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on Financial Development and Growth |
| By: | Tomohiro Hirano; Joseph E. Stiglitz |
| Abstract: | This paper presents a model that studies the impact of credit expansions arising from increases in collateral values or lower interest rate policies on long-run productivity and economic growth in a two-sector endogenous growth economy, with the driver of growth lying in one sector (manufacturing) but not in the other (real estate). We show that it is not so much aggregate credit expansion that matters for long-run productivity and economic growth but sectoral credit expansions. Credit expansions associated mainly with relaxation of real estate financing (capital investment financing) will be productivity-and growth-retarding (enhancing). Without financial regulations, low interest rates and more expansionary monetary policy may so encourage land speculation using leverage that productive capital investment and economic growth are decreased. Unlike in standard macroeconomic models, in ours, the equilibrium price of land will be finite even if the safe rate of interest is less than the rate of output growth. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.05901&r= |
| By: | MAEBAYASHI, NORITAKA |
| Abstract: | This study investigates the effect of public debt on growth, interest rate, and sustaibility of public debt in a very simple endogenous growth model with financial imperfection and the firm heterogeneity. Increases in public debts cause higher real interest rates through financial markets and reduces both the number of firms and private investment, leading to lower long-run growth. It makes public debt less sustainable when public debt is very large. This study also examine the effect of investment subsidy financed by public debt. It hinder economic growth in the long-run although they affect posively on growth in the short run. Therefore, investment subsidy should not be financed by public debt but tax increases. |
| Keywords: | Sustainability of public debt, Finantial frictions, Firm heterogeneity, Investment subsidies |
| JEL: | E62 H20 H60 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120884&r= |
| By: | Anabela Marques Santos; Michele Cincera; Giovanni Cerulli |
| Abstract: | The study assesses the impact of eight sources of financing (internal funds, bank loans, credit lines, trade credit, equity, grants, leasing and factoring) on innovation and firm growth. It provides evidence that not all external financing sources have the same impact on innovation and growth. Output additionality on turnover growth seems higher for equity financing. In contrast, employment growth appears to be more associated with financing sources linked to increased fixed assets or the solving of liquidity problems. The number of financing instruments used together also seems to matter, revealing the existence of complementarities. |
| Keywords: | Europe; Financing; Growth; Innovation |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/372408&r= |
| By: | Jiri Kukacka (Czech Academy of Sciences, Institute of Information Theory and Automation, Czechia & Charles University, Faculty of Social Sciences, Institute of Economic Studies); Erik Zila (Czech Academy of Sciences, Institute of Information Theory and Automation, Czechia & Charles University, Faculty of Social Sciences, Institute of Economic Studies) |
| Abstract: | Financial-macroeconomic agent-based models offer a promising avenue for understanding complex economic interactions, but their use is hindered by challenging empirical estimation. Our paper addresses this gap by constructing a stylized integrated model and estimating its core parameters using US data from 1954 to 2022. To tackle econometric obstacles, including mixed data frequencies, we adapt the simulated method of moments. We then focus on three key interaction channels. The stock market influences the real sector through the wealth effect, which boosts current consumption, and the cost effect, which lowers financing costs for firms. Conversely, the real economy impacts the stock market via the price misperception effect, where economic conditions help approximate the fundamental value of stocks. Our results provide strong statistical support for all three channels, offering novel empirical insights into critical dynamics between the two sectors of the economy. |
| Keywords: | integrated agent-based model, behavioral finance and macroeconomics, bounded rationality, heuristic switching, simulated method of moments |
| JEL: | C13 C53 E12 G41 E71 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_22&r= |
| By: | Meri Papavangjeli (Institute of Economic Studies, Charles University, Prague, Czech Republic & Bank of Albania, Tirana, Albania); Adam Gersl (Institute of Economic Studies, Charles University, Prague, Czech Republic) |
