nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2023‒12‒11
28 papers chosen by
Georg Man,

  1. On The Nonlinearity of the Finance and Growth Relation: the Role of Human Capital By Alberto Bucci; Boubacar Diallo; Simone Marsiglio
  2. Cross-country Spillovers in Interbank Liquidity Crises By Singh, Rajesh; Hasan, Mohammad
  3. Asset Prices, Collateral Constraints and Balance-of-Payments Crises By Singh, Rajesh
  4. Trade and Welfare Under Alternative Exchange Rate Regimes By Singh, Rajesh
  5. Monetary Policy Under Financial Exclusion By Lahiri, Amartya; Singh, Rajesh
  6. The yield spread as a predictor of economic activity in Mexico: the role of the term premium By Ibarra, Raul
  7. Supply and Demand and the Term Structure of Interest Rates By Robin Greenwood; Samuel Hanson; Dimitri Vayanos
  8. Recent Developments in Financial Risk and the Real Economy By Ian Dew-Becker; Stefano Giglio
  9. Sinking Ships: Illiquidity and the Predictability of Returns on Real Assets in Recessions By Artur Doshchyn
  10. The impact of remittances on household consumption: evidence from Morocco By Boutaina Ismaili Idrissi; Sara Kawkaba
  11. The Transmission of Monetary Policy to Corporate Investment: The Role of Loan Renegotiation By Eunkyung Lee
  12. Risk, monetary policy and asset prices in a global world By Bekaert, Geert; Hoerova, Marie; Xu, Nancy R.
  13. The inefficiency of Quantitative Easing in the Euro Area By Nektarios A. Michail; Kyriaki G. LouKa
  14. Financial stability considerations in the conduct of monetary policy By Bochmann, Paul; Dieckelmann, Daniel; Fahr, Stephan; Ruzicka, Josef
  15. The effects of non-performing loans on bank stability and economic performance in Zimbabwe By Katuka, Blessing; Mudzingiri, Calvin; Vengesai, Edson
  16. Banking System Vulnerability: 2023 Update By Matteo Crosignani; Thomas M. Eisenbach; Fulvia Fringuellotti
  17. To change or not to change The evolution of forecasting models at the Bank of England By Goutsmedt, Aurélien; Sergi, Francesco; Cherrier, Beatrice; Claveau, François; Fontan, Clément; Acosta, Juan
  18. Global and local drivers of Bitcoin trading vis-à-vis fiat currencies By Di Casola, Paola; Habib, Maurizio Michael; Tercero-Lucas, David
  19. The political economy of Bitcoin as legal tender in El Salvador: Temporary bandages to permanent wounds? By Tobias Boos; Juan Grigera
  20. Foreign Exchange Implications of CBDCs and Their Integration via Bridge Coins By Alexis Derviz
  21. The Effects of CBDC on the Federal Reserve's Balance Sheet By Christopher J. Gust; Kyungmin Kim; Romina Ruprecht
  22. Replacing bank money with base money: Lessons for CBDCs from the ending of private banknotes in Sweden By Ögren, Anders
  23. The Extent of the Market for Early American Bank Notes By Howard Bodenhorn
  24. The journey of Indian finance By Ajay Shah
  25. Platform lending and innovation By Leonardo Gambacorta; Leonardo Madio; Bruno Maria Parigi
  26. The GC Wealth Project Data Warehouse v.1 - Documentation By Morelli, Salvatore; Asher, Twisha; Di Biase, Frincasco; Disslbacher, Franziska; Flores, Ignacio; Johnson, Adam Rego; Rella, Giacomo; Schechtl, Manuel; Subioli, Francesca; , Matteo
  27. The Economic Consequences of Fiscal Rules By Niklas Potrafke
  28. Mobilizing credit for clean energy: De-risking and public loan provision under learning spillovers By Waidelich, Paul; Krug, Joscha; Steffen, Bjarne

  1. By: Alberto Bucci (ICEA International Center for Economic Analysis, Waterloo Ontario); Boubacar Diallo (Central Bank of Luxembourg and Qatar University); Simone Marsiglio (University of Pisa)
    Abstract: We analyze the role that human capital plays in driving the non-monotonic relation between economic growth and financial development. At this aim we build a theoretical model of endogenous growth in which the nature of the growth and finance nexus is nonlinear and actually depends on the educational level, which ultimately determines the way through which financial development affects both the productivity and the depreciation of human capital. The dependence of the non-monotonic (i.e., bell-shaped) growth and finance nexus on human capital suggests that there may exist a threshold education level beyond which the sign of the relation changes. We econometrically test such a theoretical prediction in a rich and large data set comprising a cross-section of 133 countries over the period 1970-2011. We rely on the GMM instrumental variable approach to address endogeneity issues, and we consider a large number of control variables. After performing a number of robustness checks, all our results are consistent with the view that human capital helps to explain the nonlinear relationship between finance and growth. In particular, we find support for our theoretical model’s conclusion that financial development may be harmful to economic growth in countries that already have high levels of education, while it may be beneficial in those countries in which human capital is less abundant.
