nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2024‒01‒22
twenty papers chosen by
Georg Man,

  1. Bank Branch Expansions and Capital Investment by Credit Constrained Firms By Nirupama Kulkarni; Kanika Mahajan; S.K. Ritadhi
  2. On the estimation of the natural yield curve By NAKAJIMA, Jouchi; SUDO, Nao; HOGEN, Yoshihiko; TAKIZUKA, Yasutaka
  3. The Informational Centrality of Banks By Nathan Foley-Fisher; Gary B. Gorton; Stéphane Verani
  4. Indexing and the Incorporation of Exogenous Information Shocks to Stock Prices By Randall Morck; M. Deniz Yavuz
  5. Scalable Agent-Based Modeling for Complex Financial Market Simulations By Aaron Wheeler; Jeffrey D. Varner
  6. A Statistical Field Perspective on Capital Allocation and Accumulation By Pierre Gosselin; A\"ileen Lotz
  7. Asset Demand of U.S. Households By Xavier Gabaix; Ralph S. J. Koijen; Federico Mainardi; Sangmin Oh; Motohiro Yogo
  8. The Sovereign Debt and Financial Sector Nexus in the Arab Region By Awdeh, Ali
  9. Quantifying credit gaps using survey data on discouraged borrowers By Akbas, Ozan E.; Betz, Frank; Gattini, Luca
  10. The Determinants of Financial Inclusion among Indonesian Muslim Households By Novat Pugo Sambodo; Riswanti Budi Sekaringsih; Meikha Azzani; Esa Azali Asyahid; Maulana Ryan Nurfahdhila
  11. Can Digital Aid Deliver During Humanitarian Crises? By Michael Callen; Miguel Fajardo-Steinh\"auser; Michael G. Findley; Tarek Ghani
  12. Blockchain, Cryptocurrency, and the Quest for Financial Stability in Morocco Blockchain. By Chaimae Hmimnat; Mounir El Bakouchi
  13. Could Uncapped and Unremunerated Retail CBDC Accounts Disintermediate Banks? By Srichander Ramaswamy
  14. Similarities yet divergence in South Asian macroeconomic performance By Ashima Goyal
  15. Financial Integration and Monetary Policy Coordination By Javier Bianchi; Louphou Coulibaly
  16. Assessing the sources of heterogeneity in eurozone response to unconventional monetary policy By Eli Agba; Hamza Bennani; Jean-Yves Gnabo
  17. What Drives the Exchange Rate? By Oleg Itskhoki; Dmitry Mukhin
  18. The Effect of Antitrust Enforcement on Venture Capital Investments By Wentian Zhang
  19. Inward foreign direct investment, superstar firms and wage inequality between firms: Evidence from European regions By Siedschlag, Iulia; Duran Vanegas, Juan
  20. The green sin: How exchange rate volatility and financial openness affect green premia By Moro, Alessandro; Zaghini, Andrea

  1. By: Nirupama Kulkarni (Centre for Advanced Financial Research and Learning); Kanika Mahajan (Ashoka University); S.K. Ritadhi (Ashoka University)
    Abstract: Does financial deepening affect capital investment by credit-constrained firms? We examine this question by exploiting a nationwide branch expansion policy in India that incentivized banks to open branches in “underbanked†districts: districts where the ex-ante bank branch density was less than the national average. Extending a regression discontinuity design, we find large increases in both capital expenditures and credit growth undertaken by manufacturing establishments in underbanked districts following the policy intervention. The increase in capital spending is driven by small and young establishments, which are also the most likely to be credit constrained. Two key channels explain our findings: increased physical proximity of lenders to borrowers and the comparative advantage of select banks in lending to small manufacturing units. Our results show that financial deepening can aid in the relaxation of credit constraints in developing economies with imperfect capital and credit markets.
    Keywords: Bank Branch Expansions; Capital Investment
    Date: 2023–02–01
  2. By: NAKAJIMA, Jouchi; SUDO, Nao; HOGEN, Yoshihiko; TAKIZUKA, Yasutaka
    Abstract: This study discusses the estimation methodology of the natural yield curve, which is an extension of the natural rate of interest defined at a short-term interest rate to that defined for all maturities on a yield curve. To identify information about the latent factors forming the natural rate curve, the original estimation framework proposed by Imakubo et al. (2018), employs the pre-estimated potential growth rate, assuming that a change in the factors depends on a change in the potential growth rate. In contrast, this study examines an alternative approach that specifies that the levels of the factors depend on the potential growth rate. In an empirical analysis with recursive data updating, the differences in the resulting natural yield curve and its updated patterns between the two approaches are investigated.
