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on Financial Development and Growth |
| By: | Nina Biljanovska; Jordi Galí; Lucyna Gornicka; Alexandros P. Vardoulakis |
| Abstract: | Recessions that follow asset price booms accompanied by high credit growth are deeper and longer-lasting than those following asset price booms without strong debt accumulation. We develop a dynamic general equilibrium model with a rational asset bubble and an occasionally binding borrowing constraint that reproduces these empirical regularities. The bubble raises collateral values and relaxes borrowing limits during upswings, but tightens them when it bursts. We derive the time-consistent optimal policy and characterize simple borrowing-tax rules approximating it, showing such policies substantially reduce frequency and severity of recessions triggered by bursting of leveraged bubbles. |
| JEL: | E32 E44 G01 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35050 |
| By: | Itamar Drechsler; Alexi Savov; Philipp Schnabl |
| Abstract: | We argue that severe credit crunches in the banking system contributed to the Great Stagflation of the 1970s. The credit crunches were due to Regulation Q, a banking law that capped deposit rates. Under Reg Q, Fed tightening triggered large deposit outflows that led banks to contract lending. The credit crunches line up closely with stagflation in the time series. To explain this, we add Reg Q to a standard model where firms use bank loans to finance working capital. When Reg Q binds and credit contracts, working capital becomes more expensive, leading firms to raise prices and shrink output. The model implies an augmented Phillips curve where monetary tightening reduces aggregate supply in addition to demand. The impact on supply is increasing in the severity of the credit crunches, firms' external finance dependence, and their working capital intensity. We test all three predictions in the cross section of manufacturing industries. In each case, we find that more exposed industries raise prices and cut output relative to others. Our results imply that under severe financial frictions monetary policy affects aggregate supply and not just demand. |
| JEL: | E52 E58 G21 G28 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35057 |
| By: | Ma, Yiming; Mendicino, Caterina; Supera, Dominik; Li, Jian |
| Abstract: | We analyze how bank lending to non-bank financial institutions (NBFIs) affects credit supply to the real economy. Using granular supervisory and loan-level data, we document rapid growth in bank lending to NBFIs relative to lending to non-financial firms. This growth is driven primarily by reverse repos to NBFIs that invest in securities, e.g., investment funds, rather than by loans to NBFIs that extend credit to firms, e.g., private credit funds. We show that the expansion in bank–NBFI lending reflects rising NBFI borrowing demand to fund government securities, which stems in part from the tapering of QE and the expansion of government bond supply in the Euro area, US, UK, and Japan. Importantly, loans to NBFIs disproportionately crowd out loans to non-financial firms rather than securities on bank balance sheets, which ultimately contracts credit supply to the real economy. A model rationalizes our empirical findings and quantifies the aggregate crowding-out effect. Taken together, our results imply that the rise of bank lending to NBFIs represents a narrowing of bank business models and a contraction in bank credit intermediation. JEL Classification: G21, G23, G24, G28, E44, E58 |
| Keywords: | bank regulation, banks, financial intermediation, non-bank financial institutions, securities funding |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263220 |
| By: | Gabor, Daniela; Huth, Emil |
| Abstract: | Industrial policy is back, but its twin, credit policy, remains confined to academic debates. We theorise credit policy as the coercive steering of credit flows for transformative purposes, that is, developmentalist credit policy. Coercion, we argue, has two pillars: control over and through credit. We introduce the concept of credit financing to capture the critical but not dominant role of central banks in supporting coercive steering. We then elaborate the institutional set-up and instruments of credit regimes where the state is in close control of credit flows by drawing on the developmentalist credit policy experience of South Korea and Japan, in comparison with the ’coercive-less’ credit inclusion policy of India’s developmental state and contemporary experiments in China. This conceptualization is, we argue, fundamental for exploring the institutional politics behind transformative state ambitions. |
| Date: | 2026–04–07 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:qwrb2_v1 |
| By: | Cortes Quiñonez, Juan Camilo; Cabezas, Stefania Cielo |