| Abstract: | Given the prevailing global circumstances, characterized by tightening global financial conditions and substantial macro-financial vulnerabilities, the significance of monitoring financial conditions becomes even more pronounced and calls for heightened attention to the assessment and surveillance of financial indicators. This paper introduces a Financial Conditions Index (FCI) tailored for Albania, spanning from 2000 to 2022, using a factor augmented vector autoregressive models with time-varying coefficients (TVP-FAVAR) and incorporating a wide range of indicators, grounded in the empirical literature. By aligning with the main financial dynamics during this timeframe, the constructed index emerges as a robust gauge for monitoring and assessing the financial landscape of the country. Additionally, through a threshold Bayesian VAR model, the paper examines the transmission of monetary policy and financial conditions shocks to the real economy, by capturing non-linear dynamics through differentiating between periods characterized by different stands of financial fragilities. The findings suggest that the credit-to-GDP gap could potentially function as an early warning indicator of financial vulnerabilities, with a positive gap possibly reflecting excessive risk-taking by financial institutions. Furthermore, the transmission of monetary policy and financial conditions shocks to the real economy depends non-linearly on the private nonfinancial sector credit and is not symmetric throughout the considered period, with monetary policy transmission being attenuated during periods of heightened vulnerabilities. |
| Keywords: | financial conditions, monetary policy, credit gap stance, macro-financial vulnerabilities |
| JEL: | E52 E51 E61 E63 E65 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_20&r= |
| By: | Koponen, Heidi |
| Abstract: | The main contribution of this paper is the construction of a cyclical systemic risk indicator from early warning indicators of banking crises (EWIs) used in Finland. Previous research has shown that combining EWIs can enhance their early warning properties. This study evaluates the indicator's performance through AUROC and noise-to-signal ratios and finds that the early warning performance of the composite indicator is good (AUROC of 0.76), with a low noise-tosignal ratio (0.2). The indicator warns of an approaching crisis well beforehand and the precrisis level of the indicator seems to correlate with the severity of the crisis. The study also examines the impact and relative importance of individual EWIs within the composite indicator by analysing the performance of the composite indicator when individual EWIs are excluded. Results suggest that including an external balance indicator is crucial, while excluding the credit-to-GDP gap (also called Basel gap) has minimal effect on the indicator's performance. The limited usefulness of the Basel gap can be attributed to its redundancy, as it shares substantial similarities with other indicators, resulting in minimal influence on the composite indicator's performance. |
| Keywords: | financial cycles, systemic risk, banking crises, early warning systems |
| JEL: | G01 G17 E44 E47 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:294867&r= |
| By: | Sylvain BARTHÉLÉMY (Gwenlake, Rennes, France); Virginie GAUTIER (TAC Economics and Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France); Fabien RONDEAU (Univ Rennes, CNRS, CREM – UMR6211, F-35000 Rennes France) |
| Abstract: | We study the class of congestion games with player-specic payoff functions Milchtaich (1996). Focusing on a case where the number of resources is equal to two, we give a short and simple method for identifying the exact number of Nash equilibria in pure strategies. We propose an algorithmic method, first to find one or more Nash equilibria; second, to compare the optimal Nash equilibrium, in which the social cost is minimized, with the worst Nash equilibrium, in which the converse is true; third, to identify the time associated to the computations when the number of players increases. |
| Keywords: | currency crises, early warning system, neural network, convolutional neural network, SHAP values. |
| JEL: | F14 F31 F47 |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:tut:cremwp:2024-01&r= |
| By: | Jean-Baptiste Hasse (Aix-Marseille Univ., CNRS, AMSE, bUCLouvain, LIDAM-LFIN); Christelle Lecourt (Aix-Marseille Univ., CNRS, AMSE, Marseille, France); Souhila Siagh (Aix-Marseille Univ., CERGAM, Marseille, France) |
