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on Financial Development and Growth |
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Issue of 2025–09–01
twenty-six papers chosen by |
| By: | Olivia Lu (Hamilton High School) |
| Abstract: | Financial exclusion remains one of the most persistent barriers to economic development, constraining private-sector growth, limiting poverty reduction, and perpetuating economic disparities. Bilateral foreign aid has long been a tool for addressing financial sector deficiencies, yet its impact on financial inclusion remains debated. Can aid meaningfully expand access to credit, increase financial intermediation, and strengthen institutional governance? Or does it merely act as a temporary fiscal injection with limited structural impact? To assess how foreign aid influences financial sector development and financial inclusion, this study analyzes the cases of Bangladesh, Rwanda, and Mozambique from 2012-22, focusing on both formal and informal financial intermediaries. This paper analyzes macroeconomic data, financial sector indicators, aid disbursement trends, and governance metrics to empirically evaluate the relationship between aid and financial inclusion. Using sectoral disaggregation of aid flows and institutional effectiveness scores, the research traces the pathways through which aid channels into financial systems and whether it translates into higher private-sector credit, reduced borrowing constraints, improved banking efficiency, and sustainable microfinance growth. Aid flows are analyzed across three key subsectors: (1) Financial Policy and Administrative Management, (2) Formal Financial Intermediaries, and (3) Informal Financial Intermediaries, providing a granular assessment of how different forms of aid impact banking stability, microfinance participation, and credit accessibility across varying institutional environments.The impact of foreign aid on financial inclusion depends on how well funding aligns with governments? priorities in existing policies. Bangladesh and Rwanda have seen stronger growth in microfinance, digital banking, and SME credit, while Mozambique has struggled due to weak institutions and economic instability. Policy aid has helped Rwanda strengthen financial regulations, but in Mozambique, even large inflows have failed to improve oversight. But aid to banks does not always increase lending. Bangladesh saw improved efficiency, but Rwanda and Mozambique still face high interest rate spreads, which could point to deeper financial inefficiencies. Finally, microfinance aid is most effective when paired with strong local policies. While Bangladesh and Rwanda sustain growth even as aid declines, Mozambique?s financial access stalls once donor support fades, showing that without strong institutions, financial inclusion remains fragile.Ultimately, this study contributes to the literature on international aid and development by identifying the conditions under which aid strengthens financial systems rather than acting as a temporary economic stimulus. To be truly effective, donor assistance must go beyond short-term interventions and support structural changes that allow financial sectors to grow independently. |
| Keywords: | Foreign aid, Financial inclusion, Microfinance, Governance, Banking efficiency |
| JEL: | F35 O16 G21 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15116716 |
| By: | Moïse, Randy Kambana |
| Abstract: | While natural resource wealth should, in theory, fuel development, many extractive economies remain structurally excluded from financial services. This paper investigates the hypothesis of a « financial exclusion curse » in resource-rich African countries, by empirically comparing them to resource-poor but financially inclusive peers. Using Propensity Score Matching, the Synthetic Control Method, and dynamic panel GMM models, we demonstrate a robust negative relationship between resource dependency and financial inclusion. Yet, comparative insights from Southeast Asia and Latin America reveal that inclusive financial ecosystems can flourish—even in rent-driven contexts—when institutional quality, digital innovation, and proactive policy align. Our findings call for a paradigm shift: beyond banking access, states must reshape financial infrastructures to democratize opportunity in resource economies. |
| Date: | 2025–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:qpz6n_v1 |
| By: | Rabah Arezki; Hieu Nguyen; Rick van der Ploeg |
| Abstract: | When wealth or income rises suddenly, the propensity for that “easy money” to be directed towards unproductive use, “easy spending”, may rise. The cross-country relationship between conspicuous consumption and revenue windfalls is explored by estimating the response of demand for imports of luxury goods resulting from country-specific and plausibly exogenous variation in commodity export prices. The response of imports of luxury goods following a commodity export windfall is found to be bigger than that for non-luxury imports while there is substantial heterogeneity in the magnitude of the response between different categories of luxury import goods. The results also point to a significant increase in tourism from countries experiencing commodity export windfalls to the main luxury shopping destinations abroad. Countries that have higher inequality, weaker control of corruption or less democracy have significantly higher luxury import response following a commodity export windfall. This (luxury) import channel of the resource curse stems from the link between easy money and easy spending when weak mechanisms for resource allocation are in place. |
