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on Financial Development and Growth |
| By: | Jennifer De la Cruz (Departamento de Economía de la Pontificia Universidad Católica del Perú.) |
| Abstract: | Empirical studies suggest that credit constraints prevent the development of Micro and Small Enterprises (MSEs). This study contributes to the analysis by exploring whether higher regional financial development affects the creation and growth of MSEs in Peru. Based on four cross-sectional databases, mainly the 2018 National Household Survey on Living Conditions and Poverty, this paper finds that there is a positive impact on entrepreneur profits; however, the effect is negative on the likelihood of running a business. Interactions between informality and financial frictions may explain this result. Informal financing emerges as an alternative in this context. This study addresses endogeneity issues by using the number of commercial bank branches per 1, 000 inhabitants in 1995 as an instrument of the degree of regional financial development in 2018. JEL Classification-JE: G20, O16, R11. |
| Keywords: | Financial Development, Micro and Small Enterprises, Informal Finance, Instrumental Variables. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00532&r=fdg |
| By: | Guglielmo Maria Caporale; Matteo Alessi |
| Abstract: | This paper analyses lending behaviour and economic fluctuations in the Italian banking system as a whole and in the case of the Cooperative Credit Banks (CCBs) using time series data from 2000Q1 to 2022Q4. The specified models include the main determinants of loans to households and firms. In the first stage, VECMs are estimated to identify the long-run relationship between credit and economic variables. In the second, on the basis of appropriate exogeneity tests, only the credit variables are treated as endogenous, and all others as exogenous. Specifically. ECMs are estimated for both loans to households and loans to firms at the national level as well as from the CCBs only. The results suggest that lending behaviour is less affected by economic fluctuations in the case of the CCBs, namely these tend to reduce credit by less or not at all during economic downturns. The reason is that relationship lending enables CCBs to gather confidential (non-public) information about their clients, which can aid lending decisions and reduce credit rationing during such phases. |
| Keywords: | cooperative credit banks, bank lending, financial systems, economic cycles |
| JEL: | G01 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10958&r=fdg |
| By: | Hein, Eckhard; van Treeck, Till |
| Abstract: | We review post-Keynesian assessments of the macroeconomic demand and growth impacts of financialisation. First, we examine the channels of influence of financialisation on distribution and on the different components of private aggregate demand, i.e. investment, consumption and net exports. Since increasing shareholder power and shareholder value orientation of management has been viewed as key to understanding the macroeconomics of financedominated capitalism, we start with the effects of financialisation in the context of the postKeynesian theory of the firm and explain the other channels from there. An important result is the emergence of 'profits without investment' demand and growth regimes, for which we point out the condition based on Kalecki's profit equation. The third section then turns to the post-Keynesian analysis of the different variants of 'profits without investment' demand and growth regimes in finance-dominated capitalism. We review the different levels of analysis, the national income and financial accounting de-composition approach as well as different attempts at identifying growth drivers. We argue that these different levels of analysis are complementary for our understanding of demand and growth regimes under financialisation. |
| Keywords: | Financialisation, demand and growth regimes, stagnation, post-Keynesian distribution and growth models |
| JEL: | E12 E21 E22 E25 E44 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifsowp:285373&r=fdg |
| By: | Deng, Kent; Du, Jane |
| Abstract: | It has been commonly believed that economic reforms in the post-Mao Era since 1980 have changed China from autarky to an export-oriented developmental path, accompanied by inward and cheap FDI with advanced foreign technology. This paper challenges this view with quantitative evidence and shows that China’s recent growth has depended heavily on a domestic source of capital coming from newly available household sayings, stemming from (1) state mandatory price control over food as a wage good on the one hand and (2) a fast-growing wage level due to arising labour productivity on the other. |
| Keywords: | developmental state; gradualism; saving-led growth; price overshoot; wage goods; economic transition |
| JEL: | O11 P21 P51 Q18 |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:wpaper:122355&r=fdg |
| By: | Keiichiro KOBAYASHI |
