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on Financial Development and Growth |
| By: | Wenhao Li; Ye Li |
| Abstract: | A salient trend in crisis intervention has emerged in recent decades: Government and central banks offered funding directly to nonfinancial firms, bypassing banks and other credit intermediaries. We analyze the long-term consequences of such policies by focusing on firm quality dynamics. In a laissez-faire economy, firms with high productivity are more likely to survive crises than those with low productivity. The government funding support saves more firms but cannot be customized based on firm productivity, dampening the cleansing effect of crises. The policy distortion is self-perpetuating: A downward bias in firm quality distribution necessitates interventions of greater scale in future crises. Our mechanism is quantitatively important: we show that if policy makers ignore such distortionary effects on firm quality dynamics, the resultant credit intervention would almost double the optimal amount. |
| JEL: | E50 E60 G01 G18 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33796 |
| By: | Grégory Donnat (Université Côte d'Azur, CNRS, GREDEG, France); Maxime Menuet (Université Côte d'Azur, CNRS, GREDEG, France); Alexandru Minea (LEO, University of Orleans, France; Carleton University, Canada); Patrick Villieu (LEO, University of Orleans, France) |
| Abstract: | What explains the persistent slowdown in total factor productivity (TFP) growth across advanced economies? This paper identifies rising public debt as a key structural driver. Using a panel of 25 OECD countries from 1980 to 2019, we provide robust empirical evidence that sustained debt accumulation has significantly contributed to the TFP deceleration, consistent with a hysteresis mechanism whereby temporary fiscal shocks leave long-lasting scars on productivity levels. To account for this evidence, we develop a theoretical model grounded in a stochastic endogenous growth setup. In the deterministic equilibrium, higher public debt ratios reduce TFP growth via a long-run crowding-out effect. In the stochastic setting, we uncover a new procyclical amplification mechanism, whereby debt adjustments amplify fluctuations in TFP. Our model reproduces the observed negative correlation between cyclical components of public debt and TFP without relying on persistent exogenous shocks, offering a novel perspective on the drivers of the productivity slowdown. |
| Keywords: | Total factor productivity, Endogenous growth, Public debt |
| JEL: | E62 H62 O41 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2025-26 |
| By: | Junsong Shi (Graduate School of Economics, Kobe University, JAPAN); Yoshimichi Murakami (Research Institute for Economics and Business Administration, Kobe University, JAPAN) |
| Abstract: | The impact of foreign direct investment (FDI) on income inequality is still under debate and requires further research. Employing unique instrumental variables based on linguistic and geographic distances, this study empirically analyzes the impact of FDI on income inequality in developing countries, revealing heterogeneous impacts across different regions. This study constructs a unique unbalanced panel dataset comprising 103 developing countries divided into four regional subsamples from 1991 to 2021. Using these full sample and subsamples, this study evaluates the aggregate impact of FDI on income inequality in developing countries and its region-specific effects. The results indicate that FDI has no significant impact on income inequality in the full sample. However, in the regional subsamples, FDI demonstrates significant positive effects on income inequality only in Latin America and the Caribbean region, whereas no statistically significant effects are observed in other regions. Moreover, the study demonstrates that the main findings are robust to the use of five-year average data, sub-periods of analysis, and alternative instrumental variables based on different definitions of linguistic distance. |
| Keywords: | Foreign direct investment; Gini coefficient; Developing countries; Instrumental variables; Linguistic distance |
| JEL: | F21 F62 O15 O57 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-18 |
| By: | Marina Eguchi (Bank of Japan); Tomohiro Okubo (Bank of Japan); Kenta Yamamoto (Bank of Japan); Kazuaki Washimi (Bank of Japan) |
| Abstract: | The total assets of non-bank financial intermediaries (NBFIs) worldwide have been expanding since the global financial crisis. This report assesses the presence of domestic and foreign NBFIs in the domestic financial system and their interconnectedness with banks in Japan, the U.S., and Germany, using various data such as flow of funds and statistics from international organizations. The size of NBFIs varies across countries as the share of financial assets held by NBFIs stands at over 50 percent in the U.S., while it hovers only around 20-30 percent in Japan and Germany. That said, given the presence of foreign NBFIs, data suggest that the assets under management by NBFIs have become sizable in all three countries––particularly in bond and stock markets––, and the interconnectedness measured by mutual exposure between banks and NBFIs has increased. |
| Keywords: | non-bank financial institutions; financial intermediation; government policy and regulation |
| JEL: | G23 G15 G28 |
| Date: | 2025–06–27 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojrev:rev25e07 |
| By: | Mr. Adrian Alter; Khushboo Khandelwal; Thibault Lemaire; Hamza Mighri; Can Sever; Luc Tucker |
