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on Financial Development and Growth |
| By: | Yassine Zougari (University Ibn Toufail = Université Ibn-Tufayl = جامعة ابن طفيل, Laboratoire des Sciences Economiques et Politiques Publiques (LSEPP) Faculté d’Economie et de Gestion de Kénitra); Mounir El Bakkouchi (University Ibn Toufail = Université Ibn-Tufayl = جامعة ابن طفيل, Laboratoire des Sciences Economiques et Politiques Publiques (LSEPP) Faculté d’Economie et de Gestion de Kénitra) |
| Abstract: | This article investigates the impact of financial market development on economic growth in five African economies (Morocco, Egypt, Nigeria, South Africa, and Rwanda) during the period 2021–2024, focusing on the post-COVID-19 recovery phase. The literature review is based on a structured narrative review, drawing on 39 studies selected for their theoretical relevance and empirical robustness. The empirical study employs a panel dataset compiled from the World Bank, UNCTAD, and national stock exchanges. The relationship between stock market capitalization, trading volumes, foreign direct investment (FDI) inflows, a multidimensional financial development index, and real GDP growth is estimated primarily using a fixed-effects panel model, selected based on the Hausman test and estimated with robust standard errors. Additional GMM estimations are employed solely as robustness checks to assess the stability of the results and to address potential endogeneity issues. The findings reveal a positive and statistically significant effect of stock market depth and liquidity on economic growth. FDI inflows are identified as a key driver of the post-pandemic recovery, whereas inflation shows a negative and significant impact on economic performance. These results highlight the importance of deepening financial markets, promoting financial inclusion, and maintaining macroeconomic stability to fully leverage the role of finance in supporting sustainable and inclusive growth across African economies. |
| Abstract: | Cet article analyse l'impact du développement des marchés financiers sur la croissance économique dans cinq économies africaines (Maroc, Égypte, Nigeria, Afrique du Sud, Rwanda) sur la période 2021–2024, en se concentrant sur la phase de reprise post-COVID-19. La revue de littérature repose sur une revue narrative structurée, fondée sur une sélection de 39 études en fonction de leur pertinence théorique et empirique. L'étude empirique mobilise un panel de données issues de la Banque mondiale, de l'UNCTAD et des bourses nationales. La relation entre capitalisation boursière, volumes de transactions, flux d'investissements directs étrangers (IDE), indice de développement financier et croissance du PIB réel est estimée principalement au moyen d'un modèle de panel à effets fixes, sélectionnée à l'issue d'un test de Hausman et estimée avec des erreurs robustes. Des estimations complémentaires en GMM sont mobilisées uniquement à titre de tests de robustesse, afin de vérifier la stabilité des résultats et de traiter l'endogénéité potentielle. Les estimations montrent un effet positif et significatif de la profondeur et de la liquidité des marchés financiers sur la croissance économique. Les IDE apparaissent comme un levier majeur de relance, tandis que l'inflation exerce un effet négatif sur l'activité économique. Les résultats soulignent la nécessité d'approfondir les marchés financiers, de promouvoir l'inclusion financière et de maintenir la stabilité macroéconomique afin de maximiser l'impact de la finance sur la croissance durable en Afrique. |
| Keywords: | Africa, Economic growth, Post-COVID-19. JEL Classification : G10 O16 047 Financial markets, FDI, Panel data, Afrique, IDE, Panel de données, Croissance économique, Marchés financiers |
| Date: | 2025–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05441175 |
| By: | Navarrete José Luis; Descalzi Ricardo Luis; Barone Sergio Víctor; Acedo Colli Luis Abel |
| Abstract: | Este estudio reexamina la relación de largo plazo entre la inversión y el crecimiento económico, desagregando la inversión en sus componentes público y privado. Utilizando un panel dinámico de 137 países para el período 1970-2019, se aplican modelos econométricos (Panel ARDL) que abordan la heterogeneidad y la dependencia de sección cruzada, lo que permite obtener resultados robustos. Los hallazgos confirman que la inversión tiene un impacto positivo y significativo en el crecimiento a largo plazo. Sin embargo, este efecto es impulsado de manera principal y robusta por la inversión privada. En contraste, el impacto de la inversión pública es considerablemente más débil y no es estadísticamente significativo en todas las especificaciones. Estos resultados sugieren que, si bien fomentar la inversión es clave para el desarrollo, las políticas deben priorizar la creación de un entorno favorable para la inversión del sector privado, que se revela como el verdadero motor del crecimiento económico sostenido. |