| Keywords: | conspicuous consumption, commodity prices, institutions, resource curse |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12088 |
| By: | Austin Kennedy |
| Abstract: | This paper examines fiscal policy spillovers through informal international financial channels, using the US stimulus checks as a positive, sudden, and direct fiscal shock. I utilize granular, transaction-level cryptocurrency data combined with an algorithm to probabilistically identify cross-border "crypto vehicle" transactions to construct bilateral cryptocurrency flows between countries. Using a difference-in-differences strategy, I compare cryptocurrency outflows between the US and other high-income countries and find a sharp but temporary increase in cryptocurrency outflows as a result of the direct stimulus. I quantify the fiscal spillover relative to expenditure and place an upper bound of 2.52% through this channel. This implies that fiscal spillovers through remittance channels are likely modest in size. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.06662 |
| By: | Carlos Segura-Rodriguez (Department of Economic Research, Central Bank of Costa Rica); David Ching-Vindas (Department of Economic Research, Central Bank of Costa Rica) |
| Abstract: | This paper presents a new estimation of a Financial Conditions Index (FCI) and, following Adrian et al. (2019), the first growth-at-risk analysis for the Costa Rican economy. The FCI is constructed using the dynamic factor model technique since 1996. For those variables that are reported after this date, we use Stock y Watson (2002) proposal to fill for the missing values. The FCI effectively captures recent episodes of restrictive and lax financial conditions. The growth-at-risk analysis incorporates the impact of terms of trade to account for international risks relevant to a small, open economy like Costa Rica. The results show that, at one and four quarters ahead, both restrictive financial conditions and improvements in terms of trade have a negative and statistically significant effect on the 5th percentile of growth, but not on other percentiles or on the expected value. This underscores the importance of assessing how financial conditions and terms of trade influence risks to future economic growth. ***Resumen: Este trabajo presenta una nueva estimación de un Índice de Condiciones Financieras (ICF) y, con base en Adrian, Boyarchenko y Giannone (2019), el primer análisis de crecimiento en riesgo (Growth-at-Risk) para la economía costarricense. El ICF se construye con la metodología de factores dinámicos a partir de 1996. Se utiliza la propuesta de Stock y Watson (2002) para incluir variables para las que se tiene información para años posteriores. El ICF replica de manera apropiada los episodios recientes de condiciones financieras restrictivas y laxas. En el análisis de crecimiento en riesgo, se incluyó el impacto de los términos de intercambio para captar riesgos internacionales relevantes para una economía pequeña y abierta como Costa Rica. Los resultados indican que, a un trimestre y a cuatro trimestres, tanto las condiciones financieras restrictivas como la mejora en los términos de intercambio tienen un efecto negativo y estadísticamente significativo para el percentil 5, pero no para los demás percentiles ni en el nivel promedio. Esto subraya la importancia de evaluar cómo las condiciones financieras y los términos de intercambio influyen en los riesgos para el crecimiento económico futuro. |
| Keywords: | Growth-at-risk, Financial conditions, Terms of trade, Términos de intercambio, Condiciones financieras, Crecimiento en riesgo |
| JEL: | C21 C38 E44 F43 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:apk:doctra:2501 |
| By: | Drenkovska, Marija; Lenarčič, Črt |
| Abstract: | The Global Financial Crisis (GFC) highlighted the importance of early identification of systemic financial stress and timely macroprudential policy responses. In this context, financial stress indices have become essential tools for monitoring systemic risk in real time. While composite indicators exist for the euro area and several member states, Slovenia has lacked such a measure, primarily due to limited financial market depth and data constraints. This paper introduces the Financial Markets Stress Indicator for Slovenia (FIMSIS), the first composite financial stress indicator developed specifically for the Slovenian financial system. FIMSIS aggregates volatility-based indicators across market segments using three alternative approaches - exponentially weighted moving average (EWMA), multivariate GARCH (BEKK) and principal component analysis (PCA) - allowing for a comparative evaluation of aggregation techniques. The indicator captures both the intensity and systemic dimension of financial stress and is evaluated through robustness checks and regime classification using a Markov-switching model. To assess predictive performance, we apply a Growth-at-Risk framework with Adaptive LASSO and non-crossing constraints. Results confirm FIMSIS's relevance for signalling downside macroeconomic risk. |
