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on Financial Development and Growth |
| By: | Taguchi, Hiroyuki; Batool, Bushra |
| Abstract: | This paper examines macroeconomic impacts of emigrant remittances in Pakistan by using a vector autoregressive estimation framework. The contribution of this study is to investigate the threshold of remittance-GDP ratio that has real effects on the economy in terms of Dutch Disease and capital accumulation. Finding the threshold is significant because Pakistan has been one of the largest recipients of remittances in the world and her remittance inflows have experienced substantial fluctuations. The empirical results showed that: regarding the Dutch Disease effect, an increase in remittance-GDP ratio, if it exceeds the 6% threshold, leads to a decline in manufacturing-services ratio; and as for the capital accumulation effect, an increase in remittance-GDP ratio, when it exceeds the 5% threshold, leads to a decline in investment-consumption ratio. These outcomes suggested that the emigrants’ remittance inflows in Pakistan, if they exceed certain levels relative to GDP, have aggravated industrialization (Dutch Disease effect) and capital accumulation. |
| Keywords: | Pakistan, Emigrant remittances, Dutch Disease, Capital accumulation, Vector auto-regressive estimation |
| JEL: | F22 F39 O53 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124941 |
| By: | Byrialsen, Mikael Randrup; Valdecantos, Sebastián |
| Abstract: | In the 2010s, Denmark registered sustained current account surpluses of an average of 8% of gross domestic product (GDP). In trying to explain the nature and causes of this extraordinary performance, recent studies have pointed to a temporary change in the private sector’s financial behavior as the main driver. However, descriptive analysis of the balance of payments shows that the improvement of the current account in the 2010s has been driven by three main elements: (i) the increase in real net exports, (ii) the increase in terms of trade, and (iii) the improvement in the income account. This article explores how the current account balance and the net lending of the Danish private sector would have evolved under alternative scenarios for these three elements. This is done through an empirical quarterly structural macroeconomic model for the period 2005–20, which we use to make counterfactual analyses. We find that, although part of the increase in the current account is due to an increase in domestic savings, as recent studies suggest, the effect of factors specifically related to the external sector has also been significant. Hence, the findings of this article suggest that the high current account surplus of Denmark is more a structural phenomenon than a temporary one, as official reports have been claiming thus far. |
| Keywords: | Cuentas Corrientes; Modelo de Flujos y Stocks Consistentes; Dinamarca; |
| Date: | 2024–12–02 |
| URL: | https://d.repec.org/n?u=RePEc:nmp:nuland:4310 |
| By: | Horioka, Charles Yuji |
| Abstract: | In this paper, we discuss bequests and other intergenerational transfers and what impact they have on the consumption, saving, and labor supply behavior of households. We show that bequests and other intergenerational transfers are prevalent in most countries, that they are sometimes motivated by altruism and sometimes by selfishness, that they affect the consumption and saving behavior of households to some extent, especially that of elderly households, that they affect the labor supply behavior of households, especially that of bequest recipients, and that they have important policy implications. |
| Keywords: | altruism, bequests, consumption, inter vivos transfers, intergenerational transfers, labor supply, life-cycle model, long-term care insurance, Ricardian equivalence, saving, selfishness, strategic bequest motive, wealth disparities |
| JEL: | D11 D12 D14 D15 D31 D64 E21 H3 J22 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:agi:wpaper:02000213 |
| By: | Guido Menzio; Saverio Spinella |
| Abstract: | Recent empirical evidence documents that different individuals earn systematically different rates of return, even after controlling for portfolio composition. We propose a general equilibrium theory of residual heterogeneity in rates of return on wealth by embedding a financial market with search frictions into a monetary incomplete-market model. We show that the distribution of rates of return offered in the financial market is endogenous and depends on the marginal product of capital, the return on fiat money, and the joint distribution of households across wealth and financial human capital. When calibrated, the model succeeds in reproducing the extent of residual dispersion in returns to wealth across individuals. We use the calibrated model to study various policies and counterfactuals, with a particular focus on monetary policy. |
| JEL: | D52 D83 E21 E44 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33868 |
| By: | Carlos G\'oes |
