nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒11‒06
23 papers chosen by
Georg Man,

  1. FDI and economic growth in Africa : the case of Morocco By Walid Agrar; Mimoun Derraz
  2. Loans for the "Little Fellow:" Credit, Crisis, and Recovery in the Great Depression By Sarah Quincy
  3. Collateral Shocks, Lending Relationships and Economic Dynamics By Vivek Sharma
  4. BEAST: A model for the assessment of system-wide risks and macroprudential policies By Budnik, Katarzyna; Groß, Johannes; Vagliano, Gianluca; Dimitrov, Ivan; Lampe, Max; Panos, Jiri; Velasco, Sofia; Boucherie, Louis; Jančoková, Martina
  5. Global Natural Rates in the Long Run: Postwar Macro Trends and the Market-Implied r* in 10 Advanced Economies By Josh Davis; Cristian Fuenzalida; Leon Huetsch; Benjamin Mills; Alan M. Taylor
  6. Measuring The Natural Rate Using Natural Experiments By Verónica Bäcker-Peral; Jonathon Hazell; Atif R. Mian
  7. The Impact of Dollarisation on Economic Growth, Investment, and Trade By Fisnik Bajrami
  8. Negative Externalities of Financial Dollarization By Valida Pantsulaia; Ana Jangveladze; Shalva Mkhatrishvili
  9. Bridging the Gap: Mobilization of Multilateral Development Banks in Infrastructure By Avellán, Leopoldo; Galindo, Arturo; Lotti, Giulia; Rodríguez Bonilla, Juan Pablo
  10. Allocative Efficiency of Government Spending for Growth in Latin American Countries By Pessino, Carola; Altinok, Nadir; Chagalj, Cristian
  11. Do Interest-growth Differentials Affect Fiscal Policy? Evidence for Advanced Economies By Philipp Heimberger
  12. Regulation and information costs of sovereign distress: Evidence from corporate lending markets By Iftekhar Hasan; Suk-Joong Kim; Panagiotis N. Politsidis; Eliza Wu
  13. Cyclical consumption By Tino Berger; Lorenzo Pozzi
  14. Macroeconomic Expectations and State-Dependent Factor Returns By Felix Haase; Matthias Neuenkirch
  15. Changing patterns of risk-sharing channels in the United States and the euro area By Cimadomo, Jacopo; Giuliodori, Massimo; Lengyel, Andras; Mumtaz, Haroon
  16. Uncertainty and the Term Structure of Interest Rates By Jamie L. Cross; Aubrey Poon; Dan Zhu
  17. The Reserve Supply Channel of Unconventional Monetary Policy By William F. Diamond; Zhengyang Jiang; Yiming Ma
  18. Deposit Convexity, Monetary Policy and Financial Stability By Emily Greenwald; Sam Schulhofer-Wohl; Josh Younger
  19. Is There Really an Inflation Tax? Not For the Middle Class and the Ultra-Wealthy By Edward N. Wolff
  20. Intermediary Market Power and Capital Constraints By Jason Allen; Milena Wittwer
  21. Conceptualizing Systemically Important Technological Institutions as Too Big to Fail Entities: Moving the Insolvency Goal Post By M. P. Ram Mohan; Sai Muralidhar K
  22. Does foreign aid reduce migration? By Fuchs, Andreas; Gröger, André; Heidland, Tobias; Wellner, Lukas
  23. The Environmental Cost of Easy Credit: The Housing Channel By Manuel Adelino; David T. Robinson

  1. By: Walid Agrar (ENCGO - Ecole Nationale de Commerce et de Gestion); Mimoun Derraz (Université Mohammed Premier [Oujda])
    Abstract: From the beginning of the 1980s, Morocco, like other emerging countries, organized a set of measures and reforms working in favor of the attractiveness of FDI.FDI represents the "bridge" for African countries to integrate into and be part of the international financial and commercial sphere.Morocco is aware of the role of FDI in economic growth, it has embarked on a project of structural, institutional and regulatory reforms and changes in order to ensure their attractiveness.The presence of FDI in an economy symbolizes an open and efficient internationalized economic system and acts as an engine of economic growth.Through this study, we will demonstrate the effects of FDI on the economic and social growth of Morocco, via an analysis of macroeconomic indicators, to conclude with recommendations drawn on the basis of the practices of pioneering countries in the attraction of FDI. FDI remains a determining factor and a had a degree of influence on the economic growth of Morocco, which is positioned among others such as the promotion of local investment, the development of human capital, etc.
