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on Financial Development and Growth |
| By: | Nidhaleddine Ben Cheikh (ESSCA School of Management); Christophe Rault (University of Orléans) |
| Abstract: | This paper examines how financial inclusion, among other factors, shapes the transition to inclusive and sustainable growth in a sample of 67 countries. We first analyze the heterogeneous and asymmetric relationship between inclusiveness and its main determinants using recent panel quantile regression techniques. Our results suggest that the distributional effect of financial inclusion, institutional quality and ICT diffusion is statistically significant only in the lower tail of the conditional distribution. While both financial inclusion and ICT are detrimental to inclusive growth, institutional quality appears to be conducive to greater shared prosperity. We next examine the existence of mediating effect in the process of inclusiveness using nonlinear panel threshold modelling. Our results highlight the mediating role of financial inclusion in achieving more inclusive and sustainable growth. While ICT infrastructure has a negative impact on growth inclusiveness at low levels of financial inclusion, a positive relationship is found when financial affordability exceeds a certain threshold. Policymakers are called upon to harness the combined impact of financial inclusion, governance quality and ICTs to ensure the inclusiveness of economic growth. |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1803 |
| By: | Mouzoun Zakarya (ENCG - UIT - ECOLE NATIONALE DE COMMERCE ET DE GESTION - KENITRA); Ammi Anouar (ENCG - UIT - ECOLE NATIONALE DE COMMERCE ET DE GESTION - KENITRA) |
| Abstract: | This article explores the link between financial inclusion and quality of life in Morocco using Multiple Correspondence Analysis (MCA) on a sample of 120 individuals. Financial inclusion is analyzed through its three dimensions: access, use, and perceived quality. Results show that the first factorial dimension, explaining nearly 78% of the variance, is shaped by effective use, service quality, and education/personal development, demonstrating that inclusion depends more on appropriation than on simple access. The second dimension, representing 45% of the variance, underlines the crucial role of trust in financial institutions, where transparency and institutional relationships determine the depth of inclusion. Variables related to poverty and inequality reduction are weakly discriminant, suggesting impacts are mostly macroeconomic and long-term. The study reinforces the multidimensional nature of financial inclusion, highlighting often neglected variables such as trust and financial literacy, while stressing the need for policies focused on quality and financial education to achieve meaningful and sustainable inclusion in Morocco. |
| Abstract: | Cet article explore les liens entre inclusion financière et qualité de vie des individus au Maroc à travers l'Analyse des Correspondances Multiples (ACM) menée sur un échantillon de 120 individus. L'inclusion est étudiée selon trois dimensions principales : accès, utilisation et qualité perçue des services financiers. Les résultats montrent que la première dimension factorielle, expliquant près de 78 % de la variance, est dominée par l'utilisation des services, la perception de leur qualité et l'éducation/développement personnel, confirmant que l'inclusion repose davantage sur l'appropriation des produits que sur le seul accès. La deuxième dimension, représentant 45 % de la variance, souligne le rôle central de la confiance envers les institutions financières, essentielle pour renforcer la transparence et la relation institutionnelle. Sur le plan théorique, cette étude confirme le caractère multidimensionnel de l'inclusion et met en lumière des variables souvent négligées comme la confiance et la littératie financière, tandis que sur le plan empirique, elle insiste sur la nécessité de politiques publiques axées sur la qualité et l'éducation financière pour améliorer durablement la vie des populations. |
| Keywords: | Confiance institutionnelle, Littératie financière Financial inclusion, Quality of life, Multiple Correspondence Analysis (MCA), Morocco, Institutional trust, Financial literacy, Maroc, Analyse des Correspondances Multiples (ACM), Qualité de vie, Inclusion financière |
| Date: | 2025–10–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05451263 |
| By: | Yan Bai; Dan Lu; Xu Tian; Yajie Wang |
