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on Financial Development and Growth |
| By: | Renee Fry-McKibbin; Weifeng Larry Liu; Warwick J. McKibbin |
| Abstract: | Developing Asia has achieved remarkable economic growth in the last several decades but faces challenges moving from middle-income to high-income status. This paper examines the macroeconomic impacts of future productivity growth in developing Asia on the region and the world, focusing on the responses of private investment. We consider five scenarios of productivity growth driven by catch-up mechanism, with our results showing that Asia’s transition to high-income status requires continued rapid productivity growth and massive private investment. The increase in investment would significantly raise real interest rates domestically, resulting in international capital flows. Quantitatively, increased investment would be financed mainly through domestic saving, but international capital markets would also play a critical role. Productivity growth in one region generates spillover effects in others through two channels, namely international trade and capital flows. Spillover effects tend to be modestly negative in the medium term because capital flows would increase interest rates, but positive in the long term because regions with rising productivity would increase imports from other regions. Thus, competition among Asian economies and with other developing regions is not a zero-sum game as they benefit from each other in the long term. Continuous improvement in policies, institutions, and governance in developing Asia is required to achieve rapid productivity growth and to reduce the risks among economies in attracting international capital flows. Additionally, we examine two climate change scenarios and show that climate change will negatively impact productive investment and economic growth both in developing Asia and globally, as it will reduce productivity. |
| Keywords: | catch-up, macroeconomic effects, middle-income trap, population growth, global model, agriculture, manufacturing, services, G-Cubed |
| JEL: | J21 O11 O14 O41 O53 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-49 |
| By: | Yoseph Getachew; Richard Kima; Nyemwererai Matshaka |
| Abstract: | This paper develops a two-agent worker-capitalist heterogeneous household monetary Schumpeterian growth model to examine the effects of R&D and monetary policies on economic growth and inequality. The model is then calibrated to the South African economy, an upper-middle-income African country infamous for its consistently high level of inequality. A higher nominal interest rate reduces innovation and economic growth but help to mitigate inequality. However, the reduction in consumption inequality comes from a disproportionate decline in the capitalists' condition. |
| Keywords: | Economic growth, Inequality, Monetary policy, Research (Technological innovations) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-55 |
| By: | Pablo Cotler (Universidad Iberoamericana Mexico City) |
| Abstract: | This study examines the relationship between financial inclusion and the continued use of informal savings in Mexico, using data from three waves of the national financial inclusion survey and instrumental variable techniques. Despite increased account ownership, informal saving practices have not declined. Findings suggest that financial access, infrastructure, and education alone are insufficient to change saving behavior. Policies should consider incorporating features of informal mechanisms, such as rotating savings groups or cooperative models. A deeper understanding of household motivations are needed, and future surveys must capture user experiences to design more inclusive strategies that address persistent financial inequalities. |
| JEL: | D14 G21 O17 |
| Date: | 2025–09–02 |
| URL: | https://d.repec.org/n?u=RePEc:smx:wpaper:2025002 |
| By: | Dr Ayodele Odusola |
| Abstract: | This lecture-report maps Africa’s development finance landscape across four instruments—ODA, debt, PPP/private capital, and Domestic Resource Mobilization (DRM)—and argues that while global liquidity is ample, Africa’s progress is constrained by aid shortfalls and design flaws (e.g., ODA still below the 0.7% GNI commitment) and by a structurally costly financing environment. It foregrounds DRM as the pillar with greatest control yet most headroom—African tax-to-GDP averages 16.6% versus the Addis target of 24%—and diagnoses leakages (inefficient spending, illicit financial flows, and redundant tax expenditures) that together drain about US$204 billion annually; remedies include BEPS curbs, effective international tax cooperation, and fast-tracking Domestic Minimum Top-up Tax adoption. The report highlights remittances’ resilience (US$669 billion to