| Keywords: | financial systemic stress, financial stress indicator, financial stability, financial system, macroprudential policy |
| JEL: | E44 G01 G10 G20 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125551 |
| By: | Theodore Kapopoulos (Athens University of Economics and Business - Department of Accounting and Finance); Dimitrios Anastasiou (Athens University of Economics and Business - Department of Business Administration); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Athanasios Sakkas (Athens University of Economics and Business - Department of Accounting and Finance) |
| Abstract: | We investigate the relationship between global geopolitical risk and bank deposit flows across a wide panel of European countries. Motivated by the pivotal role of deposit stability for financial intermediation and systemic resilience, we explore whether geopolitical shocks alter depositors' portfolio choices. Using quarterly country-level data and employing the Geopolitical Risk Index (GPR) of Caldara and Iacoviello (2022) along with its sub-indices (GPR Acts and GPR Threats), we document that rising global geopolitical risk significantly increases aggregate bank deposits. Specifically, a one-standard-deviation increase in geopolitical risk is associated with an average rise of €13.3 billion in household deposits and €5.6 billion in corporate deposits, highlighting the sizable financial reallocation triggered by global uncertainty. This positive effect is channelled through a reallocation from riskier assets to deposits, with a stronger reaction observed among households compared to firms. Our findings suggest that bank deposits act as a safe-haven asset in periods of heightened global tensions, complementing the flight-to-safety phenomenon documented in sovereign bond markets. The results have important implications for financial stability analysis, monetary policy transmission and banks' liquidity risk management under geopolitical stress. |
| Keywords: | bank deposit flows, geopolitical risk, financial instability |
| JEL: | G4 G21 F51 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2564 |
| By: | Ding Dong; Allen Hu; Zhaorui Li; Zheng Liu |
| Abstract: | Using novel measures of information acquisition, we document causal evidence of a feedback loop between firms’ credit access and information acquisition. To examine the macroeconomic implications of this feedback loop, we develop a tractable general equilibrium framework with financial frictions and endogenous information acquisition. In line with the empirical evidence, the model predicts that a rise in information costs raises the level of uncertainty and reduces a firm’s equity value, hampering its credit access. On the other hand, tightened credit constraints restrain activity of high-productivity firms, leading to misallocation that reduces aggregate productivity and firm profits, and discouraging information acquisition. This feedback loop creates a finance-uncertainty trap that substantially amplifies and prolongs business cycle fluctuations. |
| Keywords: | information acquisition; endogenous uncertainty; financial frictions; misallocation; Business Cycles |
| JEL: | D83 E32 E44 |
| Date: | 2025–07–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:101432 |
| By: | James Cloyne; Òscar Jordà; Sanjay R. Singh; Alan M. Taylor |
| Abstract: | Using long-run cross-country panel data, we document that (i) contemporaneous credit growth strongly predicts contemporaneous equity returns with positive sign, and (ii) lagged credit growth strongly predicts contemporaneous equity returns with negative sign. This correlation reversal is robust to added controls for contemporaneous and lagged consumption growth and these credit factors have greater explanatory power than the consumption factors. We find that a general equilibrium model with financial frictions and rational expectations fails to match the empirically estimated sign on regression coefficients. Diagnostic expectations, instead, help recover the empirically estimated contemporaneous sign as well as the reversal observed in the data. The two features of diagnostic expectations – extrapolation and systematic reversal – are key to improving the asset pricing implications of the general equilibrium model. |
| Keywords: | financial frictions; expectations; asset prices; credit growth |
| Date: | 2025–08–22 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:101463 |
| By: | Piergallini, Alessandro |