| JEL: | O41 O50 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4823 |
| By: | Bezemer, Dirk (University of Groningen) |
| Abstract: | Contemporary capitalism is characterized by ‘macrofinancial slippage’: the growth of assets andliabilities in excess of the growth of activity and saving. This paper presents empirical evidence anddevelops an explanation centered on asset markets. In the Schumpeter-Keynes-Minsky view of theeconomy, money and finance are endogenous, hierarchical, dynamic and hybrid. In the context ofthe post-Keynesian financial-monetary circuit and given financial liberalization, this leads to fourprocesses: an innate tendency for finance to expand; for this expansion to go beyond investmentand spending; growing complexity of the financial sector; and Treasury and central bank policiesthat support capital gains. Combined with insufficient public investment and balance sheet spacefor private profit and investment, this leads to macrofinancial slippage. The paper concludes withpolicy implications and new research questions on capital gains. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gro:rugfeb:2025008-gem |
| By: | Yuji HONJO; Arito ONO; Daisuke TSURUTA |
| Abstract: | This study examines how regional financial development influences new firm creation and growth in Japan. Using prefecture–year panel data from 2007 to 2023, we distinguish between regional equity and debt capital, proxied by the number of investment limited partnerships and bank branches, respectively. We find that regions with greater equity capital have more newly founded firms and initial public offerings, and provide suggestive evidence of stronger sales growth among young firms (firms within five years of establishment), whereas regional debt capital has no significant effect. Moreover, regional equity capital is associated with higher employment shares of medium- and large-sized young firms and lower shares of small ones, implying that regional equity capital promotes a compositional shift in new firm creation toward larger entrants. These findings are robust to potential endogeneity concerns and to alternative measures of financial development. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:26005 |
| By: | Nan Chen; Xavier Giroud; Ling Qin; Neng Wang |
| Abstract: | We study the determinants of corporate cash holdings by extending the standard q theory of investment with financing frictions and productivity shocks. While existing models predict a low propensity to hold cash, we show that realistic cash holdings arise only when three ingredients are combined: 1.) costly external financing, 2.) persistent productivity shocks, and 3.) contemporaneous productivity shocks. With costly external financing, persistent productivity shocks generate predictable cash flows and investment opportunities, but yield little need for savings since the internally generated cash flows are aligned with the investment needs. Contemporaneous shocks make internally generated cash flows random, inducing firms to hold cash at levels consistent with those observed empirically. |
| JEL: | C61 D92 G31 G32 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34622 |
| By: | Iñaki Aldasoro; Sebastian Doerr; Daniel Rees |
| Abstract: | Investment related to artificial intelligence (AI) is surging – both in nominal amounts and as a share of GDP – and currently accounts for a substantial share of economic growth. The size of anticipated investment needs will require firms to shift the source of financing from operating cash flows to debt, with private credit playing a rapidly increasing role. While macroeconomic and financial stability risks from the AI boom appear moderate, the boom's sustainability hinges on AI firms meeting high earnings expectations. The fact that equity prices have run far ahead of debt market pricing underscores this tension. |
| Date: | 2026–01–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:120 |
| By: | Carboni, Giacomo; Fonseca, Luís; Fornari, Fabio; Urrutia, Leonardo |
| Abstract: | We investigate the impact of structural shocks on the joint distribution of future real GDP growth and inflation in the euro area. We model the conditional mean of these variables, along with selected financial indicators, using a VAR and perform quantile regressions on the VAR residuals to estimate their time-varying variance as a function of macroeconomic and financial variables. Through impulse response analysis, we find that demand and financial shocks reduce expected GDP growth and increase its conditional variance, leading to negatively skewed future growth distributions. By enabling this mean-volatility interaction, demand and financial shocks drive significant time variation in downside risk to euro area GDP growth, while supply shocks result in broadly symmetric movements. For inflation, supply shocks drive instead a positive mean-volatility co-movement, where higher inflation is associated with increased uncertainty, causing time variation in upside risk. JEL Classification: C32, C58, E32, G17 |