| Abstract: | Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theorized causal chain. This paper tests the hypothesis that the $r-g$ gap drives income inequality and the increasing capital share of national income. Using panel VAR models with data from 18 advanced economies over 30 years, I find no empirical support for Piketty's predictions. The results suggest that dynamics such as savings-rate adjustments and diminishing returns to capital play critical roles in offsetting the hypothesized effects. These findings challenge the theoretical underpinnings of the growth in inequality and call for alternative explanations. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.01521 |
| By: | Tobias Adrian; Hongqi Chen; Max-Sebastian Dov\`i; Ji Hyung Lee |
| Abstract: | We analyse growth vulnerabilities in the US using quantile partial correlation regression, a selection-based machine-learning method that achieves model selection consistency under time series. We find that downside risk is primarily driven by financial, labour-market, and housing variables, with their importance changing over time. Decomposing downside risk into its individual components, we construct sector-specific indices that predict it, while controlling for information from other sectors, thereby isolating the downside risks emanating from each sector. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.00572 |
| By: | International Monetary Fund |
| Abstract: | 2025 Selected Issues |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/111 |
| By: | Margaret M. Jacobson; Eric M. Leeper; Bruce Preston |
| Abstract: | When Roosevelt abandoned the gold standard in April 1933, he converted government debt from a tax-backed claim to gold to a claim to dollars, opening the door to unbacked fiscal expansion. Roosevelt followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered. Theory suggests that government spending multipliers can be substantially larger when fiscal expansions are unbacked than when they are tax-backed. VAR estimates using data on “emergency” unbacked spending and “ordinary” backed spending confirm this prediction and find that primary deficits made quantitatively important contributions to raising both the price level and real GNP after 1933. VAR evidence does not support the conventional monetary explanation that gold revaluation and gold inflows, which raised the monetary base, drove the recovery independently of fiscal actions. |
| Keywords: | Great depression; Monetary-fiscal interactions; Monetary policy; Fiscal policy; Government debt |
| JEL: | E31 E52 E62 E63 N12 |
| Date: | 2024–02–28 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:100034 |
| By: | Francesco Del Prato; Paolo Zacchia |
| Abstract: | In a heterogeneous firm economy with monopolistic competition, could informational asymmetries between entrepreneurs and financial intermediaries sometimes improve welfare? We study this question by developing a model where banks finance entrepreneurs under asymmetric information. While aggregate productivity decreases with informational frictions, we find that welfare can be maximized at intermediate levels of information asymmetry due to a trade-off between productivity and product variety. Additionally, moderate input cost distortions can improve welfare when financial frictions are severe by offsetting the resulting weak firm selection. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.24460 |
| By: | Cui, Jun |
| Abstract: | This study examines how competition in the banking sector affects the financial capabilities of non-financial enterprises in China, with a particular focus on the moderating role of shadow banking's financial innovation. Using panel data from 7, 250 firm-year observations of Chinese private banks collected from CNRDS, Wind, and CSMAR databases from 2017 to 2022, we apply a fixed-effects model to investigate this relationship. Our findings indicate that increased banking competition significantly enhances non-financial enterprises' financial capabilities, particularly in terms of financing flexibility and capital allocation efficiency. Moreover, shadow banking's financial innovation positively moderates this relationship, strengthening the positive effect of banking competition on firms' financial capabilities. The results are robust across various alternative specifications and endogeneity tests. This study contributes to the literature on financial market competition, corporate finance, and the evolving role of shadow banking in China's financial ecosystem, providing important implications for policymakers and corporate financial management. |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:7jtwc_v1 |
| By: | Jiang Wang |
| Abstract: | Government intervention in the financial market through its own trading fundamentally changes the market's structure, function, behavior and outcome. We develop a general equilibrium framework to study the impact of government trading on market outcome and investor welfare. We show that with incompleteness and asymmetric information, the market equilibrium is in general sub-optimal and government intervention can improve investor welfare even without any additional information. However, the welfare impact of government intervention is sensitive to its policy design and the economy's structural details. In addition, popular policy goals such as informational efficiency, price stability and market liquidity can have different welfare implications. Performance measures for government trades based on market prices can be misleading since these trades also affect prices and welfare. |