    Keywords: Economic Growth, Financial Development, Human Capital
    JEL: G00 G10 O40 O41
    Date: 2023–11–20
  2. By: Singh, Rajesh; Hasan, Mohammad
    Abstract: Financially integrated economies observe a cross-country credit boom prior to financial recessions and a bust afterwards. This paper presents a two-country real business cycle model with banking sector where privately known intermediation efficiency of banks make them heterogeneous and gives rise to an interbank market. Overaccumulation of assets or low productivity in one country may lead to credit freeze in both financially integrated countries due to the existence of moral hazard and asymmetric information in the interbank market. A “sail together” financial integration may go into a “sink together” interbank credit freeze.
    Date: 2023–11–01
  3. By: Singh, Rajesh
    Abstract: Emerging markets crises experience shows that asset prices decline in advance of balance-of-payments crises, and that firms face credit constraints during crises. This paper presents a model where an anticipated balance-of-payments crisis causes asset prices to decline that in turn trigger firms' collateral constraints to bind. With collateral constraints, self-fulfilling crisis equilibria are shown to exist even when there are no government bailouts. The time of the self-fulfilling run on foreign reserves is mapped with its initial level and the degree of government bailout. Without government bailout, the time of the run conforms to the conventional wisdom: the higher the level of foreign reserves, the later is the crisis. With bailouts, however, this relationship is non-monotonic. When government bailouts are large, the higher the level of foreign reserves, the sooner is the crisis.
    Date: 2023–11–02
  4. By: Singh, Rajesh
    Abstract: This paper compares the welfare under two standard alternative exchange rate regimes, fixed and flexible, in a stochastic dynamic general equilibrium two-country setting. Conventional wisdom holds that countries often prefer low exchange-rate variability to stabilize trade. This may explain the observed `fear of floating' in emerging markets -- although most of them claim to adopt a flexible system, in reality they often intervene to peg. We show that under incomplete capital markets a fixed exchange rate regime unambiguously increases trade and improves welfare. This provides a potential explanation for the observed exchange rate policies in emerging markets.
    Date: 2023–11–06
  5. By: Lahiri, Amartya; Singh, Rajesh
    Abstract: We investigate the welfare implications of alternative monetary policy rules in a small open economy with access to world capital markets. Financial market access is costly and induces an endogenous segmentation of households into non-traders who never participate and traders who only participate intermittently in asset markets. The model can reproduce standard business cycle moments of open economies including a countercyclical current account even though the model has no capital and investment. Our main policy result is that procyclical monetary policy outperforms both the Taylor rule and inflation targeting in this environment. Given widespread evidence of endemic financial exclusion throughout the world, these results suggest caution in importing monetary policy prescriptions tailored for developed countries into emerging economies.
    Date: 2023–11–06
  6. By: Ibarra, Raul
    Abstract: This paper analyzes whether there exists a relationship between the slope of the yield curve and future economic activity in Mexico for the period 2004–2019. In particular, we evaluate whether such a relationship depends on the term premium. For this purpose, we estimate a threshold model in which the relationship between the yield spread and economic activity, measured as either output growth or the probability of a contraction, depends on whether the term premium is above or below a certain threshold. The main results indicate that the slope of the yield curve seems to anticipate the behavior of economic activity only when the term premium is above a threshold. Our results also suggest that the slope of the yield curve has predictive power over the probability of facing a contraction in the future only when the term premium is above a threshold.