| Keywords: | downside risk, euro area, mean-variance correlation, quantile regressions, stochastic volatility, structural shocks, tail risk, vector autoregression (VAR) |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263171 |
| By: | Hamza Bennani (Nantes Université, LEMNA, 44300 Nantes, France); Noémi Berlin (CNRS, Université Paris Nanterre, EconomiX, F-92000 Nanterre, France); Pauline Gandré (CNRS, Université Lumière Lyon 2, Université Jean-Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France) |
| Abstract: | Following the Covid-19 crisis, extreme macroeconomic risks in terms of both GDP and inflation have returned to the spotlight in Europe. Against this backdrop, we conducted a large-scale online survey experiment in five large European countries (France, Germany, Italy, Spain and the UK) to measure household expectations of future extreme macroeconomic risks and their transmission to personal expectations and planned financial decisions. Exploiting both a between and within-subject design, we provided half of the participants with information about past extreme macroeconomic events in Europe. Our findings indicate that European households have high expectations of future tail macroeconomic events shaped by personal experiences, and that the causal effect of information provision on expectations varies greatly depending on the country and the type of risk. We then find suggestive evidence that expectations of extreme macroeconomic disasters are causally transmitted to personal expectations about one’s future standard of living. However, small variations in expectations of extreme macroeconomic risk do not appear to have a systematic independent impact on planned saving, portfolio, and borrowing decisions. |
| Keywords: | Extreme macroeconomic risk; expectations; information experiment; household finance |
| JEL: | E70 D83 G11 G51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2601 |
| By: | Saki Bigio; Esteban Méndez; Diana Van Patten |
| Abstract: | This paper introduces an endogenous network of payment chains into a business cycle model. Motivated by evidence of linked payments across firms in Costa Rica, we develop a framework where production orders form bilateral relations: some payments are executed immediately, while others---chained payments---are delayed until upstream payments are received. These chains capture real-world situations in which firms must wait to be paid before paying their own suppliers, leaving resources temporarily idle even when demand and capacity exist. In equilibrium, agents choose the amount of chained payments given interest rates and access to internal funds or credit lines. This choice determines the payment-chain network and aggregate total-factor productivity (TFP). The paper characterizes equilibrium dynamics and pecuniary externalities when agents internalize their own payment delays but not the delays imposed on others. |
| JEL: | E32 E42 G01 O16 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34631 |
| By: | Pablo Guerron-Quintana (Boston College; Boston College); Alexey Khazanov (Hebrew University of Jerusalem); Molin Zhong Author-X-Name-First Molin (Board of Governors of the Federal Reserve System) |
| Abstract: | We propose a nonlinear dynamic factor model to examine the impact of external shocks and internal forces on macroeconomic and financial data fluctuations. This model permits nonlinear dynamics, enables asymmetric, state-dependent, and size- dependent responses to shocks, and generates time-varying volatility and asymmetric tail risk behavior. We find evidence of nonlinear dynamics in a U.S. application on measuring the credit cycle. The nonlinear factor stimulates credit growth during booms but hinders recovery after crises, with shocks having longer, amplified effects during credit crunches. An extended model that separates first- and second-order effects of the factor reveals that credit cycles exhibit state dependence in which shocks that spur growth during modest credit conditions trigger sharp busts during excessive expansions, thereby predicting how credit conditions can flip from boom to crisis. |
| Keywords: | Asymmetric dynamics, credit cycle, second-order factor, state dependence, tail risk |
| Date: | 2026–01–12 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1106 |
| By: | Ilias Aarab |
