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on Financial Development and Growth |
| By: | Jess Benhabib; Feng Dong; Pengfei Wang; Zhenyang Xu |
| Abstract: | While standard sudden-stop models explain well the sharpness of financial crises, it remains challenging to account for the persistent growth stagnation that typically follows credit-driven capital account liberalizations in emerging markets. This paper presents a small open economy model with endogenous growth and borrowing constraints to ex- plain this phenomenon. The model highlights a valuation optimistic growth expectations, fueled by foreign credit with perfectly elastic supply, raise asset prices and relax liquidity constraints, inducing investment that validates the initial optimism. This positive feed- back loop generates multiple balanced growth paths and self-fulfilling cycles. However, in closed economies or with only FDI inflows, funding supply for investment is limited by consumption smoothing, dampening this feedback and leading to a unique growth path. Belief-driven regime switches can replicate crisis dynamics, including sharp drops in asset prices and growth. The framework also exhibits periodic orbits, producing endogenous deterministic fluctuations under perfect foresight. Countercyclical macroprudential measures can disrupt the detrimental feedback loop, while policies prioritizing FDI over credit prevent bad equilibria altogether, guiding the economy toward a stable, high-growth trajectory. |
| JEL: | E32 E44 F41 G01 G15 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35035 |
| By: | Rindra Tsiferana Rajaonson (Université de Fianarantsoa) |
| Abstract: | Cette étude examine l'impact de la volatilité du taux de change sur les investissements directs étrangers (IDE) à Madagascar entre 1987 et 2021, en utilisant le modèle ARDL. Les résultats indiquent une relation de cointégration entre les variables, confirmée par un test statistique significatif. À long terme, la croissance économique influence positivement les IDE, tandis qu'une plus grande ouverture extérieure peut initialement réduire les IDE en raison de la concurrence accrue. À court terme, une augmentation de la volatilité du taux de change peut attirer les IDE, mais une volatilité prolongée tend à les réduire. Une hausse immédiate de l'ouverture extérieure réduit également les IDE, bien qu'une plus grande ouverture puisse les favoriser à plus long terme. Enfin, une croissance de la production nationale renforce l'attractivité de Madagascar pour les investisseurs étrangers. |
| Keywords: | Volatilité, IDE, Long Terme, Court Terme, Taux De Change, Taux De Change Court Terme Long Terme IDE Volatilité |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05553174 |
| By: | Andres Fernandez; Alejandro Vicondoa |
| Abstract: | We study the joint dynamics in the volume and prices of capital fows to emerging market economies (EMEs). A dynamic factor model augmented with sign and zero restrictions allows us to identify demand/supply shocks of idiosyncratic/common nature. While common credit supply shocks are the main driver of prices, idiosyncratic credit demand and supply shocks account for most of the variation in quantities. A structural multicountry SOE/RBC model is calibrated to EMEs data to further shed light on the main transmission channels. Augmented with correlated productivity and interest rate shocks, the model matches the comovement between prices and quantities as well as business cycle moments. Common credit demand drivers, captured as correlated TFP shocks, account for around half of the observed comovement in quantities but they are not a signicant driver of price comovement. Fundamentals matter signicantly more for capital flows than for country spreads, which are driven by a sizeable global financial cycle. |
| Keywords: | capital flows; sovereign spread; small open economy; credit supply; credit demand; external factors. |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/060 |
| By: | Alisa DiCaprio; Mr. Marcello Miccoli; Philip Montalvao; Andrew Usher; Jeanne Verrier |
| Abstract: | Cross-border payments face multiple challenges that may result in slow transaction speed, particularly at the beneficiary leg, which constitutes the last mile of the payment process. This paper measures whether capital controls are associated with slower cross-border payments, using two novel cross-country datasets derived from microeconomic data. While it does not establish causality, preliminary evidence suggests that the effect is statistically significant and sizeable. A one-standard-deviation increase in the Financial Account Restriction Index, our measure of capital controls, is associated with a delay of 4 to 8 hours at the beneficiary leg. The effect is stronger in Emerging and Developing Economies, and heterogeneous across geographic regions. |
| Keywords: | Cross-Border Payments; Capital Flow Management |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/068 |
| By: | Joshua K. Hausman; John V. Leahy; John Mondragon; Johannes Wieland |