    Abstract: Dès le début des années quatre-vingt le Maroc à l'image d'autres pays émergents a organisé un ensemble de mesures et réformes jouant en faveur de l'attractivité des IDE.Les IDE représentent le « pont » pour les pays africains pour s'intégrer dans la sphère financière et commerciale internationale et d'en faire partie.Le Maroc est conscient du rôle des IDE dans la croissance économique, il s'est engagé dans un chantier de réformes et mutations structurelles, institutionnelles et réglementaires afin d'assurer leur attractivité.La présence des IDE dans une économie symbolise un système économique internationalisé ouvert et efficace et fait office d'un moteur de croissance économique.A travers cette étude, nous allons démontrer les effets des IDE sur la croissance économique et sociale du Maroc, par le biais d'une analyse des indicateurs macroéconomiques, pour conclure avec des recommandations tirées sur la base des pratiques des pays pionniers dans l'attraction des IDE. Les IDE restent un facteur déterminant et d'un degré d'influence sur la croissance économique du Maroc, qui se positionne parmi d'autres tels que la promotion de l'investissement local, le développement du capital humain, etc.
    Keywords: FDI, economic growth, attractiveness, Morocco, IDE, croissance économique, attractivité, Maroc
    Date: 2023–08
  2. By: Sarah Quincy
    Abstract: This paper identifies how bank branching benefited local economies during the Great Depression. Using archival data and narrative evidence, I show how Bank of America's branch network in 1930s California created an internal capital market to diversify away local liquidity shortfalls, allowing it to maintain 49 percent higher credit growth from 1929 to 1933 than competing banking offices. The bank's presence caused smaller city property value contractions and stronger recoveries through 1940. Linked individual data show the bank’s proximity hastened the transition away from agricultural employment and towards human capital-intensive sectors in the 1930s, generating industrialization and higher wages.
    JEL: E44 G01 G21 N22 R23
    Date: 2023–10
  3. By: Vivek Sharma
    Abstract: What are the effects of changing bank lending conditions in a model in which borrowers have endogenously-persistent credit relationships with lenders? This paper answers this question in a simple Two-Agent New Keynesian (TANK) setup. Fluctuations in collateral requirements, termed collateral shocks in this paper, result in a rise in spread, a drop in bank credit and amplification of macroeconomic volatility. These effects are amplified by presence of lending relationships and are greater at higher persistence and volatility of the collateral shocks. The results in this paper underscore that credit relationships matter when collateral shocks hit the economy and a model that assumes away the existence of these lending relationships, risks underestimating their effects.
    Keywords: Collateral Shocks, Lending Relationships, Economic Activity
    JEL: E32 E44
    Date: 2023–10
  4. By: Budnik, Katarzyna; Groß, Johannes; Vagliano, Gianluca; Dimitrov, Ivan; Lampe, Max; Panos, Jiri; Velasco, Sofia; Boucherie, Louis; Jančoková, Martina
    Abstract: The Banking Euro Area Stress Test (BEAST) is a large-scale semi-structural model developed to analyse the euro area banking system from a macroprudential perspective. The model combines the dynamics of approximately 90 of the largest euro area banks with those of individual euro area economies. It reflects the heterogeneity of banks by replicat-ing the structure of their balance sheets and profit and loss accounts. Additionally, it allows banks to adjust their assets, funding mix, pricing decisions, management buffers, and profit distribution along with individual bank conditions, including their capital and liquidity re-quirements, and other supervisory limits. The responses of banks impact credit supply con-ditions and have feedback effects on the macroeconomic environment. Stochastic solutions of the model provide a solid foundation for investigating multiple scenarios, deriving at-risk measures, and estimating model uncertainty. The model is regularly utilised to assess the resilience of the euro area banking sector, including in the biennial ECB macroprudential stress tests, as well as to analyse the effects of regulatory, macroprudential, and monetary policy changes. JEL Classification: E37, E58, G21, G28
    Keywords: banking sector deleveraging, macroprudential policy, macro stress test, real economy-financial sector feedback loop
    Date: 2023–10
  5. By: Josh Davis; Cristian Fuenzalida; Leon Huetsch; Benjamin Mills; Alan M. Taylor
    Abstract: Benchmark finance and macroeconomic models appear to deliver conflicting estimates of the natural rate and bond risk premia. This natural rate puzzle applies not only in the U.S. but across many advanced economies. We use a unified no-arbitrage macro- finance model with two trend factors to estimate the natural rate r* for 10 advanced economies. We cover a longer and wider sample than previous studies and draw on new sources to construct yield curves and excess returns. The two-trend model improves the explanatory power of yield regressions and return forecasts. Most variation in yields is due to the macro trends r* and π*, and not bond risk premia. Global components of unexpected bond returns are influential, while the local components of natural rates are large. Our r* estimates covary with growth and demographic variables in a manner consistent with theory and previous findings.