    Keywords: Natural yield curve, Natural rate of interest, Term structure
    JEL: C32 E43 E52 E58
    Date: 2023–12
  3. By: Nathan Foley-Fisher; Gary B. Gorton; Stéphane Verani
    Abstract: The equity and debt prices of large nonbank firms contain information about the future state of the banking system. In this sense, banks are informationally central. The amount of this information varies over time and over equity and debt. During a financial crisis banks are, by definition of a crisis, at risk of failure. Debt prices became about 50 percent more informative than equity prices about the future state of the banking system during the financial crisis of 2007-2009. This was partly due to investors’ fears that banks might not be able to refinance their debt.
    JEL: G0 G2 G21
    Date: 2023–12
  4. By: Randall Morck; M. Deniz Yavuz
    Abstract: Savings increasingly flow to low-cost index funds, which simply buy and hold the stocks in a major index, such as the S&P 500. Increased indexing impedes incorporation of idiosyncratic information into stock prices. We limit endogeneity bias by showing that exogenous idiosyncratic currency shocks induce smaller idiosyncratic moves in the stock prices of currency-sensitive firms in proximate time windows when in the index than when not in it. Increased indexing thus appears to be undermining the efficient markets hypothesis that supports its viability.
    JEL: G11 G14
    Date: 2023–12
  5. By: Aaron Wheeler; Jeffrey D. Varner
    Abstract: In this study, we developed a computational framework for simulating large-scale agent-based financial markets. Our platform supports trading multiple simultaneous assets and leverages distributed computing to scale the number and complexity of simulated agents. Heterogeneous agents make decisions in parallel, and their orders are processed through a realistic, continuous double auction matching engine. We present a baseline model implementation and show that it captures several known statistical properties of real financial markets (i.e., stylized facts). Further, we demonstrate these results without fitting models to historical financial data. Thus, this framework could be used for direct applications such as human-in-the-loop machine learning or to explore theoretically exciting questions about market microstructure's role in forming the statistical regularities of real markets. To the best of our knowledge, this study is the first to implement multiple assets, parallel agent decision-making, a continuous double auction mechanism, and intelligent agent types in a scalable real-time environment.
    Date: 2023–12
  6. By: Pierre Gosselin (IF); A\"ileen Lotz
    Abstract: This paper provides a general method to translate a standard economic model with a large number of agents into a field-formalism model. This formalism preserves the system's interactions and microeconomic features at the individual level but reveals the emergence of collective states.We apply this method to a simple microeconomic framework of investors and firms. Both macro and micro aspects of the formalism are studied.At the macro-scale, the field formalism shows that, in each sector, three patterns of capital accumulation may emerge. A distribution of patterns across sectors constitute a collective state. Any change in external parameters or expectations in one sector will affect neighbouring sectors, inducing transitions between collective states and generating permanent fluctuations in patterns and flows of capital. Although changes in expectations can cause abrupt changes in collective states, transitions may be slow to occur. Due to its relative inertia, the real economy is bound to be more affected by these constant variations than the financial markets.At the micro-scale we compute the transition functions of individual agents and study their probabilistic dynamics in a given collective state, as a function of their initial state. We show that capital accumulation of an individual agent depends on various factors. The probability associated with each firm's trajectories is the result of several contradictory effects: the firm tends to shift towards sectors with the greatest long-term return, but must take into account the impact of its shift on its attractiveness for investors throughout its trajectory. Since this trajectory depends largely on the average capital of transition sectors, a firm's attractiveness during its relocation depends on the relative level of capital in those sectors. Moreover, the firm must also consider the effects of competition in the intermediate sectors that tends to oust under-capitalized firm towards sectors with lower average capital. For investors, capital allocation depends on their short and long-term returns and investors will tend to reallocate their capital to maximize both. The higher their level of capital, the stronger the re-allocation will be.