| Abstract: | This paper assesses whether and how setting up a sovereign wealth fund has a buffer effect against currency crises. Using an innovative dynamic logitpanel model framework and a unique dataset covering 34 emerging countries over the period 1989–2019, we empirically show that sovereign wealth fundsreduce the occurrence of currency crises. This result is robust to different econometric specifications, alternative definitions of sovereign wealth funds, controlling for currency crisis risk factors, and income level sampling. Our findings have important implications for financial stability and for policymakers, who could further exploit the potential of sovereign wealth funds to better manage foreign exchange risks. |
| Keywords: | Currency Crisis, Sovereign Wealth Funds, Financial Stability |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2417&r= |
| By: | Kwabena Aboah Addo (Utrecht University); Shams Pathan (University of Newcastle - Newcastle University Business School); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We examine whether overconfident bank CEOs mitigate or amplify risk amid increasing Economic Policy Uncertainty (EPU). Our findings indicate the latter—a risk-aggressive behavioural response to the rise in credit demand during EPU. Cross-sectional analyses reveal that overconfident CEOs contribute to high loan impairments during high EPU through excessive credit extension and under-provision of loan reserves. Therefore, we identify overconfident CEOs as a transmission channel that propagates a cycle of risky credit extension, which enhances bank performance. Considering our findings, investors, boards, and regulators, while acknowledging the value of overconfident CEOs during EPU, should be mindful of the systemic implications of their policies. |
| Keywords: | Economic Policy Uncertainty, CEO overconfidence, banking risk, bank lending, banking performance. |
| JEL: | G21 G28 G30 G38 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2431&r= |
| By: | Bode, Eckhardt |
| Abstract: | This paper is one of the first to show systematically that the motives for sovereign lending to African countries differed considerably between China and Western countries during the last two decades. While Chinese lending mainly served its own economic or geopolitical objectives, which is well-known from the existing literature, Western countries' lending also pursued objectives that appear to be at odds with their self-interests but whose precise nature is not yet well-understood. While China lent to African countries with richer resources, lower risk of default and higher willingness to pay for credit, Western countries lent preferably to less resource-rich and more indebted African countries. Using a new, dataset on loans from China, Western countries and multilateral organizations to African countries, I empirically examine a broad variety of potential motives, aim at separating the motives pursued by the national governments from those pursued by their lending agencies, and employ an estimation strategy with increasingly complex fixed effects that yields additional interesting insights into the specificities of the motives. |
| Keywords: | Sovereign lending, Economic motives, Geopolitical motives, Africa, China, Western countries |
| JEL: | F21 F34 F35 F55 H63 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:295226&r= |
| By: | Véronique Dimier; Sarah Stockwell |
| Abstract: | This article assesses the business of development in the post-colonial age, when bilateral and multilateral aid regimes offered businesses new opportunities. It uses the case study of Britain and the European Economic Community (EEC), from Britain's accession to the EEC in 1973 to the early 1980s, to demonstrate that the British government viewed multilateral aid instruments, in particular the European Development Fund (EDF), as offering commercial opportunities for British firms. Based on records of the EEC, business associations, and the French and British states, the article analyzes business-state relationships between national governments, corporations, and supranational institutions. As the UK government tried to redirect EEC aid toward places where its firms had the most to gain, it met the opposition of other member states and European institutions as well as the disinterest of its own businesses. |
| Keywords: | business of development; European Development Fund; European Economic Community; Great Britain; post-colonial age |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/370814&r= |
| By: | Ozili, Peterson K |
| Abstract: | The study presents a review of existing research on bank profitability determinants in Africa. Using the literature review methodology, it was found that bank profitability determinants differ across countries in all regions of Africa. Some suggested areas for future research are to explore the impact of circular economy, fintech activities, the pandemic, and economic uncertainty on the profitability of African banks. The implication of the review findings is that bank profitability determinants will remain a contested research agenda in the banking literature. |