LMICs in 2023) but urges lowering Africa’s remittance costs (≈8%) toward the 3% SDG target and scaling diaspora bonds to channel savings into productive investment. It calls for a fit-for-purpose global architecture—bigger, more flexible MDBs; orderly, faster sovereign debt workouts with disaster clauses; and mechanisms to re-channel SDRs—while correcting credit-rating biases that inflate African borrowing costs. Finally, it advances an Africa-centered playbook—industrialization anchored in AfCFTA, SEZs and clusters; patient-capital SPVs for SMEs; and scaled innovative finance and blended facilities—so that public, private, and diaspora capital are aligned with national “development bargains” to finance the SDGs and Agenda 2063 sustainably. |
| Keywords: | Financial Economics, Institutional and Behavioral Economics, International Development |
| Date: | 2025–01–14 |
| URL: | https://d.repec.org/n?u=RePEc:ags:undpar:369058 |
| By: | Garriga, Ana Carolina; Gavin, Michael A. |
| Abstract: | A large literature explores how loan conditionalities and policy recommendations embedded in International Monetary Fund lending programs influence country behavior and policy choices. We argue that the IMF’s influence extends beyond these intentional efforts. This paper shows that the growth in the IMF’s lending capacity has failed to keep pace with financial globalization, and that this has incentivized emerging and developing economies to strengthen their domestic institutions for financial stability, particularly, their central bank’s capabilities to act as a lender of last resort. We conceptualize this as influence by omission, whereby the IMF shapes behavior not through direct engagement but through its declining ability to serve as an effective financial backstop. Using original data coding central bank lender of last resort powers for 60 developing countries between 1994 and 2020, we find that countries with relatively limited access to IMF resources are significantly more likely to strengthen their central banks’ lender of last resort authority. This finding is robust across a range of model specifications, instrumental variable analyses, and dynamic estimations. An event study of countries’ response to the Covid shock reveals that countries with stronger lending of last resort capabilities were much more likely to manage the crisis without drawing on IMF resources. Importantly, this effect is specific to lender of last resort powers and does not extend to other aspects of central bank governance such as independence or transparency, suggesting that distinct international and domestic incentives shape different reform trajectories. |
| Keywords: | Central Banks, Domestic Reforms, Financial Stability, International Monetary Fund, Lender of Last Resort |
| JEL: | E58 E61 F33 F34 F55 G15 G28 H12 H81 |
| Date: | 2025–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125739 |
| By: | Ms. Yevgeniya Korniyenko; Weining Xin |
| Abstract: | This paper investigates the role of cross-border investments, including by Sovereign Wealth Funds (SWFs), in driving economic growth and diversification of Gulf Cooperation Council (GCC) countries. Utilizing novel deal-level datasets, we analyze GCC cross-border investment portfolios across various dimensions such as time, geography, and industry. We show that recent years have witnessed an increase in GCC cross-border investments. While the geographic distribution of these investments remains diverse and balanced across different regions, both inward and outward investments are increasingly directed towards the services sector. The empirical results demonstrate a significant positive relationship between both cross-border inward and domestic investments on GCC real non-hydrocarbon GDP. Notably, the medium-term increase in real non-hydrocarbon GDP resulting from inward investments is three times larger than that from domestic investments. This amplification could be explained by increased inward investments in high-growth services sectors. Although domestic investments, including by SWFs, are contributing to the GCC economic transformation, their efficiency could be further enhanced by focusing on strategic partnerships with international investors and fostering a more transparent and competitive business environment. Recent shift in GCC investments in renewable and clean energy projects will further support diversification efforts. |
| Keywords: | Economic Diversification; Foreign Investments; Middle East; Sovereign Wealth Funds; Gulf Cooperation Council; Resource-Rich Countries |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/174 |
| By: | armoa garcia, roger roman |