| Abstract: | The landscape of external funding flows to sub-Saharan Africa (SSA) has evolved significantly over the past two decades. This paper provides an overview of the non-official external financing sources, emphasizing the trade-offs between foreign and domestic currency-denominated debt. Using data from emerging and developing economies, we assess the likelihood of issuing Eurobonds or borrowing in the syndicated loan market, focusing on the implications for SSA. We also analyze the main drivers of yields at issuance and bond spreads, along with the reliability of credit ratings and the potential existence of an "African risk premium". Our findings suggest that global factors such as the US dollar and interest rates, along with domestic characteristics, including governance and political risk, play an impotant role. Once fundamentals are considered, we find limited evidence of credit rating agencies’ bias against the region and a modest extra risk premium in normal times. As an alternative to external financing, SSA countries have been recently issuing more domestic-currency debt, reducing exchange rate risks but facing challenges in attracting foreign investors due to underdeveloped local debt markets. |
| Keywords: | Sovereign spreads; Risk premium; Syndicated loans; Local-currency bond markets; Africa |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/139 |
| By: | Pablo Aguilar Perez |
| Abstract: | We study the effect of International Monetary Fund Article IV Public Information Notices on sovereign financing conditions. Using monthly data from 67 emerging market economies between 2004 and 2023, we estimate the causal impact of these surveillance disclosures through a dynamic panel matching framework that accounts for repeated observations. The release of Article IV statements leads to a statistically significant reduction in sovereign bond spreads and is associated with increased debt issuance and reserve accumulation, suggesting improved access to external finance. These effects are more pronounced when the surveillance message is optimistic and among countries more closely aligned geopolitically with major IMF shareholders, underscoring the importance of both tone and credibility context in shaping investor reactions. By isolating the influence of surveillance communications - independent of the Fund’s lending activities - this study contributes to the literature on the informational role of international organizations and the non-financial channels through which they affect sovereign risk and market behavior. |
| Keywords: | IMF Surveillance; Dynamic Panel Matching; Geopolitical Alignment; Sentiment Analysis; Sovereign Risk |
| JEL: | C23 F33 G15 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-32 |
| By: | Heidland, Tobias; Michael, Maximilian; Schularick, Moritz; Thiele, Rainer |
| Abstract: | Official development assistance (ODA) is widely studied for its impact on recipient countries, but its effects on donor countries remain underexplored. To address this gap systematically, we develop a conceptual framework for understanding when foreign aid generates measurable returns for donor countries as well as those cases when donor and recipient interests align-what we term mutual interest ODA. We categorize potential donor benefits into three domains: economic, geopolitical, and security-related, and distinguish these benefits by their timing and degree of directness. We then systematically survey the empirical evidence on donor benefits, assessing the empirical credibility and magnitude of estimated effects and pointing out research gaps. We find consistent evidence of substantial donor benefits across all three domains. A key insight is that aggregate aid flows often mask significant variation: The returns to donors depend critically on the type of aid, delivery modality, and recipient context. These findings have important implications for both academic and policy debates on the effectiveness, political sustainability, and future direction of development aid. |
| Keywords: | foreign aid, donor country benefits, aid effectiveness, development policy |
| JEL: | F35 O19 H87 D64 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:319886 |
| By: | Léa Marchal (Université Paris 1 Panthéon-Sorbonne, CNRS, Centre d'Economie de la Sorbonne); Claire Naiditch (Université Lille, CNRS, IESEG School of Management, LEM; Institut Convergences Migrations); Betül Simsek (Institute of Law and Economics - Hamburg University) |
| Abstract: | Foreign aid is often promoted as a way to curb emigration by improving welfare in countries of origin. However, the effectiveness of such a policy remains debated. To contribute to this debate, we develop a random utility maximisation model yielding a gravity equation, which we estimate using OECD migration and aid data for 2011-2019. We exploit the differences between bilateral aid and multilateral aid, for which donors are masked, to isolate the donor-specific and non-donor-specific effects of aid on migration. We show that aid increases rather than reduces migration. The donor-specific channel plays a dominant role in explaining this positive effect, which is primarily conveyed through an information channel |
| Keywords: | Aid; gravity; migration; RUM |
| JEL: | F22 F35 O15 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:mse:cesdoc:25015 |
| By: | Yuki Murakami (Graduate School of Economics, Waseda University) |