    Date: 2023–12
  7. By: Xavier Gabaix; Ralph S. J. Koijen; Federico Mainardi; Sangmin Oh; Motohiro Yogo
    Abstract: We use novel monthly security-level data on U.S. household portfolio holdings, flows, and returns to analyze asset demand across an extensive range of asset classes, including both public and private assets. Our dataset covers a broad range of households across the wealth distribution, notably including 439 billionaires. This ensures representation of ultra-high-net-worth (UHNW) households that are typically not well covered in survey data. With these data, we study the portfolio rebalancing behavior of households and ask whether (and, if so, which) households play an important stabilizing role in financial markets. Our findings reveal a stark contrast: less affluent households sell U.S. equities amid market downturns, while UHNW households buy and contribute to stabilizing markets. This behavior is more pronounced among households who rebalance their portfolios more frequently. However, the sensitivity of flows to returns is generally quite small and as the trades of different wealth groups partly offset each other, the aggregate household sector plays a limited role to absorb financial fluctuations. To understand the contrasting trading behavior across households, we show that a household’s flows to U.S. equities are negatively correlated with its “active returns” (the difference between an investor’s return and the market return). However, the flows to U.S. equities of less affluent households are also positively correlated with broad market returns – perhaps due to shifts in risk aversion, sentiment, or perceived macroeconomic risk – leading this group of households to act pro-cyclically. Across all asset classes, three factors with intuitive economic interpretations explain 81% of all variation in portfolio rebalancing. Those factors bet on the long-term equity premium, the credit premium, and the premium on municipal bonds. In sum, our framework paints a quantitative picture of U.S. households’ assets and rebalancing marked by a great deal of insensitivity and inertia throughout the distribution, even for UHNW households. These new facts are useful for the calibration of macro-finance models with heterogeneous households and multiple risky asset classes.
    JEL: G0
    Date: 2023–12
  8. By: Awdeh, Ali
    Abstract: The Arab region contains several countries that suffer high levels of indebtedness, resulting from decades of weak (if not failing) macroeconomic, fiscal, monetary and trade policies. This indebtedness was further exacerbated by political and security unrest, and lastly by the repercussions of Covid-19 crisis. By end 2019, i.e. before the eruption of Covid-19 pandemic, the government debt-to-GDP ratio reached 200 percent in Sudan, which ranked the country third globally in this indicator. Two other Arab countries recorded government debt-to-GDP ratio above 100 percent, namely Lebanon and Bahrain. Several other Arab countries also record considerably high debt ratios, in particular Yemen, Egypt, Jordan, Morocco, and Tunisia. Among other factors, the persistent budget deficit, which is determined by the fiscal policies, is in turn a major determinant of the mounting debt in the Arab region. This high indebtedness resulted in high debt service burden in the Arab countries, which is financed via increased borrowing, higher taxes, and leading to lower government spending, thus imposing liquidity challenges and limits fiscal space which could have otherwise been invested in essential public services, and in financing the Sustainable Development Goals in the Arab countries. Several Arab countries rely heavily on banks to meet their borrowing needs and banks across the Arab region invest considerably in the government securities and dedicate large sums of their resources to finance government budget. The end-2022 data show that approximately 10 percent of the consolidated assets of the Arab banking sector is invested in government debt. The fiscal policies in the Arab countries are indeed responsible for the level of debt held by banks. In particular, budget balance, government debt levels, and interest paid on government debt, are all factors that determine the investment of banks in the domestic sovereign debt. The interconnectedness between fiscal position and bank lending to the government results in the sovereign-bank nexus phenomenon in the Arab region, which poses risks for fiscal sustainability and financial stability. Moreover, the high levels of bank holdings of government debt in several Arab countries may result in two repercussions: firstly, a high exposure of banks to sovereign risk and ratings downgrade following sovereign downgrade; and secondly, a crowding out effects for private sector and depriving businesses from the needed funding. To avoid such scenarios, proper macroprudential and microprudential framework aiming to mitigate the sovereign-bank nexus must be put in place.
    Keywords: Sovereign Debt; Financial Sector Stability.
    JEL: E58 G21 H6 H63 H68
    Date: 2023–09
  9. By: Akbas, Ozan E.; Betz, Frank; Gattini, Luca
    Abstract: The credit gap in this study is given by the financing needs of firms that are bankable but discouraged from applying for a loan. To quantify the credit gap, we combine a scoring model that assesses the creditworthiness of discouraged firms with a credit allocation rule. Our study covers 35 emerging markets and developing economies and uses the 2018-2020 EBRD-EIB-World Bank Enterprise Survey. We show that on average discouraged firms are less creditworthy than successful applicants. Nonetheless, the share of bankable discouraged firms is large, suggesting inefficient credit rationing. The baseline results point to an aggregate credit gap of 8.4% of GDP with significant variation across countries. SMEs account for more than two-thirds of the total, reflecting both their contribution to economic activity and the fact that they are more likely to be credit-constrained.