    JEL: C13 C32 E43 E44 E47 G12
    Date: 2023–10
  6. By: Verónica Bäcker-Peral; Jonathon Hazell; Atif R. Mian
    Abstract: Every month, a fraction of UK property leases are extended for another 90 years or more. We use new data on thousands of these natural experiments from 2003 onwards to estimate the “natural rate of return on capital”, \(r_K^\text{*}\), which also represents the long-run dividend-price ratio. \(r_K^\text{*}\) stays around 4.8% between 2003 and 2006, but starts to fall at the onset of the Great Recession, reaching a low of 2.3% in 2022. Real-time monthly data shows a modest uptick in \(r_K^\text{*}\) in 2023 thus far. The natural experiment approach to measuring \(r_K^\text{*}\) is precise, avoids misspecification concerns and provides real-time estimates using publicly available data.
    JEL: E4 E40 E5 G5
    Date: 2023–10
  7. By: Fisnik Bajrami (Charles University, Institute of Economic Studies, Faculty of Social Sciences, Prague, Czech Republic)
    Abstract: Dollarisation has been extensively debated and is often promoted as a viable monetary and exchange rate policy alternative for emerging economies. While most arguments for and against dollarisation are grounded in theory, there is a recognized scarcity of empirical evidence on the topic. This study evaluates over two decades of dollarisation experience in emerging economies. Our results suggest that dollarisation is associated with similar economic growth levels as other exchange rate regimes. However, it comes with the cost of more negative current account balance growth rates and heightened growth volatility, especially in the past decade. Nevertheless, dollarised countries benefit from higher levels of investment and trade. Contrary to a significant part of the existing literature, our findings challenge the perceived benefits of dollarisation in terms of economic growth. Additionally, we demonstrate that dollarised countries differ in various macroeconomic indicators when compared to individual exchange rate regimes, even against other fixed exchange rate regimes - which are often assumed to be homogenous.
    Keywords: dollarisation, GDP growth, growth volatility, trade, investment, exchange rate, empirical evaluation
    JEL: E42 E52 F31 F45
    Date: 2023–09
  8. By: Valida Pantsulaia (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Ana Jangveladze (Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia); Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia)
    Abstract: Dollarization (usage of a foreign currency in place of a domestic one) is a widely observed phenomenon that historically emerged as a result of extended macro-financial instability and extreme price and nominal exchange rate fluctuations. Complete loss of public confidence in a local currency pushed lenders and borrowers to seek more stable foreign currencies like the US dollar and euro. What is more puzzling though is that in many countries dollarization remained at an elevated level even after taking care of its root cause (i.e. after achieving price stability). There have been several explanations of this phenomenon (the so-called dollarization hysteresis). In this short paper, we propose additional explanations in the form of several dollarization-induced negative externalities, including an amplification of credit procyclicality and exchange rate pass-through or a worsening of credit ratings of dollarized economies. We also offer some back-of-the-envelope calculations showing that these externalities could be economically significant (about 1 pp impact on real GDP growth per year) for a small and highly dollarized country like Georgia. This type of market failures underline the importance of prudential policies that internalize negative externalities and, hence, level the playing field for the local currency.