    Keywords: yield spread; term premium; economic activity
    JEL: C53 E32 E37 E43
    Date: 2023–10–05
  7. By: Robin Greenwood; Samuel Hanson; Dimitri Vayanos
    Abstract: We survey the growing literature emphasizing the role that supply-and-demand forces play in shaping the term structure of interest rates. Our starting point is the Vayanos and Vila (2009, 2021) model of the term structure of default-free bond yields, which we present in both discrete and continuous time. The key friction in the model is that the bond market is partially segmented from other financial markets: the prices of short-rate and bond supply risk are set by specialized bond arbitrageurs who must absorb shocks to the supply and demand for bonds from other “preferred-habitat” agents. We discuss extensions of this model in the context of default-free bonds and other asset classes.
    JEL: E4 E40 E49 E52 E7 G02 G1 G10 G11 G12
    Date: 2023–11
  8. By: Ian Dew-Becker; Stefano Giglio
    Abstract: This paper reviews recent developments in macro and finance on the relationship between financial risk and the real economy. We focus on three specific topics: the term structure of uncertainty, time variation - and specifically the long-term decline - in the variance risk premium, and time variation in conditional skewness. We also introduce two new data series: implied volatility from one-day options on grains for the period 1906-1936, and on cliquet options, which provide insurance against single-day crashes on the S&P 500, both of which give some context to the recent rise in trade in extremely short-dated options. Finally, we discuss new avenues for future research.
    JEL: E10 G10 G12 G13 N1 N2
    Date: 2023–11
  9. By: Artur Doshchyn
    Abstract: Using the context of the dry-bulk shipping industry, I document that future returns on real assets are strongly predictable and negatively related to current asset prices, earnings, and investment during recessions. However, there is no such relationship outside recessions. This asymmetry points against existing explanations of return predictability, such as predictable boom-bust cycles arising from firms overreacting in good times. Instead, I argue that predictability arises in recessions due to liquidity constraints and limits to arbitrage. When cash flows evaporate, distressed firms are forced to sell assets to their liquidity-constrained peers, resulting in falling prices and rising expected returns for buyers. This theory is corroborated by narratives from industry practitioners and dynamics of forced auction sales. Considering that shipping is virtually a model case of a competitive industry operating large and expensive assets, the results likely generalise to other capital-intensive sectors of the economy.
    Date: 2023–11–07
  10. By: Boutaina Ismaili Idrissi (FSJES Agdal - Laboratoire d’économie appliquée en sciences économiques (LabeaMSe) Faculté des Sciences juridiques, économiques et sociales-Agdal-Rabat. Université Mohammed V de Rabat, Maroc); Sara Kawkaba (FSJES Agdal - Laboratoire d’économie appliquée en sciences économiques (LabeaMSe) Faculté des Sciences juridiques, économiques et sociales-Agdal-Rabat. Université Mohammed V de Rabat, Maroc)
    Abstract: Remittances play a very important role in a country's economic growth and development, while at the same time having a substantial impact on improving household well-being at the microeconomic level. This paper uses propensity score matching as an econometric model to assess the impact of remittances on household consumption. The main source of the analysis is the National Survey on Household Consumption and Expenditure (ENCDM) conducted by the High Commission for Planning (HCP) during the period 2013-2014. This method consists of associating each household that has received remittances from a Moroccan Resident Abroad (MRA) with a household with similar demographic, socioeconomic and geographical characteristics but which, for its part, has not received remittances. The results show that there is a significate and positive relationship between remittances and consumption. As an additional income, remittances increase household consumption expenditure which indicates that higher the level of remittances, higher would be the consumption. As a consequence, these remittances decrease household poverty levels.
