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on Financial Development and Growth |
| By: | Bachmair, K.; Schmitz, N. |
| Abstract: | While financial markets are known to contain information about future economic developments, the channels through which asset prices enhance macroeconomic forecastability remain insufficiently understood. We develop a structured set of like-for-like experiments to isolate which data and model properties drive forecasting power. Using U.S. data on inflation, industrial production, unemployment and equity returns, we test eight hypotheses along two dimensions: the contribution of financial data given different estimation methods and model classes, and the role of model choice given different financial inputs. Data aspects include cross-sectional granularity, intra-period frequency, and real-time, revisionless availability; model aspects include sparsity, direct versus indirect specification, nonlinearity, and state dependence on volatile periods. We find that financial data can deliver consistent and economically meaningful gains, but only under suitable modeling choices: Random Forest most reliably extracts useful signals, whereas an unregularised VAR often fails to do so; by contrast, expanding the financial information set along granularity, frequency, or real-time dimensions yields little systematic benefit. Gains strengthen somewhat under elevated policy uncertainty, especially for inflation, but are otherwise fragile. The analysis clarifies how data and model choices interact and provides practical guidance for forecasters on when and how to use financial inputs. |
| Keywords: | Macroeconomic Forecasting, Stock Returns, Hypothesis Testing, Machine Learning, Regularisation, Vector Autoregressions, Ridge Regression, Lasso, Random Forests, Support Vector Regression, Elastic Net, Principal Component Analysis, Neural Networks |
| JEL: | C32 C45 C53 C58 E27 E37 E44 G17 |
| Date: | 2025–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2574 |
| By: | Domenico delli Gatti; Filippo Gusella; Giorgio Ricchiuti |
| Abstract: | This paper investigates Minsky's cycles by extending the paper of stockhammer et al. (2019) with a nonlinear model to capture possible local real-financial endogenous cycles. We trace nonlinear regime changes and check the presence of Minsky cycles from the 1970s to 2020 for the USA, France, Germany, Canada, Australia, and the UK, linking the GDP with corporate debt, interest rate, and household debt. When considering corporate debt, the results reveal real-financial endogenous cycles in all countries, except Australia, and across all countries when interest rates are included. We find evidence for an interaction mechanism between household debt and GDP only for the USA and the UK. These findings underscore the importance of nonlinear regime transitions in empirically assessing Minsky's theory. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.04348 |
| By: | Atsuki Hirata (Bank of Japan); Yusuke Takahashi (Bank of Japan); Naoya Kato (Bank of Japan) |
| Abstract: | This paper examines the interest rate sensitivity of capital investment in Japan. We first summarize recent global trends using macro-level statistics from advanced economies. Using firm-level financial survey data for Japanese firms, we then demonstrate how structural changes surrounding Japanese firms, such as the increase in intangible asset investment and overseas capital investment, affect interest rate sensitivity, employing a method called Panel LP-IV (Local Projection Instrumental Variables). The analysis yields several key findings: first, the interest rate sensitivity of capital investment has shown a declining trend in recent years globally. Second, intangible asset investment has a low interest rate sensitivity; consequently, firms with a higher proportion of intangible assets in their aggregate capital investment are less sensitive to interest rate changes compared to firms with a lower proportion. Last but not least, declining growth expectations and increasing labor shortages can additionally depress interest rate sensitivity. While firms with a higher overseas investment ratio showed a lower interest rate sensitivity for tangible asset investment domestically compared to firms with a lower overseas investment ratio, this difference is not statistically significant. |
| Keywords: | Capital investment; Interest rate sensitivity; Intangible assets; Overseas capital investment; Labor shortage; Growth expectations |
| JEL: | E22 E43 G31 |
| Date: | 2025–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp25e13 |
| By: | Mahony, Michael (Central Bank of Ireland); O'Neill, Cian (Central Bank of Ireland) |
| Abstract: | While many Irish SMEs report making investments, the euro value of these investments is small. This pattern is explained by firms being satisfied with their current size and investment rates, rather than by a lack of external finance. When Irish SMEs do expand, their preference is to fund with internal cash resources rather than to borrow. Around a quarter of SMEs state that external finance constraints are a barrier to investment, but factors like recent growth and attitudes to risk are statistically more important in explaining investment patterns across firms. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:stafin:3/si/25 |
| By: | C. Peter; J. Li (Audencia Business School); H. S. Wilson Tong; C. Chingfu Tsai |