| JEL: | A10 G0 G1 G18 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33827 |
| By: | Bruhn, Miriam; Hernandez Mansilla, Johan Rolando; Ortega, Claudia Ruiz |
| Abstract: | This paper conducts a meta-analysis of 24 studies evaluating the impact of formal loans on small and medium-sized enterprise performance. Using a Bayesian hierarchical model, the paper estimates that formal loans increase small and medium-sized enterprise employment by 12 percent, sales by 18.3 percent, and profits by 17.6 percent. Subgroup analyses show that the effects of credit on employment are larger when loans are issued by public rather than private banks, and the effects are broadly similar across firm size, country income levels, and guarantee structures. The larger impact of public bank loans suggests that private lenders’ profit-maximizing incentives may not always align with providing funds to the most credit-constrained firms that have the highest returns to capital. |
| Date: | 2025–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11140 |
| By: | Danilo Stojanovic; Veljko Bojovic |
| Abstract: | This paper examines how profit volatility has influenced firms’ decisions over the past four decades. Using Compustat data, we document that: (1) high-investing firms cut their investment rate more sharply than other firms, implying that extensive margin investment decisions - whether to invest in new projects or not - are important for the uncertainty effects; (2) the interaction between firms’ financial and real conditions amplifies the negative impact of increased uncertainty on the investment rates. We also develop and calibrate a heterogeneous-firm model that incorporates both real and financial costs. In the model, higher capital adjustment costs increase the investment inaction rate by 31%, while higher financial costs reduce the investment spike rate by 46%. Incorporating irreversible capital into the collateral constraint reduces firms’ debt capacity, leading to an increase in the investment inaction rate, cash holdings, and net dividends. |
| Keywords: | Capital Investment, Adjustment Costs, Extensive Margin |
| JEL: | C31 E22 G31 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:cer:papers:wp793 |
| By: | Lin Li (Audencia Business School) |
| Abstract: | Using an intangible intensity factor that is orthogonal to the Fama–French factors, we compare the role of intangible investment in predicting stock returns over the periods 1963–1992 and 1993–2022. For 1963–1992, intangible investment is weak in predicting stock returns, but for 1993–2022, the predictive power of intangible investment becomes very strong. Intangible investment has a significant impact not only on the MTB ratio (Fama–French high minus low [HML] factor) but also on operating profitability (OP) (Fama–French robust minus weak [RMW] factor) when forecasting stock returns from 1993 to 2022. For intangible asset‐intensive firms, intangible investment is the main predictor of stock returns, rather than MTB ratio and profitability. Our evidence suggests that intangible investment has become an important factor in explaining stock returns over time, independent of other factors such as profitability and MTB ratio. |
| Keywords: | Market-to-book ratio intangible investment profitability stock returns factor analysis, Market-to-book ratio, intangible investment, profitability, stock returns, factor analysis |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05074264 |
| By: | Martinez Maria (European Commission - JRC); Biancardi Daniele (European Commission - JRC) |
| Abstract: | This note presents the latest trends in the investment behaviour of multinational enterprises, focusing on non-EU (foreign) investors. It looks at merger and acquisition (M&A) deals and other equity investments of at least 10% of capital of the target company in the EU, as well as at greenfield projects.A detailed overview of deals and greenfield projects corresponding the quarters 1 and 2 of 2024 is provided, including both quarterly and yearly comparisons. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc139129 |
| By: | GUERRÓN QUINTANA, Pablo A.; JINNAI, Ryo; YAMAMOTO, Yohei |
| Abstract: | This chapter studies the relationship between asset price bubbles and macroeconomic fluctuations through both empirical analysis and theoretical modeling. We begin by applying the right-tailed unit root tests of Phillips et al. (2015a, b) to real stock and housing price indices in G-7 economies. These tests identify explosive dynamics in asset prices, and our findings show that such bubbly episodes frequently align with periods of economic expansion, suggesting a strong empirical link between asset booms and business cycle upswings. To investigate the mechanisms behind this co-movement, we modify the canonical bubble models of Tirole (1985) and Martin and Ventura (2012) by incorporating endogenous labor supply. However, in both cases, the emergence of a bubble fails to generate a robust macroeconomic expansion. Output and investment either decline or respond sluggishly, while labor hours fall in response to bubble formation. We then turn to the model of Guerron-Quintana et al. (2023), which embeds a variable capacity utilization mechanism into a dynamic general equilibrium framework. This amplification channel allows the model to produce simultaneous increases in output, consumption, investment, and labor during bubbly periods, consistent with empirical patterns. We also discuss the quantitative implementation challenges faced by this approach, highlighting the trade-offs involved in quantitatively modeling bubble-driven fluctuations. |