| Abstract: | This paper reassesses the role of financial frictions in capital misallocation through a model disciplined by both firm-level borrowing costs and the average revenue product of capital (ARPK). Using Chinese manufacturing data, we document substantial dispersion in ARPK, alongside a strong positive relationship between ARPK and the borrowing costs firms face---patterns absent in U.S. data. We develop a heterogeneous-firm model with endogenous firm-specific borrowing costs and additional capital distortions modeled as exogenous wedges. In this model, eliminating financial frictions raises total factor productivity (TFP) by 25 percentage points. In contrast, without other capital distortions, removing financial frictions increases TFP by less than 2 percentage points. The stark difference arises from the interaction between financial frictions and permanent firm-level distortions, which generate endogenous financial heterogeneity and selection, making productive firms the most constrained. Our findings suggest that financial frictions can be highly distortionary when other sources of misallocation are present. |
| JEL: | E2 F3 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34930 |
| By: | Ditta, Khaliq; Ali, Amjad; Audi, Marc |
| Abstract: | This study investigates the impact of fiscal and monetary policy variables on foreign direct investment inflows in the Gulf Cooperation Council (GCC) countries, which include Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman, utilizing panel data spanning from 2005 to 2023. The empirical analysis employs fixed effects and estimated generalized least squares panel regression models to address cross-sectional dependence and heteroskedasticity. Our analysis finds, among the macroeconomic indicators considered, only government expenditure demonstrates a statistically significant effect on foreign direct investment inflows, with a negative coefficient that supports the "crowding-out" hypothesis. This result suggests that higher levels of government spending may displace or deter private investment, including foreign direct investment. In contrast, other variables, including gross domestic product growth, inflation, interest rate differentials, exchange rates, and tax revenue, exhibit statistically insignificant effects on foreign direct investment, though the direction of their estimated coefficients remains consistent with established theoretical perspectives. |
| Keywords: | Foreign Direct Investment, Government Expenditures, Macroeconomic Stability |
| JEL: | F21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127491 |
| By: | Rashmi Ahuja; Sugata Marjit |
| Abstract: | Firms differ in the extent to which they get access to formal and informal credit sources in developing economies. In developing economies, banks ration credit due to higher perceived borrower risk, information asymmetry, lack of collateral, and market inefficiencies. Due to financial constraints in formal credit markets, firms often seek alternative funding from informal sources such as friends, family, and moneylenders, even though it comes at a higher borrowing cost. Financial development can help expand access to credit by reducing structural barriers and mitigating the effects of credit rationing. To analyze these dynamics, our paper developed a theoretical model that examines the relationships among credit rationing, financial development, and informal credit markets, and their impact on trade patterns. Financial capital is introduced into the standard workhorse of trade theory, i.e., Dixit-Stiglitz-Krugman (DSK) model of international trade under monopolistic competition. We showed that financial development does not affect trade and production outcomes when firms have access only to formal credit markets, whereas when firms gain access to informal credit markets alongside credit rationing, it increases the number of varieties produced but at the cost of lower output per variety. However, the higher the interest gap between the formal and informal credit markets, the higher will be the marginal impact of the degree of financial development on the pattern of trade. We have also conducted a small empirical motivational exercise to support our findings from theoretical model. |
| Keywords: | financial development, informal finance, credit rationing, product variety |
| JEL: | F10 G21 O16 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12516 |
| By: | Robin Kaiji Gong; Yao Amber Li; Stephen Teng Sun; Shang-Jin Wei |
| Abstract: | While finance theory distinguishes the roles of equity and debt in supporting firm growth, their differential impacts on international trade remain underexplored. This study provides the first empirical analysis of how access to equity financing affects firm exports. We leverage the unique institutional setting in China, where initial public offerings (IPOs) require stringent regulatory approval, ensuring that only qualified firms advance to the final review stage. Our empirical strategy compares the export performance of successful IPO applicants with that of “near misses"—applicants rejected at the final review meetings. To sharpen identification, we utilize meeting records to exclude rejections citing concerns about future revenue growth or profitability risks, as these may entail unobserved shocks to export performance. Our cohort based difference-in-differences analysis reveals that IPO approval leads to a significant annualized increase of more than 6% in firm exports over the subsequent six years. Distinct from previous findings on debt financing, IPO approval primarily affects the extensive margin, enabling firms to expand into more destination-product markets. Mechanism tests suggest that IPOs enhance exports by financing intangible investments and fostering risk-taking activities. |