| Abstract: | Nominal interest rates have real effects. Residential mortgages and other real world debt contracts require a sequence of constant nominal payments. Combined with payment-to-income constraints, these nominal payments force borrowers to take on less debt when nominal interest rates rise, regardless of the behavior of the real interest rate. Survey data shows that conditional on the real rate, higher nominal mortgage interest rates reduce home buying sentiment. And increases in nominal mortgage rates reduce mortgage origination more in cities where payment-to-income constraints are more likely to bind. We explore the macroeconomic implications of payment-to-income constraints in a new Keynesian model modified to include a credit good. The payment-to-income constraint amplifies the effect of current short-term nominal interest rates on output and inflation, making the model less forward-looking than the standard new Keynesian model. |
| JEL: | E4 E50 G21 R21 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35033 |
| By: | Rindborg, Gabriel V |
| Abstract: | Interest rates are central to understanding economic development and conditions, not just in the present, but throughout history. Yet surprisingly little research has focused on medieval interest rates. This essay demonstrates, through an analysis of Stockholm’s jordeböcker (land registers) and tänkeböcker (court records) from 1420 to 1520, that it is entirely possible to calculate interest rates from these sources, and argues that further research into historical interest rates is essential for advancing materialist historiography. The study reveals a consistent norm of 5% interest within the source material, rates that far outpaced inflation during the period. This finding reinforces the view that capital, whatever the prevailing ideological constraints, has an inherent tendency toward concentration. |
| Date: | 2026–03–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:2sbvc_v1 |
| By: | Yang, Xi (University of North Texas); Zou, Jian (Cornell University) |
| Abstract: | This paper studies the impact of US interstate bank branching deregulation on school finance and student achievement, leveraging the deregulation as a state tax revenue shock. Total revenue and expenditure increase following the deregulation. The revenue increase stems mainly from higher state aid, with spending gains concentrated in capital outlays. Deregulation subsequently improves student achievement, with no distributional effects evident across students’ ability, race, or free lunch status. The findings highlight the spillover benefits of a centralized school finance system in channeling positive tax revenue shocks into public education funding and human capital formation. |
| Keywords: | banking deregulation, school finance system, student achievement |
| JEL: | G21 G28 H75 I21 I22 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18514 |
| By: | Danqi Wei (Lanzhou University); Fayyaz Ahmad (Lanzhou University); Nabila Abid (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School); Amber Gul (Sichuan Agricultural University) |
| Abstract: | The advancement of renewable energy an essential stage toward achieving a low-carbon energy transition, with finance sector playing a significant role in this process. This study analyzes the impact of financial development on renewable energy technology innovation across 30 Chinese provinces from 2007 to 2019, focusing on key financial dimensions such as banks, bonds, stocks, and foreign direct investment. The research indicates that financial development significantly enhances innovation in renewable energy technology. Further heterogeneity analysis indicates that the inherent advantage of renewable energy resources impedes the pace of substitution for renewable energy technology innovation, while more market-oriented regions can more easily occupy the high value-added renewable energy technology innovation. The development pace of renewable energy technology innovation varies across regions, influenced by distinct renewable energy strategies. Foreign direct investment has produced contrary effects. The moderation test indicates that both investment-based and cost-based environmental regulations enhance the positive effect of financial capital on renewable energy technology innovation. The results establish a theoretical foundation for advancing renewable energy technology innovation and offer practical insights for facilitating the low-carbon transition in developing economies. |
| Keywords: | China, Environmental regulation, Renewable energy technology innovation, Financial development, Low carbon energy transition |
| Date: | 2025–03–21 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05568595 |
| By: | Pierre-Olivier Gourinchas; Gene Kindberg-Hanlon; Manasa Patnam; Lorenzo Rotunno; Michele Ruta |