| Abstract: | A growing empirical literature suggests that equity-premium predictability is state dependent, with much of the forecasting power concentrated around recessionary periods \parencite{Henkel2011, DanglHalling2012, Devpura2018}. I study U.S. stock return predictability across economic regimes and document strong evidence of time-varying expected returns across both expansionary and contractionary states. I contribute in two ways. First, I introduce a state-switching predictive regression in which the market state is defined in real time using the slope of the yield curve. Relative to the standard one-state predictive regression, the state-switching specification increases both in-sample and out-of-sample performance for the set of popular predictors considered by \textcite{WelchGoyal2008}, improving the out-of-sample performance of most predictors in economically meaningful ways. Second, I propose a new aggregate predictor, the Aligned Economic Index, constructed via partial least squares (PLS). Under the state-switching model, the Aligned Economic Index exhibits statistically and economically significant predictive power in sample and out of sample, and it outperforms widely used benchmark predictors and alternative predictor-combination methods. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.20460 |
| By: | Charles Yuji Horioka (Research Institute for Economics & Business Administration (RIEB) and Center for Computational Social Science (CCSS), Kobe University, Institute of Social and Economic Research, Osaka University, Asian Growth Research Institute, JAPAN, and National Bureau of Economic Research, U.S.A.) |
| Abstract: | This paper analyzes the impact of the age structure of the population on the household saving rate using time-series data for Japan for the 1955-2019 period. It finds that there is a cointegrating relationship between Japan's household saving rate and her dependency ratio (the ratio of the dependent population to the working-age population) and that the latter has a negative and statistically significant impact on the former. This implies that the life-cycle model applies in the case of Japan, that trends over time in the age structure of Japans's population can largely explain trends over time in Japan's household saving rate, that the downward trend in Japans household saving rate since the mid-1970s can largely be explained by the aging of her population, and that further population aging will lead to further declines in Japan's household saving rate, most likely into negative territory, in future years. |
| Keywords: | Age structure of the population; Cointegration; Cointegrating vector; Household saving; Japan; Life-cycle hypothesis; Life-cycle model; Population aging; Saving rate; Unit roots |
| JEL: | D12 D14 D15 E21 J11 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-02 |
| By: | Jonathan B. Berk; Jules H. van Binsbergen |
| Abstract: | We construct an international panel data set comprising three distinct yet plausible measures of government indebtedness: the debt-to-GDP, the interest-to-GDP, and the debt-to-equity ratios. Our analysis reveals that these measures yield differing conclusions about recent trends in government indebtedness. While the debt-to-GDP ratio has reached historically high levels, the other two indicators show either no clear trend or a declining pattern over recent decades. We argue for the development of stronger theoretical foundations for the measures employed in the literature, suggesting that, without such grounding, assertions about debt (un)sustainability may be premature. |
| JEL: | E40 E5 E60 E62 E69 H6 H60 H62 H63 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34629 |
| By: | Kaan Celebi (Chemnitz University of Technology); Christina Anderl (Bank of England) |
| Abstract: | This paper examines the FDI-unemployment nexus in OECD countries from both theoretical and empirical perspectives. We first build a search and matching model which accounts for inward and outward FDI capital stocks and identifies key channels through which FDI affects unemployment. In a subsequent empirical panel ARDL estimation, we show that both inward and outward FDI can reduce unemployment conditional on technological and institutional factors. Inward FDI is most unemployment-reducing in less innovative and less technologically advanced countries, while for outward FDI this is the case in technologically more advanced countries with sufficient absorptive capacity and stronger bargaining institutions. For inward (outward) FDI, the technology diffusion (reverse spillover and head-office) channel dominates these long run effects. Our findings imply that policies which strengthen absorptive capacity, diffusion, and domestic linkages can make FDI more employment-friendly, whereas in advanced economies the composition and integration of FDI may matter more than broad FDI-attraction alone. |
| Keywords: | FDI, unemployment, panel ARDL, matching model |
| JEL: | E F |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2026.01 |
