|
on Financial Development and Growth |
| By: | Eduardo de Sá Fortes Leitão Rodrigues |
| Abstract: | Savings play a critical role in both individual financial well-being and economic development. This article examines the impact of financial literacy, income, educational level, and age on saving decisions across 136 countries, using data from the Global Financial Inclusion Database (2021). Financial literacy is conceptualized as a latent variable, constructed from five indicators related to financial knowledge, financial behaviour, and financial attitudes, aligned with the Organisation for Economic Co-operation and Development (OECD) pillars. Employing Generalised Structural Equation Modelling (GSEM), the analysis demonstrates that financial literacy is a fundamental driver for the decision to save in the short and long term. Education level and income are consistent predictors of savings, while age exhibits distinct effects depending on the savings objective. Regional differences emerge, with Latin American countries showing the strongest link between financial literacy and savings, whereas in high-income economies, its influence is less pronounced. These findings underscore the multifaceted role of financial literacy in shaping saving decisions and highlight its implications for tailored public policies promoting financial literacy. |
| Keywords: | financial literacy; savings; GSEM approach. |
| JEL: | D14 G53 I22 C38 O16 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03622025 |
| By: | Aomar Ibourk; Zakaria Elouaourti |
| Abstract: | This paper was originally published on erf.org.eg The digital divide in the financial sector has occurred through the development of financial technologies. These latest “FinTech” refers to technological innovations that have emerged in the financial system in recent years, which are the new channels for providing financial services. These innovations have disrupted traditional financing models by making financial transactions more secure and by reducing spatiotemporal constraints. The purpose of this paper is to investigate 1) the digital financial inclusion levels across the MENA countries? 2) which segments of the population are digitally financially excluded? 3) How the digital divide could preclude some segments from being financially included as a result of a lack of financial literacy (risks)? 4) and how FinTech could promote financial inclusion of segments excluded by the conventional financial system (women, elderly) and therefore the inclusive development of the MENA region (opportunities). To tackle these issues, we employed a mixed methodological approach (quantitative and qualitative) and by mobilizing micro-level data on 9, 053 individuals extracted from the World Bank's latest Global Findex 2021 database. First, our comparative analysis mobilizing the principal component analysis method to develop a Digital Financial Inclusion Index (DFII) highlighted that despite the various initiatives that have been undertaken in recent years, digital financial inclusion in the MENA region remains at a low level compared to other countries worldwide. Second, the results of the estimations on a Logit model pointed out that the educational level, labor force participation, information and communication technologies, and internet access are the main drivers of digital financial inclusion in the MENA region. Our work is original in that it provides grounded empirical evidence on the digital financial inclusion levels across MENA countries and investigates how to ensure that the digital divide in the financial sector "Financial Technologies" does not further exclude segments of the population (women, elderly...) financially excluded by the conventional financial system by increasing their digital financial literacy, promoting their participation in the labor market, and expanding access to mobile phones and the Internet. Considering the comprehensiveness of our sample, policy implications will be of great interest to financial sector regulators in MENA region to improve digital financial inclusion in the region, as these implications have been drawn from the micro-level experiences of individuals constituting our database. |
| Date: | 2023–07 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rpaeco:rpnn_74 |
| By: | Mr. Rabah Arezki; Youssouf Camara; Patrick A. Imam; Mr. Kangni R Kpodar |
| Abstract: | We explore the effect of (big) shocks on the allocation of (bilateral) aid using natural disasters as natural experiments. We find that aid commitment statistically significantly increases following natural disasters, and that humanitarian aid precedes structural aid. While we find that the average effect is quantitatively significant, poorest countries or countries faced with most damaging natural disasters do not receive the most aid. We find no evidence that foreign aid commitment disburses faster following natural disasters. Further explorations into the mechanisms driving aid in disaster countries point to the importance of political alignment with (major) donors in recipient countries with low state capacity. |
| Keywords: | Aid Allocation; Natural Disasters; Political Alignment; Absorptive Capacity |
| Date: | 2025–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/006 |
| By: | Niko Hauzenberger; Florian Huber; Karin Klieber; Massimiliano Marcellino |