| Abstract: | This paper focuses on the time-varying volatility of aggregate fluctuations in emerging markets. Both Latin American and Asian emerging economies experience volatility spikes during financial crises; however, only the latter group exhibits a long-run decline in volatility. Using business cycle data from South Korea, we estimate a small open economy real business cycle model with Markov-switching shock variances. We compare the model fit across alternative specifications of shock volatility structures and investigate the underlying drivers of volatility changes. The results indicate that the data favor the model in which all shock variances switch regimes synchronously. The estimated model captures both the declining trend in volatility over time and temporary volatility spikes during episodes of financial turmoil. It suggests that the long-run decline in volatility is not primarily driven by a reduction in the variance of the interest rate premium shock, though this shock contributes to temporary volatility spikes during crises. The model replicates key business cycle features of emerging markets and highlights that the drivers of aggregate fluctuations depend on the volatility regime. |
| Keywords: | Small open economy; real business cycles; regime switching |
| JEL: | E32 F41 C13 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:wap:wpaper:2514 |
| By: | Raphaelle G. Coulombe; James McNeil (Department of Economics, Dalhousie University) |
| Abstract: | We study the term structure of interest rates in an endowment economy with noisy information and CRRA preferences. Exogenous prices and consumption consist of both temporary and permanent components, but the household observes only their aggregate values. We show that on average the term spread in this environment is positive and on a scale close to what we observe in the data, a fact that many existing macroeconomic models struggle to reproduce without very large coefficients of relative risk aversion. In our partial-information framework, uncertainty about the decomposition of the endowment and prices into their temporary and permanent components combined with a negative correlation in consumption growth explain why the slope of the yield curve is positive on average. We estimate our model using Bayesian methods and US data from 1961–2007 and find that the average interest rate spread is 0.85%, compared with 0.98% in the data. Further, we estimate a coefficient of relative risk aversion of only 4.86. Noisy information accounts for 44% of the scale of the term premium, with the remainder principally explained by real activity and nominal factors playing only a small role. |
| Keywords: | term premium; yield curve; information frictions; Bayesian estimation |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:dal:wpaper:daleconwp2025-01 |
| By: | José Renato Haas Ornelas; Raquel de Freitas Oliveira; Ricardo Schechtman |
| Abstract: | This study exploits a legal change in Brazil to identify the extent to which new information generated by credit bureaus translates into different loan interest rates. The legal change enabled private credit bureaus (PCBs) to build new credit scores for approximately 100 million individuals, based on a broader scope of positive information, such as loan flow and repayment patterns. We find an average reduction of 3.7% in the interest rates of personal loans to borrowers whose new scores became available for sale by the PCBs. The effects are stronger in the cases where the new score is much higher than the old score, reaching an average reduction of 8.7%. We find stronger results for new clients and for private banks. The mechanisms behind our results include both the reassessment of borrower credit risk and higher competition among lenders coming from the dissemination of new positive information. We also provide empirical evidence consistent with information sharing reducing the ability of lenders to informationally lock-in their borrowers. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:624 |
| By: | Joseph Abadi; Jesús Fernández-Villaverde; Daniel R. Sanches |
| Abstract: | We present a micro-founded monetary model of the world economy to study international currency competition. Our model features both “unipolar” equilibria, with a single dominant international currency, and “multipolar” equilibria, in which multiple currencies circulate internationally. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt. A large economy has a natural advantage in ensuring its currency becomes dominant, but if it lacks the fiscal capacity to absorb the global demand for liquid assets, the multipolar equilibrium emerges. |
| Keywords: | Dominant Currency; International Monetary System; Interest-Rate Policy; Fiscal Capacity |
| JEL: | E42 E58 G21 |
| Date: | 2025–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:101163 |
| By: | Claudio Lissona; Esther Ruiz |
| Abstract: | We analyse economic growth vulnerability of the four largest Euro Area (EA) countries under stressed macroeconomic and financial conditions. Vulnerability, measured as a lower quantile of the growth distribution conditional on EA-wide and country-specific underlying factors, is found to be higher in Germany, which is more exposed to EA-wide economic conditions, and in Spain, which has large country-specific sectoral dynamics. We show that, under stress, financial factors amplify adverse macroeconomic conditions. Furthermore, even severe sectoral (financial or macro) shocks, whether common or country-specific, fail to fully explain the vulnerability observed under overall stress. Our results underscore the importance of monitoring both local and EA-wide macro-financial conditions to design effective policies for mitigating growth vulnerability. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.14321 |