| By: | Basak Bayramoglu (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-François Jacques (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12); Julie Lochard (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel) |
| Abstract: | The rise of global value chains (GVCs) in recent decades has induced significant changes in the geography of world production, with consequences for bilateral relations. What are the consequences of GVC-related bilateral trade for the allocation of bilateral foreign aid? Using data on bilateral aid from 22 donors to 127 recipient countries over 2000-2018, our findings, robust to endogeneity, show that a larger participation of the recipient country in GVCs increases the amount of aid allocated to that country. To rationalize these findings, we develop a theoretical model that provides a simple explanation for the existence of transfers among countries: foreign aid allows a donor country producing a final good to buy less expensive intermediate inputs from an upstream country. Overall, this suggests that donors allocate aid strategically to import inputs at a lower cost. |
| Keywords: | Trade, Global value chains, Foreign aid |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05417354 |
| By: | Eric Vansteenberghe |
| Abstract: | This paper investigates how dispersion in banks’ subjective inflation forecasts is a channel of the transmission of monetary policy to credit supply. We extend the Monti--Klein model of monopolistic banking by incorporating risk aversion, subjective beliefs, and ambiguity aversion. The model predicts that greater inflation uncertainty or asymmetry in beliefs raises equilibrium loan rates and amplifies credit rationing. Using AnaCredit loan-level data for France, we estimate finite-mixture density regressions that allow for latent heterogeneity in loan pricing. Empirically, we find that higher subjective uncertainty and asymmetry both increase average lending rates and skew their distribution, disproportionately affecting financially constrained firms in the right tail. Quantitatively, moving from the 25th to the 75th percentile of our indicators raises average borrowing costs by more than 10 basis points, which translates into roughly 0.5 billion euros of additional annual interest expenses for non-financial corporations. By contrast, forecast disagreement has a weaker and less systematic effect. Taken together, these results show that uncertainty and asymmetry in inflation expectations are independent and powerful drivers of credit conditions, underscoring their importance for understanding monetary policy transmission through the banking sector. |
| Keywords: | Monetary Policy Transmission, Inflation Uncertainty, Bank Lending |
| JEL: | D84 E52 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1025 |
| By: | Waldman Joaquin; Trombetta Martin; Souto Lautaro; Verina Tobias Ricardo |
| Abstract: | This paper studies the effect of inflation on poverty in a large cross-country panel dataset of 155 countries observed from 1970 to 2024. We estimate two-way fixed effects models that control for economic growth and estimate the sensitivity of the poverty headcount ratio (measured using different poverty lines) to the inflation rate. Our results point to a statistically significant impact of inflation on poverty, but only when relatively high poverty lines are used. Heterogeneity analysis reveals that the size of this effect is positively associated with country income level, while a substantial statistically significant effect is also found among low-income countries when lower poverty lines are used. Furthermore, unconditional quantile regressions show that the effect is actually largest in the third quartile of the poverty distribution, which suggests the link is particularly strong for upper-middle income countries. These results contribute to the relevant ongoing debate on the consequences of inflation and suggest a rationale for the political popularity boost usually associated with successful disinflations. |
| JEL: | E31 I32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4845 |
| By: | Ozili, Peterson |
