|
on Financial Development and Growth |
| By: | Douglas W. Diamond; Yunzhi Hu; Raghuram Rajan |
| Abstract: | By improving the pledgeability of returns to financiers, financial development enhances a producer’s ability to raise capital to fund long term complex investments. Consequently, it should increase output and welfare. However, a general equilibrium analysis suggests this is not always so. We consider an economy where producers and consuming/financing households are distinct agents, where producers lack sufficient capital, and where households care about both pledgeable returns and liquidity. In this economy, the greater pledgeability of long-term project earnings can reduce long term production and overall welfare, even though it makes financing more accessible. Our results have implications for why economies face impediments to financial development and overall growth, especially when producer capital is scarce. |
| JEL: | G1 G3 O10 O16 O4 O43 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33416 |
| By: | Valentin Haddad; Tyler Muir |
| Abstract: | Market macrostructure studies the broad organization of financial markets into key players and institutional features, and how this organization affects the level and dynamics of asset prices. We present a simple model to discuss when, why, and how market macrostructure matters for asset prices. We then review work on three specific examples: the rise of passive investing in the stock market, the increased role of central banks in bond markets through asset purchase programs, and the role of levered financial intermediaries in financial markets. We highlight various approaches to tackling macrostructure questions including quasi-natural experiments, equilibrium models, and the use of detailed quantity data on asset positions. |
| JEL: | E0 G0 G1 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33434 |
| By: | Farboodi, Maryam; Kondor, Peter |
| Abstract: | Endogenous cycles emerge through the two-way interaction between lending standards and production fundamentals. Lax lending standards in booms lead to low interest rates and high output but the deterioration of future loan quality. Low borrower quality in turn precipitates tight standards: the economy enters a recession with high credit spreads and low output but a gradual improvement in the quality of loans. This eventually triggers a shift back to a boom with lax lending, and the cycle continues. The capitalization of expert investors determines the strength of capital reallocation in recessions. Furthermore, although the constrained efficient economy is often cyclical, it features both a static and a dynamic externality in credit supply, hence differing from the decentralized equilibrium. |
| Keywords: | cleansing role of recession; lending standards; endogenous cycles; credit supply; capital reallocation; adverse selection; information choice |
| JEL: | E44 E32 D82 G10 |
| Date: | 2023–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:119226 |
| By: | Rebeca Anguren (BANCO DE ESPAÑA); Gabriel Jiménez (BANCO DE ESPAÑA); José-Luis Peydró (BANCO DE ESPAÑA) |
| Abstract: | We study the short-term effects of both tighter and looser bank capital requirements on bank risk-taking in a crisis period. We exploit credit register data matched with firm and bank level data in conjunction with changes in capital requirements stemming from Basel III, including the introduction of a SME supporting bank capital factor in the European Union. We find that tighter capital requirements reduce the supply of bank credit to firms, while looser capital requirements mitigate the credit supply effects of increasing capital. Importantly, at the loan level (credit supply), banks more affected by capital requirements temporarily change less the supply of credit to riskier than to safer firms, and these asymmetric effects occur for both the tightening and the loosening of bank capital requirements. Finally, these effects are also important at the firm-level for total credit availability and for firm survival. Interestingly, our results suggest that those banks most impacted by the tighter Basel III capital requirements prioritize credit among ex-ante riskier firms to avoid their closure, consistent with loan evergreening. |
| Keywords: | bank capital requirements, credit supply, bank risk-taking, Basel III, loan evergreening |
| JEL: | G21 G28 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2508 |
| By: | Damián Pierri (Universidad Autónoma de Madrid); Fernando García-Belenguer (Universidad Autónoma de Madrid) |
| Abstract: | Economies experience periods of countercyclical borrowing in which the stock of external private debt is negatively correlated with output growth rates but also undergo periods of procyclical borrowing in which debt shows a positive correlation with growth.We find that a group of middle-income countries spend around one-half of the time in each of the two states. Weconstruct an open economy model with endogenous growth and stochastic productivity shocks to investigate this evidence, exhibiting a stochastic balanced growth path.We prove the existence of an invariant distribution for the debt-capital ratio and characterize its dynamical properties, stating the conditions under which the normalized debt stock is sustainable. In this economy, periods with high debt levels are consistent with decreasing and increasing debt patterns depending on the aggregate growth rate. The model is calibrated to Argentinian data, and the fit is surprisingly good.Our results also allow us to rationalize the variability of the correlation between the trade balance and output growth since the global approach used in the paper allows us to unravel the underlying dynamics of the stock of private debt. |