| Abstract: | We demonstrate that a persistent pattern exists in the evolution of the MTB ratio from 1999 to 2023, wherein firms with high (low) MTB ratios tend to maintain those levels over time. The persistence of the MTB ratio is independent of industry effects and cannot be well explained by accounting performance. Intangible investment plays a crucial role in determining the MTB ratio, and its persistence is primarily maintained through continued internal intangible investment rather than external mergers and acquisitions. Moreover, although U.S. firms have increased their investment in intangible assets over the past 25 years, the gap between high- and low-MTB firms in intangible investment has widened. Our results suggest that the basis of stock value has shifted from tangible to intangible investments over time. |
| Keywords: | Market-to-book ratio, return-on-equity, value persistence, abnormal earnings, intangible investment |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05302706 |
| By: | Qingyin Ma; Xinxi Song; Alexis Akira Toda |
| Abstract: | Empirical evidence shows that wealthy households have substantially higher saving rates and markedly lower marginal propensity to consume (MPC) than other groups. Existing theory can account for this pattern only under restrictive assumptions on returns, discounting, and preferences. This paper develops a general theory of optimal savings with preference shocks, allowing risk aversion to vary across states and over time. We show that incorporating such heterogeneity in risk attitudes fundamentally alters the asymptotic dynamics of consumption and saving. In particular, we provide an analytical characterization of the asymptotic MPCs and show that zero asymptotic MPCs, corresponding to a 100\% asymptotic saving rate, arise under markedly weaker conditions than in existing theory. Strikingly, such outcomes occur whenever there is a positive probability that agents become less risk averse in the future. As a result, the vanishing MPC emerges as a generic feature rather than a knife-edge result of the optimal savings model, offering a more theoretically robust and empirically consistent account of the saving behavior of wealthy households. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03142 |
| By: | Jannik Schumann (University of Finance and Administration (V?FS)) |
| Abstract: | This paper examines how rising inflation affected household saving behavior in Germany between 2015 and 2022. Using longitudinal microdata from the Socio-Economic Panel (SOEP) and a two-way fixed-effects design, we estimate the impact of monthly year-over-year inflation on different types of saving rates?retirement-specific, wealth-building, and overall savings?while controlling for household heterogeneity and common macro shocks. The results indicate that moderate inflation fluctuations before 2020 had negligible effects on savings. During the 2021?22 inflation surge, however, saving rates declined as households used savings to buffer higher living costs. Heterogeneity is notable: younger households slightly increased retirement contributions when inflation rose, whereas older households showed no adjustment. No significant effect was found for wealth-building savings. Regional analysis reveals that the modest positive response among young households was driven by West Germans, while East German households?facing lower incomes?experienced a sharper decline in overall saving. These findings highlight that inflation primarily erodes saving capacity rather than triggering major portfolio shifts. Policy implications include strengthening financial literacy, ensuring adequate pension indexation, and targeting relief to vulnerable groups, particularly in East Germany, to prevent long-term financial insecurity. |
| Keywords: | Inflation; Young adults; Household finance; Saving behavior; Retirement saving; Wealth accumulation; Panel data; Germany; SOEP |
| JEL: | E31 D14 E21 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iacpro:15116506 |
| By: | Jordan Roulleau-Pasdeloup |
| Abstract: | There is no known explicit global closed form solution for the standard income fluctuation problem with a borrowing constraint and where wealth accumulates with a constant interest rate $r$. Using a continuous time formulation, I derive an explicit global closed form solution for the case $r=0$ using the Lambert W function. For the case $r>0$, I derive an explicit global closed form approximation that is valid for $r\sim 0$. I then use these to derive explicit expressions for the marginal propensity to consume out of assets and permanent income. I show that the cross-derivative between the two is strictly positive: the consumption consumption is supermodular. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.03452 |
| By: | Walk, Marten |
| Abstract: | How do asset prices shape the wealth distribution? Motivated by the different trajectories of European housing markets after the financial crisis, this thesis examines how capital gains, particularly in housing, influence wealth inequality in Europe. Drawing on the ECB’s new Distributional Wealth Accounts, the analysis uses panel regressions that exploit cross-country variation in housing markets. The results show that asset prices have first-order consequences on the wealth distribution, driven by differences in portfolio composition across population groups. Rising house prices benefit the middle 40% and especially the bottom 50%, while a booming stock market concentrates gains in the top 10%. These effects are robust across specifications but vary substantially across countries, reflecting institutional and portfolio differences. Simulations of alternative price scenarios show that housing booms can slow concentration. However, no country saw house prices grow fast enough to reverse the upward trend in top wealth shares in Europe. Together, the results provide detailed insights into the distributional effects of asset prices in Europe, with implications for both monetary and housing policy. |