    Abstract: Les transferts de fonds jouent un rôle très important dans la croissance économique et le développement d'un pays en même temps qu'ils affectent substantiellement, au niveau microéconomique, l'amélioration du bien-être des ménages. Cet article utilise l'appariement sur score de propension en tant que modèle économétrique afin d'évaluer l'impact des transferts de fonds sur la consommation des ménages. L'enquête nationale sur la consommation et les dépenses des ménages (ENCDM) réalisée par le Haut-Commissariat au Plan (HCP) durant la période de 2013- 2014, constitue la source principale de l'analyse. Cette méthode consiste à associer à chaque ménage ayant reçu des transferts de fonds de la part d'un Marocain Résidant à l'Etranger (MRE) un ménage présentant des caractéristiques démographiques, socio-économiques et géographiques similaires mais qui, pour sa part, n'a pas reçu de transfert de fonds. Les résultats montrent qu'il existe une relation significative et positive entre les transferts de fonds et la consommation. En tant que revenu supplémentaire, les transferts de fonds augmentent les dépenses de consommation des ménages, ce qui indique que plus le niveau des transferts de fonds est élevé, plus la consommation est importante. Par conséquent, ces transferts de fonds réduisent les niveaux de pauvreté des ménages
    Keywords: Faculté des Sciences juridiques économiques et sociales Agdal Avenue des Nations-Unies B.P. 721 Agdal -Rabat - Consumption Migration Morocco Poverty Propensity score matching Remittances. JEL Classification : F24 Paper type: Empirical Research, Faculté des Sciences juridiques, économiques et sociales Agdal Avenue des Nations-Unies, B.P. 721 Agdal -Rabat - Consumption, Migration, Morocco, Poverty, Propensity score matching, Remittances. JEL Classification : F24 Paper type: Empirical Research
    Date: 2023–10–30
  11. By: Eunkyung Lee
    Abstract: I construct a novel dataset comprising over 100, 000 loan observations from U.S. firms and estimate that renegotiating existing loans — rather than originating new loans — significantly contributes to the corporate investment response to monetary policy shocks, accounting for half of the aggregate effect. Expansionary monetary policy shocks increase bank credit predominantly through renegotiations, and in turn, firms that renegotiate boost investment the most. By contrast, new loan issuance is driven by the firm’s investment growth prior to the shocks, consequently contributing only a tenth to the overall investment response. Notably, renegotiations amplify investment responses for financially constrained firms. These findings unveil novel dimensions of the channels through which monetary policy affects corporate investment.
    Keywords: monetary policy transmission; bank debt; investment; financial constraints; renegotiation; text analysis
    JEL: E22 E32 E52 G21 G32
    Date: 2023–11
  12. By: Bekaert, Geert; Hoerova, Marie; Xu, Nancy R.
    Abstract: We study how monetary policy and risk shocks affect asset prices in the US, the euro area, and Japan, differentiating between “traditional” monetary policy and communication events, each decomposed into “pure” and information shocks. Communication shocks from the US spill over to risk in the euro area and vice versa, but traditional US shocks show no spillover effects to risk. Both monetary policy and communication shocks spill over to stocks, with euro area information spillovers being particularly strong. US spillovers are consistent with global CAPM intuition whereas euro area spillovers are larger. Importantly, we document a strong global component of risk shocks which is not driven by monetary policy. JEL Classification: E44, E52, G12, G20, E32
    Keywords: central bank communications, global financial cycle, interest rate, international spillovers, monetary policy, risk, stock returns, trilemma
    Date: 2023–11
  13. By: Nektarios A. Michail (Central Bank of Cyprus); Kyriaki G. LouKa (Central Bank of Cyprus)
    Abstract: We examine whether quantitative easing had an impact on output and inflation in the euro area. Using a BVAR model, over the March 2015 - December 2021 period, our results suggest that quantitative easing is an inefficient policy tool. In particular, following a shock that increases asset purchases by around 1% of euro area GDP, inflation increases by around 0.01%, while industrial production rises by 0.3%. The biggest beneficiary of quantitative easing is the stock market, rising more than 2% after the shock. Since only a very small share of the general populace holds stocks, this has adverse inequality effects.