    Keywords: credit rationing, discouraged borrowers, firm-level data, EMDEs
    JEL: D22 D45 E51 G21 G32
    Date: 2023
  10. By: Novat Pugo Sambodo (Lecturer of Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada); Riswanti Budi Sekaringsih (Lecturer of Faculty of Islamic Economics and Business, State Islamic University (UIN) Sunan Kalijaga Yogyakarta, and Research Associate at Pusat Kajian Ekonomika dan Bisnis Syariah (PKEBS/Center for Islamic Economics and Business Studies) of Faculty of Economics and Business, Universitas Gadjah Mada); Meikha Azzani (Research Associate at Pusat Kajian Ekonomika dan Bisnis Syariah (PKEBS/Center for Islamic Economics and Business Studies) of Faculty of Economics and Business, Universitas Gadjah Mada); Esa Azali Asyahid (Academic Assistant of Department of Economics and General Assistant at Pusat Kajian Ekonomika dan Bisnis Syariah (PKEBS/Center for Islamic Economics and Business Studies) of Faculty of Economics and Business, Universitas Gadjah Mada); Maulana Ryan Nurfahdhila (Student of Department of Economics and Research Assistant at Pusat Kajian Ekonomika dan Bisnis Syariah (PKEBS/Center for Islamic Economics and Business Studies) of Faculty of Economics and Business, Universitas Gadjah Mada)
    Abstract: This study empirically examines the determinants of financial inclusion among Indonesian Muslims using individual-level panel data. We investigated financial inclusion indicators such as borrowing from financial institutions, bank account ownership, the borrowed amount, and savings in financial services. We analysed data from the Indonesian Family Life Survey (IFLS) fourth (2007) and fifth (2014) waves, offering a comprehensive dataset with unique socio-economic variables. We used Ordinary Least Squares and Logit estimations to identify factors influencing individuals' access to financial services and the average borrowed amount. Our findings indicate that urban residents with higher wealth, predominantly males, have better access to financial services. Banks remain the primary source for loans among Indonesian Muslims. Access to commercial banks significantly impacts loan accessibility. Notably, Baitul Maal WatTamwil (BMT), an Islamic microfinance institution, enhances the probability of Indonesian Muslims accessing formal loans.
    Keywords: Financial Inclusion, Islamic Finance, Household, Muslim, Indonesia
    JEL: G51 Z12
    Date: 2023–12
  11. By: Michael Callen; Miguel Fajardo-Steinh\"auser; Michael G. Findley; Tarek Ghani
    Abstract: Global hunger levels have set new records in each of the last three years, outpacing aid budgets (WFP, 2023; FSIN, 2023). Most households experiencing food insecurity crises are now in fragile states (Townsend et al., 2021), making it difficult to support vulnerable, hard-to-reach populations without interference from oppressive governments and non-state actors (Kurtzer, 2019; Cliffe et al., 2023). Despite growing interest in using digital payments for crisis response (Suri and Jack, 2016; Pazarbasioglu et al., 2020; Aiken et al., 2022), there is limited causal evidence on their efficacy (Gentilini, 2022; WFP, 2023). We show that digital payments can address basic needs during a humanitarian crisis. We conducted a randomized evaluation among very poor, mostly tech-illiterate, female-headed households in Afghanistan with digital transfers of $45 every two weeks for two months. Digital aid led to significant improvements in nutrition and in mental well-being. We find high usage rates, no evidence of diversion by the Taliban despite rigorous checks, and that 80% of recipients would prefer digital aid rather than pay a 2.5% fee to receive aid in cash. Conservative assumptions put the cost of delivery under 7 cents per dollar, which is 10 cents per dollar less than the World Food Program's global figure for cash-based humanitarian assistance. These savings could help reduce hunger without additional resources. Asked to predict our findings, policymakers and experts underestimated beneficiaries' ability to use digital transfers and overestimated the likelihood of diversion and the costs of delivery. Such misperceptions might impede the adoption of new technologies during crises. These results highlight the potential for digital aid to complement existing approaches in supporting vulnerable populations during crises.