| Keywords: | Endogenous growth, Debt Sustainability, Open Economies |
| JEL: | C62 E62 O41 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:353 |
| By: | Mr. Tito Cordella; Maia Cufre; Mr. Andrea F Presbitero |
| Abstract: | Twenty years after the Heavily Indebted Poor Countries (HIPC) debt relief initiative, debt levels in low-income countries are rising again, renewing sustainability concerns. The prevailing view suggests that China and other emerging lenders exploited the HIPC initiative to expand lending. Using a synthetic control method to generate a counterfactual, we find that, contrary to this narrative, China and other emerging lenders reduced net lending after debt relief; only multilateral creditors increased it. Furthermore, we find no support for the claim that debt relief encouraged lending to political allies. Overall, debt relief seems to have had limited influence on subsequent lending patterns. |
| Keywords: | Sovereign debt; International lending; China; Debt relief; Geoeconomics |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/033 |
| By: | Ndjidda Ngoura; Jean Marie Gankou (Université de Yaoundé II) |
| Abstract: | The main objective of this study is to assess the effects of migrants' remittances oriented in the agricultural sector, on all sectors of the Cameroonian economy. More specifically, we aim to assess the effects of these funds on agricultural value added, industrial value added, food consumption, well-being and economic growth. To achieve this, we used the Computable General Equilibrium model developed with the support of AGRODEP, PEP and IFPRI. At the end of our work, we came to the following conclusions: any increase in diasporic financial offers, oriented in the agricultural sector, can generate growth in agricultural production, an improvement in government revenues, and in return, contributes to economic growth. To achieve this, strong action to improve the business environment must be taken by the authorities to attract external funds to finance this sector |
| Abstract: | L'objectif principal de cette étude est d'évaluer les effets des transferts des Fonds des migrants orienté dans l'agriculture sur l'ensemble des secteurs de l'économie camerounaise. Plus spécifiquement, il s'agit d'évaluer les effets de ces financements sur la valeur la valeur ajoutée agricole, la valeur ajoutée industrielle, la consommation alimentaire, le bien-être et la croissance économique. Pour y parvenir, nous avons mis à contribution le modèle d'Equilibre Général Calculable développé avec l'appui d'AGRODEP, du PEP et IFPRI. Nous arrivons, à l'issue des travaux, aux conclusions suivantes : toute augmentation des offres financières diasporiques, orientées vers le secteur agricole peut générer une croissance de la production agricole, une amélioration des recettes de l'Etat, et par ricochet peut contribuer à la croissance. Pour y arriver, les actions fortes visant à améliorer le climat des affaires doivent être menées par les autorités pour attirer les capitaux extérieurs afin de financer ce secteur. Mots Clés : Sécurité alimentaire, Équilibre Général Calculable, Financements Extérieurs, Croissance agricole, Transferts des Fonds des Migrants. |
| Keywords: | Sécurité alimentaire Équilibre Général Calculable Financements Extérieurs Croissance agricole Transferts des Fonds des Migrants Food security Calculable General Equilibrium External financing Agricultural growth Migrant remittances, Sécurité alimentaire, Équilibre Général Calculable, Financements Extérieurs, Croissance agricole, Transferts des Fonds des Migrants Food security, Calculable General Equilibrium, External financing, Agricultural growth, Migrant remittances |
| Date: | 2024–12–27 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04877854 |
| By: | Mamadou Lah (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The coexistence of formal, informal, and criminal sectors in developing economies presents a complex challenge for policymakers seeking to promote sustainable growth and development.Foreign capital inflows can play a significant role in influencing the dynamics of these economic sectors, with the potential to either enhance or hinder economic progress. This paper develops a theoretical model that examines how a small open economy receives and allocates foreign capital across these distinct sectors. Our model uniquely incorporates mechanisms for the detection and penalization of capital flows directed towards the informal and criminal sectors, assessing the risks and regulatory responses associated with these investments. Moreover, the model posits that the criminal sector exerts a rent-extracting impact on the productive sectors, siphoning a fraction of their outputs.Numerical simulations reveal that stringent enforcement of penalties and effective detection mechanisms can substantially diminish the criminal sector's influence while simultaneously promoting growth within the formal sector. Striking a balance in regulating the informal sector is crucial, as over-regulation can stifle entrepreneurial spirit while under-regulation may not adequately curtail the negative externalities associated with informal economic activities.Differentiated policies that clearly distinguish between informal and criminal activities are more effective.The model further identifies an inverse relationship between the rents extracted by the criminal sector and the stringency of policies targeting capital flows into the criminal and informal sectors.There is a trade-off between the beneficial impacts of control policies on the formal sector and their detrimental effects on the informal sector, prompting the need for optimal regulation levels. When the formal sector is less exposed to the criminal sector, there tends to be an increase in formal output and a reduction in both informal production and criminal activities, leading to a decrease in optimal Gross National Product (GNP). This phenomenon underscores the diminishing returns to scale and highlights the complex interactions between sectorial productivity and criminal interference.These findings underscore the necessity for targeted and nuanced policy measures that can adeptly manage the intricate relationships between different economic sectors in the presence of foreign capital. By strategically regulating and guiding these capital flows, governments can enhance economic stability and promote inclusive growth. |