| Abstract: | Global imbalances denote the distribution of countries’ current account balances, identically equal to the difference between two forward-looking aggregate variables: national savings and domestic investment. Industrial and trade policies have traditionally not been considered important drivers of aggregate savings or investment, and therefore of current account balances. The former because most industrial policies are small in scope; the latter because permanent tariffs have no intertemporal effect in the textbook model, with an offsetting appreciation of the real exchange rate. The rapidly growing use of both industrial and trade policies in recent years calls for a reassessment. This paper presents a framework to think about the role of both policies. For industrial policy, we make the important distinction between the traditional sector-specific policies via subsidies or other targeted instruments (‘micro IP’) and broader policies (‘macro IP’) that aim to promote industrial developments and competitiveness through the deployment of more aggregate instruments such as financial repression, foreign reserve accumulation, or capital controls. A key finding is that ‘micro IP’ tends to increase external balances if it fails to raise aggregate productivity. By contrast, ‘macro IP’ can, under some conditions, boost the current account, forcing other countries to adjust. Yet, these policies often come at the cost of suppressed domestic consumption and possibly domestic welfare. Our analysis confirms that tariffs are a weak tool to improve current account balances. Finally, traditional macroeconomic drivers—such as fiscal policy, demographics or credit cycles—remain critical drivers of global imbalances, especially for the US and China. |
| Keywords: | Global Imbalances; Tariffs; Industrial Policy. |
| Date: | 2026–04–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/067 |
| By: | International Monetary Fund |
| Abstract: | Selected Issues |
| Date: | 2026–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/082 |
| By: | Alice Nicole Sindzingre (ACT - Analyse des Crises et Transitions - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité - Université Sorbonne Paris Nord - Université Sorbonne Paris Nord, LAM - Les Afriques dans le monde - IEP Bordeaux - Sciences Po Bordeaux - Institut d'études politiques de Bordeaux - IRD - Institut de Recherche pour le Développement - Institut d'Études Politiques [IEP] - Bordeaux - UBM - Université Bordeaux Montaigne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | International financial institutions (IFIs, the IMF and the World Bank) and their policies have faced several global crises since the late twentieth century, and these institutions claim that they have implemented significant changes in response. In this context, after examining the polysemy of the concept of change, it is argued that the changes have been limited, and that language plays a key role in maintaining the stability of policies, theories, and the international institutions that convey them. This is illustrated by the empirical example of the formulations of the policies required by the IFIs in Sub-Saharan African economies since the rise of the IFIs' role as policy drivers in the 1980s. Economic outcomes in African countries remain poor and even exhibit a divergence from other regions, with the underlying causalities remaining unchanged (notably, export structures based on commodities). Despite the 'small changes' claimed by theories and policies, evaluating them based on their consequences reveals their underlying stability. |
| Keywords: | epistemology of economics, international financial institutions, Sub-saharan africa |
| Date: | 2025–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05571524 |
| By: | Lee, Neil; Arman, Husam |
| Abstract: | Sovereign Wealth Funds (SWFs) have grown rapidly – both in number, with over half established after 2000, and in scope, with a growing emphasis on national economic development. Yet there is little systematic research on their scale, functions and the policy issues they raise. |
| JEL: | E6 N0 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137813 |
| By: | Héctor J. Villarreal (School of Government and Public Transformation, Tecnológico de Monterrey) |
| Abstract: | This paper studies the distributional consequences of fiscal dominance through asset prices. When public debt constrains monetary policy, interest rates may decline as debt increases. Lower discount rates raise asset valuations, generating capital gains for asset holders. In a simple framework combining public debt dynamics, fiscal reaction functions, and a debt-sensitive interest rate rule, we derive a formal condition under which fiscal dominance generates redistribution toward asset-owning households through the asset price channel, and show that the wealth share of asset holders is increasing in public debt. |
| Keywords: | fiscal dominance, public debt, interest rates, asset prices, wealth inequality, monetary policy, fiscal policy, redistribution |
| JEL: | E52 E62 G12 D31 H63 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:gnt:wpaper:30 |
| By: | Mr. Adrian Alter; Julia Bersch; Albert Touna Mama; Bright Quaye |
| Abstract: | Central bank independence (CBI) is a key institutional feature for price stability, but its role in sovereign debt markets is less understood. This paper examines whether CBI lowers borrowing costs in local-currency sovereign debt markets in emerging and developing economies. Using data for up to 137 countries from 2000--2024, we first reaffirm that stronger CBI substantially reduces inflation and its volatility. We then show that, in normal times, a 0.1-point increase (on a 0–1 scale) in CBI is associated with lower five-year local-currency sovereign yields of 0.6–0.7 percentage points. A decomposition reveals two important mechanisms through which CBI reduces local-currency sovereign yields: lowering near-term risk compensation and compressing the term premium. In addition, we find evidence that this relationship is stronger under inflation-targeting regimes and larger in sub-Saharan Africa, but does not hold during systemic global crises. Finally, using dominance analysis, we show that domestic fundamentals explain more of the variation in yields than global factors. These findings demonstrate that debt markets directly price institutional credibility, offering clear guidance for the design of monetary frameworks. |
