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on Financial Development and Growth |
| By: | Minetti, Raoul; Murro, Pierluigi; Rowe, Nick |
| Abstract: | Banks differ in specialization. We study the aggregate and distributive effects of financial development in a heterogeneous-firm model where firms can produce for domestic and foreign markets and banks specialize in monitoring firms’ domestic or foreign activities. Internationally oriented banks promote the growth of larger incumbent exporters. Locally specialized banks enable financially vulnerable firms to enter foreign markets but induce incumbent exporters to focus on domestic markets and lower their export intensities, fragmenting the export sector. The quantitative analysis reveals that financial development boosts total output, moderates inter-firm inequalities driven by internationalization, but may reduce aggregate trade. The predictions are supported by evidence from a major Italian banking deregulation. |
| Keywords: | Financial Development, Banking Specialization, International Trade, Credit |
| JEL: | E44 F4 G21 G28 O16 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124370 |
| By: | Zakaria Savon (Ph.D., Faculty of Legal, Economic and Social Sciences - Souissi, Mohammed V University, Rabat); Abdellah Yousfi (UMP - Professor, Faculty of Law, Economics and Social Sciences, University Mohammed First, Oujda, Morocco.) |
| Abstract: | The rapid rise of Islamic finance, and particularly Islamic banking, has attracted considerable attention and sparked much debate about its effects on the real sector. This work aims to empirically identify the effects of Islamic bank financing on economic growth in a panel of countries with a dual banking system, during the period from 2013 to 2022. To do this, it employs the fully modified ordinary least squares (FMOLS) approach. The results indicate a positive impact of Islamic bank financing on economic growth. |
| Abstract: | L'essor rapide de la finance islamique, et particulièrement du secteur bancaire islamique, a attiré une attention considérable et suscité de nombreux débats sur ses effets sur le secteur réel. Ce travail vise à identifier empiriquement les effets du financement bancaire islamique sur la croissance économique dans un panel de pays dotés d'un système bancaire dual, pendant la période de 2013 à 2022. Pour ce faire, Il emploie l'approche des moindres carrés ordinaires entièrement modifiées (FMOLS). Les résultats indiquent un impact positif du financement bancaire islamique sur la croissance économique. |
| Keywords: | Banques Islamiques, Financement, Croissance économique, Impact, FMOLS |
| Date: | 2024–07–29 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05011836 |
| By: | Deng, Kent; Du, Jane |
| Abstract: | It has been commonly believed that economic reforms in the post-Mao Era since 1980 have changed China from autarky to an export-oriented developmental path, accompanied by inward and cheap FDI with advanced foreign technology. This paper challenges this view with quantitative evidence and shows that China’s recent growth has depended heavily on a domestic source of capital coming from newly available household sayings, stemming from (1) state mandatory price control over food as a wage good on the one hand and (2) a fast-growing wage level due to arising labour productivity on the other. |
| Keywords: | developmental state; gradualism; saving-led growth; price overshoot; wage goods; economic transition |
| JEL: | O11 P21 P51 Q18 |
| Date: | 2024–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:122355 |
| By: | LI, Hao; Wang, Gaowang |
| Abstract: | We develop a model economy with active financial markets, in which the policymaker's adoption of a gradualistic approach is a Bayesian Nash equilibrium. In addition to its financing role, the financial market also creates a channel for information revelation, encouraging the policymaker to take small policy steps. Smaller policy steps lead to more precise information about the productivity shock. Acquiring more information - both on the extensive margin and the intensive margin - provides sufficient incentives for the policymaker to consistently follow the gradualistic approach. This result holds robust for both exogenous and endogenous information models. |
| Keywords: | the gradualistic approach; active financial markets; information acquisition; endogenous information |
| JEL: | G1 O2 |
| Date: | 2025–04–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124455 |
| By: | Alina Landowska; Robert A. K{\l}opotek; Dariusz Filip; Konrad Raczkowski |