| Abstract: | We propose a method to learn the nonlinear impulse responses to structural shocks using neural networks, and apply it to uncover the effects of US financial shocks. The results reveal substantial asymmetries with respect to the sign of the shock. Adverse financial shocks have powerful effects on the US economy, while benign shocks trigger much smaller reactions. Instead, with respect to the size of the shocks, we find no discernible asymmetries. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.07649 |
| By: | Viral V. Acharya; Markus K. Brunnermeier; Diane Pierret |
| Abstract: | We assess the efficacy of systemic risk measures that rely on U.S. financial firms’ stock return co-movements with market- or sector-wide returns under stress from 1927 to 2023. We ascertain stress episodes based on widening of corporate bond spreads and narrative dating. Systemic risk measures exhibit substantial and robust predictive power in explaining the cross-section of market realized outcomes, viz., volatility and returns, during stress episodes. The measures also help predict bank failures and balance-sheet outcomes, confirming their relevance for understanding risks to the real economy emanating from banking sector fragility. Overall, market-based systemic risk measures offer a promising complement to macro-prudential and supervisory assessments of the financial sector. |
| JEL: | G01 G20 G21 G23 G28 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33211 |
| By: | Tommaso Di Francesco; Daniel Torren Peraire |
| Abstract: | This paper investigates the interplay between information diffusion in social networks and its impact on financial markets with an Agent-Based Model (ABM). Agents receive and exchange information about an observable stochastic component of the dividend process of a risky asset \`a la Grossman and Stiglitz. A small proportion of the network has access to a private signal about the component, which can be clean (information) or distorted (misinformation). Other agents are uninformed and can receive information only from their peers. All agents are Bayesian, adjusting their beliefs according to the confidence they have in the source of information. We examine, by means of simulations, how information diffuses in the network and provide a framework to account for delayed absorption of shocks, that are not immediately priced as predicted by classical financial models. We investigate the effect of the network topology on the resulting asset price and evaluate under which condition misinformation diffusion can make the market more inefficient. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.16269 |
| By: | Jonathan Benchimol (BoI - Bank of Israel); Caroline Bozou (UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Keywords: | Banking concentration, Imperfect competition, Financial stability, Welfare analysis, DSGE model |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:emse-04624985 |
| By: | HAMANO, Masashige; SCHNATTINGER, Philip; SHINTANI, Mototsugu; UESUGI, Iichiro; ZANETTI, Francesco |
| Abstract: | We develop a simple model of financial intermediation with search and matching frictions between banks and firms. The model links credit market tightness -encapsulating the abundance of credit- to the search and opportunity costs of credit intermediation. Search costs generate lending to unprofitable firms (i.e., zombies) and the opportunity costs of searching exert countervailing forces on the incentives for banks and firms to participate in zombie lending, generating an inverted U-shaped relationship between credit market tightness and the share of zombie lending. High bargaining power of firms decreases the opportunity cost of firms foregoing credit relationships, reduces the share of zombie firms and increases the efficacy of capital injections to reduce zombie lending. Using data for 31 industries in Japan over the period 2000-2019, we test and corroborate our theoretical predictions by constructing theory-consistent measures of credit market tightness and bargaining power. Consistent with our theory, the findings reveal that capital injections are more effective in industries with higher credit market tightness and greater bargaining power of firms. |
| Keywords: | Zombie firms, bank lending, credit market tightness |
| JEL: | E22 E23 E32 E44 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hit:rcesrs:dp25-2 |
| By: | Kochen, Federico |
| Abstract: | To what extent can private firms’ external equity substitute for debt financing in a banking crisis? To answer this question, I use firm-level data and firm-bank linkages to estimate the causal effect of an imported lending cut from a large German bank on firms’ capital structure and real outcomes. The estimates imply that for every 1 euro reduction in debt, private firms in Germany received 0.27 euros of external equity. Firm-owner linkages indicate that outsiders provided equity funds in 40% of the firms that received an equity injection, while existing owners provided the funds in the rest. These findings highlight the importance of multiple sources of financing that can serve as backup facilities when the primary source of intermediation fails. The results also have implications for Macro-Finance heterogeneous firm models that typically overlook the role of equity financing. JEL Classification: G01, G21, G32, E32, E44 |
| Keywords: | banking crisis, capital and ownership structure, equity financing |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253008 |
| By: | Kenneth S. Rogoff; Paul Schmelzing |