| Abstract: | Access to credit is a key driver of agricultural sector development in emerging economies; however, this process entails significant risks for financial institutions. This study examines credit risk in the agricultural sector from a macroeconomic and institutional perspective. A fixed-effects panel data model is employed for the period 2010–2022, using data from six selected countries: Colombia, Mexico, India, the Philippines, South Africa, and Romania. The dependent variable is the ratio of non-performing loans, used as a proxy for credit risk, while the independent variables include macroeconomic indicators, interest rates, institutional quality, and sector-specific agricultural variables. The results indicate that the real interest rate and agriculture's value added as a percentage of GDP are significant positive determinants of credit risk. Additionally, the analysis finds that higher government effectiveness is associated with an increase in the share of non-performing loans, potentially reflecting improved financial reporting and supervision practices. The study highlights the complex interplay between institutional environment, macroeconomic dynamics, and credit risk in the agricultural sector. |
| Keywords: | Credit Risk, Agricultural Sector, Agricultural Economics, Panel Data. |
| JEL: | C23 G19 O13 O40 Q14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128675 |
| By: | Federico Carril-Caccia (Department of International and Spanish Economics, University of Granada); Ana Cuadros (University of Jaume I); Juliette Milgram Baleix (Department of International and Spanish Economics, University of Granada) |
| Abstract: | This paper investigates the impact of environmental regulation (ER) on foreign direct investment (FDI) location decisions, using a gravity model covering the period 2003–2018. We examine how ER in both origin and destination countries influences bilateral FDI flows, distinguishing between greenfield (GF) investments and cross-border mergers and acquisitions (M&As). To our knowledge, this is the first study of FDI location decisions to jointly analyse the responses of bilateral M&A and GF projects to ER across a large sample of developed and developing countries and manufacturing industries. Overall, we find no consistent evidence supporting either the pollution haven hypothesis (PHH) or the green haven hypothesis (GHH) for total FDI. However, results differ by mode of investment: stricter ER in the origin country encourages outward M&As, but has no significant effect on GF projects. Conversely, ER in host countries appears to exert limited pull effects. Further analysis by sector (clean versus dirty industries) and by country income level reveals important heterogeneity in these effects. For pollution-intensive sectors, tighter regulation in high-income countries is associated with greater outward M&A activity and GF investment directed toward low- and middle-income hosts-an allocation consistent with the PHH. In contrast, in clean industries, GF investment is positively associated with stricter ER in the origin country, lending support to the GHH. Taken together, these results suggest that stricter ER need not deter investment, especially in clean industries or via GF projects; however, in pollution-intensive activities, reallocation through cross-border M&As toward low- and middle-income countries remains a concern. |
| Keywords: | Environmental regulation; Foreign Direct Investment; Pollution Haven Hypothesis; Green Haven Hypothesis; Mergers and Acquisitions; Greenfield investments; Gravity model |
| JEL: | F21 F64 Q58 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202608 |
| By: | Ugo Panizza (Geneva Graduate Institute and CEPR) |
| Abstract: | Development finance institutions mobilize over $250 billion annually through blended finance operations, yet practitioners lack a unified framework to evaluate its catalytic effect and for choosing among instruments. I develop a model of investment multipliers under two canonical market failures-production externalities and credit market imperfections-and two instruments: subsidized loans and credit guarantees. Three results emerge. First, the catalytic multiplier is decreasing in the severity of the market failure, creating a fundamental tension: interventions targeting the largest distortions achieve the lowest leverage. Second, the relative efficiency of guarantees and subsidized loans depends on the accounting convention used to measure cost. The guarantee and subsidized loan yield equal multipliers for pure de-risking and for production externalities; the guarantee achieves a higher multiplier for financial frictions and, in most configurations, for credit rationing. Third, for subsidized loans, non-de-risking interventions always yield higher multipliers than interventions that fully eliminate default risk. For guarantees the ranking depends on the nature of the market failure. A practical rule of thumb emerges from the analysis: production externalities call for subsidized loans, while financial frictions are best addressed with guarantees. The paper shows that even though blended finance is not effective when default risk is high, full de-risking is rarely optimal. |
| Keywords: | Blended Finance; Catalytic Effect; Subsidized Loans; Credit Guarantees; Market Failures; Development Finance |
| JEL: | D62 G18 G32 H23 H41 Q01 |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp11-2026 |
| By: | Paduano, Stephen |
