, European champions, European enterprises, European integration, French banks, globalisation
    Date: 2023
  22. By: Jessica N. Flagg; Simona Hannon
    Abstract: The financial technology advances of the past decade brought to prominence a new group of lenders active within the personal loan space—financial technology (FinTech) lenders. Although traditional lenders such as banks, thrifts, credit unions, and finance companies continue to play an important role in providing personal loans to consumers, FinTech lenders gained a notable market share.
    Keywords: fintech; financial technology; personal loans
    Date: 2023–08–30
  23. By: Venance Riblier
    Abstract: This paper investigates how the cost of public debt shapes fiscal policy and its effect on the economy. Using U.S. historical data, I show that when servicing the debt creates a fiscal burden, the government responds to spending shocks by limiting debt issuance. As a result, the initial shock triggers only a limited increase in public spending in the short run, and even leads to spending reversal in the long run. Under these conditions, fiscal policy loses its ability to stimulate economic activity. This outcome arises as the fiscal authority limits its own ability to borrow to ensure public debt sustainability. These findings are robust to several identification and estimation strategies.
    Date: 2023–09
  24. By: Benedict Clements (Universidad de Las Americas); Sanjeev Gupta (Center for Global Development); João Tovar Jalles (University of Lisbon-Lisbon School of Economics and Management); Victor Mylonas (University of Chicago)
    Abstract: We construct a novel database covering more than 450 fiscal consolidation episodes in 185 countries during the period 1979-2019. Using discrete choice models, we then examine the (broader macroeconomic and political) factors motivating these fiscal consolidation episodes. In emerging and developing countries, consolidations are more likely during “good times”: when growth is high, and countries experience positive terms of trade shocks with low inflation. In these countries, governments that have been in power longer, with a high margin of majority, are also more likely to consolidate fiscal accounts. The opposite seems to be the case in advanced economies, where new governments are more likely to implement fiscal consolidations and the consolidations themselves are more likely during “bad times.” Evidence also suggests that tax-based consolidations may be relatively more politically challenging to implement. Finally, consolidations in advanced economies are relatively more likely to take place in the presence of fiscal rules.
    Keywords: fiscal consolidations, filtering, panel data, binary choice models, political economy
    JEL: C23 E21 E62 H5 H62
    Date: 2022–10–31

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