| Abstract: | This study investigates the effect of inflation on the accessibility dimension of financial inclusion across 61 countries. The consumer price index and the GDP implicit price deflator are used as measures of inflation. Four accessibility indicators of financial inclusion are used which are the composite financial inclusion index, the number of bank depositors, ATM penetration and the number of bank branches. Using the median quantile regression and the two-stage least squares regression methods, the findings reveal that inflation has a positive effect on financial inclusion in European countriaes. A one percent increase in inflation leads to at least a 0.05 percent increase in financial inclusion in Europe. A negative but insignificant effect was found in African, Asian and the Americas countries. The moderation analysis shows that banking sector stability does not weaken the adverse effect of inflation on financial inclusion in African countries, but a high loan-to-deposit ratio in the banking sector weakens the adverse effect of inflation on financial inclusion and accelerates financial inclusion in a high inflation environment in African countries. In the individual mechanism analysis, we find that inflation decreases the number of bank depositors in the Americas and increases the number of bank depositors in European countries. High inflation decreases financial inclusion through a decrease in the number of bank branches in African and European countries. The implication of the findings is that inflation adversely affect financial inclusion, and the effect depend on the financial access indicator being examined. Policymakers need to identify the financial access indicators that are worst hit by rising inflation, and they should explore how monetary policy tools can reduce inflation persistence without decreasing the level of financial inclusion. |
| Keywords: | inflation, financial inclusion, quantile regression, bank stability, efficiency, loan-to-deposit ratio, financial inclusion index. |
| JEL: | E31 E51 E52 E58 G21 G23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127369 |
| By: | Elizaveta Lukmanova (Central Bank of Ireland); Katrin Rabitsch (Vienna University of Economics (WU), Department of Economics) |
| Abstract: | In light of recent evidence on the significant contribution of persistent monetary shocks to inflation dynamics in the U.S., we study their international transmission. In contrast to standard temporary nominal interest rate shocks, persistent shocks increase long-run inflation and the nominal rate while decreasing the real rate. We find that it leads to non-negligible international spillovers and dollar depreciation. We further show that when it comes to understanding the international spillover effects of U.S. monetary policy, persistent monetary policy shocks rather than temporary nominal interest rate shocks have the potential to explain long-run co-movements of macroeconomic variables across advanced countries. |
| Keywords: | Monetary Policy, International spillovers, Long-run Inflation, Neo-Fisher effect |
| JEL: | E12 F31 E52 E58 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp394 |
| By: | Swapan-Kumar Pradhan; Eswar S. Prasad; Judit Temesvary |
| Abstract: | We investigate how the U.S. dollar's prominence in the denomination of international debt securities has evolved in recent decades, using a comprehensive global dataset with far more extensive coverage than datasets used in prior literature. We find no monotonic dollarization or de-dollarization trend; instead, the dollar's share exhibits a wavelike pattern. We document three dollarization waves since the 1960s. The last wave, following the global financial crisis, lifted the dollar's share nearly back to its level at the euro's launch in 2000. Our findings are robust to composition and currency valuation effects as well as alternative data definitions. |
| Keywords: | International debt securities; Currency denomination; Nationality and residence basis; Reserve currencies; Banks; Nonbank financial institutions; Nonfinancial corporations |
| JEL: | F30 F41 G15 |
| Date: | 2025–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1429 |
| By: | Wiersema, Garbrand; Kemp, Esti; Farmer, J. Doyne |
| Abstract: | The financial crisis of 2007-2008 highlighted the risks that liquidity spirals pose to financial stability. We introduce a novel method for studying liquidity spirals and use this method to identify spirals before stock prices plummet and funding markets lock up. We show that liquidity spirals may be underestimated or completely overlooked when interactions between different types of contagion channels or institutions are ignored. We also find that financial stability is greatly affected by how institutions choose to respond to liquidity shocks, with some strategies yielding a “robust-yet-fragile" system. To demonstrate the method, we apply it to a highly granular data set on the South African banking sector and investment fund sector. We find that the risk of a liquidity spiral emerging increases when the pool of institutions' most liquid assets is reduced, while a liquidity injection by the central bank can dampen the spiral. We further show that a liquidity spiral may be due to the banking and fund sectors' collective dynamics, but can also be driven by an individual sector under some market conditions. The approach developed here canbe used to formulate interventions that specifically target the sector(s) causing the liquidity spiral. JEL Classification: G01, G17, G21, G23, G28 |