| Keywords: | Wealth Inequality, Asset Prices, Distributional Wealth Accounts, Europe, House Prices |
| JEL: | D14 D63 E21 O18 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126040 |
| By: | Kitamura, Kazuhito |
| Abstract: | Persistent macroeconomic imbalances, long‑run deflation, and entrenched inequality are often interpreted as outcomes of market incompleteness or failures. This paper offers an alternative perspective by developing a dynamic equilibrium framework for open economies that incorporates asset‑side mechanisms. Within this framework, and by re‑examining the transversality condition (TVC) as an asset‑valuation criterion, such persistent imbalances can emerge as structural outcomes of optimal behavior rather than anomalies. The model yields the relationship:Rt-ρ=n+Da-U(θa)/Uc; This relationship shows that the gap between the asset return (Rt) and time preference (ρ) is sustained by the combined effects of capital diffusion (Da), population growth (n) and preference terms (U(θa)/Uc). This reinterpretation explains how steady states with persistent differences in asset levels and external balances can coexist, and frames equilibrium as a dynamic configuration shaped by interdependence across economies and agents, beyond the traditional price‑clearing mechanism. The results align theory with observed realities and offer tools for policy design, including structural selection of the steady state, policy control of capital flows, and asset‑dynamics‑based policy reconstruction. Furthermore, by formalizing a concept akin to “economic entropy, ” this framework provides a pathway beyond quantitative equilibrium theory toward a richer understanding of qualitative development. |
| Keywords: | Dynamic equilibrium; Heterogeneous preferences; Capital diffusion; Asset-based utility; Steady-state divergence; Transversality condition; |
| JEL: | A1 C0 C5 D5 |
| Date: | 2025–10–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126667 |
| By: | Mugrabi, Farah (Central Bank of Ireland & Université catholique de Louvain); Rünstler, Gerhard (European Central Bank) |
| Abstract: | We apply the multivariate unobserved components model of Rünstler and Vlekke (2018) to jointly estimate the cyclical and trend components of output, credit, and residential property prices in Ireland. We find that credit and house price cycles are subject to an average duration of about 15 years, considerably longer than the business cycle, estimated at 8.5 years. Compared to several alternative estimation methods, the estimates of house price and credit cycles combine strong early warning performance with superior real-time reliability. Our findings contribute to the monitoring of systemic risks in the Irish economy and the conduct of macroprudential policies. |
| Keywords: | Unobserved components models, Vector Error Correction models, Hodrick–Prescott filter, Christiano–Fitzgerald filter, Business cycles, House prices cycles, Credit cycle, Macroprudential policies. |
| JEL: | C32 E32 E44 G21 G28 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:16/rt/25 |
| By: | Kikuchi, Tatsuru |
| Abstract: | The 2008 financial crisis exposed fundamental vulnerabilities in interconnected banking systems, yet existing frameworks fail to integrate spatial propagation with network contagion mechanisms. This paper develops a unified spatial-network framework to analyze systemic risk dynamics, revealing three critical findings that challenge conventional wisdom. First, banking consolidation paradoxically increased systemic fragility: while bank numbers declined 47.3 \% from 2007 to 2023, network fragility measured by algebraic connectivity rose 315.8 \%, demonstrating that interconnectedness intensity dominates institutional count. Second, financial contagion propagates globally with negligible spatial decay (boundary d* = 47, 474 km), contrasting sharply with localized technology diffusion (d* = 69 km)—a scale difference of 688 times. Third, traditional difference-in-differences methods overestimate crisis impacts by 73.2 \% when ignoring network structure, producing severely biased policy assessments. Using bilateral exposure data from 156 institutions across 28 countries (2007-2023) and employing spectral analysis of network Laplacian operators combined with spatial difference-in-differences identification, we document that crisis effects amplified over time rather than dissipating, increasing fragility 68.4 \% above pre-crisis levels with persistent effects through 2023. The consolidation paradox exhibits near-perfect correlation (r = 0.97) between coupling strength and systemic vulnerability, validating theoretical predictions from continuous spatial dynamics. Policy simulations demonstrate network-targeted capital requirements achieve 11.3x amplification effects versus uniform regulations. These findings establish that accurate systemic risk assessment and macroprudential policy design require explicit incorporation of both spatial propagation and network topology. |
| Keywords: | Financial networks, Systemic risk, Spatial treatment effects, Network contagion, 2008 Financial Crisis, Consolidation paradox |