| Keywords: | African banks, profitability determinants, banks, bank profitability, Europe, Africa, regulation |
| JEL: | G00 G20 G21 G28 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120777&r= |
| By: | Tendai Gwatidzo |
| Abstract: | Using data on South Africas commercial banks in the period 20052018, this paper investigates the impact of bank regulation on bank performance. The study uses a fixed effects model to run the regression model as well as the data envelopment analysis approach to estimate efficiency scores. We find a number of interesting results. First, we find a negative relationship between capital stringency and bank performance, suggesting that increased capital requirements force banks to increase their reserves, adversely affecting their performance. Second, we find a positive relationship between activity restrictions and bank performance, indicating that this kind of regulation, which may well be good for the public, as argued by the public interest view of regulation, is also good for the regulated banks. Third, we find a negative and significant relationship between supervisory power and bank performance. Fourth, we find a positive and significant relationship between the market discipline index and bank performance, suggesting that by creating environments characterised by high market discipline, the regulatory regime enhances the ability and incentives of private investors to efficiently monitor banks. This ensures better management of banks, ultimately increasing profitability. Overall, the study finds that regulation matters for bank performance. |
| Date: | 2024–06–03 |
| URL: | https://d.repec.org/n?u=RePEc:rbz:wpaper:11064&r= |
| By: | Han, Seoni (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Kim, Yejin (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Park, Kyu Tae (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Jeong, Minji (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | 본 연구에서는 디지털금융이 아프리카의 금융포용성 개선에 중요한 역할을 하고 있다는 점에 주목하여 아프리카의 디지털금융과 금융포용성에 대한 종합적인 분석을 수행하였다. 코로나19 팬데믹을 전후로 최근 아프리카 지역의 금융포용성 및 디지털금융 관련 현황과 정책을 파악하고, 디지털금융을 통한 금융접근성 개선이 가져오는 사회경제적 영향을 분석하며, 주요국과 한국의 대아프리카 금융 및 디지털금융 분야 협력 현황을 검토하였다. 연구 결과를 토대로 한국과 아프리카 간 금융 및 디지털금융과 관련한 세부적인 협력 방안을 제안한다. This study provides a comprehensive analysis of the digital finance and its impacts on financial inclusion in Africa. While the development of the financial sector is crucial for long-term economic growth, traditional financial industry growth in Africa has been insufficient. Nevertheless, notable progress has been made in enhancing financial inclusion in alignment with Sustainable Development Goal 8, particularly since the introduction of mobile money services in Kenya in 2007. Mobile money services have emerged as a lifeline, allowing the previously unbanked to have access to affordable and secure financial services in Africa. The adoption of mobile-based financial services has rapidly expanded, with 154 out of 315 global mobile money services available in sub-Saharan Africa as of 2022. This widespread adoption has significantly reduced the proportion of financially excluded populations across Africa. However, despite these achievements, the adult account ownership rate in sub-Saharan Africa averaged only 55% in 2021. With the exception of South Africa, which has a well-established traditional financial industry, and Kenya, which has made remarkable progress in embracing mobile money, there is still ample room for improving financial inclusion throughout the African continent. The COVID-19 pandemic accelerated the shift in the financial industry, with a surge in online payments and increased fintech activities. Lockdowns led to higher demand for contactless services, while African governments’ policies to boost non-face-to-face financial services further stimulated the use of mobile money services. Many African countries are now pursuing digital transformation strategies tailored to their needs, focusing on e-government services, digital infrastructure, and electronic payment systems. Additionally, many African countries are formulating national strategies to enhance financial inclusion by integrating low-income and marginalized populations into the financial sector.(the rest omitted) |
| Keywords: | 2024 US presidential election; US tariff policy; universal tariff; reciprocal tariff; economic impact |
| Date: | 2023–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kieppa:2023_004&r= |
| By: | Samuel Fiifi Eshun (Institute of Economic Studies, Charles University, Prague, Czech Republic); Evzen Kocenda (Institute of Economic Studies, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; IOS, Regensburg, Germany; Department of Banking and Insurance, Faculty of Finance and Accounting; Institute of Information Theory and Automation of the CAS, Prague; the Euro Area Business Cycle Network) |