| Keywords: | financial contagion, liquidity risk, non-banks financial institutions (NBFIs), system-wide stress test, systemic risk |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263169 |
| By: | Paul Hadji-Lazaro; Adri Wolhuter; Anna Maria Oosthuizen; Adel Bosch; Antoine Godin; Mlondi Ndovela |
| Abstract: | This paper constructs a from-whom-to-whom matrix of financial stock positions for the South African economy and analyses the resulting data to illuminate its evolving financial structure over the last decade. Focusing on seven institutional sectors and multiple financial instruments over the last decade, we detail the dataset's construction before highlighting the key findings. From-whom-to-whom positions reveal a deeply interconnected financial system in which each sector fulfils distinct but interdependent roles. |
| Keywords: | Financial markets, International finance, Investment analysis |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-113 |
| By: | Galilea, Manuel; Farazi, Subika; Mare, Davide Salvatore |
| Abstract: | Understanding the drivers of credit constraints is essential for fostering private sector development and firm growth. This study examines the channels through which electronic payments influence firm credit constraints across 101 economies. It explores heterogeneity at the firm and aggregate levels to identify key policy and environmental factors that shape this relationship. The findings indicate that payment digitalization plays a critical role in alleviating firm credit constraints, particularly for small firms and in economies with weaker credit infrastructure and lower levels of financial development. These results support the view that electronic payments help reduce information asymmetries between firms and lenders, thereby improving lending opportunities. |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11287 |
| By: | Pursiainen, Vesa; Sun, Hanwen; Wang, Qiong; Yang, Guochao |
| Abstract: | A unique natural experiment in China - the city-level staggered introduction of administrative approval centers (AAC) - reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Following the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings decreases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications for firms' financial management. |
| Keywords: | banking, efficiency, precautionary cash holdings, capital management, corporate loans |
| JEL: | D25 G21 G28 G32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitp:334520 |
| By: | Paul David Richard Griffiths (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School); Abhishek Mukherjee (University of Waikato [Hamilton]); Paresha N Sinha (University of Waikato [Hamilton]) |
| Abstract: | Purpose -This study aims to investigate the diffusion of financial technology (Fintech) in Vietnam by applying a service ecosystem perspective. It reconsiders traditional innovation diffusion approaches by focusing on the interplay of services, institutions and ecosystem dynamics across distinct Fintech service domains. Design/methodology/approach -This study employed a qualitative approach using the Knowledge Cafe method for data collection. Transcripts were coded and analysed thematically across different diffusion phases. Findings were validated through a half-day workshop with banking professionals. Findings -Government regulation in Vietnam has enhanced trust within the Fintech ecosystem, driving digital transactions and financial inclusion. However, as the regulations are heavily focused on the payment services, an uneven diffusion of innovation across the seven Fintech service domains is evident. Practical implications -Regulation can accelerate Fintech diffusion in early stages, as seen in Vietnam's payments sector, but may hinder innovation as technologies mature. Policymakers must adapt regulatory frameworks to balance stability with ongoing innovation. Originality/value -This study advances theory by analysing Fintech diffusion by service domain rather than as a unified sector and by extending the innovation diffusion theory to an emerging market context. Applying a service ecosystem lens reveals the multi-level dynamics shaping Fintech adoption, offering a more nuanced understanding across domains. |
| Keywords: | Vietnam, Innovation diffusion, Fintech, Financial services, Emerging market institutions |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05398969 |
| By: | Schilirò, Daniele |