| Abstract: | This study examines the relationship between GDP growth and Gross Fixed Capital Formation (GFCF) across developed economies (G7, EU-15, OECD) and emerging markets (BRICS). We integrate Random Forest machine learning (non-linear regression) with traditional econometric models (linear regression) to better capture non-linear interactions in investment analysis. Our findings reveal that while GDP growth positively influences corporate investment, its impact varies significantly by region. Developed economies show stronger GDP-GFCF linkages due to stable financial systems, while emerging markets demonstrate weaker connections due to economic heterogeneity and structural constraints. Random Forest models indicate that GDP growth's importance is lower than suggested by traditional econometrics, with lagged GFCF emerging as the dominant predictor-confirming investment follows path-dependent patterns rather than short-term GDP fluctuations. Regional variations in investment drivers are substantial: taxation significantly influences developed economies but minimally affects BRICS, while unemployment strongly drives investment in BRICS but less so elsewhere. We introduce a parallelized p-value importance algorithm for Random Forest that enhances computational efficiency while maintaining statistical rigor through sequential testing methods (SPRT and SAPT). The research demonstrates that hybrid methodologies combining machine learning with econometric techniques provide more nuanced understanding of investment dynamics, supporting region-specific policy design and improving forecasting accuracy. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.20993 |
| By: | Agbessi Augustin DOTO |
| Abstract: | Depuis le début des années 2000, les technologies numériques se sont propagées dans les pays en développement avec des niveaux de pénétration hétérogènes selon les pays. L’objectif de cet article est d’étudier l’effet des paiements numériques sur la productivité du travail dans les pays en développement. Pour ce faire, nous avons recours à un panel de 95 pays en développement sur la période 2014-2021. En tenant compte de l’hétérogénéité et de l’endogénéité, nos résultats économétriques montrent que les paiements numériques ont un effet positif et significatif sur le revenu par travailleur en particulier dans les secteurs de l’agriculture et des services. La décomposition du revenu par travailleur révèle que les principaux canaux de transmission sont l’intensité du capital physique et le capital humain par travailleur. Le renforcement des investissements dans les infrastructures numériques en particulier dans les réseaux mobiles, l’internet haut débit et les équipements numériques permettra de tirer pleinement profit de ces technologies pour le développement des économies à faible revenu. |
| Keywords: | Paiements Numériques, Productivité du travail, Pays en Développementt. |
| JEL: | O33 O47 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2025-09 |
| By: | Hiroshi Inokuma (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: hiroshi.inokuma@boj.or.jp)); Mitsuru Katagiri (Associate Professor, Faculty of Business Administration, Hosei University (E-mail: mitsuru.katagiri@hosei.ac.jp)); Nao Sudo (Deputy Director-General, Financial System and Bank Examination Department (E-mail: nao.sudou@boj.or.jp)) |
| Abstract: | This study revisits the old and ongoing challenge of identifying the optimal trend inflation rate, using a novel model that incorporates a firm's innovation choices, product life cycles, and the interplay of the two factors. We construct an endogenous growth model with sticky prices, where firms have two options: to be an innovator or to be a follower. An innovator causes creative destruction, forcing all the incumbents to exit, and becomes a monopolist in its sector. A follower enters an existing sector by offering a product that is slightly different from the incumbent's products, inducing a product life cycle within the sector. Trend inflation impacts the firm's decision regarding which of the two options to choose by changing expected markups and profits. We show that the optimal trend inflation rate could exceed zero as it mitigates potential innovator losses upon the entry of followers, which in turn depresses the incentives for firms to be followers, promoting creative destruction and faster economic growth. |
| Keywords: | Sticky prices, Optimal inflation, Product life cycle, Innovation, Productivity growth, Markups |
| JEL: | E31 O31 O41 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:24-e-17 |
| By: | Patrick Guillaumont (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | A previous collection of policy briefs accompanied the work of the High-Level Panel convened by the United Nations to develop a Multidimensional Vulnerability Index (MVI). This index has since been adopted by the United Nations General Assembly and is attracting renewed attention. It is more relevant than ever to reflect on its scope, its potential for evolution, and how it can be used to inform development financing. The briefs gathered in this volume examine the added value of a structural and multidimensional vulnerability index—not only for the possible definition of country groupings, but above all for the fair and effective allocation of multilateral concessional financing. They also seek to contribute to the foundations of a new donor "selectivity, " based on transparent and rational criteria. At a time when the overall volume of available funding is under threat, the question of how to allocate resources has never been more critical. |