| Abstract: | This article analyzes the methodological differences in the estimation of foreign direct investment (FDI) in Paraguay, comparing the approaches used by the Central Bank of Paraguay (BCP) and the Economic Commission for Latin America and the Caribbean (ECLAC). It discusses how the statistical approach of the BCP—which incorporates the directional principle to calculate net FDI flows—contrasts with ECLAC’s approach based on assets and liabilities (gross FDI inflows). These methodological divergences have resulted in significant discrepancies in the reported FDI figures for Paraguay in recent years. The article examines concrete examples of these differences, their causes (such as the availability of definitive data), and their implications for economic analysis and policymaking. It concludes by emphasizing the importance of harmonizing criteria and understanding the definitions used when interpreting FDI statistics, in order to improve decision-making in international economics and investment policy. |
| Keywords: | Foreign direct investment, statistical methodology, Central Bank of Paraguay, ECLAC, Paraguay |
| JEL: | C82 F21 F42 O19 |
| Date: | 2025–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126064 |
| By: | Ozili, Peterson K |
| Abstract: | This study investigates the determinants of financial stability in Nigeria. The two-stage least squares regression and fully modified ordinary least squares (OLS) regression methods were used to estimate the determinants of financial stability in Nigeria from 2002 to 2021. The findings reveal that banking sector return on asset, regulatory capital ratio, the level of financial inclusion, economic growth, inflation and the total unemployment rate are significant determinants of financial stability in Nigeria. Return on asset and the rate of unemployment have a significant positive impact on financial stability. The regulatory capital ratio, the level of financial inclusion, economic growth and inflation have a significant negative impact on financial stability in Nigeria. The implication of the findings is that high bank profitability (or high return on asset), low regulatory capital ratio and low inflation are crucial for financial stability in Nigeria. The results suggest that policymakers in Nigeria should use a mix of macroprudential and macroeconomic policy tools to ensure that banks remain profitable, maintain a minimum regulatory capital ratio and operate in a low inflation and low unemployment environment in order to preserve financial stability in Nigeria. |
| Keywords: | financial stability, return on assets, regulatory capital ratio, financial inclusion, economic growth, inflation, unemployment, efficiency, Nigeria, determinant, capital regulation. |
| JEL: | G20 G21 G23 G28 O43 O47 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125792 |
| By: | Cécile Bastidon (IXXI - Institut Rhône-Alpin des systèmes complexes - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - INSA Lyon - Institut National des Sciences Appliquées de Lyon - Université de Lyon - INSA - Institut National des Sciences Appliquées - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes, LEAD - Laboratoire d'Économie Appliquée au Développement - UTLN - Université de Toulon); Antoine Parent (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Patrice Abry (Phys-ENS - Laboratoire de Physique de l'ENS Lyon - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Pierre Borgnat (Phys-ENS - Laboratoire de Physique de l'ENS Lyon - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Pablo Jensen (IXXI - Institut Rhône-Alpin des systèmes complexes - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - INSA Lyon - Institut National des Sciences Appliquées de Lyon - Université de Lyon - INSA - Institut National des Sciences Appliquées - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes, Phys-ENS - Laboratoire de Physique de l'ENS Lyon - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Barbara Pascal (LS2N - Laboratoire des Sciences du Numérique de Nantes - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris] - Nantes Univ - ECN - NANTES UNIVERSITÉ - École Centrale de Nantes - Nantes Univ - Nantes Université - Nantes univ - UFR ST - Nantes université - UFR des Sciences et des Techniques - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université) |
| Abstract: | An original procedure is devised for the automated detection of global financial crises from multivariate databases of share prices. It consists of: i) the construction of time series from the time-windowed estimations of crisis relevant information (cross-correlations or volatilities); ii) the piecewise-linear filtering of times series by nonlinear filtering, achieved by nonsmooth proximal minimization implemented by an efficient iterative algorithm; iii) the estimation of a reassigned time in each window; iv) the detection of crises and estimation of their intensities by exploiting the multivariate structure of denoised time series. Applied to a world dataset of 32 indices over 6 decades, this original model based procedure detects all major crises from the reference lists. It also permits to devise a typology in reference to an archetypal financial crisis. It is automated, data-driven and reproducible notably for the analysis of financial crises over history, or contemporary crises on worldwide databases, via a novel toolbox. Finally it is robust to scarce, incomplete and noisy data. |