| Keywords: | asset price bubble, business cycles |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:hit:hituec:768 |
| By: | Yu Awaya; Jihwan Do; Makoto Watanabe |
| Abstract: | We construct a model of bubbles where an asset can be used as collateral primarily due to higher-order uncertainty: while both a lender and a borrower know that the intrinsic value of the asset is low, they may still believe that a “greater fool” exists who will purchase it at a much higher price. We show that such bubbles can lead to inefficient overinvestment under certain conditions. Using this framework, we also examine the impacts of macroprudential policies, as well as other regulatory measures such as interest rate hikes and the resolution of uncertainty. |
| Keywords: | collateral, higher-order uncertainty, speculative bubbles |
| JEL: | D82 D83 D84 E44 E52 G12 G14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11894 |
| By: | Harashima, Taiji |
| Abstract: | Some financial speculations are similar to gambling or Ponzi schemes because they are undertaken to extract other people’s economic resources. In this sense, there will be “good” and “bad” financial speculations. In this paper, I construct static and dynamic models of bad speculations and show that an important determinant of the amount of bad speculation is the economic cost (inefficiency) generated, particularly by disinformation that is disseminated for the speculation. The economic cost and amount of bad speculation are influenced by the ability and effort of regulatory authorities, and if that ability largely deteriorates, the amount of bad speculation will greatly increase and a financial crisis will occur. Hence, people must look for signs of deterioration of the ability of the regulatory authority to prevent financial crises. |
| Keywords: | Disinformation; Financial crisis; Financial regulation; Inefficiency; Speculation |
| JEL: | D53 D84 G01 G14 G18 |
| Date: | 2025–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124877 |
| By: | Cui, Jun |
| Abstract: | This study examines how common institutional ownership influences the financialization of non-financial enterprises in China, with a specific focus on the moderating role of digital financial risk. Using a comprehensive dataset of 6, 250 firm-year observations from Chinese private banks between 2013 and 2023, we apply a fixed-effects panel regression model to analyze this relationship. Our findings reveal that common institutional ownership significantly enhances the financialization level of non-financial enterprises, particularly when digital financial risk is moderate. However, this positive relationship weakens when digital financial risk reaches high levels. Thus, these results contribute to the institutional ownership literature by highlighting the complex interplay between ownership structures, financialization strategies, and the emerging digital financial environment in China's banking sector. Our study provides important implications for corporate governance frameworks and regulatory policies in emerging financial markets. |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:6ydzp_v1 |
| By: | Ilhyock Shim; Torsten Ehlers; Fredy Gamboa; Han Qiu |
| Abstract: | Regional integration among emerging market economies complements global integration rather than substituting for it, which implies that strong regional ties act as buffers against global fragmentation.Emerging Asia is more integrated than other emerging market regions due to a higher share of manufacturing with complex supply chains and the presence of regional financial centres in Hong Kong SAR and Singapore.Trade and banking integration reinforce each other, and regional payment system integration has positive externalities by reducing the transaction costs of trade and enabling cross-border banking services.Tapping the significant potential for further regional integration requires concerted efforts on cross-border cooperation and the implementation of targeted trade and banking sector liberalisation policies. |
| Date: | 2025–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:102 |
| By: | Philippe Burger |
| Abstract: | This paper proposes that the South African Reserve Bank should pursue a 3% inflation target, instead of the current 4.5% midpoint of a 3%-to-6% target range. Doing so may also result in lower inflation volatility, thereby reducing nominal exchange rate risk for investment and trade, and may thus support economic growth. Using a two-regime Markov-switching model, the analysis shows that since the global financial crisis, periods of higher inflation volatility are much shorter. Thus, inflation is relatively better anchored since the global financial crisis. |
| Keywords: | Inflation targeting, Sacrifice ratio, Budget deficits, Markov switching, South Africa, Prices |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-42 |