| JEL: | F1 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34906 |
| By: | Melecky, Martin; Singer, Dorothe |
| Abstract: | This paper investigates the determinants of saving behavior—both formal and informal—using individual-level data from the 2021 Global Findex database, covering more than 139, 000 adults across 138 countries. The analysis employs a Heckman selection model to distinguish between the decision to save any money and the decision to save formally using a financial account. Key findings reveal that individuals in the poorest 40 percent of households, those with only primary education, and those out of the workforce are significantly less likely to save and even less likely to save formally. While women are equally likely as men to save any money, they are less likely to save formally. Country-level factors also play a critical role. Tax-incentivized savings schemes are associated with an increase in formal saving and an increase in saving overall. Deposit insurance for e-money accounts is positively correlated with both saving any money and saving formally, particularly among low-income individuals. Conversely, a higher share of government-owned bank assets is associated with lower saving rates, and Muslim-majority countries exhibit significantly lower formal saving, likely due to religious constraints on interest-bearing accounts. Policy recommendations include expanding tax-incentivized savings schemes, extending deposit insurance to digital financial services, promoting financial literacy, encouraging wage payments into accounts, reassessing the role of state-owned banks, and, where relevant, supporting Sharia-compliant financial products. Targeted interventions for women and low-income groups are essential to closing persistent gaps in financial inclusion. |
| Date: | 2026–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11322 |
| By: | Angus K. Foulis; Jonathon Hazell; Atif R. Mian; Belinda Tracey |
| Abstract: | This paper estimates how rate cuts increase consumption, via debt and asset prices. Using administrative UK data on mortgages and consumption, we exploit the expiry of fixed-rate mortgages to construct six million household-level natural experiments. A 1pp reduction in mortgage rates raises consumption by 3% in the following 6 months. Using plausibly exogenous variation in how house prices respond to rate cuts, we show that consumption increases mostly because households borrow against higher house prices; lower debt service after rate cuts matters less. These results suggest that in large part, monetary policy affects consumption through asset prices and borrowing |
| JEL: | E0 E20 G5 G51 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34911 |
| By: | Morteza Ghomi (BANCO DE ESPAÑA); Evi Pappa (UNIVERSIDAD CARLOS III DE MADRID AND CEPR) |
| Abstract: | We study the macroeconomic effects of persistent public investment shocks using a local-projection instrumental-variables framework and European data. For identification, we exploit European Investment Bank loans for public infrastructure projects and address potential endogeneity in loan approval with an inverse-probability-weighted regression adjustment estimator. Public investment shocks raise employment and output in the medium term, without crowding out private investment or consumption, or generating inflation or an additional debt burden. The cumulative output multiplier reaches 3.38 after five years and is significant and larger when credit conditions are favorable. We report significant positive spillover effects from public infrastructure spending on both output and employment. |
| Keywords: | local projections, instrumental variables, multipliers, government investment, spillovers |
| JEL: | E62 H41 H54 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2610 |
| By: | Morteza Ghomi (Banco de Espana); Jochen Mankart (Narodna Banka Slovenska); Rigas Oikonomou (UC Louvain & University of Surrey); Romanos Priftis (European Central Bank) |
| Abstract: | Government spending effectiveness depends critically on how it is financed. Using state-dependent SVAR models and local projections on post-war US data, we show that fiscal expansions financed with short-term debt generate significantly larger output multipliers than those financed with long-term debt. This difference mainly stems from private consumption responses: short-term financing crowds in consumption while long-term financing does not. To rationalize this finding, we construct an incomplete markets model in which households invest in short-term and long-term assets. Short assets provide liquidity/safety services; households can (more readily) use them to cover sudden idiosyncratic spending needs. An increase in the supply of these assets, through a short-term debt-financed government expenditure shock, boosts private consumption. We first show this mechanism analytically in a simplified model and then quantify it in a carefully calibrated New Keynesian model. We find that fiscal multipliers differ substantially across financing modes, with short-term-financed shocks typically exceeding unity while long-term-financed shocks typically fall below unity. We show these differences persist across monetary and fiscal policy regimes, with important implications for optimal debt management and stimulus design. |