| Keywords: | Multidimensional vulnerability index, Development finance, Aid allocation |
| Date: | 2025–04–16 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05037011 |
| By: | Juergen Bitzer (University of Oldenburg, Department of Economics); Bernhard C. Dannemann (University of Oldenburg, Department of Economics); Erkan Goeren (University of Oldenburg, Department of Economics) |
| Keywords: | Geo-Referenced Aid Projects, Geo-Referenced Conflicts, Africa, Sub-Annual Analysis, Grid-Cell Analysis, GIS Data, ACLED, World Bank |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:old:dpaper:452 |
| By: | Shahzad, Sadia; Audi, Marc; Sulehri, Fiaz Ahmad; Ali, Amjad |
| Abstract: | This paper investigates the impact of financial liberalization, economic growth, and political instability on financial market performance from 1990 to 2021. The dependent variable is financial market performance, while financial liberalization, economic growth, and political instability are treated as independent variables. Monetary and fiscal freedom are included as control variables. The study employs various empirical methods, including descriptive statistics, correlation matrices, panel least squares, and panel autoregressive distributed lag models. Monetary freedom exhibits a statistically insignificant negative effect on financial market performance. In contrast, fiscal freedom shows a strong negative correlation with financial market performance. Financial liberalization has a statistically significant positive effect on financial market performance. Economic growth also exerts a substantial positive impact on financial market performance. Political instability, however, has a statistically significant negative influence on financial market performance. These findings lend support to the convergence hypothesis. Policymakers must strike a balance between regulatory intervention and market autonomy. This can be achieved by implementing policies that promote fiscal freedom, eliminate unnecessary constraints on economic activity (particularly in the financial sector), and encourage greater financial sector openness. Additionally, policies should prioritize economic growth through investment promotion, support for innovation, facilitation of entrepreneurship, and infrastructure development. |
| Keywords: | financial liberalization, financial market performance, convergence hypothesis |
| JEL: | F3 G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124497 |
| By: | E Philip Davis; Dilruba Karim |
| Abstract: | The ageing of the population, driven by declining fertility and rising longevity, is an ineluctable process with major economic and financial implications. This literature survey seeks to provide an overview of effects of ageing on financial markets, focusing inter alia on effects on household saving and wealth, pension provision, the demand for individual financial assets, consequent effects on financial structure, effects on asset prices and interest rates, consequences for housing, effects on banking and financial stability, and international capital flows. The survey covers both the theoretical and empirical literature. Important underlying aspects are the lifecycle pattern of consumption and saving, and the pattern of risk preferences for older people, which may impact on all these areas. There are important policy implications, and further empirical work is warranted. |
| Keywords: | Ageing, personal finance, securities markets, financial structure, housing, international capital flows |
| JEL: | D14 J10 O16 |
| URL: | https://d.repec.org/n?u=RePEc:nsr:niesrd:568 |
| By: | Takemasa Oda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Japan Center for Economic Research, E-mail: takemasa.oda@jcer.or.jp)) |
| Abstract: | This paper quantitatively evaluates the long-run effects of changes in inflation on the real economy, with a focus on deflation and population aging in Japan. It develops an overlapping generations model that incorporates household demand for safe assets. The model features two channels through which a decline in inflation affects the real economy in the long run, that is, the Mundell-Tobin effect and the redistribution effect. Calibrated to the Japanese economy, the model shows that a decline in inflation does more damage to young households and impairs capital accumulation, thus reducing output and social welfare, and moreover, that the damage can be magnified by population aging. This result could provide a certain rationale for central banks to pursue and maintain a positive rate of inflation in an aging economy. |
| Keywords: | Demographics, life cycle, deflation, Mundell-Tobin effect, redistribution, overlapping generations model |
| JEL: | E21 E31 J11 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:24-e-14 |
| By: | Nicola Cetorelli; Gonzalo Cisternas; Asani Sarkar |