| Abstract: | La coexistence des secteurs formel, informel et criminel dans les économies en développement représente un défi complexe pour les décideurs politiques qui cherchent à promouvoir une croissance et un développement durables. Les entrées de capitaux étrangers peuvent jouer un rôle important dans l'influence de la dynamique de ces secteurs économiques, avec le potentiel d'améliorer ou d'entraver le progrès économique. Cet article développe un modèle théorique qui examine comment une petite économie ouverte reçoit et alloue les capitaux étrangers entre ces différents secteurs. Notre modèle intègre de manière unique des mécanismes de détection et de pénalisation des flux de capitaux dirigés vers les secteurs informel et criminel, évaluant les risques et les réponses réglementaires associés à ces investissements. De plus, le modèle postule que le secteur criminel exerce un impact d'extraction de rente sur les secteurs productifs, siphonnant une fraction de leurs outputs. Les simulations numériques révèlent qu'une application stricte des pénalités et des mécanismes de détection efficaces peuvent considérablement diminuer l'influence du secteur criminel tout en favorisant simultanément la croissance au sein du secteur formel. Il est crucial de trouver un équilibre dans la régulation du secteur informel, car une régulation excessive peut étouffer l'esprit d'entreprise tandis qu'une régulation insuffisante peut ne pas suffire à réduire les externalités négatives associées aux activités économiques informelles. Des politiques différenciées qui distinguent clairement entre les activités informelles et criminelles sont plus efficaces. Le modèle identifie également une relation inverse entre les rentes extraites par le secteur criminel et la rigueur des politiques ciblant les flux de capitaux vers les secteurs criminel et informel. Il existe un arbitrage entre les impacts bénéfiques des politiques de contrôle sur le secteur formel et leurs effets néfastes sur le secteur informel, ce qui incite à la recherche de niveaux de régulation optimaux. Lorsque le secteur formel est moins exposé au secteur criminel, on observe généralement une augmentation de la production formelle et une réduction de la production informelle et des activités criminelles, ce qui entraîne une diminution du produit national brut (PNB) optimal. Ce phénomène souligne les rendements d'échelle décroissants et met en évidence les interactions complexes entre la productivité sectorielle et l'ingérence criminelle. Ces résultats soulignent la nécessité de mesures politiques ciblées et nuancées qui peuvent gérer adroitement les relations complexes entre les différents secteurs économiques en présence de capitaux étrangers. En régulant et en orientant stratégiquement ces flux de capitaux, les gouvernements peuvent améliorer la stabilité économique et promouvoir une croissance inclusive. |
| Keywords: | Formal and Informal sector, Criminal sector, Nonregulatory capital, Taxation, Optimal policy, Secteur formel et informel, Secteur criminel, Capital non réglementaire, Politique optimale |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04721877 |
| By: | Bruno Jetin (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Jamel Saadaoui (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Haingo Ratiarison |
| Abstract: | This chapter looks at the effect of corruption on foreign direct investment (FDI) at the world and regional levels, with a focus on East, South and Southeast Asia. The academic literature is inconclusive because the nature of corruption can be different from one country to another and because various other factors can decide whether a foreign company will invest in a country or region despite a relatively high level of corruption. To shed light on the effect of corruption, the authors proceed to a panel econometrics investigation that assesses the relationship between the stock of FDI and the ‘control of corruption', published by the World Bank, for a sample of 180 countries over the period 2002–2019. The ‘control of corruption' index combines 23 different assessments and surveys capturing perceptions of the extent to which public power is exercised for private gains. A low score means that the authorities do not fight corruption or are not effective in fighting it, and therefore corruption is high; and vice versa. The authors include two control variables (real GDP and secondary school enrolment) to better estimate the specific role of corruption. Their results show that at the world level, the control of corruption is low and has a positive effect on FDI, which means that corruption is a stimulus to FDI, in line with Egger and Winner's findings. However, in East Asia, Southeast Asia, Australia and New Zealand, corruption has a ‘grabbing hand' effect. In the European Union, corruption is a helping hand. The authors' results confirm the importance of a regional approach to the analysis of the effect of corruption on FDI. |