| Keywords: | multivariate time series analysis, nonlinear filtering, time reassignment, detection of financial crises, financial globalization, econophysics, cliometrics and complexity |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05234050 |
| By: | Grodecka-Messi, Anna (Financial Stability Department, Central Bank of Sweden); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | Private money creation lies at the heart of currency competition due to seigniorage rents that are an important contributor to banks’ franchise values. However, it undermines the role of central bank in money provision and has been historically a contentious issue. As shifting from private to public money may come at a cost of bank disintermediation and affect economic growth, such a swap should be well-planned to minimize its costs. In this paper, we study the transition from private to public money in a historical context. The 1897 banking law in Sweden granted the banknote monopoly to the Swedish central bank. To facilitate the shift, the central bank provided preferential liquidity support to formerly note-issuing private banks. Drawing on newly digitized monthly archival data, we show that this liquidity provision played a critical role in shaping private banks’ performances during the transition. Once the support started being withdrawn, affected banks experienced a 23% drop in profitability. No signs of bank disintermediation are found. |
| Keywords: | Money and Banking; Inside Money; Outside Money; Bank Profitability; Bank Lending; Banknote Monopoly |
| JEL: | E42 E50 G21 G28 N23 |
| Date: | 2025–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0454 |
| By: | Michael B. Devereux; Ippei Fujiwara; Camilo Granados |
| Abstract: | This paper explores the relationship between economic growth and the real exchange rate, specifically focusing on the convergence in price levels in Eastern European countries. While these countries have had significant convergence in GDP per capita (relative to the EU average) since the 1990s, convergence in real exchange rates for these countries stalled after the EU crisis. Using a standard theoretical framework, we estimate the main drivers of real exchange rates and show that a combination of productivity growth (Balassa-Samuelson effects) and labor market distortions help explain real exchange rate trends. We develop a structural two-country model that provides a rich decomposition of the long run determinants of the real exchange rate. Simulations based on observed sectoral productivities and labor market wedges show that the model can accurately account for the historical path of Eastern European real exchange rates, both before and after the EU crisis. |
| JEL: | F40 F41 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34183 |
| By: | Zájac, Jan (University of Bristol); Paczos, Wojtek (Cardiff Business School, Cardiff University; Institute of Economics, Polish Academy of Sciences) |
| Abstract: | Using panel data for 92 banks in 11 CEE countries over 2006–2020, we investigate how joining the euro affects bank profitability. Overall the effect is statistically indistinguishable from zero, but in tranquil periods euro membership lowers returns. Higher capital ratios and larger size raise profitability, whereas greater liquidity and loan intensity reduce it. |
| Keywords: | Banks profitability; Euro adoption; Central & Eastern Europe |
| JEL: | F36 G21 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2025/17 |
| By: | Sophia Cho; John C. Williams |
| Abstract: | Recently, there has been renewed attention on the natural rate of interest—often referred to as “r-star”—and whether it has risen from the historically low levels that prevailed before the COVID-19 pandemic. The natural interest rate is the real (inflation-adjusted) interest rate expected to prevail when supply and demand in the economy are in balance and inflation is stable. Some commentators claim that the prior decline in r‑star has reversed, pointing to the recent rise in future real interest rates implied by the bond market. But before declaring the death of this “low r‑star” era, a natural question to ask is: how reliable are market-based measures of r‑star? In this Liberty Street Economics post, we evaluate whether such measures provide additional information on future real interest rates beyond what is already contained in macroeconomic model-based estimates of r-star. Our findings suggest they do not, and we conclude that reports of the death of low r-star are greatly exaggerated. |