| Abstract: | This study explores the dynamic relationship between financial inclusion and green sustainability across 38 African countries. We constructed an environmental pollution index and a financial inclusion index covering the period 2000-2021 to account for the several dimensions within both indicators and employed them in the System GMM approach. We also tested for intra-regional heterogeneity in Africa. Our empirical results show that financial inclusion, while economically beneficial, poses a significant risk of environmental degradation and has a distinctive inverted U-shaped relationship. A direct link between increases in financial inclusion and pollution alters at a turning point, beyond which further increments in financial inclusion enhance green sustainability. The same pattern is observed for aggregate output. The results hold even when we control for a score of macro-level determinants. Our findings indicate the existence of an intra-regional heterogeneity in that Southern and Western African states exhibit a more significant negative impact on environmental pollution than Eastern Africa. These results remain robust for alternative proxies of green sustainability. We offer valuable insights for policymakers to promote sustainability through inclusive financial practices and policies in Sub-Saharan Africa. |
| Keywords: | Environmental Pollution Index, Financial Inclusion Index, Green Sustainability, Sub-Saharan Africa (SSA), System Generalized Methods of Moments (GMM) |
| JEL: | C23 E44 F64 K32 O55 Q43 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2024_23&r= |
| By: | Marco Di Maggio; Pulak Ghosh; Soumya Kanti Ghosh; Andrew Wu |
| Abstract: | Interest in central bank digital currencies (CBDCs) has been burgeoning with 134 countries now exploring its implementation. In December 2022, India started its CBDC pilot program to continue its transition towards a digitized payments economy. This paper presents the first empirical analysis utilizing detailed transaction data to explore the dynamics between CBDCs and existing digital payment methods, as well as the implications of increased CBDC usage on traditional bank deposits. Our findings reveal that policies which increase transaction costs for current digital payment methods catalyze a substitution effect, bolstering CBDC adoption. Furthermore, an uptick in CBDC usage is associated with a notable decline in bank, cash, and savings deposits, suggesting potential paths to bank disintermediation. This study contributes critical insights into the evolving competition between digital currencies and established financial infrastructures, highlighting the transformative potential of CBDCs on the broader economy. |
| JEL: | E42 G21 G38 G51 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32457&r= |
| By: | Sofia Priazhkina; Samuel Palmer; Pablo Martín-Ramiro; Román Orús; Samuel Mugel; Vladimir Skavysh |
| Abstract: | We build a network formation game of firms with trade flows to study the adoption and usage of a new digital currency as an alternative to correspondent banking. We document endogenous heterogeneity and inefficiency in adoption outcomes and explain why higher usage may correspond to lower adoption. Next, we frame the model as a quadratic unconstrained binary optimization (QUBO) problem and apply it to data. Method-wise, QUBO presents an extension to the potential function approach and makes broadly defined network games applicable and empirically feasible, as we demonstrate with a quantum computer. |
| Keywords: | Central bank research; Digital currencies and fintech; Digitalization; Economic models; Financial institutions; Payment clearing and settlement systems; Sectoral balance sheet |
| JEL: | E21 E44 E62 G51 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-17&r= |
| By: | Jung, Alexander |
| Abstract: | This study re-assesses the validity of the quantity theory of money (QTM) for the very long sample, 1870 to 2020, for 18 industrial countries using the dataset from Jordà et al. (2017). It considers structural changes in the economic and financial sectors and changes in monetary policy rameworks. Three findings are presented. First, the results from panel cointegration tests show that the long-run relationship between excess money growth and inflation holds if longer runs of data are used. Second, panel regressions confirm the presence of long and variable lags in the monetary policy transmission, as predicted by Milton Friedman. For the full sample, the average speed of adjustment from excess money growth to inflation in industrial countries was about two years amid heterogeneity across time and countries. Third, the results show that over recent decades, structural change - coinciding with the Great Moderation and, in part, reflecting changes in payment technologies - has led to a collapse of QTM. JEL Classification: B16, B23, E40, E50, N1 |