    Keywords: Financial dollarization; Negative externality
    JEL: E44 E58 F34
    Date: 2023–04
  9. By: Avellán, Leopoldo; Galindo, Arturo; Lotti, Giulia; Rodríguez Bonilla, Juan Pablo
    Abstract: We explore how Multilateral Development Banks (MDBs) can help to fill a large infrastructure financing gap in developing countries by indirectly mobilizing resources from other entities. The analysis focuses on more than 6, 500 transactions in 2005-2020 to developing and emerging markets from the Infrastructure Journal database. Using granular data, we analyze the dynamics of flows from different actors to infrastructure at the country-subsector level, and control for a wide range of fixed effects. MDB lending significantly increases the inflows from other sources. Cross-border and domestic resources are mobilized from both the public and the private sectors. Effects exhibit country heterogeneity. Mobilization occurs in countries of all income levels, though it is stronger in low and lower-middle income countries. In countries that use capital controls frequently mobilization effects are undermined. When the global financial crisis of 2008 hit, no difference in mobilization effects was found, unlike the COVID-19 pandemic when mobilization effects were weakened. The findings survive a long battery of robustness checks, and no evidence of anticipation effects is found.
    Keywords: Catalytic finance;Infrastructure
    JEL: F21 F34 G15 H81 O19
    Date: 2022–02
  10. By: Pessino, Carola; Altinok, Nadir; Chagalj, Cristian
    Abstract: There is scant empirical economic research regarding the way that Latin American governments efficiently allocate their spending across different functions to achieve higher growth. While most papers restrict their analysis to the size of government, much less is known about the composition of spending and its implications for long-term growth. This paper sheds light on how allocating expenditures to investment in quality human and physical capital, and avoiding waste on inefficient expenditures, enhance growth in Latin America. This paper uses a novel dataset on physical and human capital and detailed public spending that includes -for the first time- Latin American countries, which is categorized by a cross-classification that provides the breakdown of government expenditure, both, by economic and by functional heads. The database covers 42 countries of the OECD and LAC between 1985 and 2017. There are five main results. First, the estimated growth equations show significant positive effects of the factors of production on growth and plausible convergence rates (about 2 percent). The estimated effect of the physical investment rate is positive and significant with a long-run elasticity of 1.2. Second, while the addition of years of education as a proxy for human capital tends to have no effect on growth, the addition of a new variable that measures quality-adjusted years of schooling as a proxy for human capital turns out to have a positive and significant effect across all specifications with a long-run elasticity of 1.1. However, if public spending on education (excluding infrastructure spending) is added to the factor specification, growth is not affected. This is mainly because, once quality is considered, spending more on teacher salaries has no effect on student outcomes. Therefore, the key is to increase quality, not just school performance or education spending. Third, both physical and human capital are equally important for growth: the effect of increasing one standard deviation of physical capital or human capital statistically has the same impact on economic growth. Fourth, increasing public investment spending (holding public spending constant) is positive and significant for growth (a 1% increase in public investment would increase the long-term GDP per capita by about 0.3 percent), in addition to the effect of the private investment rate. However, the effect of public spending on payroll, pensions and subsidies does not contribute to economic growth. Fifth, the overall effect of the size of public spending on economic growth is negative in most specifications. An increase in the size of government by about 1 percentage point would decrease 4.1 percent the long-run GDP per capita, but the more effective the government is, the less harmful the size of government is for long-term growth.
    Keywords: government size;growth;human capital;Latin America;public spending
    JEL: H50 I20 O40 O54
    Date: 2022–06
  11. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This paper analyses the link between discretionary fiscal policy and interest-growth differentials (r-g). Panel regressions based on a dataset for 20 advanced countries over the years 1990-2019 reveal no evidence of a systematic linear relationship between fiscal policy and r-g. However, more unfavourable r-g differentials are linked more strongly to a tighter fiscal stance when public-debt-to-GDP ratios are higher – but only in the euro area, not in advanced stand-alone countries issuing government debt in their own currency.