| Abstract: | Nonbank financial institutions (NBFIs) constitute a variety of entities—fintech companies, mutual funds, hedge funds, insurance companies, private debt providers, special purpose vehicles, among others—that have become important providers of financial intermediation services worldwide. But what is the essence of nonbank financial intermediation? Does it have any inherent advantages, and how does it interact with that performed by banks? In this Liberty Street Economics post, which is based on our recent staff report, we provide a model-based survey of recent literature on nonbank intermediation, with an emphasis on how it competes, or cooperates, with traditional banks. |
| Keywords: | Non-banks; nonbank financial institutions (NBFIs); banks; securitization; private credit |
| JEL: | G21 G23 |
| Date: | 2025–05–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99997 |
| By: | Ndwiga, David; Makunda, Geraldine |
| Abstract: | The study investigates the effects of macro imbalances on the banking sector performance in Kenya from the financial intermediation cost perspective for 2020q4 - 2024q1 period. Employing dynamic panel GMM model, the study finds that inflation pressures above the upper bound target, external debt unsustainability, monetary policy tightening and current account deficit to GDP ratio lead to increase in the intermediation cost. The findings call for need to anchor the inflation rate below the upper bound target, exercise prudence fiscal measures, effective application of the monetary policy instruments and development of a matrix of interlinkages between the macro imbalances. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kbawps:316419 |
| By: | Zakaria Savon (Ph.D., Faculty of Legal, Economic and Social Sciences - Souissi, Mohammed V University, Rabat) |
| Abstract: | Islamic banking plays a critical role in mobilizing funds for the economy. The financing mechanisms used by Islamic banks are largely influenced by macroeconomic conditions due to their asset-backed nature. A substantial portion of the assets held by these banks originates from debt financing methods, including Murabahah and Ijarah. However, Islamic financial institutions are exposed to various risks, particularly financing or credit risks. This type of risk pertains to the potential financial losses that banks may encounter when a borrower fails to meet their obligations. The non-performing financing (NPF) rate serves as a key indicator for assessing this risk. Our study investigates the impact of key macroeconomic variables and monetary policy on the nonperforming financing rate of Islamic banks in Jordan. The analysis employs an autoregressive distributed lag (ARDL) model, utilizing data from the fourth quarter of 2013 through the first quarter of 2022. The results indicate that both monetary policy and economic growth significantly influence the non-performing financing rates of Islamic banks in Jordan. |
| Keywords: | Islamic banks, Credit-risk, Macroeconomics, Monetary policy, ARDL, JORDAN |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05011821 |
| By: | Kelly, Paul V. |
| Abstract: | The purpose of this paper is to provide the first time series of interest rates in the Irish mortgage market of the eighteenth century.1 This time series, when combined with new data on the investment returns from land and other types of investments, sheds light on the determinants of interest rates in economies without a central bank. This paper is relevant to two key global economic history issues for the period: the influence of institutions on economic growth and the timing of the ‘Great Divergence’ between Western Europe and the rest of the world.2 However, the primary questions dealt with are how did Irish rates compare with English ones and how did they influence the development of the Irish economy? Interest rates are ‘an important index of the quality of the institutional framework’ and this paper examines the development of Irish rates and shows how they compare to other economies.3 The paper demonstrates that Irish interest rates were consistently higher than equivalent English ones and that the Irish mercantile and industrial sectors were handicapped as a result. This spread is not attributable to risk premia caused by differences in institutional effects but rather by the relative risk/return hierarchy of different investment types, notably by the exceptionally high returns on Irish land. Credit market failure was the result for much of the century as the unrealistic usury maximum caused credit rationing. There was also a sustained strong correlation between English and Irish rates.4 However, this correlation was not due to direct market integration, since the English and Irish markets were segregated, but rather the two markets were reacting in the same way to external stimuli such as wars. |
| JEL: | N13 E43 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127155 |