| By: | Marcella Lucchetta (Ca' Foscari University of Venice) |
| Abstract: | In the wake of the 2023 Silicon Valley Bank collapse and the 2025 tariff shocks, systemic risk poses a serious threat to global financial stability. We propose a three-period general equilibrium (GE) model that accounts for bank heterogeneity and crisis-driven migration. Our model distinguishes between retail banks, with a marginal expected shortfall of -0.019, and investment banks at -0.045, successfully reducing systemic risk and lowering the overall expected shortfall from -0.032 to -0.029. Unlike complex DSGE frameworks, our model offers clear insights into the vulnerabilities of Silicon Valley Bank and the impact of tariffs. We recommend Basel III-aligned policies, including capital relief and targeted stress tests, and propose real-time crisis prediction tools. This model serves as a vital resource for policymakers and investors, helping them navigate systemic crises and address the challenges posed by "too big to fail" institutions. |
| Keywords: | Bank Heterogeneity, Systemic Risk, Crisis Migration, General Equilibrium, Marginal Expected Shortfall |
| JEL: | G21 G01 E44 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:05 |
| By: | Marcella Lucchetta (Ca' Foscari University of Venice) |
| Abstract: | Recent financial crises have exposed the vulnerabilities of heterogeneous banking models, with investment banks facing greater risks than their retail counterparts due to volatile trading portfolios. This study introduces a three-period general equilibrium model that integrates bank heterogeneity with a novel crisis-induced adaptation mechanism, enabling banks to shift toward resilient retail models during economic distress. Unlike traditional frameworks that assume uniform bank behavior or rely on static analyses, this model captures the dynamic structural adjustments that mitigate systemic risk, offering a nuanced perspective on financial stability. Drawing on comprehensive U.S. and European banking data, the framework is validated across diverse shocks, including regional bank failures and global market disruptions. The findings inform regulatory strategies aligned with Basel III principles, addressing the unique challenges of mid-sized banks while tackling emerging risks from fintech innovations and climate exposures. By bridging micro-level bank dynamics with macro-level stability, the study provides a robust tool for regulators navigating the complexities of modern financial systems, with implications for both domestic and global banking landscapes. |
| Keywords: | Bank Heterogeneity, Systemic Risk, Crisis Adaptation Policy, Marginal Expected Shortfall, Financial Stability, Fintech, Climate Risk |
| JEL: | G21 G01 E44 G28 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ven:wpaper:2025:08 |
| By: | Enkhbaatar Oyungerel (Bank of Mongolia); Urangoo Erdenebileg (Bank of Mongolia) |
| Abstract: | This paper attempts to develop a framework for implementing the Countercyclical Capital Buffer (CCyB) in Mongolia's banking sector by identifying early warning indicators of systemic risk and examining the impact of capital adequacy on bank lending. Using quarterly data from 2000 to 2024, the study employs signaling (area under the receiver operating characteristic curve), logit regression, decision tree analysis, and panel regression techniques. Results show that credit-to-GDP gaps, external and fiscal imbalances are strong predictors of banking crises. Additionally, a one-percentagepoint increase in the capital adequacy ratio reduces loan-to-asset ratio by 0.74 percentage points, with the effect more pronounced among larger banks. These findings support the case for a tailored, data-driven CCyB framework in Mongolia and offer broader implications for countercyclical policy design in small, open and commoditydependent economies. |
| Keywords: | countercyclical capital buffer (CCyB); capital adequacy ratio; bank lending; early warning indicators; financial stability |
| JEL: | E58 G28 G32 C23 |
| Date: | 2025–07–04 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp10-2025 |
| By: | Ozili, Peterson K |
| Abstract: | Little attention has been paid to the role of central bank interest rate and monetary aggregates in influencing financial stability in good times. This study examines the impact of monetary policy on financial stability in good years. It focuses on the impact of three monetary policy tools on financial stability. The study used the median quantile regression method to analyze 22 countries during the 2011 to 2018 period – a period which isolates the shock from the COVID-19 pandemic and the shock from the global financial crisis. The financial stability indicator is the country-level bank nonperforming loans ratio. The monetary policy indicators are broad money growth, broad money to GDP ratio and the central bank interest rate, while controlling for the inflation rate, total unemployment rate, efficiency ratio, institutional governance quality and economic growth rate. The findings reveal that high central bank interest rates impair financial stability by increasing the bank nonperforming loans ratio in African countries and developing countries. In contrast, high central bank interest rates improve financial stability in developed countries and emerging market countries. Furthermore, higher broad money growth improves financial stability in European banks while broad money growth, broad money to GDP ratio and central bank interest rate do not have a significant effect on the NPL ratio of Asian banks. |