    Keywords: quantitative easing; euro area; inequality; asset purchases
    JEL: E58 E52 C32
    Date: 2023–10
  14. By: Bochmann, Paul; Dieckelmann, Daniel; Fahr, Stephan; Ruzicka, Josef
    Abstract: We empirically analyze the interaction of monetary policy with financial stability and the real economy in the euro area. For this, we apply a quantile vector autoregressive model and two alternative estimation approaches: simulation and local projections. Our specifications include monetary policy surprises, real GDP, inflation, financial vulnerabilities and systemic financial stress. We disentangle conventional and unconventional monetary policy by separating interest rate surprises into two factors that move the yield curve either at the short end or at the long end. Our results show that a build-up of financial vulnerabilities tends to be accompanied initially by subdued financial stress which resurges, however, over a medium-term horizon, harming economic growth. Tighter conventional monetary policy reduces inflationary pressures but increases the risk of financial stress. [...] JEL Classification: E31, E52, G01, G10
    Keywords: macroprudential policy, monetary policy, monetary policy identification, quantile regressions, financial stability
    Date: 2023–11
  15. By: Katuka, Blessing; Mudzingiri, Calvin; Vengesai, Edson
    Abstract: This study explores the impact of non-performing loans (NPLs) on the Zimbabwean banking industry’s stability and economic performance during the dollarization era. The panel vector autoregressive (PVAR) model was applied using annual data from 2009 to 2017. The findings indicated that short-run NPL shocks negatively impact the risk-adjusted return, while the impact on risk-adjusted capitalization is positive but dies off in the long run. The findings from the paper further show that NPLs have a strong negative and significant effect on loan growth and economic performance in the short run but remain muted in the long run. The study results also show a bi-directional causality between banking industry stability and NPLs. In summary, NPLs affect banking industry stability, loan growth and economic performance in Zimbabwe. A possible implication is the formulation of a sound regulatory framework that curbs the increase in NPLs, promotes stability within the banking industry, and improves economic performance. The practical implication is that banks must get it right the first time regarding bank lending policies. Thus, the study recommends that Zimbabwean banks proactively manage their exposure to non-performing loans by implementing rigorous credit risk assessment processes.
    Keywords: Bank stability, Financial accelerator theory, Non-performing loans, Panel vector autoregressive model, Zimbabwe, Z score
    JEL: E51 G2 G21
    Date: 2023–05–18
  16. By: Matteo Crosignani; Thomas M. Eisenbach; Fulvia Fringuellotti
    Abstract: The bank failures that occurred in March 2023 highlighted how unrealized losses on securities can make banks vulnerable to a sudden loss of funding. This risk, which materialized following the rapid rise in interest rates that began in early 2022, underscores the importance of monitoring the vulnerabilities of the banking system. In this post, as in previous years, we provide an update of four analytical models aimed at capturing different aspects of vulnerability of the U.S. banking system, with data through the second quarter of 2023. In addition, we discuss changes made to the methodology based on the lessons from March 2023 and assess how the system-level vulnerability has evolved.
    Keywords: banks; capital; fire sales; liquiditiy; runs
    JEL: G2
    Date: 2023–11–06
  17. By: Goutsmedt, Aurélien (UC Louvain - F.R.S-FNRS); Sergi, Francesco; Cherrier, Beatrice; Claveau, François; Fontan, Clément; Acosta, Juan
    Abstract: Why do policymakers and economists within a policymaking institution choose to throw away a model and to develop an alternative one? Why do they choose to stick to an existing model? This article contributes to the literature on the history and philosophy of modelling by answering these questions. It delves into the dynamics of persistence, change, and building practices of macroeconomic modelling, using the case of forecasting models at the Bank of England (1974-2014). Based on archives and interviews, we document the multiple factors at play in model building and model change. We identify three sets of factors: the agency of modellers, institutional factors, and the material factor. Our investigation shows the diversity of explanations behind the decision to change a model: each time, model replacement resulted from a different combination of the three types of factors.
    Date: 2023–11–07
  18. By: Di Casola, Paola; Habib, Maurizio Michael; Tercero-Lucas, David
    Abstract: We analyse the drivers of Bitcoin transactions against 44 fiat currencies in the largest peer-to-peer crypto exchanges. Momentum and volatility in the cryptoasset market, as well as volatility and liquidity in global financial markets do matter for Bitcoin trading. There is suggestive evidence of a global crypto cycle driven by speculative motives. However, in emerging and developing economies (EMDEs), Bitcoin seems to offer also transactional benefits, since trading increases when the value of the domestic currency is unstable. Proxies of banking depth and digitalisation are negatively correlated with the currency loadings on the global factor, indicating that crypto-assets may offer a speculative alternative to traditional finance when this is not available, especially in EMDEs where the share of younger risk-prone population is higher. Our results clearly point to potential financial stability risks from cryptoisation in EMDEs with low levels of financial development and unstable fiat currencies. JEL Classification: E42, F21, F24, F32, F38, G15, O33
    Keywords: Bitcoin, digital currencies, financial development, peer-to-peer exchanges
    Date: 2023–11
  19. By: Tobias Boos; Juan Grigera
    Abstract: This paper provides a contextual analysis of the adoption of Bitcoin as legal tender in El Salvador. First, we outline the historical context and the political situation of the period 2019-24 that serve as context for the passage and implementation of the Bitcoin law (Decree No. 57). We identify the institutional and political context and the main areas of contention. Next, we delve into the macroeconomic context of El Salvador, outlining the fundamental features of its economy and highlighting how they relate to currency issues.