| By: | Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | En Afrique, les petites et moyennes entreprises (PME) sont confrontées à un déficit de financement chronique qui freine leur croissance et le développement économique du continent. Les institutions financières de développement (IFD) sont souvent perçues comme une solution pour combler ce déficit, notamment à travers un soutien indirect aux banques locales. Cependant, une analyse approfondie de leur impact révèle des effets contrastés. Si les bénéficiaires ciblés semblent bénéficier de ces dispositifs, cela se fait au détriment des autres emprunteurs. Il est nécessaire de repenser l'accompagnement de ces dispositifs de financement intermédié des IFD destinés à soutenir le tissu des PME. |
| Keywords: | institutions financières de développement, banques, Afrique |
| Date: | 2025–04–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05026876 |
| By: | Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | In Africa, small and medium-sized enterprises (SMEs) face a chronic financing gap that hinders their growth and the continent's economic development. Development Finance Institutions (DFIs) are often seen as a solution to bridge this gap, particularly through indirect support to local banks. However, an in-depth analysis of their impact reveals mixed results. While targeted beneficiaries benefit from these programs, it is at the expense of other borrowers. There is a need to rethink the support for these DFI-intermediated financing schemes aimed at supporting the SME sector. |
| Keywords: | DFI, Development Finance Institutions, Africa, Small and medium-sized enterprises SMEs |
| Date: | 2025–04–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05026886 |
| By: | Tiriongo, Samuel; Njino, Roselyne; Mulindi, Hillary |
| Abstract: | Micro, Small and Medium-sized Enterprises (MSMEs) are crucial drivers of economic growth. In Kenya, MSMEs represent about 98 percent of all businesses and contribute over 30 percent to the GDP. Despite their essential role in the economy, these enterprises face substantial challenges in accessing bank finance, thereby hindering their growth and development. On this account, this study uses Kenya Bankers Association (KBA) Inuka Impact survey 2024 data with the propensity score matching and difference in difference analysis to examine the impact of banking sector's intervention program on MSMEs ability to access bank credit. The results shows that size and turnover are critical determinants of MSMEs access to finance, and while the interventions by the Inuka program have yielded some positive results, these efforts need to be extended beyond capacity building and training to achieve a stronger and more sustainable impact. Therefore, policies aimed at supporting MSMEs in Kenya should tailored to the distinct stages of MSMEs development, ensuring that interventions are diversified and comprehensive to drive meaningful outcomes in the economy. |
| Keywords: | Lending, debt capital, SME financing, SMEs, micro-enterprises, Kenya |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kbawps:316412 |
| By: | Ozili, Peterson K |
| Abstract: | This study investigates the determinants of financial inclusion in Nigeria. The study extends the empirical debate on the determinants of financial inclusion by focusing on the monetary policy and banking sector factors that influence the level of financial inclusion in Nigeria. The study employs the two-stage least squares regression method to estimate the determinants of financial inclusion in Nigeria during the 2007–2021 period. The results show that the central bank monetary policy rate, the savings deposit rate, and the loan to deposit ratio of banks are significant determinants of financial inclusion in Nigeria. Specifically, increase in the central bank interest rate decreases the level of financial inclusion, increase in the savings deposit rate increases the level of financial inclusion, and increase in the loan-to-deposit ratio decreases the level of financial inclusion. These determinants are robust to alternative estimation using the quantile regression method. There is further evidence that the interbank lending rate, inflation rate and the nominal interest rate are also determinants of financial inclusion in Nigeria based on the two-stage least squares estimation. |
| Keywords: | Financial inclusion, determinants, monetary policy, index, inflation, central bank, Nigeria, interest rate, savings, interbank lending |
| JEL: | G20 G21 G23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124265 |
| By: | Schlicht, Haley |
| Abstract: | This paper investigates the dynamics of Western OECD syndicated bank lending to East Asian borrowers during the 1997-1998 Asian Financial Crisis (AFC), focusing on the interplay between sentiment volatility and moral hazard. Analysing loan data from Thomson-Reuters DealScan reveals that between 1993-2003 East Asian borrowers received disproportionately high loan volumes compared to other emerging market countries and this phenomenon is not full explainable by economic fundamentals. Regression analysis highlights the paradoxical role of short-term debt: while it was associated with higher loan spreads and fees, reflecting an acknowledgment of risk, it simultaneously increased lending volumes, indicating conflicting risk assessment. The study employs the