    Date: 2023–12
  12. By: Chaimae Hmimnat (FEG, UIT - Faculté d’Economie et de Gestion, Université Ibn Tofail, Kénitra); Mounir El Bakouchi (FEG, UIT - Faculté d’Economie et de Gestion, Université Ibn Tofail, Kénitra)
    Abstract: The study explains how blockchain and cryptocurrency are transforming the Moroccan financial landscape. It tries to comprehend how these developing technologies, with their promises of decentralization and increased efficiency, may shape Morocco's future financial stability. The article begins by introducing the reader to the fundamental ideas of blockchain and cryptocurrency. A thorough literature analysis recounts past and contemporary studies on the subject, providing a context against which Moroccan progress is judged. Morocco's approach to blockchain and cryptocurrencies has been cautious yet forward-thinking. While these technologies offer prospects for increased transparency, diversification of financial assets, and transactional efficiency, they also create problems. Notably, the volatile nature of bitcoin prices, along with a nascent regulatory structure, poses serious challenges to financial stability. The paper reveals significant gaps in current research, specifically the scarcity of studies contextualized within Morocco's distinct socioeconomic setting. These deficiencies provide a direction for future academic and policy-oriented research. To fully realize the potential of blockchain and cryptocurrencies in Morocco, a balanced strategy is required-one that actively supports innovation while remaining within a regulated legal framework. The realities of such a strategy are investigated, providing policymakers and industry stakeholders with actionable insights. This study is one of the first to look into the complexities of blockchain and cryptocurrencies in Morocco, filling a critical knowledge gap. While many studies investigate these technologies on a worldwide basis, this study takes a different approach, concentrating on their consequences within Morocco's distinct socioeconomic fabric.The findings are valuable to both academics and practitioners, providing a road map for navigating Morocco's young but developing crypto-financial sector.
    Keywords: Blockchain, Cryptocurrency, Financial Stability, Moroccan financial ecosystem
    Date: 2023–11–30
  13. By: Srichander Ramaswamy (The South East Asian Central Banks (SEACEN) Research and Training Centre)
    Abstract: One of the challenges of issuing a central bank digital currency (CBDC) is its potential to disintermediate banks through deposit substitution. To avoid this outcome, much of the research on CBDC is focused on whether and what limits to set on CBDC holdings, and if CBDC accounts should be paid interest. But the issuance of CBDC can also generate significant fiscal revenue through central bank balance sheet expansion if they are funded by unremunerated CBDC liabilities. This can lead to a criticism of central bank policies and can potentially compromise its independence. Taking the view that a significant share of unremunerated bank demand deposits can migrate to retail CBDC account if there are no restrictions on the holding amounts, this paper raises and provides some indicative answers to a number of policy questions that arise in this setup. These include the following: Will the commercial bank’s money creation process et disrupted? How will it impact the efficient transmission of monetary policy? What role can central banks play to ensure that the demand for credit in the economy is met at reasonable price terms? Will non-bank actors be able to offer better terms and conditions for loans than banks in the changed intermediation landscape brought about by CBDC? What levers will central banks have to control non-bank actors so that they do not amplify procyclical lending behaviour? Will the remit of central banks need to broaden in scope and reach? We will explore the options and alternatives that might emerge while highlighting what the challenges might be.
    Keywords: Central banks, digital currency, financial stability, monetary policy, bank intermediation, non-banks, collateral.
    JEL: E42 E51 E52 G21 G23
    Date: 2024–01
  14. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: Stylized business cycle facts for South Asia are similar and differ from other regions. They show the dominance of supply shocks, often amplified by macroeconomic policies and procyclical current accounts. Interest and exchange rate volatility rose initially on liberalization, but fell as markets deepened. A gradual middling through approach to openness and market development with flexible exchange rates worked well initially. But a combination of excessive government/foreign borrowing and inadequate reserves made it difficult for smaller countries to withstand the multiple external shocks that began with the global pandemic. Domestic ability to smooth shocks and global safety nets are both essential. India benefitted from growing diversity, evolution to countercyclical macroeconomic policy better suited to structure, a good coordination of monetary and fiscal policies with balance between demand stimulus and continuing supply-side reforms. Reserves and capital flow management policies helped insulate from global shocks. Intervention damped excess exchange rate volatility reducing risk premiums.
    Keywords: South Asia, supply shocks, flexible exchange rates, diversity, smoothing
    JEL: E3 E63 O11
    Date: 2023–12
  15. By: Javier Bianchi; Louphou Coulibaly
    Abstract: Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that determine whether the Nash equilibrium exhibits under-tightening or over-tightening: the output gap, sectoral differences in labor intensity, and the trade balance response to changes in nominal rates. Independently of the shocks hitting the economy, we find that under-tightening is possible during economic expansions or contractions. For large shocks, the gains from coordination can be substantial.