| Keywords: | excess money growth, great moderation, panel cointegration tests, payment technologies, structural change |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242940&r= |
| By: | Valérie Mignon; Blaise Gnimassoun; Carl Grekou |
| Abstract: | Premature deindustrialization in most emerging and developing economies is one of the most striking stylized facts of the recent decades. In this paper, we provide solid empirical evidence supporting that the choice of a fixed exchange rate regime accelerates this phenomenon. Relying on a panel of 146 developed, emerging, and developing countries over the 1974-2019 period, we show that fixed exchange rate regimes have had a negative, significant, and robust effect on the size of the manufacturing sector —developing countries being the most affected by the industrial cost of such a regime. Additional gravity model regressions show that the impact of fixed regimes passes through the trade channel. In particular, this regime has kept countries with low relative productivity in a state of structural dependence on imports of manufactured products to the detriment of the emergence of a strong local manufacturing sector. |
| Keywords: | Exchange rate regimes; (De)industrialization; Manufacturing; Developing countries; Emerging economies |
| JEL: | E42 F43 F45 F6 O14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2024-18&r= |
| By: | Johnny Thornton (University of East Anglia-US department of the Treasury); Chrysovalantis Vasilakis (Bangor University) |
| Abstract: | We revisit the historical record of the economic performance of strictly dollarizedeconomies relative to that economies of non-dollarized economies as previously examined byEdwards (2001) and Edwards and Magendzo (2003, 2006). We extend their work to takeadvantage of the experience of more recently dollarized economies, employ a larger countrysample and a longer sample period, use panel as opposed to cross-section data, and employ avariety of econometric techniques, including to deal with potential endogeneity problems. Ourresults suggest that overall countries that adopted dollarization experienced higher average GDPgrowth rates and lower inflation rates and inflation volatility than countries that did not adoptdollarization. Moreover, even GDP growth appears to have been less volatile in dollarizedcountries in recent years. |
| Keywords: | Strict dollarization, GDP growth, inflation, volatility |
| JEL: | E30 E31 F43 O11 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:322&r= |
| By: | Musakwa, Mercy T; Odhiambo, Nicholas M |
| Abstract: | This study investigated the impact of remittances on the nominal exchange rate in Kenya, using annual time series data from 1980 to 2020. The study was motivated by the need to find out how remittances affect the exchange rate in Kenya on the back of an increase in remittance inflows in low- and middle-income countries, including Kenya. This is important as Kenya continues to build a stable macroeconomic environment that supports economic growth and other milestones specified in the Sustainable Development Goals. Using the autoregressive distributed lag approach to cointegration, the study found a positive relationship between remittances and the nominal exchange rate in both the short and long run. This implies that an increase in remittance inflows in Kenya leads to a depreciation of the currency. The study, therefore, concludes that remittance inflows in Kenya are not associated with the Dutch-disease phenomenon. |
| Keywords: | Kenya, remittances, exchange rate, autoregressive distributed lag, appreciation, depreciation |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:31197&r= |
| By: | Bingxin Ann Xing; Bruno Feunou; Morvan Nongni-Donfack; Rodrigo Sekkel |
| Abstract: | This paper investigates the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden and the United Kingdom. We follow two complementary approaches: First, we apply a regression-based framework that aggregates the impact of daily macroeconomic news on bond yields to a lower quarterly frequency. Next, we estimate a macro-finance affine term structure model linking the daily news to lower-frequency changes in bond yields and their expectations and term premia. Both approaches show that U.S. macroeconomic news is an important source of lower-frequency quarterly fluctuations in bond yields in these small open economies—even more important than the respective countries’ domestic macroeconomic news. Furthermore, the macro-finance model shows that U.S. macroeconomic news is particularly important to explain low-frequency changes in the expectation components of the nominal, real and break-even inflation rates. |