| Abstract: | We present new long-run samples of r-g series over centuries for key economies in the international financial system. Across a wide variety of econometric approaches, and including duration-matched constructions, we demonstrate strong evidence of trend stationarity in these series. Although we confirm trend stationarity, we find robust evidence of a major structural break in the first third of the 20th century. A multi-century downward trend in r-g appears to have levelled off in the years around 1930, and since then r-g has shown high volatility coupled with clear upwards pressure: notably, though real interest rates may still appear favorably low, aggregate growth rates are drifting downwards in advanced economies since the interwar period, creating secular pressures on r-g and debt sustainability. Our results stand in contrast to much recent literature and suggest the need for much more caution in assuming benign trends in global public debt sustainability. At the same time, when adding riskier elements of capital returns, the data lend support for structurally increasing "dynamic efficiency". We then associate the key 1930s inflection to the establishment and growth of welfare states in advanced economies, and the surge in non-defense, non-interest expenditures. |
| JEL: | N20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33202 |
| By: | Masashige Hamano (Waseda university, Tokyo, JP and Université du Luxembourg (Extramural Research Fellow)); Yuki Murakami (Waseda University, Tokyo, JP) |
| Abstract: | This paper characterizes the optimal government spending policy in a collateral- constrained small open economy, where inefficiencies in borrowing decisions arise due to pecuniary externalities. In this setting, government spending plays a crucial role in maintaining financial stability. When the borrowing constraint binds, the optimal response involves fiscal stimulus, which mitigates the effects of pecuniary externalities and prevents the amplification of the debt-deflation mechanism. The optimal time-consistent policy helps prevent recessionary shocks from triggering financial crises and sharp reversals in the current account. Additionally, when capital controls are optimally combined with government spending, households are incentivized to accumulate precautionary savings more effectively. The welfare gain from capital controls is smaller when government spending is optimally chosen. We demonstrate that a feasible government spending policy, which maintains a constant ratio to GDP, approximates the optimal policy and achieves a second-best outcome. |
| Keywords: | Small open economy; financial crises; optimal government spending. |
| JEL: | F41 F44 E44 G01 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:25-02 |
| By: | Kevin Benson; Ing-Haw Cheng; John Hull; Charles Martineau; Yoshio Nozawa; Vasily Strela; Yuntao Wu; Jun Yuan |
| Abstract: | We study the drivers of the Gilchrist and Zakraj\v{s}ek (2012) excess bond premium (EBP) through the lens of the news. The monthly attention the news pays to 180 topics (Bybee et al., 2024) captures up to 80% of the variation in the EBP, and this component of variation forecasts macroeconomic movements. Greater news attention to financial intermediaries and crises tends to drive up the EBP and portend macroeconomic downturns, while greater news attention to politics and science tends to drive down the EBP. Attention-based estimates of EBP largely drive out the forecast power of direct sentiment measures for macroeconomic fluctuations and predict the business cycle going back to the early 1900's. Overall, we attribute predictive variation about the EBP for macroeconomic movements to variation in news attention to financial intermediaries, crises, and politics. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.04063 |
| By: | Bletzinger, Tilman; Lemke, Wolfgang; Renne, Jean-Paul |
| Abstract: | Inflation risk premiums tend to be positive in an economy mainly hit by supply shocks, and negative if demand shocks dominate. Risk premiums also fluctuate with risk aversion. We shed light on this nexus in a linear-quadratic equilibrium microfinance model featuring time variation in inflation-consumption correlation and risk aversion. We obtain analytical solutions for real and nominal yield curves and for risk premiums. While changes in the inflation-consumption correlation drive nominal yields, changes in risk aversion drive real yields and act as amplifier on nominal yields. Combining a trend-cycle specification of real consumption with hysteresis effects generates an upward-sloping real yield curve. Estimating the model on US data from 1961 to 2019 confirms substantial time variation in inflation risk premiums: distinctly positive in the earlier part of our sample, especially during the 1980s, and turning negative with the onset of the new millennium. JEL Classification: E43, E44, C32 |
| Keywords: | demand and supply, inflation risk premiums, risk aversion, term structure model |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253012 |
| By: | Diego Bonelli; Berardino Palazzo; Ram S. Yamarthy |
| Abstract: | Using inflation swap prices, we study how changes in expected inflation affect firm-level credit spreads and equity returns, and uncover evidence of a time-varying inflation sensitivity. In times of “good inflation, ” when inflation news is perceived by investors to be more positively correlated with real economic growth, movements in expected inflation substantially reduce corporate credit spreads and raise equity valuations. Meanwhile in times of “bad inflation, ” these effects are attenuated and the opposite can take place. These dynamics naturally arise in an equilibrium asset pricing model with a time-varying inflation-growth relationship and persistent macroeconomic expectations. |