| Abstract: | We provide a tractable two-period model of financial crises that replicates empirical regularities that credit-fueled asset-price booms are often followed by the busts and deep and persistent recessions associated with productivity declines. We argue that the risk-shifting booms of asset prices tend to collapse, and resultant debt overhang lowers productivity and output by discouraging borrowers from expending efforts. This inefficiency is amplified by externality of a decrease in aggregate demand. Larger asset-price booms lead to deeper recessions. Ex-post government intervention to facilitate debt restructuring can be welfare improving, because it mitigates the demand externality and the associated time inconsistency may not have dominant effects. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:24-004e&r=fdg |
| By: | Spiros Bougheas; David I. Harvey; Alan Kirman; Douglas Nelson; Alan P. Kirman; Douglas R. Nelson |
| Abstract: | We develop a dynamic computational network model of the banking system where fire sales provide the amplification mechanism of financial shocks. Each period a finite number of banks offers a large, but finite, number of loans to households. Banks with excess liquidity also offer loans to other banks with insufficient liquidity. Thus, each period an interbank loan market is endogenously formed. Bank assets are hit by idiosyncratic shocks drawn from a thin tailed distribution. The uneven distribution of shocks across banks implies that each period there are banks that become insolvent. If insolvent banks happen also to be heavily indebted to other banks, their liquidation can trigger other bank failures. We find that the distribution across time of the growth rate of banking assets has a ‘fat left tail’ that corresponds to rare economic disasters. We also find that the distribution of initial shocks is not a perfect predictor of economic activity; that is some of the uncertainty is endogenous and related to the structure of the interbank network. |
| Keywords: | systemic risk, fire sales, banking network, macroeconomic shocks |
| JEL: | E44 G01 G21 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10991&r=fdg |
| By: | Tommaso Gasparini; Vivien Lewis; Stéphane Moyen; Stefania Villa |
| Abstract: | Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to default risk. In the model, a wave of corporate defaults leads to losses on banks' balance sheets; banks respond by selling assets and reducing credit provision. A highly leveraged banking sector exacerbates the contractionary effects of firm defaults. We show that high minimum capital requirements jointly implemented with a countercyclical capital buffer are effective in dampening the adverse consequences of firm risk shocks. |
| Keywords: | Bank Default, Capital Buffer, Firm Risk, Macroprudential Policy |
| JEL: | E44 E52 E58 E61 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:944&r=fdg |
| By: | International Monetary Fund |
| Abstract: | Botswana is a small, open economy with a highly concentrated financial sector comprising banks and sizeable non-bank financial institutions (NBFIs). Financial institutions hold adequate capital and liquidity and show moderate profitability. The interconnectedness between banks and NBFIs, and banks’ large exposures to unsecured household debt could increase financial sector vulnerability. |
| Date: | 2024–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2024/063&r=fdg |
| By: | Marta Gómez-Puig (Department of Economics & Riskcenter, Universitat de Barcelona, Spain.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid, 28223 Madrid, Spain.) |
| Abstract: | Multiple interconnected channels link banks and governments: the sovereign-exposure channel (banks hold significant amounts of sovereign debt), the safety net channel (government guarantees protect banks), and the macroeconomic channel (bank and government health affect and is affected by economic activity). However, the sovereign-bank nexus in euro-area countries is particularly worrying since its member states issue debt in a currency they do not directly control and cannot ensure nominal repayment to bondholders. In this work, we summarise the main theoretical and empirical contributions that analyse this phenomenon and the legislative and institutional initiatives to reduce sovereign exposures in the banking sector. |
| Keywords: | Bank risk, Euro area, Interdependency, Sovereign risk, Sovereign-bank nexus. JEL classification: G21, G33, H63. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202406&r=fdg |
| By: | Powell, Andrew; Panizza, Ugo |
| Abstract: | During the pandemic, public debt in Latin America and the Caribbean rose to more than 70 percent of GDP, and countries are now attempting to lower debt ratios. We analyze past debt reduction episodes and find inflation and the real interest rate were the most frequent main drivers, while higher growth, fiscal consolidation and debt restructuring were relatively rare. Interestingly, inflation episodes tended to be with independent central banks and low real interest rates, highlighting the value of monetary credibility. We find debt reduction is not associated with a rise in inequality nor in unemployment, and growth or fiscal consolidation may improve these indicators. |
| Keywords: | Debt;Fiscal policy;Inflation;Debt restructuring |
| JEL: | E62 F34 H63 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13290&r=fdg |