| Abstract: | I develop flexible- and sticky-price general equilibrium models that embody endogenous corporate financing decisions affecting firm value due to distortionary taxes. Nominal interest-rate variations impact the costs of debt and equity capital asymmetrically and thereby induce firms to modify the financial structure, altering the gap between the optimization-based weighted average cost of capital and the real interest rate. Under these circumstances, I characterize conditions under which rules-based monetary policies that set the nominal interest rate as an increasing function of the inflation rate induce aggregate stability in the form of a unique stable equilibrium. In contrast to what is commonly argued, I demonstrate that both passive interest rate policies, which underreact to inflation, and mildly active interest rate policies, which overreact to inflation but below a threshold reflecting both tax and capital structures, ensure determinacy of equilibrium. Conversely, excessively aggressive inflation-fighting monetary actions are destabilizing in the presence of price stickiness by generating either multiple equilibria or the nonexistence of stable equilibria. Under the stabilizing monetary regimes, I prove that macroeconomic dynamics following either interest rate normalization or temporary monetary tightening critically depend upon the tax code and the steady-state debt-equity ratio. |
| Keywords: | Corporate Finance; Firm Financial Structure; Weighted Average Cost of Capital; Distortionary Taxation; Interest Rate Policy; Equilibrium Dynamics; Monetary Policy Shocks. |
| JEL: | E31 E52 G32 H24 H25 |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125362 |
| By: | Pierre L Siklos; Dora Xia; Hongyi Chen |
| Abstract: | This paper provides new estimates of the neutral interest rate, or r*, with a frequency domain approach using quarterly data from China, Japan, Korea, and the US. Utilizing band spectrum regressions, we estimate two types of neutral rates, which hold over the business cycle and the financial cycle respectively. To account for uncertainty around estimates of r*, we derive confidence bands via a thick modelling approach. Our estimates share a few common features with existing published estimates. Consistent with prior research, a downward trend in r* is observed, although the trend becomes less obvious when uncertainty bands are factored in. Meanwhile, our findings offer novel perspectives on the neutral rate in the four countries examined. For individual countries, our estimates for the two types of r* do not always track each other, suggesting that central banks face trade-off between business versus financial cycle considerations when setting the policy rate. Across countries, we identify significant positive spillovers from the US to the three East Asia countries, as well as spillovers from China to Kora and Japan. |
| Keywords: | China, Japan, Korea, neutral real rate, time series and frequency domain modeling, band spectrum regression, financial cycle |
| JEL: | E58 E32 E42 E43 C54 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1285 |
| By: | De Santis, Roberto A.; Vinci, Francesca |
| Abstract: | We employ a novel regional dataset on European private investment and business R&D spanning the years 2000 to 2021, along with comprehensive historical data on European Union Structural and Investment (ESI) funds, to estimate whether ESIfunds have crowding-in or crowding-out effects on private investment and business R&D. Our analysis, leveraging regional variation and a fiscal instrument immune to region-specific shocks, reveals a significant crowding-in effect, with 1 euro in ESI funds increasing private investment by 1.1 euros and business R&D by 0.1 euros after two years. The effect is stronger in developed regions for private investment and in less developed regions for R&D. Additionally, crowding-in effects are stronger in regions where corporate private debt is relatively higher. Among the different ESI funds, the Cohesion Fund (CF) shows the largest estimated impact, while the European Regional Development Fund (ERDF) yields somewhat smaller but statistically more robust results. JEL Classification: E22, H54, O38, O52, R11, R58 |
| Keywords: | EU, fiscal instruments, private Investment, R&D, structural and investment funds |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253098 |
| By: | Marie-Sophie Lappe; David Pinkus |
| Abstract: | Expanding funded pensions via auto-enrolment could boost long-term investment and saver security, allowing the EU to address its investment gap |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bre:wpaper:node_11208 |
| By: | François Derrien (HEC Paris - Ecole des Hautes Etudes Commerciales); Jean-Stéphane Mésonnier (Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Guillaume Vuillemey (HEC Paris - Ecole des Hautes Etudes Commerciales, CEPR - Center for Economic Policy Research) |
| Abstract: | Firm births are key drivers of employment growth, productivity gains, and "creative destruction". We show that set-up costs create sizable financial constraints for new firms. When firms face high set-up costs, they can only be established by leveraging up and lengthening debt maturity. We empirically confirm these predictions in a large sample of young French firms. Leverage is higher and debt maturity is longer in high set-up cost industries. Last, we show that, following an exogenous shock that reduces banks' supply of long-term loans, there is relatively lower firm creation in high set-up cost manufacturing industries. |
| Date: | 2025–01–17 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05156025 |
| By: | Yasin Kürsat Önder; Jose Villegas (-) |