| Keywords: | Foreign Direct Investments FDI, Corruption, Control of Corruption, Helping Hand, Grabbing Hand, Region, Asia, Pacific, Southeast Asia, East Asia, South Asia, Australia, New Zealand, European Union, Panel Econometrics, Fixed Effects |
| Date: | 2024–04–20 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-04553636 |
| By: | Mamadou Lah (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Hadi Salameh (Université Paris-Panthéon-Assas) |
| Abstract: | This paper investigates the relationships between remittances, the informal sector, and political stability across various large geopolitical sets, including the Middle East and North Africa (MENA), Sub-Saharan Africa, Latin America, and the Organisation for Economic Cooperation and Development (OECD) countries. Employing Granger causality tests to determine the predominate direction of causality and panel vector autoregressive models, we explore the dynamics of these relationships over short, medium, and long-term periods.Our findings reveal a significant short-term impact of remittances on the growth of the informal sector in the MENA, Sub-Saharan Africa, and Latin America, suggesting that remittances directly influence economic activities within this sector, likely due to their use in undeclared activities and the funding of informal local businesses. However, the influence of remittances wanes over time, indicating their primary role in addressing immediate economic needs rather than fostering long-term sector growth. Political stability shows minimal direct causal interaction with the informal sector, hinting at the sector's role as an adaptive mechanism in politically volatile regions.In OECD countries, remittances maintain a persistent influence on the informal sector over longer periods, reflecting their role in more strategic economic decisions. Additionally, our study explores the complex dynamics in countries with high remittance-to-GDP ratios, identifying a strong predictive power of the informal sector size on remittance flows, which points to the sector's pivotal economic role. We have extended our analysis to OECD countries, using outward remittances as a proxy for inward migration. We found that the size of the informal sector can predict outward remittance flows and political stability, highlighting the crucial role of the informal economy in migration and political dynamics.The results underscore the need for region-specific policy interventions and highlight the importance of understanding the temporal dynamics of remittances. This study contributes to the discourse on economic development strategies, suggesting that leveraging remittances effectively requires comprehensive policy approaches that consider their varied impacts across different regional and economic contexts. |
| Abstract: | Cet article explore les liens entre les envois de fonds, le secteur informel et la stabilité politique dans plusieurs ensembles géopolitiques majeurs, dont le Moyen-Orient et l'Afrique du Nord (MENA), l'Afrique subsaharienne, l'Amérique latine et les pays de l'Organisation de Coopération et de Développement Économiques (OCDE). En utilisant des tests de causalité de Granger pour déterminer la direction prédominante de la causalité et des modèles autorégressifs vectoriels de panel, nous examinons la dynamique de ces relations sur des périodes courtes, moyennes et longues. Nos résultats révèlent un impact significatif à court terme des envois de fonds sur la croissance du secteur informel dans la région MENA, l'Afrique subsaharienne et l'Amérique latine, suggérant que les envois de fonds influencent directement les activités économiques au sein de ce secteur, probablement en raison de leur utilisation dans des activités non déclarées et le financement d'entreprises locales informelles. Cependant, l'influence des envois de fonds diminue avec le temps, indiquant leur rôle principal dans la réponse aux besoins économiques immédiats plutôt que dans la promotion de la croissance à long terme du secteur. La stabilité politique montre une interaction causale directe minimale avec le secteur informel, suggérant le rôle du secteur comme mécanisme d'adaptation dans les régions politiquement instables. Dans les pays de l'OCDE, les envois de fonds maintiennent une influence persistante sur le secteur informel sur de plus longues périodes, reflétant leur rôle dans des décisions économiques plus stratégiques. De plus, notre étude explore la dynamique complexe dans les pays ayant des ratios envois de fonds/PIB élevés, identifiant un fort pouvoir prédictif de la taille du secteur informel sur les flux de transferts de fonds, ce qui souligne le rôle économique central du secteur. Nous avons étendu notre analyse aux pays de l'OCDE, en utilisant les envois de fonds sortants comme indicateur de la migration entrante. Nous avons constaté que la taille du secteur informel peut prédire les flux de fonds sortants et la stabilité politique, soulignant le rôle crucial de l'économie informelle dans la dynamique migratoire et politique. Les résultats soulignent la nécessité d'interventions politiques spécifiques à chaque région et l'importance de comprendre la dynamique temporelle des envois de fonds. Cette étude contribue au discours sur les stratégies de développement économique, suggérant qu'une utilisation efficace des envois de fonds nécessite des approches politiques globales qui prennent en compte leurs impacts variés selon les contextes régionaux et économiques. |
| Keywords: | Informal sector, Remittances, Political stability, Granger causality, PVAR model, Migration, Secteur informel, Envois de fonds, Stabilité politique, Causalité de Granger, Modèle PVAR |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04721826 |