| By: | Ayres, JoaÞo; Paluszynski, Radoslaw |
| Abstract: | This paper proposes a model of sovereign default that features interest rate multiplicity driven by rollover risk. Our core mechanism shows that the possibility of a rollover crisis by itself can lead to high interest rates, which in turn reinforces the rollover risk. By exploiting complementarity between the traditional notions of slow- and fast-moving crises, our model generates a rich simulated dynamics that features frequent defaults and a volatile bond spread even in the absence of shocks to fundamentals. In the presence of risky income, our mechanism amplifies the dynamics of debt and spreads relative to model benchmarks where equilibrium multiplicity relies on the underlying shocks to income. |
| Keywords: | sovereign default;self-fulfilling crises |
| JEL: | E44 F34 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:13315&r=fdg |
| By: | Mauricio Alvarado (Pontificia Universidad Católica del Perú.); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú.) |
| Abstract: | This article employs a family of VAR models with time-varying parameters and stochastic volatility (TVP-VAR-SV) to estimate the impact of external financial uncertainty shocks on a set of macroeconomic variables in Peru for the period from 1996Q1 to 2022Q4. The main findings can be summarized as follows: (i) a simple VAR model with stochastic volatility is sufficient to capture uncertainty dynamics compared to TVP-VAR alternatives; (ii) uncertainty shocks have a negative and significant impact on private investment growth in the medium and long term; (iii) the impact on private investment growth is three times greater than that on GDP growth; (iv) uncertainty shocks behave like aggregate supply shocks, leading to an increase in the inflation rate; and (v) uncertainty shocks have stronger effects in scenarios characterized by unfavorable financial conditions. JEL Classification-JE: C11, C32, E32, F41, F62. |
| Keywords: | Macroeconomic Fluctuations, Financial Uncertainty Shocks, Autoregressive Vectors with Time-Varying Parameters, Stochastic Volatility, Bayesian Estimation and Comparison, Peruvian Economy. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00531&r=fdg |
| By: | Camila Gutierrez; Javier Turen; Alejandro Vicondoa |
| Abstract: | We study the international spillover effects of a macroeconomic surprise in China. Using high-frequency data, we show that the surprise component of the release of macro data in China brings a sizeable and significant effect on asset prices and global risk, across different economies. We document that the dynamic effect of Chinese Macro surprises is both significant and persistent for a broad range of financial variables worldwide. When assessing the relative importance of Chinese surprises relative to other known drivers of the Global Financial Cycle, we show that while the Monetary Policy in the US still accounts for most of the reaction, our measure is equally relevant to account for the reaction of commodities and the EMBI. |
| Keywords: | Spillovers, Global Financial Cycle, China, High-frequency |
| JEL: | E44 F21 F40 G15 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:577&r=fdg |
| By: | Ms. Gabriela Cugat; Andrea Manera |
| Abstract: | We construct a novel measure of technology adoption, the Embodied Technology Imports Indicator (ETI), available for 181 countries over the period 1970-2020. The ETI measures the technological intensity of imports of each country by leveraging patent data from PATSTAT and product-level trade data from COMTRADE. We use this index to assess the link between capital flows and the diffusion of new technologies across emerging economies and low-income countries. Through a local projection difference-in-differences approach, we establish that variations in statutory capital flow regulations increase technological intensity by 7-9 percentage points over 5 to 10 years. This increase is accompanied by a significant 28-33 pp rise in the volume of gross capital inflows, driven primarily by foreign direct investment (21 pp increase), and a 9 to 12 percentage points shift in the level of Real GDP per capita in PPP terms. |
| Keywords: | Technology measurement; Technology diffusion; Capital flows; Capital account openness. |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/044&r=fdg |
| By: | Islam Allaki (UIT - Université Ibn Tofaïl); Marouane Nakhcha (UIT - Université Ibn Tofaïl, ENCGK - ENCG University Ibn Tofail of Kenitra, Morocco); Omar Kharbouch (UIT - Université Ibn Tofaïl); Mamdouh Tlaty (UIT - Université Ibn Tofaïl, ENCGK - ENCG University Ibn Tofail of Kenitra, Morocco) |