| Keywords: | monetary policy, financial stability, nonperforming loans, interest rate, central bank, broad money, institutional quality, domestic private credit, economic growth, unemployment, inflation, efficiency, quantile regression |
| JEL: | E31 G21 G23 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125030 |
| By: | Emmanuel Caiazzo (Department of Economics and Statistics, University of Naples Federico II, CSEF, and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR) |
| Abstract: | This paper presents a model in which the policy rate set by the central bank affects decisions about bank rescue policies when liquidity crises hit the banking system. We highlight a trade-off: maintaining an interest rate ensuring effective control over inflation escalates the costs of rescue interventions. We delve into this trade-off and determine the circumstances under which deviating from the target interest rate, thereby reducing intervention costs, enhances overall welfare. From a normative standpoint, our analysis indicates where liquidity risk is either low or high, the central bank should prioritize achieving the inflation target. |
| Keywords: | Central Banking, Financial stability, Rescue Policies |
| JEL: | G01 G21 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:191 |
| By: | Monia Magnani; Massimo Guidolin |
| Abstract: | We study the complex, non-linear linkages between short-term policy rates and the size and expected durations of equity bubbles. We extend empirical models of periodically collapsing, rational bubbles to test whether and to what extent the long cycle of rates at the zero lower bound and of quantitative easing policies may have increased the probability of bubbles inflating and persisting, with emphasis on the US stock market. We find that the linkages between S&P returns, and ratebased indicators of monetary policies contain evidence of recurring regimes that can be characterized as one of a persisting vs. one of a collapsing bubble. Moreover, the probabilities of financial markets transitioning from a bubble to a state of (partial) collapse turns out to depend on both the initial, relative size of the bubble and on monetary policy indicators. This implies that an easier (tighter) monetary policy will inflate (deflate) a bubble through a simple, regression-style effect, but also yield a non-linear, “concave” effect by which, starting from low rates, rate hikes may at first inflate bubbles before contributing to their bursting, when rates are pushed above a critical threshold. Besides fitting the data, the resulting, parsimonious, regime switching models provide accurate and economically valuable recursive out-of-sample predictive performance, even when transaction costs are taken into account. |
| Keywords: | Rational bubbles, monetary policy, stock returns, regime switching, forecasting. |
| JEL: | G12 E52 C58 G17 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25252 |
| By: | Samuel Kaplan (UNC/UDESA); Efstathios Polyzos (Zayed University/CAMA Australia); David Tercero-Lucas (ICADE/ICAI/Universidad Pontificia Comillas) |
| Abstract: | The growing influence of cryptocurrencies in global financial markets has raise questions about the impact of central bank communications on their price dynamics.This paper investigates how central bank communication affects the behaviour of cryptocurrency markets. Using a dataset of over 6, 000 central bank speeches anda broad panel of crypto assets, we quantify sentiment, uncertainty, and fear tone through natural language processing and assess their impact using local projectionmethods. Our results show that positive tone initially depresses returns while raising volatility, whereas uncertainty and fear produce mixed return responses and amplifyprice fluctuations in the short run. Heterogeneity across asset types reveals stronger responses among emerging, high-performing, and non-stablecoin cryptocurrencies.The findings highlight the informational role of central bank narratives in shaping outcomes in speculative and decentralised markets, with important implications forcommunication policy and financial stability monitoring. |
| Keywords: | Cryptocurrency, Central Bank Communication, Text Analysis, Sentiment Analysis, Monetary Policy |
| JEL: | D53 E52 E58 G15 O33 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:365 |
| By: | Guglielmo Maria Caporale; Anamaria Diana Sova; Robert Sova |
| Abstract: | This study provides new panel evidence on the effects on climate risk on financial stability in the European banking sector using yearly data over the period 2000-2021. More specifically, the impact of a number of climate risk indices on the Z-score (capturing the probability of default of a country’s banking system) is assessed after controlling for various macro and bank-related factors. The estimation is carried out using the GMM method. The analysis is also performed for two subsets of countries, namely EU (European Union) and non-EU ones. Finally, the role of governance quality is investigated. The results suggest that higher emissions growth tends to be associated with lower Z-scores, which indicate lower financial stability. However, the size of this effect differs between EU and non-EU European countries, suggesting that differences in policies, regulatory environments, and economic structures may influence how emissions growth affects financial stability across these areas. Our analysis also shows that the climate risk–financial stability relationship is affected by the quality of governance since the WGI (World Governance Index) does not appear to have a mitigating effect in non-EU countries with poorer governance. |