    JEL: E21 E23 E43 E44 E52 E62 F32
    Date: 2023–12
  16. By: Eli Agba (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur]); Hamza Bennani (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris] - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université - IUML - FR 3473 Institut universitaire Mer et Littoral - UM - Le Mans Université - UA - Université d'Angers - UBS - Université de Bretagne Sud - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université - Nantes Univ - ECN - École Centrale de Nantes - Nantes Univ - Nantes Université); Jean-Yves Gnabo (CeReFiM - Center for Research in Finance and Management [UNamur] - UNamur - Université de Namur [Namur], NaXys - Namur Center for Complex Systems [Namur] - UNamur - Université de Namur [Namur])
    Abstract: In this paper, we aim at explaining a specific type of heterogeneity in the euro area pertaining to the diverging responses of countries and sectors to the European Central Bank's Unconventional Monetary Policy. Equipped with stock markets indices of 17 sectors for each euro area country, we first preform an event-study analysis to assess the reaction of the markets. Next, we regress the responses on a set of country-specific drivers. Our main findings show that variables related to the nature of banking industry (e.g. cost-to-income, return on assets), macroeconomic environment (e.g. gross debt) and macroprudential policy all contribute to observe diverging responses to ECB's monetary policies. While some sectors and countries responded more negatively than positively to the policies, the Unconventional Monetary Policy impacts the markets positively on average. A policy implication is that the heterogeneous response calls for domestic structural reforms that should target the discrepancies in the banking and the macroeconomic environments across euro area countries.
    Keywords: Event-study ordered probit heterogeneity cross-sector /cross-country UMP, Event-study, ordered probit, heterogeneity, cross-sector /cross-country, UMP
    Date: 2022–03–28
  17. By: Oleg Itskhoki; Dmitry Mukhin
    Abstract: We use a general open-economy wedge-accounting framework to characterize the set of shocks that can account for major exchange rate puzzles. Focusing on a near-autarky behavior of the economy, we show analytically that all standard macroeconomic shocks — including productivity, monetary, government spending, and markup shocks — are inconsistent with the broad properties of the macro exchange rate disconnect. News shocks about future macroeconomic fundamentals can generate plausible exchange rate properties. However, they show up prominently in contemporaneous asset prices, which violates the finance exchange rate disconnect. International shocks to trade costs, terms of trade and import demand, while potentially consistent with disconnect, do not robustly generate the empirical Backus-Smith, UIP and terms-of-trade properties. In contrast, the observed exchange rate behavior is consistent with risk-sharing (financial) shocks that arise from shifts in demand of foreign investors for home-currency assets, or vice versa.
    JEL: F31 F41 F44
    Date: 2023–12
  18. By: Wentian Zhang
    Abstract: This paper studies the effect of antitrust enforcement on venture capital (VC) investments and VC-backed companies. To establish causality, I exploit the DOJ's decision to close several antitrust field offices in 2013, which reduced the antitrust enforcement in areas near the closed offices. I find that the reduction in antitrust enforcement causes a significant decrease in VC investments in startups located in the affected areas. Furthermore, these affected VC-backed startups exhibit a reduced likelihood of successful exits and diminished innovation performance. These negative results are mainly driven by startups in concentrated industries, where incumbents tend to engage in anticompetitive behaviors more frequently. To mitigate the adverse effect, startups should innovate more to differentiate their products. This paper sheds light on the importance of local antitrust enforcement in fostering competition and innovation.
    Date: 2023–12
  19. By: Siedschlag, Iulia; Duran Vanegas, Juan
    Date: 2023
  20. By: Moro, Alessandro; Zaghini, Andrea
    Abstract: We propose a model with mean-variance foreign investors who exhibit a convex disutility associated to brown bond holdings. The model predicts that bond green premia should be smaller in economies with a closer financial account and highly volatile exchange rates. This happens because foreign intermediaries invest relatively less in such economies, and this lowers the marginal disutility of investing in polluting activities. We find strong empirical evidence in favor of this hypothesis using a global bond market dataset. Exchange rate volatility and financial account openness are thus able to explain the higher financing costs of green projects in emerging markets relative to advanced economies, especially when green bonds are denominated in local currency: a disadvantage that we can call the "green sin" of emerging economies.
    Keywords: Green bonds, Greenium, Exchange rate volatility, Financial openness, Original sin
    JEL: F21 F30 F31 G11 G12
    Date: 2023

This nep-fdg issue is ©2024 by Georg Man. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.