    Keywords: Public debt, fiscal deficits, interest-growth differentials, fiscal policy
    JEL: E43 E62 F33
    Date: 2023–10
  12. By: Iftekhar Hasan (Fordham University [New York]); Suk-Joong Kim (The University of Sydney); Panagiotis N. Politsidis (Audencia Business School); Eliza Wu (The University of Sydney)
    Abstract: We examine the effect of sovereign credit impairments on the pricing of syndicated loans following rating downgrades in the borrowing firms' countries of domicile. We find that the sovereign ceiling policies used by credit rating agencies create a disproportionately adverse impact on the bounded firms' borrowing costs relative to other domestic firms following their sovereign's rating downgrade. Rating-based regulatory frictions partially explain our results. On the supply-side, loans carry a higher spread when granted from low-capital banks, non-bank lenders, and banks with high market power. We further document an operating demand-side channel, contingent on borrowers' size, financial constraints, and global diversification. Our results can be attributed to the relative bargaining power between lenders and borrowers: relationship borrowers and non-bank dependent borrowers with alternative financing sources are much less affected.
    Keywords: "Credit ratings" "Sovereign ceiling" "Syndicated loan pricing" "Rating-based regulation" "Firm credit constraints" "Bank dependency" "Bargaining power"
    Date: 2023–10
  13. By: Tino Berger (University of Goettingen); Lorenzo Pozzi (Erasmus University of Rotterdam)
    Abstract: Recessions and expansions are often caused or reinforced by developments in private consumption - the largest component of aggregate demand - which, as a result, varies over the business cycle. As such, an accurate measurement of the cyclical component of consumption and an understanding of its drivers is essential. We estimate US cyclical consumption using a multivariate Beveridge-Nelson decomposition based on a medium-scale Bayesian vector autoregression. The choice of variables included in the analysis is informed by a general savers-spenders model. We compare the predictive power of our multivariate cyclical consumption variable to that of univariate measures such as the recently introduced cc variable by Atanasov et al. (2020). An informational decomposition points to variables related to incomplete markets (precautionary motives and credit constraints) as the main contributors to cyclical consumption. This is confirmed by a causal analysis that attributes between 20% and 40% of cyclical movements in consumption to uncertainty shocks.
    Keywords: cyclical consumption, Beveridge-Nelson decomposition, multivariate information, incomplete markets, uncertainty shocks
    JEL: C61 O30 Q54
    Date: 2023–10–12
  14. By: Felix Haase; Matthias Neuenkirch
    Abstract: We examine the asymmetric impact of shocks to macroeconomic expectations and their underlying dispersion on equity risk premia across different market regimes. First, we rely on a two-state logit mixture vector autoregressive model and use Consensus Economics survey data on GDP growth, inflation, and short-term interest rates to approximate macroeconomic expectations and the underlying disagreement in the United States for the period 1989M10-2022M09. We demonstrate that unexpected changes of survey forecasts and their dispersion significantly affect cyclical factor returns in a dynamic setting and that the state of the economy matters for the magnitude, persistence, and occasionally also for the sign of the effect. Second, by extending the dynamic asset pricing model of Adrian et al. (2015), we show that GDP forecasts and their dispersion are priced in the cross section and drive the size and value premium, whereas inflation expectations serve as robust predictors for the price of risk. We also document that the survey expectations-augmented specification reduces pricing and premium errors when compared to a common benchmark of return predictors.