| By: | Nitin Kumar Bharti (New York University [Abu Dhabi] - NYU - NYU System, WIL - World Inequality Lab); Lucas Chancel (Institut d'Études Politiques [IEP] - Paris, Harvard Kennedy School - Harvard Kennedy School, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab); Thomas Piketty (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab); Anmol Somanchi (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab) |
| Abstract: | We combine national income accounts, wealth aggregates, tax tabulations, rich lists, and surveys on income, consumption, and wealth in a consistent framework to present long run homogeneous series of income and wealth inequality in India. Our estimates suggest that inequality declined post-independence till the early 1980s, after which it began rising and has skyrocketed since the early 2000s. Trends of top income and wealth shares track each other over the entire period of our study. Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022-23, top 1% income and wealth shares (22.6% and 40.1%) are at their highest historical levels and India's top 1% income share is among the very highest in the world. In line with earlier work, we find suggestive evidence that the Indian income tax system might be regressive when viewed from the lens of net wealth. We emphasize that the quality of economic data in India is notably poor and has seen a decline recently. It is therefore likely that our results represent a lower bound to actual inequality levels. We call for improved access to official data and greater transparency to enhance the study of inequality and enable evidence-based public debates. |
| Keywords: | India, Income inequality, Wealth inequality, Top shares |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04563836 |
| By: | Mr. Damien Capelle; Mr. Ken Teoh |
| Abstract: | Recent events have reignited concerns about the financial stability implications of monetary policy. We show empirically that monetary tightening exacerbates financial stress after supply shocks, through declines in asset prices, bank equity and increased run risks. We then develop a tractable model in which intermediaries face occasionally binding leverage constraints and endogenous risks of runs, while producers face price adjustment frictions. Interest rate tightening, by lowering asset prices, exacerbates both financial distortions when intermediaries’ equity is sufficiently low. We use the model to characterize the constrained efficient use of interest rate policy, credit policy, equity injection, macroprudential policy and deposit insurance during periods of supply-driven inflation and fragility. When other tools are costly, optimal monetary policy tightening should be less aggressive in the presence of financial fragility. If other tools were not costly, the right combination of tools could perfectly separate financial stability from price stability objectives. |
| Keywords: | Financial panics; financial stability; monetary policy |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/035 |
| By: | Victor Degorce; Éric Monnet |
| Abstract: | New data covering 23 countries reveal that banking crises of the Great Depression coincided with a sharp international increase in deposits at savings institutions and life insurance. Deposits fled from commercial banks to alternative forms of savings. This fuelled a credit crunch since other institutions did not replace bank lending. While asset prices fell, savings held in savings institutions and life insurance companies increased as a share of GDP and in real terms. These findings provide new explanations of the fall in credit and aggregate demand in the 1930s. They illustrate the need to consider nonbank financial institutions when studying banking crises. |
| Keywords: | Great Depression;Banking Crises;Precautionary Savings;Paradox of Thrift;Savings Banks |
| JEL: | B22 E21 E51 G01 G21 N2 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2024-14 |
| By: | Mehmet Selman Colak; Yavuz Kilic; Huseyin Ozturk; Mehmet Emre Samci |
| Abstract: | This study employs model averaging methods to analyze the determinants of non-performing loans (NPLs) in the Turkish banking sector. The characteristic drivers of NPL are examined separately for different loan types categorized by customer segments (consumer loans, corporate loans, SME loans, mortgage loans, credit cards, general purpose loans, vehicle loans) and sectors (manufacturing, agriculture, construction etc.). Our results confirm that asset quality, proxied by NPL ratio of different loan segments, and economic sectors present unique relations with macroeconomic and banking variables. We conclude that customized risk management practices may bring significant benefits given that credit risk in different subcomponents of the economy responds to macroeconomic and banking variables differently. |
| Keywords: | NPL ratio, Loan segments, Emerging economies |
| JEL: | E58 G10 G20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2504 |
| By: | Jérôme Héricourt; Jean Imbs; Lise Patureau |
| Abstract: | We examine the response of investment to real estate prices among French firms from 1994 to 2015. Using newly introduced methods and specifications, we find that investment sensitivity to real estate prices decreases with firm size: The smallest firms are at least three times more responsive to changes in collateral value compared to the largest firms. We impute these estimates onto other countries where available data lack firm-level detail. This approach allows us to assess the aggregate sensitivity of investment to real estate prices across different countries. Our results indicate significant variation in the sensitivity of aggregate investment to real estate shocks, driven by cross country differences in the size distribution of firms. |