| Abstract: | Sukuk are considered to be hybrid bonds; they can be splited into two main features of stocks and bonds. They are similar to stocks, they precise the type of partnerships and owners of Sukuk for a specific asset or project for finance, in which the Sukuk have been issued. In this paper we will discuss the main different features between the Sukuk and conventional bonds by conducting an appropriate econometric model. Sukuk are new assets in the islamic finance and they are fastly growing in the market, especially with people who follow shari'a law, as they aim to find an asset such as conventional bonds. The paper will use a multiple regression model to see how major macroeconomics variables affect the performance of the Sukuk market and the bonds market. So, we gathered the data for all variables over a period of 10 years between (2008-2018) .As a conclusion, the bonds and Sukuk are affected by different variables, Sukuk are most issued in the real estate field, which is not the case for the bonds. Then, Stock market is positively correlated with Sukuk and negatively correlated for the bonds. Sukuk, often regarded as hybrid bonds, embody a unique blend of stock and bond characteristics, delineating specific partnerships and ownership structures for financing particular assets or projects, aligning with the principles of Islamic finance. This paper aims to elucidate the distinctions between Sukuk and conventional bonds, shedding light on their burgeoning presence within the financial landscape, particularly among adherents of Sharia law seeking Sharia-compliant alternatives akin to conventional bonds. Employing a multiple regression model, we endeavor to analyze the influence of key macroeconomic variables on the performance of both Sukuk and bond markets. Our dataset spans a decade from 2008 to 2018, facilitating a comprehensive examination of market dynamics. In this study, we adopt a post-positivist epistemological perspective, recognizing the partial and conditional nature of knowledge while valuing the importance of observable facts. Utilizing a hypothetico-deductive approach, we formulated hypotheses regarding the relationship between key macroeconomic variables and the performance of sukuk and bond markets. Multiple regression analysis is employed to test these hypotheses and ascertain the significant impact of the variables on market performance. Our analysis reveals distinct differences between sukuk and conventional bonds in terms of issuance patterns and correlations with macroeconomic variables. Sukuk issuance is primarily concentrated in the real estate sector, reflecting its unique position within Islamic finance. Notably, Sukuk issuance predominantly gravitates towards the real estate sector, a departure from conventional bond practices. Additionally, we observe a positive correlation between the stock market and Sukuk performance, in contrast to the negative correlation observed with conventional bonds |
| Keywords: | Sukuk, hybrid bonds, Islamic finance, macroeconomic variables, real estate sector, correlation |
| Date: | 2024–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04476409&r=fdg |
| By: | Bruno Biais; Hans Gersbach; Jean-Charles Rochet; Ernst-Ludwig von Thadden; Stéphane Villeneuve |
| Abstract: | We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial outside utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate money issuance and wealth taxation by the principal. |
| Keywords: | Incomplete Financial Markets, Debt, Interest, Growth, Ponzi Games, Heterogeneous Agents, Political Economy |
| JEL: | E44 E62 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_412v2&r=fdg |
| By: | Henrik Andersen; Ragnar E Juelsrud; Carola Müller |
| Abstract: | We use unique relationship-level data which includes banks' private risk assessments of corporate borrowers to quantify how competition among banks affects the risk sensitivity of interest rates in the corporate credit market. We show that an increase in competition makes corporate lending rates less sensitive to banks' own assessment of borrower probability of default and this is more pronounced in market segments with higher degree of asymmetric information. Our results are driven by banks with low franchise values, outlining a novel channel of how the competition-fragility nexus can operate. |
| Keywords: | banking competition, relationship lending, credit markets, risk-based pricing, financial stability |
| JEL: | G21 G28 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1169&r=fdg |
| By: | Mr. Serhan Cevik; Alice Fan; Sadhna Naik |
| Abstract: | Using a large panel of firm-level data, this paper provides an analysis of how inflation shocks in the Baltics between 1997 and 2021 affected total factor productivity (TFP), gross profitability, and net fixed investment in nonfinancial sectors. First, we find that inflation and inflation volatility had mixed effects on TFP growth, profitability and net fixed investment in the first year as well as over the medium term, albeit at a dissipating rate. Second, focusing on subsamples, we find that inflation shocks had differential effects on large versus small firms. Third, we explore sectoral heterogeneity in how firms responded to inflation shocks and observe significant variation across tradable and non-tradable sectors. Finally, estimates from a state-dependent model suggest that firms’ response to inflation shocks varied with the state of the economy. The results suggest that nonfinancial firms in the Baltics have been agile in adjusting to inflation shocks, possibly by either transferring higher production costs to consumers or substituting inputs. Given the differences in the level and nature of the recent inflation shock and the sample period on which our analysis is based, empirical findings presented in this paper might not necessarily apply to the latest bout of inflation in the Baltics. |