| Keywords: | Inflation Sensitivity; Time Variation; Asset Prices; Stock-Bond Correlation |
| JEL: | E31 E44 G12 |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-02 |
| By: | Ricardo J. Caballero; Tomás E. Caravello; Alp Simsek |
| Abstract: | We present evidence that noisy financial flows influence financial conditions and macroeconomic activity. How should monetary policy respond to this noise? We develop a model where it is optimal for the central bank to target and (partially) stabilize financial conditions beyond their direct effect on output and inflation gaps, even though stable financial conditions are not a social objective per se. In our model, noise affects both financial conditions and macroeconomic activity, and arbitrageurs are reluctant to trade against noise due to aggregate return volatility. Our main result shows that Financial Conditions Index (FCI) targeting—announcing a (soft and temporary) FCI target and setting the policy rate in the near future to maintain the actual FCI close to the target—reduces the FCI volatility and stabilizes the output gap. This improvement occurs because a more predictable FCI enables arbitrageurs to trade more aggressively against noise shocks, thereby "recruiting" them to insulate FCI from financial noise. FCI targeting is similar to providing forward guidance about the FCI, and in our framework it is strictly superior to providing forward guidance about the policy interest rate. Finally, we extend recent policy counterfactual methods to incorporate our model's endogenous risk reduction mechanism and apply it to U.S. data. We estimate that FCI targeting could have reduced the variance of the output gap, inflation, and interest rates by 36%, 2%, and 6%, respectively, and decreased the conditional variance of the FCI by 55%. When compared with interest rate forward guidance, it would have reduced output gap variance by 21%. We also show that a significant share of the gains from FCI targeting can be attained by an augmented version of a Taylor rule that gives a large weight to a simplified financial conditions target. |
| JEL: | E12 E32 E44 E52 G10 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33206 |
| By: | Charles Dupont; Debraj Roy |
| Abstract: | Eradicating extreme poverty and inequality are the key leverage points to achieve the seventeen Sustainable Development goals. Yet, the reduction in extreme poverty and inequality are vulnerable to shocks such as the pandemic and climate change. We find that that these vulnerabilities emerge from the interaction between individual and institutional mechanisms. Individual characteristics like risk aversion, attention, and saving propensity can lead to sub-optimal diversification and low capital accumulation. These individual drivers are reinforced by institutional mechanisms such as lack of financial inclusion, access to technology, and economic segregation, leading to persistent inequality and poverty traps. Our experiments demonstrate that addressing above factors yields 'double dividend' - reducing poverty and inequality within-and-between communities and create positive feedback that can withstand shocks. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.17822 |
| By: | Gauti B. Eggertsson; Sergey K. Egiev |
| Abstract: | This paper presents a unified framework to explain three major economic downturns: the U.S. Great Depression, the U.S. Great Recession, and Japan’s Long Recession. Temporary economic disruptions, such as banking crises and excessive debt accumulation, can drive natural interest rates into negative territory in the short term. At the same time, structural factors, including demographic decline and rising inequality, can depress natural interest rates over short and long horizons. A negative natural interest rate and the zero lower bound (ZLB) are necessary conditions for a liquidity trap. Credible monetary policy can counteract the adverse effects of short-run liquidity traps. Diminished monetary policy credibility or persistent negative natural rates may necessitate fiscal interventions. The framework sheds light on the macroeconomic challenges of low-interest-rate environments and underscores the central importance of policy regimes. We close by reflecting on the great macroeconomic question of our time: Will short-term interest rates collapse back to zero once the inflation surge of the 2020s moves to the back mirror and the political landscape in the US has dramatically changed? |
| JEL: | E0 E52 N12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33195 |
| By: | Marcos Cardozo; Yaroslav Rosokha; Cathy Zhang |
| Abstract: | We integrate theory and experimental evidence to study the emergence of different international monetary arrangements based on the circulation of two intrinsically worthless fiat currencies as media of exchange. Our framework is based on a two-country, two-currency search model where the value of each currency is jointly determined by private agents’ decisions and monetary policy formalized as changes in a country’s money growth rate. Results from the experiments indicate subjects coordinate on a regime where both currencies are accepted even when other regimes are theoretically possible. At the same time, we find the acceptance of foreign currency depends on relative inflation rates where sellers tend to reject payment with a more inflationary foreign currency. We also document the presence of learning in shaping acceptance patterns over time. |