| JEL: | D52 E31 E43 E62 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:svk:wpaper:1129 |
| By: | Ka Lok Wong (Steve) (UN Economic Commission for Africa); Mark Manger (University of Toronto); Ugo Panizza (Geneva Graduate Institute and CEPR) |
| Abstract: | Emerging market economies (EMEs) regularly tap domestic and international capital markets through scheduled sovereign bond auctions. In this paper, we leverage a novel dataset covering over 75, 000 sovereign issuance events and 20, 000 securities from 20 EMEs between the early 2000s and 2023 to analyze the determinants of bond issuance choices, focusing on volume, maturity, and currency denomination. We find that local currency debt issuance is largely associated with refinancing needs, while foreign currency issuance reflects more strategic and cyclical considerations. In particular, foreign currency issuance correlates with global macroeconomic conditions, interest rate differentials, and investor sentiment. Our findings suggest that EME governments differentiate their debt management strategies based on the currency of issuance, with local currency issuance shaped by domestic budget mechanics and foreign currency issuance by external constraints and opportunities. |
| Keywords: | Sovereign Borrowing; Public Debt Management; Emerging Markets |
| JEL: | F34 H63 E44 |
| Date: | 2026–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp06-2026 |
| By: | Ali, Amjad; Anjum, Rana Muhammad Adil; Irfan, Muhammad |
| Abstract: | This study investigates the impact of different exchange rate regimes on financial stability across both developed and developing countries from 2005 and 2023. Exchange rate policy is a critical component of a nation's macroeconomic framework, influencing key financial indicators and institutional dynamics. Employing a mixed-methods approach, data sources are the International Monetary Fund, World Bank, and Bank for International Settlements. The regression analysis reveals that developed economies tend to perform better under floating exchange rate regimes, owing to stronger institutional frameworks and greater policy flexibility. Furthermore, the study highlights the significant influence of regime type on financial indicators such as inflation, foreign reserves, and current account balances. It underscores the importance of institutional strength, credible monetary policy, and effective governance in the successful implementation of exchange rate regimes. These findings offer valuable insights for policymakers in tailoring exchange rate strategies to national economic contexts. The study recommends that countries align their regime choices with local economic conditions, reinforced by disciplined macroeconomic management and enhanced transparency. |
| Keywords: | Exchange Rate Regimes, Financial Stability, Monetary Policy, Inflation Volatility |
| JEL: | E4 E5 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127533 |
| By: | Bahaj, Saleem; Reis, Ricardo |
| Abstract: | While the USD dominates cross-border transactions today, a few other currencies are also used internationally. This paper shows that central bank policies that reduce the volatility of borrowing costs for foreign firms in domestic currency can trigger a jumpstart of the currency’s international status, because firms’ choices of the currency of their working capital complement their sales invoicing. Empirically, the creation of swap lines by the People’s Bank of China between 2009 and 2018 supports this theoretical claim. Signing a swap line with a country is associated with an increase in the probability that the country would use the RMB at all by 12%, and a four-fold increase in the value of the country’s RMB payments. |
| Keywords: | lender of last resort; internationalization; dollar dominance |
| JEL: | E44 E58 F33 F41 G15 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128001 |
| By: | Claudia Foroni Paolo Gelain Marco Lorusso Massimiliano Marcellino |
| Abstract: | We quantify the effect of severe weather shocks on the US economy in an environment in which the economy can switch between periods of financial stability and financial instability, like the Great Recession. We estimate a New Keynesian dynamic stochastic general equilibrium model with banks and severe weather events. We show that severe weather shocks: 1) have a negative impact on real and financial US variables, sizable only in periods of financial instability, but muted effects on nominal variables; 2) are never a relevant source of business cycles fluctuations; 3) transmit mainly via a deterioration in the quality of capital. |