| Keywords: | Central bank research, Econometric and statistical methods |
| JEL: | E43 E44 E47 G14 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-12&r= |
| By: | Okan Akarsu; Altan Aldan; Huzeyfe Torun |
| Abstract: | Financial constraints may hamper firm exports since firms may have to bear export-related costs before they obtain export revenues. Hence, export credits are widely used around the world to mitigate the negative effects of financial constraints. This paper focuses on a specific type of subsidized export credit, namely the export rediscount credit scheme implemented by the Central Bank of the Republic of Türkiye (CBRT), and investigates whether credit-using firms' exports increase more than they do for firms that do not use this credit in the short run without implying a causal relationship. To achieve this, we combine four datasets: the firm-level monthly data on rediscount credit, firm-level monthly data on exports, firms’ annual balance sheet and income statements, and firm-level annual data on employment. We find that receiving rediscount credit is positively correlated with export growth in the short run. This correlation is robust to using alternative measures of credit use, such as a discrete measure of receiving the rediscount credit and the amount of credit. Second, we discover that the correlation between the use of rediscount credits and export growth is stronger among small and medium-sized enterprises (SMEs). Third, we investigate whether the association between rediscount credits and firm exports is non-linear and find that exports increase less proportionately for a higher level of rediscount credits. Finally, we find that both FX- and TL-denominated credits are positively correlated with exports. |
| Keywords: | Rediscount credit, Exports, Türkiye |
| JEL: | D22 F14 O16 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2407&r= |
| By: | ITO Hiroyuki; KAWAI Masahiro |
| Abstract: | The US dollar has long been the most dominant international currency used for international trade, investment, financial settlements, foreign exchange market trading, foreign reserve holding, and exchange rate anchoring. This paper develops a new method to estimate the size of major currency zones, i.e., those for the US dollar (USD), euro (EUR), Japanese yen (JPY), British pound sterling (GBP), and Chinese yuan (RMB), and identify their determinants. The paper employs the simple Frankel-Wei (1994) and Kawai-Pontines (2016) estimation models to identify major anchor currencies and the degree of exchange rate stability (ERS) for each economy. The paper uses the estimated currency weights to construct the size of major currency zones globally and regionally over time and econometrically identify the determinants of these currency weights. In this analysis, the paper considers the degree of ERS, defined by the Root Mean Squared Error (RMSE) of the estimation model, which allows for the possibility that a part of each economy or region or part of the world is under a floating exchange rate regime. This method avoids overestimating the size of a particular major currency zone such as the RMB zone, when economies do not rigidly stabilize their currencies to such a major currency, and thus presents a better picture that is more consistent with the current state of the international monetary system. The paper yields several interesting results. First, the global economic share of the USD zone, still the largest in the world, has declined over time due to the emergence of the EUR zone and the recent rapid rise of the RMB zone. The size of the EUR zone is larger than that of the RMB zone if the degree of ERS is taken into account. Additionally, the share of the world economy under floating exchange rates has expanded in size over time. Second, the USD zone is the largest in the Middle East & Central Asia, followed by emerging & developing Asian and Sub-Saharan African economies, while the EUR zone is dominant in emerging & developing economies in Europe. The USD zone share has been declining rapidly in Latin America & the Caribbean. The size of the RMB zone has been increasing in most regions. Third, the USD weight is positively affected by the share of trade with the United States and the US dollar shares in export invoicing and cross-border bank liabilities. Similarly, the EUR weight is positively affected by economies’ shares of trade with the Euro Area as well as the euro shares in export invoicing, inward FDI stock, and cross-border bank liabilities. The RMB weight is not significantly affected by economies’ shares of trade with, or inward FDI stock or borrowing from China. The paper provides some policy implications. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24059&r= |