| Keywords: | natural rate of interest; Holston-Laubach-Williams model; Treasury Inflation-Protected Securities (TIPS); term structure models; macroeconomic models; Blue Chip survey |
| JEL: | C32 E43 E52 |
| Date: | 2025–08–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:101693 |
| By: | Mehran Akbari; Christian Bauer; Matthias Neuenkirch; Dennis Umlandt |
| Abstract: | Economic expectations play a central role in financial markets, yet investors often disagree about the economy’s future. This disagreement has long been viewed as a potential driver of asset prices, but it remains unclear whether it reflects mispricing or a priced source of risk. We address this question by constructing monthly disagreement indices from Consensus Economics forecasts from 24 OECD markets. Firm-level exposure to economic disagreement is estimated through return regressions. Results reveal pronounced cross-country heterogeneity. In developed markets, particularly the United States, greater exposure to disagreement consistently predicts lower future returns, supporting the mispricing hypothesis. Smaller markets exhibit mixed patterns, with some evidence of positive risk premia, while other cases show no significant effect. These findings provide new international evidence that the pricing of forecast disagreement is context-dependent, shaped by market structure and institutional depth. |
| Keywords: | Asset Pricing, Consensus Economics, Forecast Disagreement, Macroeconomic Forecasts |
| JEL: | D84 G12 G14 G15 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:trr:wpaper:202507 |
| By: | Paymon Khorrami; Jung Sakong |
| Abstract: | We argue that a long-term low real rate environment can increase labor income inequality, amplify the emergence of the working rich, and reduce intergenerational mobility. We provide a simple model with endogenous human capital accumulation and credit constraints to demonstrate this causal link. The mechanism operates through a tilting of the human capital gradient: wealthy households, more so than poor households, will increase human capital investment in response to low rates. Normatively, these tilting responses to low rates are inefficient, but higher capital taxes are not an ideal response. We find empirical support for our tilting mechanism over the last 60 years in the U.S. Quantitatively, we show that the endogenous human capital investment response to low interest rates can account for a 17% rise in cross-sectional labor income variance (higher inequality) and a 7% higher parent-child labor income intergenerational elasticity (lower mobility). |
| Keywords: | Human capital; Income inequality; intergenerational mobility; working rich; Low interest rates; Borrowing constraints |
| JEL: | D30 E21 E22 E24 E25 |
| Date: | 2025–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:101718 |
| By: | Idrees, Muhammad |
| Abstract: | This paper assesses the impact of unanticipated shocks to public debt on Pakistan’s economic growth. Following the methodology of Soyres, Kawai, and Wang (2022), a series of forecast errors is constructed to serve as exogenous shocks in analyzing their effects on real GDP. Using data from 1994 to 2023, the analysis reveals that a 1.0 percent unanticipated increase in the debt-to-GDP ratio leads to a 0.14 percent decline in real GDP in the subsequent year. This negative impact highlights the need to identify a debt threshold beyond which economic growth is adversely affected. Applying threshold regression techniques, a critical debt threshold of 57 percent is estimated for Pakistan. The findings underscore the importance of gradual fiscal adjustments to place the debt-to-GDP ratio on a declining and sustainable path. |
| Keywords: | Fiscal Policy, Public Debt, Economic Growth |
| JEL: | E62 H6 |
| Date: | 2025–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125658 |
| By: | Francesco Ruggeri; Riccardo Pariboni; Giuliano Toshiro Yajima |