| Keywords: | Severe weather shocks, Actuaries Climate Index, NK DSGE models, Financial frictions, Markov Switching |
| JEL: | Q54 E32 E44 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp26266 |
| By: | Schilling, Linda |
| Abstract: | This paper studies why lender-of-last-resort support can fail to stop bank runs. In a nominal bank-run model with equity and multiple banks, I show that delayed Emergency Liquidity Assistance (ELA) shifts losses onto patient depositors and can trigger panic-driven withdrawals, even with sound assets and unlimited central-bank liquidity. The mechanism is a crisis-contingent, economy-wide inflation tax that insures early withdrawals while taxing those who stay, and redistributes resources across banks through the price level. The results highlight that ELA timing and fiscal design are critical for stability and can make regulatory interventions destabilizing rather than stabilizing. |
| Keywords: | Lender of Last Resort, Emergency Liquidity Assistance, financial regu- lation, bank runs, policy effectiveness, bank resolution |
| JEL: | E50 G3 G33 G38 |
| Date: | 2026–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128236 |
| By: | William N. Goetzmann; Otto Manninen; James Tyler |
| Abstract: | We examine the historical frequency of stock market booms, crashes, and bubbles in the United States from 1792 to 2024 using aggregate market data and industry-level portfolios. We define a bubble as a large boom followed by a crash that reverses the market’s prior gains. Bubbles are extremely rare. We extend the industry-level analysis of Greenwood, Shleifer, and You (2019) through 2024 and replicate their findings out of sample using Cowles Commission industry data from 1871 to 1938. Booms do not reliably predict crashes, but they do predict higher subsequent volatility, increasing the likelihood of both large gains and large losses. |
| JEL: | G1 G10 G12 G4 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34903 |
| By: | William N. Goetzmann; K. Geert Rouwenhorst |
| Abstract: | We use security-level data from the Investors Monthly Manual (IMM) to construct capital-weighted return indexes for the London Stock Exchange over the period 1870–1929. We find a significant and persistent equity risk premium of 3.7% over commercial paper and 4.5% over long-term government bonds, with significant co-movement with GDP growth. Returns decline monotonically with claim seniority: common stocks earn more than preferred shares, which earn more than corporate bonds. Both equity risk premia are highly significant, and the rolling 10-year return spread for stocks minus bonds is positive for every interval in the 60-year sample period. |
| JEL: | G1 G10 G12 G30 G32 N20 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34899 |
| By: | Julien Monerie (UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | Abstract–. In his book on the origins of deposit banking, R. Bogaert concluded that there had been no banking activity in Babylonia. Since the 1990s, however, several Assyriological studies have invalidated these conclusions, and shown that such activities did indeed exist in Babylonia during the Achaemenid and Hellenistic periods. The aim of this article is to present the results of these studies, in order to analyze the characteristics of this cuneiform dossier, the evolution of documented practices and the identity of the individuals who took part in these activities. |
| Abstract: | Résumé–. Dans son ouvrage consacré aux origines de la banque de dépôt, R. Bogaert avait conclu à l'absence d'activités bancaires en Babylonie. Néanmoins, depuis les années 1990, plusieurs études assyriologiques ont invalidé ces conclusions et montré que de telles activités existaient bel et bien en Babylonie aux époques achéménide et hellénistique. La présente étude se propose de revenir sur les acquis de ces travaux, afin d'étudier les caractéristiques de ce dossier cunéiforme, l'évolution des pratiques documentées et l'identité des individus qui prenaient part à ces activités. |
| Keywords: | banking, deposit, Babylonia, Achaemenid, Hellenistic, banque, dépôt, Babylonie , achéménide, hellénistique |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05458434 |
| By: | Kaila, Matias; Pajarinen, Mika; Rouvinen, Petri; Ylhäinen, Ilkka |
| Abstract: | Abstract We analyze recent shifts in the financial conditions of Finnish enterprises, utilizing the European Central Bank’s survey data that captures the perspectives of both financial providers and targets. Our findings indicate that the financial environment for enterprises operating in Finland has recently tightened, both in absolute terms and relative to Nordic and European peers. These shifts have disproportionately affected growth-oriented and innovative enterprises that are pivotal to the structural renewal of the economy. The primary drivers of this contraction include Finland’s sluggish economic performance relative to its peers, a shift in risk appetite concerning future outlooks, and the realization of geopolitical risk following Russia’s war of aggression in Ukraine. Even by European standards, the Finnish business finance system remains exceptionally bank-centric. It is ill-suited for financing a future-facing economy rooted in intangible capital, high-risk ventures, and active ownership. To safeguard long-term renewal, the financial system must evolve toward a more market-driven structure with a greater emphasis on equity-based finance. |