| Abstract: | A central challenge of macroeconomic policy is stimulating demand during crises. We show that the price of credit, not just access, is a key friction. Exploiting Belgium’s 2020 Credit Guarantee Scheme—where guaranteed loan rates fell 25 basis points for firms below 50 employees, with fees remitted to the government—we isolate a pure borrowing-cost shock. Lower rates increased investment, employment, revenues, and survival, mainly through substitution away from costlier market loans. A structural quantitative model matches empirical elasticities and shows that unexpected guarantees raise welfare, but recurrent policies increase leverage, elevate default risk, and can generate welfare losses. |
| Keywords: | Credit guarantees, price frictions, defaults, regression discontinuity design, debt overhang |
| JEL: | E32 G21 H81 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:25/1118 |
| By: | Vihar Dalal; Daniel A. Dias; Pinar Uysal |
| Abstract: | This paper uses a structural vector autoregressive (SVAR) model—identified with an external monetary policy instrument and sign restrictions—to derive a measure of bank credit conditions from changes in bank lending standards. The model incorporates data on interest rates, bank credit, and survey-based measures of bank lending standards to identify monetary policy, credit demand, and credit supply shocks. Using these identified shocks, we construct a novel measure of bank credit conditions that corresponds to the component of credit growth that would occur if credit demand remained unchanged, reflecting solely the impacts of monetary policy and credit supply shocks. Using this measure, we find that credit supply–driven changes in bank credit conditions have a stronger impact on real outcomes in the euro area, whereas monetary policy–driven changes play a larger role in the U.S. economy. |
| Keywords: | Bank Credit; Bank Lending Surveys; Monetary Policy; External Instruments; Sign Restrictions; SVAR |
| JEL: | C32 C36 G21 |
| Date: | 2025–08–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-55 |
| By: | Degryse, Hans; De Jonghe, Olivier; Laeven, Luc; Zhao, Tong |
| Abstract: | This paper studies the role of collateral using the euro area corporate credit registry, Ana-Credit. We document key facts about the importance, distribution, and composition of collateral, including its presence, types, and values. On average, 70% of credit amounts are collateralized. Real estate and financial assets are the most pledged, while physical movable assets and other intangible assets are less present. In addition, we show that the aggregate collateral value pledged to the banking sector is substantial, driven mainly by real estate in most countries. For the first time, we examine the collateral channel in bank credit using the actual value of individual collateral. By exploiting within-firm and within-bank variations for newly issued secured loans, we find that the elasticity of collateral value to loan commitment amounts is around 0.7-0.8. This collateral value elasticity exhibits substantial country and time heterogeneity, which can be explained by legal, financial, and macro conditions. JEL Classification: E32, G21, G33 |
| Keywords: | bank credit, collateral channel, corporate financing, secured debt |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253095 |
| By: | Dimitrios Anastasiou (Athens University of Economics and Business - Department of Business Administration); Antonis Ballis (Aston Business School, Aston University); Christos Ioannidis (Aston University - Aston Business School); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Emmanouil Sifodaskalakis (Eurobank EFG) |
| Abstract: | We provide new evidence on the behavioral dynamics of credit rating agencies (CRAs) by introducing the concept of asymmetric stickiness in bank credit ratings. Using a comprehensive global dataset covering over 750 banks across 59 countries from 1988 to 2015, we develop a novel empirical framework to measure the extent to which CRAs delay upgrades versus downgrades. Our findings reveal that upgrades are significantly stickier than downgrades across all three major CRAs (Moody's, S&P, and Fitch). Quantitatively, upgrades are on average 3.5 times more persistent than downgrades across all specifications, with the effect most pronounced for Moody's and Fitch. Second, stickiness is not uniform, as Moody's and Fitch ratings are more persistent, particularly for high-rated banks. We further document a new behavioral pattern we term pre-downgrade conservatism, where CRAs assign more conservative ratings immediately before downgrades. These results suggest strategic behavior aimed at preserving reputational capital and mitigating regulatory backlash. We also identify structural breaks in rating behavior coinciding with the 2008 global financial crisis, indicating shifts in CRA methodologies over time. Our results have important implications for the effectiveness of external ratings as supervisory tools and for the procyclicality of credit supply. |
| Keywords: | Credit Rating Agencies, Bank Ratings, Stickiness, Asymmetry, Structural Breaks |
| JEL: | C35 G21 G23 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2563 |