| Keywords: | Collateral Channel;Firm Heterogeneity;Cross-Country Study;Micro and Macro Estimates |
| JEL: | D31 E25 E44 G01 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cii:cepidt:2024-13 |
| By: | Emmanuel Farhi (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IAST - Institute for Advanced Study in Toulouse); Jean Tirole (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IAST - Institute for Advanced Study in Toulouse) |
| Abstract: | Authorities' support policies shape the location and continuation of industrial and banking activity on their soil. Firms' locus of activity depends on their prospect of receiving financial assistance in distress and therefore on factors such as countries' relative resilience. We predict that global firms are global in life and national in death; and that they become less global when competition is more intense, times are turbulent, and international risk sharing (say, through swap lines) weak. We analyse the competitive benefits of industrial and banking policies as well as their limitations, such as currency appreciation. |
| Keywords: | Exhorbitant duty, Hegemon, Economic geography, National champions, Cross-border banking, Liquidity support, Too domestic to fail, Home bias |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04906462 |
| By: | Yoshitaka Ogisu (Faculty of Economics, Konan University and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN); Shoka Hayaki (Faculty of Economics, Kagawa University and Research Institute for Economics and Business Administration, Kobe University, JAPAN); Masahiko Shibamoto (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN) |
| Abstract: | Relationship lending refers to lending a close relationship between a bank and a borrower, which is expected to help reduce borrowing costs. However, the extent to which they are used is unclear. This measurement difficulty makes it challenging to evaluate its benefits accurately. This paper proposes a novel empirical framework to identify relationship lending in transaction data between banks and borrowers in a more objective manner by determining the set of significant ties from an ensemble of undirected and unweighted bipartite networks. Using the detected relationship lending between banks and borrowers, we estimate the magnitude of additional lending volumes based on relationship lending. From the financial data in Japan from 1977 to 2021, the usage of relationship lending is estimated to be over 50% throughout the sample period but has varied considerably over time. We find that the volume of relationship lending is 34% larger than that of transactional lending. Although the relative volume of relationship lending against transaction lending has been declining, the importance of relationship lending remains substantial in obtaining a larger volume of lending. |
| Keywords: | Relationship lending; Bank-borrower networks; Significant ties |
| JEL: | C81 G12 G21 L14 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-02 |
| By: | Martin, Reiner; O’Brien, Edward; Peiris, M. Udara; Tsomocos, Dimitrios P. |
| Abstract: | Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies. AMCs enhance average returns to bank lending, promoting additional lending (bank lending channel) and improving corporate borrowers’ balance sheets (balance sheet channel). The welfare gains of well-designed and well-managed AMCs are between 0.2% and 0.5% of steady-state consumption, independent of whether they are financed through fiscal transfers or sterilized monetary transfers; AMCs can complement traditional fiscal and monetary policies in managing financial crises. JEL Classification: E44, G18, G21, G28 |
| Keywords: | AMC, distressed assets, eurozone, fiscal policy, monetary policy |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253023 |
| By: | Ciara Reynolds (Geary Institute for Public Policy, University College Dublin, Ireland); Micheál L. Collins (School of Social Policy, Social Work and Social Justice, University College Dublin and Geary Institute for Public Policy, University College Dublin, Ireland) |
| Abstract: | The Global Financial Crisis (GFC) significantly affected a majority of European Union (EU) countries with three-quarters of member states experiencing a systemic economic crisis between late 2007 and 2011, and all others experiencing instances of financial market stress. The crisis triggered many countries to rapidly undertake large scale market interventions to ‘save’ their banking systems and stabilise their economies. Consequently, close to half a trillion euro of taxpayer’s money was expended by EU countries in banking sector ‘bail-outs’ since the start of the crisis in 2008. This paper focuses on estimating the economic impacts of one of these rescue mechanisms, impaired asset measures via the creation of Asset Management Companies (AMCs). Applying Leontief’s Input Output (IO) and multiplier analysis, this research estimates the broader direct and indirect impact of two of the most significant AMCs implemented in the EU after the GFC, Ireland’s NAMA and Spain’s Sareb. The results demonstrate that beyond the initial banking system stabilisation objectives, AMCs had notable effects on economic activity, value added, income and employment in both countries. Looking to the future, policy makers may wish to view these direct and indirect economic impacts as a discrete contribution that these entities make to the economy. This may therefore frame considerations of the impact of future AMCs as not just associated with economic stabilisation, but also with wider measurable effects. |