    Keywords: Consensus Forecasts, Dynamic Asset Pricing Model, Factor Risk Premia, Macroeconomic Expectations, Mixture VAR, State-Dependency
    JEL: C32 E44 G12 G14
    Date: 2023
  15. By: Cimadomo, Jacopo; Giuliodori, Massimo; Lengyel, Andras; Mumtaz, Haroon
    Abstract: In this paper, we assess how risk-sharing channels have evolved over time in the United States and the Euro Area, and whether they have operated as ‘complements’ or ‘substitutes’. In particular, we focus on the capital channel (income from cross-border ownership of productive assets), the credit channel (interstate or cross-country bank lending), and the fiscal channel (federal or international fiscal transfers). We offer three main contributions. First, we propose a time-varying parameter panel VAR model, with stochastic volatility, which allows us to formally quantify time variation in risk-sharing channels. Second, we develop a new test of the complementarity vs. substitutability hypothesis of the three risk-sharing channels, based on the correlation between the impulse responses of these channels to idiosyncratic output shocks. Third, for the United States, we explain time variation in the risk-sharing channels based on some key macroeconomic and financial variables. JEL Classification: C11, C33, E21, E32
    Keywords: complementarity, risk-sharing channels, substitutability, time variation
    Date: 2023–10
  16. By: Jamie L. Cross; Aubrey Poon; Dan Zhu
    Abstract: We present a new stylized fact about the link between uncertainty and the term structure of interest rates: Unexpectedly heightened uncertainty elicits a lower, steeper, and flatter yield curve. This result is established through a Yields-Macro model that includes dynamic Nelson-Siegel factors of U.S. Treasury yields, and accounts for endogenous feed back with observable measures of uncertainty, monetary policy, and macroeconomic aggregates. It is also robust to three distinct measures of uncertainty pertaining to the financial sector, the macroeconomy and economic policy. An efficient Bayesian algorithm for estimating the class of Yields-Macro models is also developed.
    Date: 2023–10
  17. By: William F. Diamond; Zhengyang Jiang; Yiming Ma
    Abstract: We find that central bank reserves injected by QE crowd out bank lending. We estimate a structural model with cross-sectional instrumental variables for deposit and loan demand. Our results are determined by the elasticity of loan demand and the impact of reserve holdings on the cost of supplying loans. The reserves injected by QE raise loan rates by 8.2 basis points, and each dollar of reserves reduces bank lending by 8.1 cents. Our results imply that a large injection of central bank reserves has the unintended consequence of crowding out bank loans because of bank balance sheet costs.
    JEL: G20
    Date: 2023–09
  18. By: Emily Greenwald; Sam Schulhofer-Wohl; Josh Younger
    Abstract: In principle, bank deposits can be withdrawn on demand. In practice, depositors tend to maintain stable balances for long periods, allowing banks to fund long-dated assets. Nevertheless, the cost of deposit funding influences banks’ capacity for maturity transformation. Banks and researchers conventionally model the response of deposit interest rates to market interest rates as constant, implying that deposits have nearly constant duration. Contrary to this standard assumption, we show empirically that the “beta” of deposit rates to market rates increases as market rates rise, causing the duration of deposits to fall. The amount of duration risk delivered to bank balance sheets via this channel from March 2022 to September 2023 is comparable in magnitude to the amount of duration risk absorbed by each of the several large-scale asset purchase programs the Federal Reserve has undertaken since 2008. Dynamic betas present a significant challenge to bank portfolio hedgers by introducing large and dynamic risks that are difficult to model and impractical to replicate on the asset side of the balance sheet. As a result, deposit convexity amplifies monetary policy transmission and increases financial fragility, mechanisms that recent banking stresses have highlighted.
    Keywords: banks; Depository institutions; interest rates; bank run; financial markets; central bank; monetary policy; Policy Effects
    JEL: E43 E44 E52 G12 G21
    Date: 2023–10–10
  19. By: Edward N. Wolff
    Abstract: One hallmark of U.S. monetary policy since the early 1980s has been moderation in inflation (at least, until recently). How has this affected household well-being? The paper first develops a new model to address this issue. The inflation tax on income is defined as the difference between the nominal and real growth in income. This term is always negative (as long as inflation is positive). The inflation gain on household wealth is the revaluation resulting from asset price changes directly linked to inflation. This term can be positive or negative. The net inflation gain is the difference between the two, which can also be positive or negative. The empirical analysis covers years 1983 to 2019 on the basis of the Federal Reserve Board’s Survey of Consumer Finances (SCF) and historical inflation rates. It also looks at the sensitivity of the results to alternative inflation rates, and considers the effects of inflation on real wealth growth, wealth inequality, and the racial wealth gap. The results show that inflation boosted the real income of the middle wealth quintile by a staggering two thirds. In contrast, the bottom two wealth quintiles got clobbered by inflation, losing almost half of their real income. Inflation also boosted mean and especially median real wealth growth, reduced wealth inequality, and lowered the racial and ethnic wealth gap. Both the income and wealth results are magnified at higher (simulated) rates of inflation.