| Keywords: | climate risk, financial stability, Z-score, Europe, panel data, GMM (Generalized Method of Moments) estimator |
| JEL: | C33 G12 G18 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11958 |
| By: | Maxime Sauzet |
| Abstract: | Can environmentally-minded investors impact the cost of capital of green firms even when they invest through financial intermediaries? To answer this and related questions, I build an equilibrium intermediary asset pricing model with three investors, two risky assets, and a riskless bond. Specifically, two heterogeneous retail investors invest via a financial intermediary who decides on the portfolio allocation that she offers between a green and a brown equity. Both retail investors and the financial intermediary can tilt towards the green asset, beyond pure financial considerations. Perhaps surprisingly, the green retail investor can have significant impact on the pricing of green assets, even when she invests via an intermediary who does not tilt: a sizable green premium --that is, a lower cost of capital-- can emerge on the equity of the green firm. This good news comes with important qualifications, however: the green retail investor has to take large leveraged positions in the portfolio offered by the intermediary, her strategy must be inherently state-dependent, and economic conditions or the specification of preferences can overturn or limit the result. When the financial intermediary decides (or is made) to tilt instead, the impact on the green premium is substantially larger, although it is largest when preference are aligned with retail investors. I also study what happens when the green retail investor does not know the weights in the portfolio offered by the intermediary, the potential impact of greenwashing, and the effect of portfolio constraints. Taken together, these findings highlight the central role that financial intermediaries can play in channeling financing (or not) towards the green transition. |
| Keywords: | sustainable finance, intermediary asset pricing, index investing, portfolio choice |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11944 |
| By: | Laura Alfaro; Maria Brussevich; Camelia Minoiu; Andrea F. Presbitero |
| Abstract: | Finding new international suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018–19 US-China trade tensions. We match data on shipments to US ports with the US credit register to analyze trade and bank credit relationships at the bank-firm level. We show that importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit demand, drawing on bank credit lines and taking out loans at higher rates. Banks offering specialized trade finance services to Asian markets eased both financial and information frictions. Tariff-hit firms with specialized banks borrowed at lower rates and were 15 percentage points more likely and three months faster to establish new supplier relationships than firms with other banks. We estimate the cost of searching for suppliers at $1.9 million (or 5 percent of annual sales revenue) for the average US importer. |
| Keywords: | financial frictions; bank lending; supply chains; trade policy |
| JEL: | G21 F34 F42 |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:101193 |
| By: | NEIFAR, MALIKA; Gharbi, Leila |
| Abstract: | Purpose The scope of this paper is to investigate if the information and communications technology (ICT) can improve the FinTech firm performance in the BRICS countries from monthly macro time series data during 2014M01-2022M12. Design/methodology/approach Through the Bayesian VAR-X approach and the time series DYNARDL simulation models, we investigate the impact of the ICT and its components on the firm performance for both the short-run (SR) and the long-run (LR) historical and predictive trend. Besides these regression models, this study applies the Granger Causality (GC) in quantile and the frequency domain (FD) GC tests to show more details about the causality linkage. Findings From the BVAR-X approach, historical IRFs conclude that the ICT has positive effect on PI for all countries in the SR and a positive effect in the LR only for China. From the DYNARDL simulation models, predictive IRFs results corroborate with the historical IRFs results except for the China and SA in the SR and for Brazil and India in the LR. We conclude in addition that the predictive positive relationships is driven by MCS for Brazil, IUI for China, FBS for SA, and all of the ICT components for the India case. GC type test results are in accordance with previous results. Originality The novelty of this research is based on the idea of studying the effect of the ICT on FinTech firm performance by using several time series data based dynamic technics so that we can estimate and predict the SR adjustments that arise from the impact of ICT to the LR relationship with the firm profitability. |
| Keywords: | FinTech Firm from BRICS area; Bayesian VAR-X model; DYNARDL simulation model; Historical and predictive IRFs for SR and LR effects; Granger Causality test in quantile (QGC); Frequency domain Granger causality (FDC) test |
| JEL: | C01 C11 C22 C53 D22 |
| Date: | 2025–02–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123778 |