| Keywords: | Business finance, Financial constraints, Banks, Creative destruction |
| JEL: | G21 G32 O16 G18 |
| Date: | 2026–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:176 |
| By: | Wenli Li; Xiaoqing Zhou |
| Abstract: | The adoption of new technologies is widely viewed as a key driver of the rapid growth of nonbanks in the U.S. mortgage market after the Global Financial Crisis (GFC). This paper studies technology investment by mortgage lenders and its implications for post-GFC market structure. Using a new dataset on lender-level technology investment merged with loan origination records and balance-sheet information, we document that technology-related human capital investment has risen over time, driven disproportionately by banks and larger lenders, and that such investment predicts higher subsequent productivity. We then estimate lenders’ investment responses to two major shocks: the expansion of FinTech lending and monetary policy-driven demand shocks. Our instrumental-variable estimates suggest that banks increase technology investment in response to FinTech growth, whereas nonbanks respond weakly or even negatively; in contrast, nonbanks respond more strongly to positive demand shocks. To quantify the relative contributions of these shocks to changes in market structure, we build a heterogeneous-firm model consistent with the empirical evidence. The model implies that the post-GFC nonbank expansion was largely driven by a combination of favorable shocks—strong demand and tighter bank regulation—rather than broad-based technological advantages among nonbanks. Consequently, in a prolonged high-interest-rate environment with relaxed bank regulation, as may characterize the post-2025 policy environment, the model predicts a decline, rather than continued growth, in nonbanks’ market share. |
| Keywords: | fintech; mortgage; financial intermediation; firm dynamics; investment; labor |
| JEL: | D22 D25 E22 E24 E44 G21 G23 |
| Date: | 2026–02–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:102859 |
| By: | Bing Han; Haoyang Liu; Pengfei Sui |
| Abstract: | Using new data on social interactions and individual trading records in the Bitcoin market, we show that investor sentiment spreads across social connections. Investors systematically revise their beliefs about Bitcoin prices in the direction of average peer sentiment—even though that sentiment does not predict future prices. We document specific patterns in the diffusion of beliefs across networks, including evidence consistent with confirmation bias. Moreover, this social-sentiment contagion influences both individual trading decisions and overall market dynamics. Our novel measure of contagion intensity significantly forecasts Bitcoin volatility, trading volume and market crashes. |
| Keywords: | social interactions; belief updating; sentiment contagion; bitcoin; bubbles |
| JEL: | G11 G12 G41 G53 |
| Date: | 2026–03–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:102864 |
| By: | Aman, Muhammad; Ali, Amjad; Audi, Marc |
| Abstract: | This research investigates the potential role of Bitcoin as a hedge against inflation across various countries, utilizing data spanning from 2015 to 2024. As central banks confront the inflationary pressures intensified by the global pandemic and fluctuations in international money supply, Bitcoin has gained increased attention. Proponents of Bitcoin contend that, similar to gold and in contrast to government-issued currencies, it is decentralized and has a limited supply, which theoretically protects it from inflationary erosion. However, due to the high volatility and speculative nature of cryptocurrencies, their practicality for facilitating monetary transactions remains contentious. Grounded in the positivist paradigm, this study employs ordinary least squares regression, dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity, panel fixed effects, and quantile regression methods, using monthly data on Bitcoin returns, inflation levels, and financial benchmarks across both developed and emerging economies. Empirical findings reveal that Bitcoin returns exhibit no significant correlation with inflation, either across the full sample or within advanced economies. The evidence explains that Bitcoin's valuation responds more to variables like exchange rates, interest rates, and speculative investor behavior than to inflation itself. Comparative performance analysis indicates that Bitcoin underperforms