| By: | Yuanchen Yang; Flora Lutz; Lucy Qian Liu |
| Abstract: | This paper investigates the nexus between persistent house price increases and productivity growth in Canada, focusing on the collateral channel. We first present a stylized model explaining the mechanism of the colleteral channel. Using detailed firm-level data spanning from 2000 to 2023, the empirical analysis finds a negative correlation between firm productivity and its real estate holdings. Furthermore, rising house prices dampen investment for firms with fewer tangible assets but stimulate investment for those with more. At the industry level, while overall productivity may increase with rising house prices on average, industries with significant tangible asset holdings exhibit an opposite trend, suggesting potential resource misallocation associated with persistent housing market boom. |
| Keywords: | housing boom; real estate, productivity; misallocation |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/161 |
| By: | Djeneba Dramé (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, UPN - Université Paris Nanterre); Florian Léon (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This paper examines how firms in developing countries respond to monetary policy changes, focusing on both their perceptions of credit constraints and their borrowing behavior. Using firm-level data from the World Bank Enterprise Surveys (WBES) and a newly constructed database of monetary policy changes, we employ an event study approach to analyze how managers adjust their expectations of credit access in the days following a policy intervention. We complement this with a broader analysis of how annual policy rate changes affect firms' credit applications. Our results show that firms perceive credit access as more restrictive after a policy rate hike, but do not significantly reduce their credit applications. Instead, credit demand increases after a rate cut, highlighting an asymmetric response to monetary policy. We also find substantial heterogeneity, with firms' sensitivity depending not only on their proximity to banks, but also on the degree of liquidity of the banking market and the degree of independence of the central bank. These results provide new insights into the transmission of monetary policy in developing countries. |
| Keywords: | JEL classification: D4 E52 G32 L1 O16 Monetary policy Financial constraints Firms Developing countries |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05172185 |
| By: | Johanna Tiedemann; Olivier Bizimana; Shant Arzoumanian |
| Abstract: | This paper assesses the stance of monetary policy in eleven Sub-Saharan African (SSA) emerging and frontier market economies. We estimate neutral real interest rates using a range of methodologies, and find a broadly declining trend in most economies since the Global Financial Crisis, consistent with patterns observed in advanced and major emerging market economies. We document significant heterogeneity in monetary policy stances—measured by the interest rate gap—even during common global shocks. We also examine the consistency between signals from the intended monetary policy stance and broader financial conditions. To this end, we construct financial conditions indices (FCIs) and analyze their relationship with interest rate gaps. We find that this relationship strengthens during periods of highly accommodative or restrictive monetary stances, particularly in economies that have adopted or are transitioning to inflation-targeting frameworks. Moreover, contractionary monetary shocks tighten financial conditions more in these economies than in those operating under other regimes. |
| Keywords: | Neutral Interest Rate; Monetary Policy Stance; Financial Conditions; Monetary Policy Transmission; SSA |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/160 |
| By: | Sharjil M. Haque; Young Soo Jang; Jessie Jiaxu Wang |
| Abstract: | This paper examines how banks’ financing of nonbank lenders affects monetary policy transmission. Using supervisory bank loan-level data and deal-level private credit data, we document an intermediation chain: Banks lend to Business Development Companies (BDCs)—large private credit providers—which then lend to firms. As monetary tightening restricts bank lending, firms turn to BDCs for credit, prompting BDCs to borrow more from banks. This intermediation chain raises borrowing costs, as banks charge BDCs higher rates, which BDCs pass on to firms. Consistent with this pass-through, bank-reliant BDCs respond more strongly to monetary tightening, and BDC-dependent firms grow more but exhibit weaker interest coverage ratios. Overall, while bank lending to nonbanks mitigates credit contraction and supports investment during tightening, it amplifies monetary transmission by elevating borrowing costs and financial distress risk. |
| Keywords: | Banks and nonbanks; Monetary policy transmission; Business development companies (BDCs); Private credit; Credit chain |
| Date: | 2025–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-59 |
| By: | Mark A. Carlson |