| Keywords: | Banking Crisis; Asset Management Companies; Input-Output; Ireland; Spain |
| JEL: | C67 G23 H12 |
| Date: | 2025–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:ucd:wpaper:202502 |
| By: | Dominy, Jonas; Gräbner-Radkowitsch, Claudius; Heimberger, Philipp; Kapeller, Jakob |
| Abstract: | This paper analyzes developmental trajectories in the EU. In doing so, it diagnoses economic polarization on two different levels: for one, we observe a divergence of average incomes across EU countries as a persistent empirical feature associated with European integration. For another, European economic integration in general and the introduction of the Euro in particular are associated with the emergence of heterogeneous developmental trajectories, which build on, and intensify differences in technological capabilities, institutional and legal setups, as well as labor market characteristics. When clustering countries with reference to similarities in terms of macroeconomic and institutional characteristics across countries, we find evidence for the existence of four distinct development models: core, periphery, and workbench economies, as well as financial hubs. Each of these groups is defined by distinct technological, institutional, and macroeconomic characteristics. Our findings point to suitable ways for extending and refining existing typological approaches, such as the Varieties of Capitalism or the growth model approach, thereby allowing us to better account for the heterogeneity of developmental pathways emerging in the course of an intensifying European race for the best location. |
| Keywords: | Economic polarization, European integration, Development models, growth models, European Union |
| JEL: | B5 F6 F45 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifsowp:311852 |
| By: | Bruno Merlevede; Pablo Muylle (-) |
| Abstract: | Since the late 2000s, shocks and crises of various types have led to a revival of state intervention around the world. This paper builds a large firm-level dataset to analyze state ownership of firms in Europe for the period 2002-18. We confirm the underperformance of state-owned enterprises (SOEs) relative to privately-owned enterprises (POEs) found in earlier literature for this recent period for a range of firm-level performance indicators. We also examine the impact of SOEs on private firms. We find that larger SOE presence in an industry is associated with lower productivity growth and lower productivity levels among private firms in that industry, but does not affect industry dynamics in terms of entry and exit. This suggests potential aggregate productivity gains from reallocating resources from SOEs to POEs. Further, we show that employment is more stable and crisis-resistant at SOEs, and that SOEs are a more stable source of downstream input demand for other firms. Leveraging our dataset's cross-country nature, we find that SOEs are complements to, rather than substitutes for, lower quality institutions. |
| Keywords: | State ownership, Firm performance, Productivity, Spillover e ects, Privatization, Business dynamism |
| JEL: | H11 L25 L32 O47 P31 P52 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1105 |
| By: | Shin-ichi Fukuda (Faculty of Economics, The University of Tokyo) |
| Abstract: | Monetary policy is a powerful policy tool in stabilizing short-term economic fluctuations. However, no matter how effective it is, it could have unintended adverse impacts on the economy if the central bank continued extreme monetary easing over a long period of time. Japan is an exceptional country where such concern exists. This paper analyzes the effects of unconventional monetary policy in Japan since the end of the 1990s. We explore the effects not only on stabilizing short-term macroeconomic fluctuations such as the GDP gap, but also on medium- and long-term productivity such as total factor productivity (TFP). If the prolonged ultra-low interest rate environment distorts the price mechanism and causes misallocation of funds, the unconventional monetary policy could reduce the productivity of the economy. The estimation results show that the Bank of Japan (BOJ)'s unconventional monetary policy had a significant positive impact on the GDP gap even under a liquidity trap where the policy rate hit its effective lower bound (ELB). However, they also show that unconventional monetary policy had a significant negative impact on TFP growth. The results suggest that while unconventional monetary policy was effective in boosting the economy in the short term, the prolonged ultra-low interest rate environment may have had a negative impact on medium- and long-term productivity growth in the Japanese economy. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1240 |
| By: | Supriya Kapoor (Trinity Business School, Trinity College Dublin); Michael Mahony (Macro-Finance Division, Central Bank of Ireland); Anuj Pratap Singh (Macro-Finance Division, Central Bank of Ireland) |
| Abstract: | Since July 2022, European Central Bank (ECB) increased its interest rates for the first time in eleven years to bring inflation back to target. This has huge implication on the credit decision for firms, especially the small and medium enterprises (SME), instrumental in supporting employment, innovation and income. Using ECB's `Survey on Access to Finance of Enterprises' (SAFE) from 2015 to 2023, this paper assesses if the ECB's monetary policy tightening bears any relationship with SME's substituting away from bank credit towards alternative sources of finance. Our results show that contractionary monetary policy shocks were positively associated with the likelihood of SME's substituting away from bank credit. We find this behaviour across SMEs with larger turnover, employee size, age, as well as credit-quality; indicating a much stronger reliance and stickiness to bank credit for relatively smaller, younger, and riskier firms despite increases in the cost of credit following contractionary monetary policy shocks. |