| Keywords: | Inflation; firm performance; productivity; profitability; fixed investment; Baltics; Estonia; Latvia; Lithuania |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/043&r=fdg |
| By: | Ariadne Checo; Francesco Grigoli; Damiano Sandri |
| Abstract: | Doubts persist about the effectiveness of monetary transmission in emerging markets, but the empirical evidence is scarce due to challenges in identifying monetary policy shocks. In this paper, we construct new monetary policy shocks using novel analysts' forecasts of policy rate decisions. Crucial for identification, analysts can update forecasts up to the policy meeting, allowing them to incorporate any relevant data release. Using these shocks, we show that monetary transmission in emerging markets operates similarly to advanced economies. Monetary tightening leads to a persistent increase in bond yields, a contraction in real activity, and a delayed reduction in inflation. Furthermore, monetary policy impacts leveraged firms more strongly. |
| Keywords: | monetary policy shocks, financial markets, emerging markets |
| JEL: | E50 E52 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1170&r=fdg |
| By: | Flavio Pérez Rojo (Pontificia Universidad Católica del Perú.); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú.) |
| Abstract: | We investigate the evolution of the impact of monetary policy (MP) shocks in Peru in 1996Q1-2018Q2 using a set of time-varying parameter vector autoregressive models with stochastic volatility (TVP-VAR- SV), as proposed by Chan and Eisenstat (2018). The main results are: (i) the volatilities, intercepts, and contemporaneous coe cients change more gradually than VAR coe cients over time; (ii) the volatility of MP shocks falls from 4% to 0.3% on average during the In ation Targeting (IT) regime; (iii) in the long run, a contractionary MP shock decreases both gross domestic product (GDP) growth and in ation by 0.28% and 0.1%, respectively; (iv) the interest rate reacts faster to aggregate supply shocks than to both aggregate demand shocks and exchange rate shocks; (v) under the pre-IT regime, MP shocks explain almost 20%, 10%, and 85% of the uncertainty in GDP growth, in ation, and the interest rate, respectively; and under the IT regime, all these percentages shrink to 1-2%. The sensitivity analysis con rms the robustness of the main results across various prior speci cations, measures of external and domestic variables, and recursive identi cations. In general, the results show that MP has contributed to diminishing macroeconomic volatility in Peru. JEL Classification-JE: C32, E32, E51, E52. |
| Keywords: | Deviance Information Criterion, Peru, Monetary policy, time, Time-Varying Parameter VAR, Marginal Likelihood, Stochastic Volatility. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00523&r=fdg |
| By: | Pietro Bomprezzi; Axel Dreher; Andreas Fuchs; Teresa Hailer; Andreas Kammerlander; Lennart Kaplan; Silvia Marchesi; Tania Masi; Charlotte Robert; Kerstin Unfried |
| Abstract: | We investigate the informal influence of political leaders’ spouses on the subnational allocation of foreign aid. Building new worldwide datasets on personal characteristics of political leaders and their spouses as well as on geocoded development aid projects (including new data on 19 Western donors), we examine whether those regions within recipient countries that include the birthplace of leaders’ spouses attract more aid during their partners’ time in office. Our findings for the 1990–2020 period suggest that regions including the birthplaces of political leaders’ spouses receive substantially more aid from European donors, the United States, and China. We find that more aid goes to spousal regions prior to elections and that developmental outcomes deteriorate rather than improve as a consequence. For Western aid but not for China, these results stand in some contrast to those for leader regions themselves. This suggests that aid from Western donors is directed from serving obvious political motives to promoting more hidden ones. |
| Keywords: | informal influence, ODA, favouritism, birth regions, development, political economy |
| JEL: | D72 F35 O19 O47 P33 R11 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10969&r=fdg |
| By: | Enea Baselgia; Isabel Z. Martínez |
| Abstract: | We present a new data set we built based on Swiss rich lists going back to 1989. We show, among other things, that 60% of the super-rich are heirs—a fraction twice as large as in the US—and that wealth mobility at the very top has declined significantly. We find that top 0.01% wealth shares are higher than previous estimates based on wealth tax statistics suggest. At the same time, we argue that rich list data lead to overestimating wealth inequality. While rich lists are valuable to study the super-rich, we recommend to use reported wealth figures with caution. |
| Keywords: | super-rich, wealth inequality, inheritances, wealth mobility |
| JEL: | C81 D31 D64 J62 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10993&r=fdg |