| Abstract: | There was a banking panic in New Mexico in early 1924 when about one-fourth of the banks in the state closed temporarily or permanently amid widespread runs. The Federal Reserve used both high profile and behind the scenes operations to calm the panic. This paper provides a history of this episode and explores how conspicuous and inconspicuous aspects of the Federal Reserve’s response interacted to bolster confidence in the banking system. |
| Keywords: | Banking Panic; New Mexico; Federal Reserve; Lender of Last Resort |
| JEL: | G01 N21 |
| Date: | 2025–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-64 |
| By: | Iustina Alina Boitan (Bucharest University of Economic Studies); Thomas Paulovici (Bucharest University of Economic Studies, Doctoral School of Finance) |
| Abstract: | The paper investigates the potential of Central Bank Digital Currencies (CBDCs) to enhance financial inclusion by improving access to digital financial services for unbanked populations, particularly in developing economies where the issue of financial exclusion and low access to financial services is endemic. Our analytical interest substantiates inthe growing interest exhibited by central banks and international financial institutions regarding the emergence of this new type of state-backed digital currency. CBDCs represent digital forms of central bank money that may serve as complement to cash and other payment instruments in a secure, efficient, and accessible payment environment, unlike cryptocurrencies, which operate on decentralized networks. While CBDCs offer promising features such as cost efficiency, security, and accessibility, several challenges, including design deficits, digital and financial literacy barriers, and regulatory considerations must be addressed to ensure their effectiveness. Through a systematic review of existing academic literature, empirical evidence and case studies from some developing or emerging economies, this study examines positive impacts as well as the challenges of these CBDCs in promoting financial inclusion. In particular, it investigates the theoretical mechanisms through which CBDCs could enhance access to financial services, and the challenges that may hinder their effectiveness. Furthermore, the analysis draws on a series of case studies from some of the early CBDC adopters, to identify the real-world impact of CBDCs on financial inclusion. The findings suggest that while CBDCs have the potential to bridge financial gaps, their success depends on strategic design and implementation as well as on complementary policies. The paper further discusses policy recommendations for designing CBDCs that maximize their potential as an inclusion-enhancing tool. |
| Keywords: | Central Bank Digital Currencies, Central Banks, Financial Inclusion, Digital Payments, Developing Economies, eNaira, Sand Dollar |
| JEL: | E50 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:15116731 |
| By: | Fascione, Luisa; Scheubel, Beatrice; Stracca, Livio; Wildmann, Nadya; Jacoubian, Juan Ignacio |
| Abstract: | The March 2023 banking turmoil has intensified discussions whether social media and the digitalisation of finance have become significant factors in driving severe deposit outflows. We introduce the concept of deposits-at-risk and utilize quantile regressions for disentangling determinants of stressed outflows at the lowest tail of the distribution. For a sample of large banks directly supervised by the ECB, our findings indicate that an increased use of online banking services leads to a small amplification of extreme deposit outflows, but this effect is not further exacerbated by the availability of a mobile banking app. Online banking use and availability of a mobile app do not have a causal effect on deposit volatility in normal times. Finally, social media are impactful only in idiosyncratic cases. JEL Classification: G20, G21, G28 |
| Keywords: | banking regulation, bank runs, deposit outflows, liquidity risk |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253092 |
| By: | Xinyu Li |
| Abstract: | Persistent financial frictions - including price volatility, constrained credit access, and supply chain inefficiencies - have long hindered productivity and welfare in the global agricultural sector. This paper provides a theoretical and applied analysis of how fiat-collateralized stablecoins, a class of digital currency pegged to a stable asset like the U.S. dollar, can address these long-standing challenges. We develop a farm-level profit maximization model incorporating transaction costs and credit constraints to demonstrate how stablecoins can enhance economic outcomes by (1) reducing the costs and risks of cross-border trade, (2) improving the efficiency and transparency of supply chain finance through smart contracts, and (3) expanding access to credit for smallholder farmers. We analyze key use cases, including parametric insurance and trade finance, while also considering the significant hurdles to adoption, such as regulatory uncertainty and the digital divide. The paper concludes that while not a panacea, stablecoins represent a significant financial technology with the potential to catalyze a paradigm shift in agricultural economics, warranting further empirical investigation and policy support. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.14970 |