novel use of GenerativeAI to construct an estimate of volatility in sentiment towards East Asia from financial news headlines, offering an original assessment of how market sentiment influenced lending behaviour. The Difference-in-Differences analysis provides compelling evidence that, in the pre-crisis period, increased sentiment volatility spurred increased lending while post-crisis that same volatility deterred lending. This shift highlights how lenders engaged in excessive lending despite appreciable risk before the AFC, only to recalibrate their behaviour in response to the post-crisis fallout. These findings indicate that the "East Asia effect" was shaped not just by regional economic factors, but also by sentiment-driven decision-making which contributed to the financial instability that characterized the AFC. This research highlights the need for further investigation into the role of sentiment in international finance, particularly its influence on financial decision-making during periods of economic growth and crisis. |
| JEL: | F34 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127154 |
| By: | Boddin , Dominik (Deutsche Bundesbank); te Kaat, Daniel Marcel (University of Groningen); Roszbach , Kasper (Norges Bank) |
| Abstract: | This paper provides novel microlevel evidence that cross-border bank flows are an important means for households to access credit, not only in emerging markets but also in advanced economies. Using supervisory bank-level data alongside household credit and consumption data from Germany, we study how lending to households was impacted by the influx of cross-border bank funding following the European Central Bank’s implementation of nonconventional monetary policy in 2014 and 2015. Regional banks that were highly exposed to fluctuations in foreign capital inflows increased consumer lending to riskier, lower-income households by 50% more than other banks. Rising deposit inflows from non-euro area banks induced less-capitalized banks to expand their lending on the extensive margin. The analysis concludes that Improved access to credit enables lower-income customers of exposed banks to increase nondurable consumer spending. Data from a larger group of euro area countries confirm that conclusion. |
| Keywords: | cross-border bank flows; households; bank lending; risk-taking; credit booms; funding shocks |
| JEL: | F30 G20 G50 |
| Date: | 2025–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0779 |
| By: | Davide Furceri; Domenico Giannone; Mr. Faizaan Kisat; Mr. Waikei R Lam; Hongchi Li |
| Abstract: | This paper proposes a novel framework for analyzing the risks surrounding the public debt outlook, the “Debt-at-Risk.” It employs a quantile panel regression framework to assess how current macrofinancial and political conditions impact the entire spectrum of possible future debt outcomes. Many of these factors—including financial conditions and economic variables such as initial debt and GDP growth—predict both the expected level and the uncertainty of future debt, implying pronounced variations in risks, especially in the upper tail of the distribution. By combining the roles of these factors, we find that in a severely adverse scenario—the 95th percentile of the future debt distribution, or debt-at-risk—global public debt could be approximately 20 percentage points higher than currently projected. The magnitudes and sources of debt risks vary over time and across countries, with high initial debt amplifying the effects of economic and financial conditions on debt-at-risk. Furthermore, empirical estimates indicate that debt-at-risk is a key variable for predicting fiscal crises. |
| Keywords: | Debt; Risks; Forecasts. |
| Date: | 2025–05–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/086 |
| By: | Thanasis Stengos (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Theodore Panagiotidis (University of Macedonia); Georgios Papapanagiotou (University of Macedonia) |
| Abstract: | This paper uses a Bayesian time-varying parameter vector autoregressive (TVP-VAR) model to assess the impact of alternative drivers of bitcoin returns. We consider an extended set of alternative drivers and select the most important variables using a Bayesian variable selection method. To examine the evolution of the Granger-causality relationship between the selected variables and bitcoin returns over time, we employ a new approach based on the estimates of the TVP-VAR model and heteroscedastic-consistent Granger-causality hypothesis testing. In addition, we perform impulse response function and forecast error variance decomposition analysis. The results indicate that investor sentiment and ethereum returns affect bitcoin returns over the entire sample. Trading volume emerges as an important determinant of bitcoin returns when bitcoin prices remain relatively steady. |
| Keywords: | Bayesian VAR, time-varying Granger-causality, bitcoin, cryptocurrency, uncertainty, Google trends |
| JEL: | C11 C12 C15 C52 D80 E58 G15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gue:guelph:2025-01 |