| Abstract: | This study explores the transformative role of financial technology (FinTech) within the broader context of innovation ecosystems and its interconnections with financial inclusion. Financial technology has grown significantly in recent years. It encompasses sectors such as digital payments, blockchain, artificial intelligence, regulatory technology and insurance technology, reshaping the operational dynamics of financial systems, improving efficiency, competition, and transparency. In turn, the rapid adoption of data-intensive technologies introduces new regulatory and ethical challenges. Following an approach based on an examination of scientific literature the study first emphasizes the need to move beyond a technology-centric view and adopt an ecosystem-oriented perspective. This view highlights the interaction between technological advances, institutional frameworks, and market structures, as well as their impact on innovation. The analysis also shows that global connections and collaborations within FinTech ecosystems favor the development and diffusion of new innovations. Furthermore, FinTech and its ecosystem promote financial inclusion by reducing barriers to entry, making access to services affordable, and tailoring solutions to diverse customer needs. This benefits disadvantaged and underbanked populations, thereby expanding economic participation and reducing inequality. Given that current literature does not explicitly highlight the interrelationship among FinTech, innovation ecosystems, and financial inclusion, this study — without pretending to be exhaustive — underscores their interconnection. It demonstrates how collaborative technological innovation can expand access to financial services, despite the challenges and problems that remain to be solved. The article concludes that financial technology should be understood as a systemic force with profound implications for economic transformation, regulatory adaptation, the democratization of access, and the reduction of inequality. |
| Keywords: | Fintech; digital technologies; financial inclusion; innovation ecosystems; technological innovation; regulation |
| JEL: | F30 G2 G32 O31 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127045 |
| By: | Giuzio, Margherita; Kahraman, Bige; Knyphausen, Jasper |
| Abstract: | This paper examines the relevance of banks’ exposure to climate transition risk in the interbank lending market. Using transaction-level data on repo agreements, we first establish that banks with higher exposure to transition risk face significantly higher borrowing costs. This premium is a combination of a risk premium, compensating lenders for increased credit risk, and an inconvenience premium, reflecting the sustainability preferences of key dealer banks. We also find that the transition risk premium intensifies during periods of financial stress, indicating that climate-induced risks amplify existing vulnerabilities in financial markets. Furthermore, the rate segmentation caused by transition risk premium has implications for the transmission of monetary policy. Transition risk is an important factor in financial stability and policy design. JEL Classification: Q54, G21, G32, Q58 |
| Keywords: | climate finance, financial stability, repo markets, risk premium, transition risk |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263168 |
| By: | Aguirre Horacio A.; Sangiacomo Máximo |
| Abstract: | We assess the impact of a drought on credit, risk and bank performance in Argentina, using credit registry data at the bank-firm level. We estimate difference-in- difference panel data models to measure whether the drought in 2022-23 had an impact on credit to firms and non-performing loans, controlling for banks and borrowers’ features. We identify borrowers exposed to the shock as companies carrying out activities that suffered most from the drought: producers and exporters of soybean, corn and wheat. Our findings suggest that credit to firms exposed to the drought was 5 p.p. y-o-y lower (when measured at the bank-firm level) and 8 p.p. y-o-y lower than to firms not exposed to the event (in real terms in both cases). Non-performing loans to exposed firms increased close to 6 p.p. more than to unaffected firms. When considering staggered impact of the drought across firms, credit growth was even lower, while NPL increase was comparable. Credit supply decreased more to firms in sectors affected by the drought (by around 2p.p.); it may have been influenced by regulation. But higher overall estimates suggest that factors other than regulation and those accounted for in firm and bank controls, individual and time fixed effects, were at play to reduce credit –namely the drought. We also look at bank performance following the drought, comparing banks which were more or less exposed to affected firms: their credit, liquidity, and non-performing loans. We find no significant differences for banks more exposed to the drought, weighted by credit size. Our results indicate that the drought had significant individual impacts on firms credit and their ex post risk, but no discernible systemic effect on banks. |
| JEL: | C23 G21 E44 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4775 |