| By: | Akira Kohsaka (Osaka School of International Public Policy, Osaka University) |
| Abstract: | A breakup of Euro Zone appeared likely in the aftermath of the Global Financial Crisis (GFC), while EU has long been model regional integration to East Asia. Recognizing different political-economic contexts between East Asia and EU, what can we learn from the experiences of Euro Zone so far? This paper tries to answer the question by examining regional financial integration in two regions in view of international macroeconomics. Financial globalization since the 1990s plays the key role there. We can summarize our observations as follows:East Asia’s fundamental strength shown throughout GFC implies weak motivation to promote further regional financial integration toward a monetary/fiscal union as EU. The global sudden stop of capital inflow by GFC seriously damaged vulnerable links in Euro Zone, although crisis-driven policy innovations seem to strengthen its macro-financial policy framework. As to the future role of Euro Zone, at issue is the volatility intrinsic to the global financial market, which would aggravate the asymmetry across currencies, potentially harming resource allocation and growth. Post-Bretton Woods flexible exchange rates could not wipe away, but magnify this asymmetry (i.e. US dollar dominance). The Euro and Euro Zone could challenge this fundamental flaw of the present international monetary system. |
| Keywords: | regional integration, East Asia, Euro Zone, financial globalization |
| JEL: | E5 F3 F41 G15 O11 O16 P51 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:24e001&r= |
| By: | Leone, Fabrizio |
| Abstract: | U.S. equity outperformance and sustained dollar appreciation have led to large valuation gains for the rest of the world on the U.S. external position. I construct their global distribution, carefully accounting for the role of tax havens. Valuation gains are concentrated and large in developed countries, while developing countries have been mostly bypassed. To assess the welfare implications of these capital gains, I adopt a sufficient statistics approach. In contrast to the large wealth changes, most countries so far did not benefit much in welfare terms. This is because they did not rebalance their portfolios and realize their gains. In contrast, direct effects from the dollar appreciation on import and export prices are an order of magnitude larger. |
| Keywords: | Foreign Assets, Global Imbalances, Valuation Effects |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:docweb:2404&r= |
| By: | Paolo Gelain; Marco Lorusso; Saeed Zaman |
| Abstract: | We document a sizable effect of oil price fluctuations on US banking variables by estimating an SVAR with sign restrictions as in Baumeister and Hamilton (2019). We find that oil market shocks that lead to a contraction in world economic activity unambiguously lower the amount of bank credit to the US economy, tend to decrease US banks' net worth, and tend to increase the US credit spread. The effects can be strong and long-lasting, or more modest and short-lived, depending on the source of the oil price fluctuations. The effects are stronger for smaller and lower leveraged banks. |
| Keywords: | oil market shocks; Bayesian SVAR models; sign restrictions; bank credit |
| JEL: | E32 E44 Q35 Q43 |
| Date: | 2024–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:98264&r= |
| By: | Stephen G. Cecchetti; Jens Hilscher |
| Abstract: | In response to the Global Financial Crisis, central banks engaged in large-scale asset purchases funded by the issuance of reserves. These “unconventional” policies continued during the pandemic, so that by 2022 central banks’ balance sheets had grown up to ten-fold. As a result of rapidly increasing interest rates, these massive portfolios began producing substantial losses. We interpret these losses as fiscal policy consequences of quantitative easing and stress that they must be balanced against the prior benefits of implementing purchase policies. Importantly, losses differ qualitatively depending on whether the central bank chooses to buy domestic or foreign assets, thus resulting in transfers either within or between countries. Effects of losses may differ due to accounting rules (when losses are realized) and when the fiscal authority compensates for losses (the structure of indemnification agreements). Data from the Federal Reserve, the Eurosystem, and the Bank of England show that maximum annual losses are between 0.3 and 1.5 percent of GDP. By contrast, the Swiss National Bank is sustaining losses up to 17 percent of GDP. |
| JEL: | E42 E52 E58 E63 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32478&r= |