| Keywords: | international currency, monetary policy, inflation, experimental macroeconomics |
| JEL: | C92 D83 E40 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:pur:prukra:1351 |
| By: | Tianwei Chang |
| Abstract: | Existing studies have shown that the monetization of silver in the Ming Dynasty effectively promoted the prosperity of trade in the Ming Dynasty, while the prices of labor, handicraft products and grain were long suppressed by the deformed economic structure. With the expansion of silver application, the fluctuation of silver supply and demand exacerbated the above contradictions. Capital accumulation that should have been obtained through the marketization of labor was easily plundered by the landlord gentry class through silver. This article re-discusses the issue from the perspective of supply and demand. Compared with the increase and then decrease of silver supply, the evolution of silver demand is more complicated: at the tax level, the widespread use of silver leads to a huge difference in the elasticity of production and trade taxes. When government spending surges, the increase in tax burden will be mainly borne by agriculture and handicrafts. At the production level, the high liquidity of silver makes the concentration of social wealth more convenient, while the reduction in silver supply and the expansion of demand have rapidly expanded deflation, further exacerbating the gap between the rich and the poor. Such combined effect of supply and demand factors has caused the monetization of silver to become an accelerator of the economic collapse of the Ming Dynasty. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.10478 |
| By: | Fabien Clive Ntonga Efoua (FSEG, UYII-Soa - Faculty of Economics and Management, University of Yaounde II - Soa, CEDIMES - CEDIMES - Centre d'Etudes sur le Développement International et les Mouvements Economiques et Sociaux, CEREG - University of Yaoundé II-SOA, Centre d'Etudes et de Recherche en Economie et Gestion); Françoise Okah Efogo (Faculty of Economics and Management, University of Ebolowa); Yanick Fredy Mvodo (UDa - Faculty of Economics and Applied Management, University of Douala) |
| Abstract: | This paper proposes a reflection on the opportunities and the challenges of the use of digital means of payment (decentralised and regulated ones) in the African economies. In this perspective, we structure our reasoning around three axes. First, we try to show that digital currencies can serve as a lever for financial inclusion and the revolution of means of payment in an increasing digitalization context. Second, we discuss the technical and the infrastructural constraints (deployment of the blockchain, electricity and Internet access) which condition the effective use of digital currencies. Third, we discuss the trade-offs and the possible implications that arise from the circulation of the Bitcoin, the Altcoins and the Stablecoins on the one hand, and the Govcoins on the other. In our view, the African authorities should first focus on overcoming infrastructural and institutional obstacles, rather than rushing the adoption of cryptocurrencies. Some policies implemented in this direction would in fact offer the continent the opportunity to anchor itself once and for all to progress. |
| Keywords: | Cryptocurrencies, Govcoins, Central Bank Crypto Currencies, African economies |
| Date: | 2024–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04784299 |
| By: | Aman Saggu; Lennart Ante; Kaja Kopiec |
| Abstract: | This study employs an event study methodology to investigate the market impact of the U.S. Securities and Exchange Commission's (SEC) classification of crypto assets as securities. It explores how SEC interventions influence asset returns and trading volumes, focusing on explicitly named crypto assets. The empirical analysis highlights significant adverse market reactions, notably returns plummeting 12% over one week post-announcement, persisting for a month. We demonstrate that the severity of market reaction depends on sentiment and asset characteristics such as market size, age, volatility, and illiquidity. Further, we identify significant ex-ante trading volume effects indicative of pre-announcement informed trading. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2412.02452 |
| By: | Elias Demetriades (Audencia Business School); Panagiotis Politsidis (Audencia Business School) |
| Abstract: | How do banks react to firms' climate risks? Using almost 80, 000 global syndicated loans originated from 2001 to 2021, we study bank lending to fossil fuel firms vis-à-vis other firms. We find that loans to fossil fuel firms are at least 7% more costly compared to other firms, and even more so toward the end of our sample. However, loan amounts to fossil fuel firms are approximately 22% larger, implying heavy financing of brown activities. We show that the pricing effects are even stronger for banks with higher reliance on ESG considerations, consistent with the shifts driven by the supply side (bank behaviour). Overall, our findings corroborate the view that banks price in climate risks but continue to heavily lend to polluting firms in the medium term (with an average maturity of four and one quarter years). |
| Keywords: | Fossil fuel lending, Syndicated loans, Bank lending, Oil and gas sector, ESG ratings |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04804492 |