    Keywords: El Salvador, Political economy, Finance
    Date: 2023
  20. By: Alexis Derviz
    Abstract: When several central banks decide to introduce CBDCs, interoperability requirements create demand for a common payment infrastructure and a joint digital accounting unit (bridge coin). Many attributes of the latter resemble those of private digital currencies. At the same time, the CBDC-embracing authorities actively contribute to elevating digital wallets to the position of a household technology. Private agents discover ways to make domestic and foreign payments in the (digital) currency of their choice irrespective of the CBDC-issuing authorities' intentions. In such a world, will fiat currencies and the central banks that issue them be sidetracked by the bridge coin, or are old and new forms of international transactions able to coexist? What changes await the traditional FX market? These questions are addressed in a two-country, twogood, two-currency DSGE model with a global digital currency (digicoin). Under a certain structure of FX transaction costs, all three partial FX markets coexist and the use of fiat currency in foreign trade is unlikely to be eliminated completely as long as the bridge coin operator is unable to become a global banker as well.
    Keywords: Bridge coin, cash in advance, CBDC, digital currency, FX market
    JEL: C61 C63 D58 E02 E59 G23
    Date: 2023–07
  21. By: Christopher J. Gust; Kyungmin Kim; Romina Ruprecht
    Abstract: We propose a parsimonious framework to understand how the issuance of central bank digital currency (CBDC) might affect the financial system, the Federal Reserve's balance sheet, and the implementation of monetary policy. We show that there is a wide range of outcomes on the financial system and the Federal Reserve's balance sheet that could reasonably occur following CBDC issuance. Our analysis highlights that the potential effects on the financial sector depend critically on how the Fed manages its balance sheet. In particular, CBDC could in principle put substantial upward pressure on the spread of the federal funds rate and other wholesale funding rates over the interest rate on reserves unless the Fed expanded its balance sheet to accommodate CBDC issuance.
    Keywords: Central bank digital currency; Monetary policy implementation; Bank disintermediation; Central bank balance sheet
    JEL: E50 E51 E52 E58
    Date: 2023–11–03
  22. By: Ögren, Anders (Department of Economic History, Uppsala University)
    Abstract: A number of central banks have started to investigate the possibility of issuing so-called Central Bank Digital Currencies (CBDCs). The aim may be to compete with cryptocurrencies of different kinds but also to replace digital commercial bank money with central bank issued digital money, i.e. replacing bank money with central bank issued base money. In this paper we study a similar experiment when the Swedish central bank, the Riksbank, in 1903 replaced private banknotes with their own notes. The result of this policy was a massive increase in commercial bank credit due to the increase in base money, spurring the ongoing boom even further. A boom that worsened the 1907 crisis. The result is thus questioning the notion that increased monetary issuance by a monetary authority to replace other financial assets as private money or cryptoassets should lead to increased financial stability – as, in fact, it led to the opposite.
    Keywords: Central banking; Commercial banks; Crises; Cryptoassets; Financial stability
    JEL: E42 N13 N23
    Date: 2022–10–25
  23. By: Howard Bodenhorn
    Abstract: How far did antebellum bank notes travel? Up to now, we did not know. Using previously overlooked data on interbank holdings of bank notes and the records of a small-time note broker, I find that most bank notes circulated within about 50 miles of the issuing banks. Few notes were observed from as far as 200 miles away. Several studies of secondary markets for privately issued currencies assume that notes moved across vast geographic space, but these new findings suggest that we may need new models of bank note pricing and the efficiency of relatively unfettered markets in private currencies.
    JEL: N21
    Date: 2023–11
  24. By: Ajay Shah (xKDR Forum)
    Abstract: Indian finance went through a first phase of central planning (1947-1992) and a second phase (1992-2016) with conflicting themes of liberalisation and enhanced state control. In the first phase, the financial system was a handmaiden for state control of the economy, directing resources in harmony with the wishes of the government. State control was achieved through government ownership. In many areas, private financial firms are now important. The full ecosystem of modern finance, with information processing and risk-taking by private persons, blossomed in the equity market. For two decades there was a remarkable policy process that yielded gains in fields such as the equity market, pension reforms, bankruptcy code, etc. But alongside this there was the expansion of 'the administrativestate' in the form of financial regulators. Regulators engage in micromanagement of products and processes. While there is isomorphic mimicry with many things that look like a financial system, officials retain substantial control over how finance works. In a functional perspective, Indian finance today resembles the environment of the 1980s more than meets the eye.