| Abstract: | Divergent trends in income and consumption inequality - with the first increasing substantially more than the latter - are an established stylized fact for the US economy of the last decades. The same time span experienced also a steady increase in household debt, plausibly not independently from the patterns in income distribution and consumption just mentioned. In this article we develop a stock-flow model that tries to replicate some of these dynamics. We emphasize the role played by changing behavioural attitudes towards consumption and demand for loans by households, by introducing an emulation mechanism that links a given quintile’s households desired consumption with the realized consumption of the immediately superior quintile. Furthermore, we leverage the data availability for consumption, income and wealth for quintiles of income distribution to estimate empirically those attitudes. The model, albeit simple and essential in its nature, is able to show the Janus-like faces of households’ debt and emphasizes the predator-prey-like dynamics implied by a debt-let process, in which fresh borrowing increases aggregate demand and output, which feeds the ability to borrow and consume more; at the same time, the stock of accumulated debt “preys†on income due to the contractionary forces of the repayment mechanism. Through a simple and stylized representation of the multiple interactions between income distribution, consumption and debt, we also formalize and highlight how the benefits of a process of debt-led growth are asymmetrically distributed and reinforce the same detrimental tendencies in income distribution that led to the emergence of debt as a necessary engine of growth. |
| Keywords: | Stock-Flow Consistent Model; Personal Income Inequality; Emulation; Debt Jel Classification: E12, E21, D31 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:929 |
| By: | Kimiko Terai (Faculty of Economics, Keio University) |
| Abstract: | This study investigates interjurisdictional tax competition aimed at attracting foreign creditors' portfolio investments in sovereign bonds and corporate loans. In each of two jurisdictions with lower and higher capital, governments seek to maximize workers' expected utility by determining the volume of sovereign bond issuance to fund public inputs, the tax rate on creditors' interest income, and the extent of compliance with bilateral treaty provisions concerning the exchange of information on creditors' income. Under a bilateral treaty mandating only information exchange, the jurisdiction with initially lower capital tends to set a lower tax rate and exhibits less compliance effort, effectively functioning as a tax haven. Conversely, the jurisdiction with higher capital imposes a higher tax rate and demonstrates greater compliance, benefiting from the residence principle due to its substantial global interest income. Alternatively, under a bilateral treaty that includes provisions of both information exchange and withholding tax at the source for foreign creditors, the jurisdiction with lower capital sets a higher tax rate on domestic creditors and allocates more resources to public inputs than its wealthier counterpart, even at the risk of increasing sovereign default potential. These findings suggest that the specific design of international tax cooperation agreements significantly influences jurisdictions' fiscal behaviors, leading to divergent outcomes despite a shared objective of implementing residence-based taxation. |
| Keywords: | tax haven, interest income tax, sovereign default, Tax Information Exchange Agreement, Double Taxation Agreement |
| JEL: | H26 H54 H63 H73 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2025-016 |
| By: | Nsakaza, Kalimanshi; Arogundade, Sodiq; Jimaima, Mulala |
| Abstract: | This paper presents a mathematical economic model to analyze a three-way dynamic causality analysis on commercial banks credit risk, external debt and external debt servicing and its implications on debt sustainability initiatives in Zambia. The results showed a unidirectional causal relationship between external debt and commercial banks' credit risk using a VECM with a consistent 1.659 percent increase in external debt as a proportion of GDP followed a 1 percent increase in banks' credit risk, indicating a vicious cycle. Additionally, we found that for every percentage increase in debt service as a share of GDP, there is a 0.9 percent increase in credit risk. The repayment of foreign debt also had a positive effect on the external debt. Based on this, we concluded that although debt treatment procedures have paved the way for a recovery path, a focus on reducing bank credit risk is necessary to keep the positive impacts of these activities from being undermined by a repo effect. |
| Keywords: | Key words: Vicious cycle, External Debt, Credit Risk, Debt Service Suspension initiative, Vector Error Correction Model |
| JEL: | C5 C54 F3 |
| Date: | 2025–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125827 |
| By: | Masaya Sakuragawa (Faculty of Economics, Keio University); Satoshi Tobe (School of Policy Studies, Kwansei Gakuin University) |