| Keywords: | Sovereign yields; Local-currency bonds; Risk premium; Term premium; Inflation; Central bank independence |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/058 |
| By: | Shuchen Meng; Xupeng Chen |
| Abstract: | We develop a unified model in which AI adoption in financial markets generates systemic risk through three mutually reinforcing channels: performative prediction, algorithmic herding, and cognitive dependency. Within an extended rational expectations framework with endogenous adoption, we derive an equilibrium systemic risk coupling $r(\phi) = \phi\rho\beta/\lambda'(\phi)$, where $\phi$ is the AI adoption share, $\rho$ the algorithmic signal correlation, $\beta$ the performative feedback intensity, and $\lambda'(\phi)$ the endogenous effective price impact. Because $\lambda'(\phi)$ is decreasing in $\phi$, the coupling is convex in adoption, implying that the systemic risk multiplier $M = (1 - r)^{-1}$ grows superlinearly as AI penetration increases. The model is developed in three layers. First, endogenous fragility: market depth is decreasing and convex in AI adoption. Second, embedding the convex coupling within a supermodular adoption game produces a saddle-node bifurcation into an algorithmic monoculture. Third, cognitive dependency as an endogenous state variable yields an impossibility theorem (hysteresis requires dynamics beyond static frameworks) and a channel necessity theorem (each channel is individually necessary). Empirical validation uses the complete universe of SEC Form 13F filings (99.5 million holdings, 10, 957 institutional managers, 2013--2024) with a Bartik shift-share instrument (first-stage $F = 22.7$). The model implies tail-loss amplification of 18--54%, economically significant relative to Basel III countercyclical buffers. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.03272 |
| By: | Iñaki Aldasoro; Paula Beltran; Federico Grinberg |
| Abstract: | Using data on four USD-pegged stablecoins and 27 fiat currencies, this paper documents spillovers from stablecoin-based foreign exchange (FX) to traditional FX markets. We document a gap between the cost of acquiring dollars via stablecoins and via the spot FX market (parity deviations). To establish a causal link between stablecoin flows and FX markets, we use a granular instrumental variable that exploits idiosyncratic shocks to stablecoin net inflows in other currencies. Our estimates indicate that a 1% exogenous increase in net stablecoin inflows raises parity deviations by 40 basis points, depreciates the local currency, and widens the dollar premium in synthetic funding markets (covered interest parity (CIP) deviations). A model of constrained arbitrage rationalizes these findings and provides structural foundations for the identification strategy. Counterfactual simulations show that halving cross-market frictions would attenuate CIP spillovers by roughly one-half and cut exchange rate effects by nearly one-third. A dynamic extension that closely matches the empirical impulse responses shows that spillovers grow disproportionately when intermediaries suffer losses, as depleted capital reduces their capacity to absorb further shocks. Our results establish stablecoins as an emerging segment of global currency markets with direct implications for financial stability. |
| Keywords: | Stablecoins; foreign exchange; market segmentation; capital flows; arbitrage |
| Date: | 2026–03–27 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/056 |
| By: | Kyungmin Kim; Romina Ruprecht; Mary-Frances Styczynski |
| Abstract: | In July 2025, the U.S. Congress passed the Genius Act, which established the regulatory framework for payment stablecoins. The law defines what an authorized payment stablecoin issuer is and how it will be regulated. |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102996 |
| By: | Alex Günsberg; Camelia M. Kuhnen |
| Abstract: | Online loan marketplaces are changing consumer lending. Here we investigate consumer behavior in these markets with near-zero search costs. Using administrative data on 730, 000 applications, 750, 000 offers, and 200, 000 individuals, together with credit registry records, we document four facts. First, substantial within-applicant dispersion in offered terms makes search highly valuable. Second, marketplace nudges mitigate choice complexity. Third, applicants search significantly, applying repeatedly, asking for different terms, and rejecting offers, in ways consistent with their creditworthiness. Fourth, dynamic adverse selection constrains search, as lenders penalize repeat applicants. Our findings highlight trade-offs between informational gains from search, and reputational and cognitive costs. |
| JEL: | G21 G23 G41 G51 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35024 |