| Keywords: | European Central Bank (ECB), monetary policy tightening, SME credit demand, firm bank credit substitution, firm financing behaviour and adaptability |
| JEL: | D22 E50 E51 E52 E58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0125 |
| By: | McLaughlin, Darragh; McLaughlin, Eoin; Kenny, Seán |
| Abstract: | The 1955-56 macroeconomic crisis is a central event in modern Irish history. Yet, despite this centrality, its causes are not clearly understood. In 1955-6, Ireland, which had previously followed British interest rates in lockstep as part of its fixed exchange with the latter, briefly experimented with independent monetary policy. Our contribution is twofold. First, we highlight how the Irish response was based on a misunderstanding of a run on Sterling in 1955. Second, we focus on a series of monetary shocks taking place from January 1955 to February 1956. We construct yields for Irish and UK public debt, as well as bank share indices at a daily frequency (1954-6), to test whether the shock was transmitted via financial markets. Employing an event study and testing for structural breaks, we explore the institutional framework through which the mechanisms of the crisis occurred. We find that expansionary monetary policy can only be maintained with sufficient reserves, merely postponing the inevitability of capital flight which is observed in the banking sector. |
| Keywords: | Monetary Policy, Monetary Union, Optimum Currency Area, Trilemma |
| JEL: | E42 E52 F45 N14 N24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hwuaef:311198 |
| By: | Raphaël Chiappini (BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur); Elise Tosi (SKEMA Business School) |
| Abstract: | The Banque de France (BDF) conducted a mission to the National Bank of Romania (NBR) and the National Romanian Government between 1929 and 1933, acting as advisor to the Romanian monetary and financial authorities. It tooks place in complement to two loans provided in 1929 and 1931 respectively to stabilize the leu and to develop the Romanian economy. Despite a few months of relative stability, the mission was ultimately unsuccessful. After 4 years of cooperation, the Romanian authorities were obliged to restrict convertibility to defend the leu. The Romanian Government was also unable to follow French advice and finally defaulted. This episode has already been studied by Kenneth Mouré [2005], Philipp Cottrell [2003], the authors (Torre and Tosi [2010]), and Ileana Racianu [2012]. This paper contributes to the existing literature in two dimensions: (i) In addition to Banque de France archive documents in French, it draws on various sources in Romanian for the most part never previously explored; (ii) more importantly, it complements the strictly economic analysis of the episode by means of sources depicting the changes of views of intellectuals and politicians and the evolution of the international situation in Central Europe during the period. With this increased distance from the studied events and access to hitherto unavailable source material, this opens up new insights into how France was able to prolong this sterile cooperation phase beyond all reasonable consideration. |
| Abstract: | La Banque de France (BDF) a effectué une mission auprès de la Banque Nationale de Roumanie (BNR) et du gouvernement roumain entre 1929 et 1933 pour conseiller les autorités monétaires et financières. Cette mission s'est inscrite en complément à deux prêts accordés respectivement en 1929 et 1931 à l'État roumain pour stabiliser le leu et développer l'économie. Malgré quelques mois de relative stabilité, la mission s'est soldée par un échec. Après 4 ans de coopération chaotique, les autorités monétaires ont été obligées de restreindre la convertibilité pour défendre le leu. Le gouvernement roumain n'a pas non plus été en mesure de suivre les conseils de la France et a finalement fait défaut. Cet épisode a déjà été analysé par Kenneth Mouré [2005], Philipp Cottrell [2003], les auteurs (Torre and Tosi [2010]), et Ileana Racianu [2012]. Cet article incrémente ces analyses dans deux directions : (i) il associe à l'exploitation de documents d'archives de la Banque de France diverses sources inexploitées, en roumain pour la plupart ; (ii) de façon plus fondamentale, il complète l'analyse strictement économique de l'épisode étudié par un examen des changements d'opinion des intellectuels et des politiques, mais aussi de l'évolution de la situation internationale en Europe centrale pendant la période. Ces éléments permettent de mieux comprendre comment la France a pu prolonger plus que de raison cette phase de coopération stérile. |
| Keywords: | Money Doctors, Nominal stabilization, Central Banks cooperation, National Bank of Romania, Agrarianism, Little entente |
| Date: | 2024–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-04593471 |
| By: | Neth Karunamuni; Dasol Kim |
| Abstract: | This brief proposes a novel spread-based household financial stress measure called the Household Financial Stress Measure (Brief no. 24-06). |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:briefs:24-06 |
| By: | Samuel Hughes; Francisco E. Ilabaca; Jacob Lockwood; Kevin Zhao |
| Abstract: | This OFR Brief examines how crypto exposure is correlated with household debt and distress (Brief no. 24-08). |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:ofr:briefs:24-08 |