| Abstract: | This paper empirically investigates if there is a causal relation from credit expansion to housing prices, using a data set of an unbalanced panel that covers 20 developed countries from 1980 to 2019, which includes many episodes of boom and bust of housing prices. The estimates based on the local projections with instrumental variables (LP-IV) show that an exogeneous increase in credit supply leads to a boom of housing prices at short horizons, and to a bust at longer horizons. The boom lasts for two and a quarter years, turns into a bust in three years after the initial shock, and then the bust lasts for three and a half years. Our results favor the Kindleberger–Minsky view that the combination of expectation errors and the credit-supply shock leads to financial crises. We also study the cumulative effects, differential effects of current account position, and effects of a longer credit expansion. |
| Keywords: | Credit, Housing Prices, Local Projections |
| JEL: | G12 G21 |
| Date: | 2025–06–02 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:dp2025-011 |
| By: | Giorgos Demosthenous; Chryssis Georgiou; Eliada Polydorou |
| Abstract: | This study investigates the impact of data source diversity on the performance of cryptocurrency forecasting models by integrating various data categories, including technical indicators, on-chain metrics, sentiment and interest metrics, traditional market indices, and macroeconomic indicators. We introduce the Crypto100 index, representing the top 100 cryptocurrencies by market capitalization, and propose a novel feature reduction algorithm to identify the most impactful and resilient features from diverse data sources. Our comprehensive experiments demonstrate that data source diversity significantly enhances the predictive performance of forecasting models across different time horizons. Key findings include the paramount importance of on-chain metrics for both short-term and long-term predictions, the growing relevance of traditional market indices and macroeconomic indicators for longer-term forecasts, and substantial improvements in model accuracy when diverse data sources are utilized. These insights help demystify the short-term and long-term driving factors of the cryptocurrency market and lay the groundwork for developing more accurate and resilient forecasting models. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.21246 |
| By: | Philippe Bergault; S\'ebastien Bieber; Olivier Gu\'eant; Wenkai Zhang |
| Abstract: | In traditional financial markets, yield curves are widely available for countries (and, by extension, currencies), financial institutions, and large corporates. These curves are used to calibrate stochastic interest rate models, discount future cash flows, and price financial products. Yield curves, however, can be readily computed only because of the current size and structure of bond markets. In cryptocurrency markets, where fixed-rate lending and bonds are almost nonexistent as of early 2025, the yield curve associated with each currency must be estimated by other means. In this paper, we show how mathematical tools can be used to construct yield curves for cryptocurrencies by leveraging data from the highly developed markets for cryptocurrency derivatives. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.03964 |
| By: | Sabrina Aufiero; Silvia Bartolucci; Fabio Caccioli; Pierpaolo Vivo |
| Abstract: | This work explores the formation and propagation of systemic risks across traditional finance (TradFi) and decentralized finance (DeFi), offering a comparative framework that bridges these two increasingly interconnected ecosystems. We propose a conceptual model for systemic risk formation in TradFi, grounded in well-established mechanisms such as leverage cycles, liquidity crises, and interconnected institutional exposures. Extending this analysis to DeFi, we identify unique structural and technological characteristics - such as composability, smart contract vulnerabilities, and algorithm-driven mechanisms - that shape the emergence and transmission of risks within decentralized systems. Through a conceptual mapping, we highlight risks with similar foundations (e.g., trading vulnerabilities, liquidity shocks), while emphasizing how these risks manifest and propagate differently due to the contrasting architectures of TradFi and DeFi. Furthermore, we introduce the concept of crosstagion, a bidirectional process where instability in DeFi can spill over into TradFi, and vice versa. We illustrate how disruptions such as liquidity crises, regulatory actions, or political developments can cascade across these systems, leveraging their growing interdependence. By analyzing this mutual dynamics, we highlight the importance of understanding systemic risks not only within TradFi and DeFi individually, but also at their intersection. Our findings contribute to the evolving discourse on risk management in a hybrid financial ecosystem, offering insights for policymakers, regulators, and financial stakeholders navigating this complex landscape. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.12007 |