| JEL: | C31 C63 E44 G01 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126725 |
| By: | Bro de Comères, Quentin (Central Bank of Ireland); Mugrabi, Farah (Central Bank of Ireland & Université catholique de Louvain); Lyons, Paul (Central Bank of Ireland) |
| Abstract: | We develop a Quick Stress Testing (QST) methodology to provide high-frequency assessments of the resilience of the Irish banking system under different adverse macro-financial outlooks. The framework accommodates both internally generated scenarios—whose severity depends on the credit cycle—and externally provided ones. We estimate the capital depletion banks would face under such scenarios by interacting them with bank balance-sheet sensitivities to macroeconomic outcomes, derived from European Banking Authority (EBA) data. Through Monte Carlo simulations, we then ensure we are considering severe enough yet plausible scenarios. A key advantage of our streamlined methodology is that it can be applied more frequently than conventional stress-testing exercises. |
| Keywords: | Stress Test, State-Dependent Local Projections, Macroprudential Policy, Credit Cycle, Bank Resilience. |
| JEL: | E58 G01 E32 G21 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:17/rt/25 |
| By: | Lorenzo Garlanda-Longueville; Mathias Lé; Kevin Parra Ramirez |
| Abstract: | Tax havens represent the largest financing hub for financial institutions. For banks, they account for more than 20% of all cross-border banking debts worldwide. Yet, our understanding of the underlying drivers remains limited, partly due to data scarcity and partly because of the difficulty of disentangling tax incentives from regulatory effects. Drawing on a unique global dataset covering major international banks and offshore financial centres – and employing a novel approach to isolate regulatory arbitrage – this paper finds that the location of cross-border intra-group debt held by multinational banks is shaped by tax considerations, even when regulatory differences are accounted for. In doing so, we provide, for the first time, direct evidence of profit shifting via debt shifting at a global scale, overcoming a key limitation of existing studies, which typically rely on single-country data. Based on our sample data, we show that the magnitude of “excess” offshore banking debt globally recorded in tax havens is significant. |
| Keywords: | Profit shifting, Debt shifting, Multinational banks, Taxation, Intragroup transactions |
| JEL: | H26 G21 F23 F34 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-43 |
| By: | Marie-Claire Broekhoff; Carin van der Cruijsen |
| Abstract: | The banking sector is undergoing a rapid transformation due to the digitalisation of financial services, which has led to the widespread closure of bank branches. This study examines the relation between the presence of bank branches in the Netherlands and consumer trust in the payment system. Such trust is essential for the smooth functioning of the payment system. Using regional data from the Dutch Chamber of Commerce on bank branch locations and a consumer survey from De Nederlandsche Bank and the Dutch Payment Association, we estimate fixed effects models to assess how branch closures affect trust in the payment system in general (broad-scope trust) and trust in payment services offered by consumers’ own bank (narrow-scope trust). The results indicate the presence of bank branches is positively associated with both trust measures, although the effects are small. Municipalities without a bank branch exhibit significantly lower levels of narrow-scope trust, while broad-scope trust is unaffected. Furthermore, the closure of two or more branches within a year reduces trust slightly. The findings provide new insights for further research and highlight the importance of maintaining accessible banking services to safeguard consumer trust, whether that is through a physical bank location or a financially inclusive alternative. |
| Keywords: | broad-scope trust; narrow-scope trust; bank branches; financial inclusion |
| JEL: | G21 D12 O33 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:848 |
| By: | Chen, Yuran; Duan, Dongni; Mao, Yidan; Zhang, Lingli |
| Abstract: | Using Chinese A-share listed data from 2007 to 2020, we reveal that increased competition in the banking system impairs the audit quality of banks’ credit clients, which is attributed to the loss of bank supervision. For firms with poor corporate governance or information quality, firms that hire auditors with low independence or high catering motivation, or firms in an immature external environment, such negative effect is more prominent. Furthermore, we indicate that firms are prone to shop for favorable audit opinions under high banking competition. Overall, we illustrate the negative effect of banking competition on auditors and provide meaningful implications. |
| Keywords: | regional banking competition; emerging market; auditor conservatism; Regional banking competition; AAM requested |
| JEL: | M42 G21 |
| Date: | 2024–12–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123656 |
| By: | Goodhart, C. A. E.; Postel-Vinay, Natacha |