traditional inflation hedging instruments. During inflationary episodes, assets such as gold and Treasury Inflation-Protected Securities offer more reliable financial protection than Bitcoin. The study concludes that while Bitcoin does not effectively hedge against inflation, it may serve as a risk-diversification tool within portfolios under specific conditions. Due to its volatility, regulatory limitations, and weak inflation linkage, Bitcoin remains unsuitable for integration into conventional central banking frameworks. These insights offer practical implications for investors, portfolio managers, and policymakers navigating inflationary periods. Although Bitcoin may serve niche purposes, it should not be equated with traditional risk-hedging financial assets. |
| Keywords: | Bitcoin, Inflation Hedge, Cryptocurrency, Emerging Markets |
| JEL: | E4 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127489 |
| By: | Mr. Eugenio M Cerutti; Melih Firat; Martina Hengge; Takaaki Sagawa |
| Abstract: | We develop novel measures of stablecoin shocks and use them to identify the causal effects of stablecoin adoption on U.S. financial markets. Combining a daily narrative dataset of stablecoin-specific news with changes in the combined market capitalization of USDC and USDT, we measure high-frequency movements in stablecoin market capitalization and implement heteroskedasticity-based identification within an event-study and SVAR-IV framework. Stablecoin demand shocks have triggered persistent declines in short-term Treasury yields, a depreciation of the U.S. dollar, and gradual spillovers into crypto and equity markets. We also document heterogeneous effects across firms: payment providers benefit from greater stablecoin adoption, whereas banks—including community and small banks—show no evidence of priced disintermediation risk. Our findings highlight stablecoin demand as a novel channel of asset-market transmission. |
| Keywords: | Stablecoin; Payment Systems; Crypto; Financial Markets |
| Date: | 2026–03–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/044 |
| By: | Altavilla, Carlo; Boucinha, Miguel; Burlon, Lorenzo; Adalid, Ramón; Fortes, Roberta; Maruhn, Franziska |
| Abstract: | This paper studies the effects of stablecoin adoption—crypto-assets designed to maintain a stable value relative to a reference asset—on bank intermediation and the transmission of monetary policy. Using evidence from the rapid expansion of stablecoins combined with confidential granular data on euro area banks and their individual borrowers, we document three main findings. First, stablecoin adoption induces a deposit-substitution mechanism, whereby funds shift from retail bank deposits to digital assets. This reallocation increases banks’ reliance on wholesale funding and can ultimately constrain their intermediation capacity. Second, we show that stablecoins alter the passthrough of policy rates to bank funding costs and lending conditions and potentially weaken the predictability of policy actions. These effects are nonlinear and depend critically on the scale of stablecoin adoption, their design features, and their regulatory treatment. Third, we document a potential risk associated with the growing prevalence of foreign-currency-denominated stablecoins. Their diffusion is likely to increase banks’ reliance on foreign-currency wholesale funding. We show that banks with greater exposure to this source of funding exhibit a weaker loan-supply response to domestic monetary policy shocks, indicating a weakening of monetary policy transmission and a potential erosion of monetary sovereignty. JEL Classification: E52, E44 |
| Keywords: | bank lending, deposit substitution, monetary transmission, stablecoins |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263199 |
| By: | Foucault, Thierry (HEC Paris - Finance Department); Gambacorta, Leonardo (Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)); Jiang, Wei (Emory University Goizueta Business School; ECGI; NBER); Vives, Xavier (University of Navarra - IESE Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); European Corporate Governance Institute (ECGI)) |
| Abstract: | The seventh report in The Future of Banking series, part of the Banking Initiative at IESE Business School, examines the fundamental transformations induced by artificial intelligence and the policy challenges it raises. It focuses on three main themes: the use of AI in financial intermediation, central banking and policy, and regulatory challenges; the implications of data abundance and algorithmic trading for financial markets; and the effects of AI on corporate finance, contracting, and governance. Across these domains, the report emphasises that while AI has the potential to improve efficiency, inclusion, and resilience, it also poses new vulnerabilities that call for adaptive regulatory responses. |
| Keywords: | Banking; algorithmic trading; central banking |
| JEL: | E58 G18 G21 |
| Date: | 2025–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1599 |