    JEL: D31 H31 J15
    Date: 2023–10
  20. By: Jason Allen; Milena Wittwer
    Abstract: We examine how intermediary capitalization affects asset prices in a framework that allows for intermediary market power. We introduce a model in which capital-constrained intermediaries buy or trade an asset in an imperfectly competitive market, and we show that weaker capital constraints lead to both higher prices and intermediary markups. In exchange markets, this results in reduced market liquidity, while in primary markets it leads to higher auction revenues at an implicit cost of larger price distortion. Using data from Canadian Treasury auctions, we demonstrate how our framework can quantify these effects by linking asset demand to individual intermediaries’ balance sheet information.
    Keywords: Financial institutions; Market structure and pricing
    JEL: G18 G20 D40 D44 L10
    Date: 2023–10
  21. By: M. P. Ram Mohan; Sai Muralidhar K
    Abstract: The concept of Too Big To Fail (TBTF) has, for the longest time, been associated with systemically important banks, insurance companies and other financial institutions. The emergence of Big Tech companies, which permeates global markets, challenges the traditional notions of TBTF. Big Tech companies growing size and interconnectedness to the global economy have led to concerns emerging in the domains of antitrust law, data privacy laws, and financial stability. A key facet of financial stability regulation is the development of robust insolvency resolution frameworks to deal with potential failures of TBTF companies. The paper analyses whether Big Tech companies pose systemic risks to the financial system and the broader economy and, consequently, if they are TBTF, should there be special insolvency resolution frameworks akin to other systemically important institutions. The systemic risks Big Techs pose today may be substantially higher than traditional TBTF firms due to their deep interconnectedness with financial institutions. The paper explores the concept of Systemically Important Technological Institutions and the challenges in designating them as TBTF.
    Date: 2023–10–13
  22. By: Fuchs, Andreas; Gröger, André; Heidland, Tobias; Wellner, Lukas
    Abstract: The widespread use of foreign aid to address the "root causes" of irregular migration lacks a robust empirical foundation. In a new study (Fuchs, A., A. Groeger, T. Heidland, and L. Wellner (2023). The Effect of Foreign Aid on Migration: Global Micro-Evidence from World Bank Projects. Kiel Working Paper 2257) that we summarize here for a wider audience, we provide the first comprehensive causal analysis that examines micro-level evidence across all developing countries that received assistance from the World Bank between 2008 and 2019. Our analysis is the first to disentangle the impacts of foreign aid on various aspects of migration: individuals' aspirations, capabilities, and actual migration patterns. In alignment with the notion of utilizing aid to mitigate the root causes of irregular migration, our study reveals that the announcements and disbursements of new aid projects significantly reduce people's migration aspirations. This effect is temporary in nature and is notably absent in fragile countries. Over the longer term, the critical factor is whether aid ultimately enhances living conditions. Our findings provide some evidence supporting this, as improvements in living conditions bolster individuals' capabilities. This can lead to increased migration, yet the notable difference is that these individuals tend to follow regular channels for migration. These findings hold substantial significance for policymakers and those involved in foreign aid allocation that we discuss towards the end of this policy brief.
    Keywords: Migration, Foreign Aid, Root causes, Irregular migration, Refugees, Asylum, Development, Migration, Entwicklungshilfe, Fluchtursachen, Irreguläre Migration, Flüchtlinge, Asyl, Entwicklung
    Date: 2023
  23. By: Manuel Adelino; David T. Robinson
    Abstract: Heating, cooling, and powering the residential housing stock accounts for about one-fifth of total annual greenhouse gas emissions in the US. Home size is a key determinant of energy intensity. The average newly built single-family home is 50% larger than in the 1950s. Using distinct identification strategies spanning the last four decades of banking history, we show that more abundant credit increases average new home size. It also facilitates more construction but does not produce offsetting increases in home quality or durability. These results highlight potential environmental costs associated with monetary policies that expand access to credit.
    JEL: G30 Q43 R21 R31
    Date: 2023–10

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