| Abstract: | The City of Glasgow Bank failure in 1878, which led to large numbers of shareholders becoming insolvent, generated great public concern about their plight, and led directly to the 1879 Companies Act, which paved the way for the adoption of limited liability for all shareholders. In this paper, we focus on the question of why the opportunity was not taken to distinguish between the appropriate liability for ‘insiders, ’ i.e. those with direct access to information and power over decisions, as contrasted with ‘outsiders.’ We record that such issues were raised and discussed at the time, and we report why proposals for any such tiered liability were turned down. We argue that the reasons for rejecting tiered liability for insiders were overstated, both then and subsequently. While we believe that the case for such tiered liability needs reconsideration, it does remain a complex matter, as discussed in Section 4. |
| Keywords: | corporate governance; limited liability; bank risk-taking; financial regulation; financial crises; senior management regime; banks; banking |
| JEL: | G21 G28 G30 G32 G39 N23 K22 K29 L20 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130243 |
| By: | Rodrigo Sekkel; Henry Stern; Xu Zhang |
| Abstract: | We provide novel insights into how foreign and domestic monetary policy communications, beyond rate announcements, affect the financial markets of open economies. We construct a high-frequency dataset that documents the impact of Federal Reserve (Fed) and Bank of Canada (BoC) rate announcements, speeches, press conferences and minutes releases to Canadian financial markets between 1997 and 2023. We find that non-rate announcements are a significant source of domestic monetary policy surprises and international spillovers. Across event types, Fed communications are particularly influential for long-term interest rates and stock futures while BoC communications matter more to short-term interest rates. Since BoC communications have little effect on U.S. interest rates, Canadian announcements have a greater impact on the CAD/USD exchange rate by inducing larger changes in the cross-country interest rate differential. |
| Keywords: | Asset pricing; Central bank research; Exchange rates; Financial markets; Interest rates; International financial markets; Monetary policy |
| JEL: | E52 F31 G15 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-33 |
| By: | Giuliana, Raffaele; Panfilo, Matteo; Peltonen, Tuomas |
| Abstract: | This study sheds light on the impact of digitalisation and social media on deposit flows and rates of euro area banks during the recent period of monetary tightening. Drawing on difference-in-differences analysis of confidential monthly data (12/2019 –10/2023) of deposit flows and rates as well as measures of bank digitalisation and social media exposure through Twitter sentiment, the study offers two novel sets of findings. First, banks with a higher degree of digitalisation exhibit larger fluctuations in deposits, with higher inflows from mid-2020 to early 2022 but greater outflows in response to the tightening. Digitalisation is also correlated with higher sensitivity of banks’ NFC deposit rates to policy rates. Second, a negative Twitter sentiment reduces deposit inflows, even after accounting for traditional news’ sentiment and a comprehensive set of bank-specific factors, including asset prices and performance indicators. JEL Classification: G21 |
| Keywords: | deposit franchise, deposits, digitalisation, monetary tightening, social media |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkwps:2025153 |
| By: | Helmut Elsinger; Helmut Stix; Martin Summer |
| Abstract: | This paper examines consumers' intended adoption of a digital euro in Austria using a discrete choice experiment. We estimate a mixed logit model to quantify the role of key attributes such as privacy, offline functionality, security against financial loss, monetary incentives, and payment form factors. Our findings indicate that security and financial incentives are the strongest drivers of adoption, while respondents do not report strong preferences among the privacy options that are laid out in the experiment. We identify significant heterogeneity in adoption likelihood across socio-demographic groups. Simulations suggest that under realistic design assumptions, approximately 45% of individuals are found to have an intention to adopt a digital euro. |
| Keywords: | central bank digital currency (CBDC), consumer adoption, discrete choice experiment, payment preferences |
| JEL: | E42 D12 G21 C35 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1302 |
| By: | Angelo D'Andrea (Bank of Italy); Patrick Hitayezu (Research Hub, Rwanda); Kangni Kpodar (International Monetary Fund and FERDI); Nicola Limodio (Bocconi University, BAFFI, IGIER and CEPR); Andrea Filippo Presbitero (International Monetary Fund and CEPR) |
| Abstract: | Combining administrative data on credit, mortgages, and construction in Rwanda, this paper shows that technology helps overcome imperfections in property rights and foster the development of the mortgage market. Exploiting quasi-experimental variation in 3G internet coverage and a land title reform, we find that mobile connectivity shifts borrowers from microfinance to banks. 3G internet facilitates the distribution of land titles, which borrowers use as collateral for bank loans and mortgages, thus promoting household investment in real estate. A mediation analysis and structural estimation reveal that the property rights channel accounts for 30-37% of the effect of mobile internet on bank lending and 75-80% of the effect on collateralized loans. |
| Keywords: | Banks, Credit, High-speed Internet, Mobile, Mortgage |
| JEL: | G21 G23 O33 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:anc:wmofir:195 |