    JEL: N25 N45 G38 O53
    Date: 2023–11
  25. By: Leonardo Gambacorta; Leonardo Madio; Bruno Maria Parigi
    Abstract: We analyse the impact of platform lending on innovation and e-commerce vendors' surplus. The platform generates revenues from both lending and marketplace fees, and can use lending to price discriminate vendors, thereby leading to higher marketplace fees and below-market interest rates. While platform lending can encourage innovation by providing access to subsidised credit, it can harm vendors who do not have financial needs. A sufficient condition for platform lending to be welfare-enhancing is that innovators would not receive funding from banks otherwise. However, if innovators would receive funding from banks, platform lending may reduce the overall vendor surplus. Cream skimming arises when the platform has better information than the bank about the prospects of the innovators' projects. To address the potential negative effects of platform lending on vendors' surplus, we also explore the impact of different regulatory instruments.
    Keywords: platform lending, big tech, online platforms, credit, innovation
    JEL: G20 L86 O31
    Date: 2023–11
  26. By: Morelli, Salvatore; Asher, Twisha; Di Biase, Frincasco; Disslbacher, Franziska (Vienna University of Economics and Business); Flores, Ignacio; Johnson, Adam Rego; Rella, Giacomo; Schechtl, Manuel; Subioli, Francesca; , Matteo
    Abstract: The GC Wealth Project, a central project of the Graduate Center's Stone Center on Socio-Economic Inequality, is a multi-year effort aimed at expanding and consolidating access to the most up-to-date research and information on wealth, wealth inequalities, and wealth transfers and related tax policies, across countries and over time. The GC Wealth Project website — first launched in June 2023 — is organized around two main components: a data warehouse of gathered and novel data that can be visualized in a variety of ways through the interactive dashboard, and a Digital Library of Research on Wealth Inequality. Both are designed to provide researchers, policymakers, journalists, and others interested in wealth and wealth taxation with open, unlimited access to an array of high-quality information and resources. All of the data, including the tailored visualizations that users can create using the interactive dashboard, can be exported. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2023–11–07
  27. By: Niklas Potrafke
    Abstract: Fiscal rules are controversial. They mitigate politicians’ flexibility in responding to shocks and pursuing expansionary fiscal policy. They help, however, to handle politicians’ commitment problem in fiscal policies. I portray the new and fast growing empirical literature in public economics that examines the economic consequences of fiscal rules. The survey encompasses the literature on fiscal rules at the national, sub-national and local level. The results show that fiscal rules reduce budget deficits, public spending and borrowing costs and increase GDP growth. The results do not suggest that fiscal rules decrease public investment. Future research should examine in more detail the unintended effects of fiscal rules such as how they relate to creative accounting.
    Keywords: fiscal rules
    JEL: H50 H60 H70 N10 O10 R10
    Date: 2023
  28. By: Waidelich, Paul; Krug, Joscha; Steffen, Bjarne
    Abstract: Policymakers regularly rely on public financial institutions and government bodies to provide loans to clean energy projects. However, the market failures that public loan provision addresses and the role it can play in a policy strategy that also features de-risking measures, such as interest rate subsidies, remain unclear. Here, we develop a model of banks providing loans to clean energy projects that use a novel technology. Early-stage loans build up financing experience that spills over to peers and hence is undersupplied by the market. In addition to this cooperation problem, bankability requirements can result in a coordination failure where the banking sector remains stuck in an equilibrium with no loans for the novel technology, although a preferable equilibrium with loans exists. Public provision of early-stage loans is inferior to de-risking instruments when solving the cooperation problem because it crowds out private banks' loan provision. However, public loan provision can more effectively resolve the coordination failure by pushing the banking sector to a better equilibrium, ideally in combination with additional de-risking measures to internalize learning spillovers.
    Keywords: Energy transition, state investment bank, government loans, credit guarantees, multiple equilibria
    JEL: G21 H81 Q48 Q55
    Date: 2023

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