| Abstract: | The decision to reduce ODA spending to 0.3% of GNI has created a £6.2 billion hole in the UK’s foreign economic policy. The cuts will lead to development and humanitarian setbacks in low-income countries and threaten political and geopolitical spillovers for the UK and its partners. They will also put significant pressure on the World Bank’s balance sheet: World Bank financing commitments will have to rise to fill funding gaps at the same time that the ODA cuts are projected to reduce equity contributions to the World Bank. The UK can partially mitigate the consequences of its ODA cuts through responsible financial engineering — putting idle foreign reserves into action in ways that are legally and financially sound. This policy note proposes two ways to mobilise a small portion of the UK’s largely idle £149.2 billion reserve fund, the Exchange Equalisation Account (EEA), to continue supporting low-income countries. The proposals are to use the EEA to fund Concessional Partner Loans to IDA and to make Bond Purchase Commitments for IDA. Both proposals are fiscally neutral as they require the issuance of no new debt, the raising of no new taxes, and as their funding through the EEA has no bearing on the UK’s fiscal accounts (the CF and NLF). The note proceeds with (1) an overview of the ODA cuts and their effect on IDA, (2) a history and operational review of the EEA, (3) the proposal for Concessional Partner Loans, (4) the proposal for Bond Purchase Commitments, and (5) an annex on the fiscal neutrality of the proposals. |
| Keywords: | ODA, GNI, UK, foreign policy, World Bank, IDA, IDA Bonds, Purchase Commitments, funding, Concessional Partner Loans, Exchange Equalisation Account, fiscal neutrality |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2504 |
| By: | Paduano, Stephen |
| Abstract: | There is widespread consensus that Europe requires increased investment to stimulate growth and address pressing challenges. However, fiscal constraints often hinder government-led initiatives. This policy note conducts a balance sheet analysis of the European Investment Bank (EIB) to determine the degree to which it is operating at capacity to support Europe’s priorities. |
| Keywords: | International Finance, Foreign Aid, International Institutional Arrangements, Financial Institutions and Services, Role of International Organizations |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2515 |
| By: | Hirofumi Wakimoto |
| Abstract: | Standard macroeconomic frameworks have correctly identified Japan's government debt - now exceeding 240% of GDP - as carrying substantial fiscal risk. Yet real-time FRED data from 2013 to 2026 present an empirical record inviting a complementary perspective: debt ratios have stabilized, nominal GDP has exceeded 670 trillion yen (SAAR), and unemployment has remained approximately 2.6-2.7%. This paper formalizes these channels through the Japanese Financial Repression r-g (JFR-rg) model. Building on Blanchard (2019), the framework incorporates a financial repression bias (epsilon_t = pi_t - r^n_t, directly observable from FRED) and a non-linear exchange-rate channel. Three theoretical contributions extend the existing literature: (i) the Debt Sustainability Corridor, a geometric characterization of stability in (epsilon_t, g^n*_t) space; (ii) the Normalization Ratchet, a path-dependence theorem showing that temporary policy errors generate persistently higher debt trajectories; and (iii) the Captive Financial System Parameter (phi_t), which endogenizes the institutional precondition for JFR-rg stability. Appendices H-L provide supporting empirical evidence (VAR, ARDL, Local Projections) demonstrating the framework's claims are empirically disciplined and falsifiable. Core propositions derive from the consolidated government budget identity (Layer L1) requiring no causal identification; identification concerns apply only to the empirical Layer L2. Counterfactual simulations illustrate a Normalization Trap: aggressive rate hikes can produce counterproductive debt dynamics. For high-debt, low-growth economies sharing Japan's institutional characteristics, strategically deploying the resulting Repression Dividend into productivity-enhancing investment may represent a regime-contingent equilibrium possibility - conditional on the captive system threshold being maintained. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.09663 |
| By: | Giannoulakis, Michail |
| Abstract: | This paper explores the macroeconomic impact of strategic default on non-performing loans (NPLs), addressing a key gap in existing research. Using a novel strategic default proxy developed via principal component analysis (PCA) and a dynamic panel data model, the study reveals a complex temporal relationship. Initially, shocks to strategic defaults lead to a short-term decline in NPL growth, reflecting financial adjustments or delays in recognition, but are followed by a persistent upward trend that significantly weakens loan portfolio quality and financial stability. These findings highlight the need for timely interventions to address misleading short-term stability and mitigate long-term risks. The study also underscores the importance of incorporating behavioural and institutional factors, such as uncertainty and banking leverage, into NPL modelling. |
| Keywords: | non-performing loans; strategic default; financial contagion; bank leverage; economic uncertainty; principal component analysis; Panel VAR |
| Date: | 2025–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:gpe:wpaper:51492 |
| By: | Martin Iseringhausen |
| Keywords: | Bayesian analysis, factor model, regime switching, stock markets |
| JEL: | C11 C58 G15 |
| Date: | 2026–02–09 |
| URL: | https://d.repec.org/n?u=RePEc:stm:wpaper:76 |
| By: | Huixin Bi; Maxime Phillot; Sarah Zubairy |
| Abstract: | Historically high debt-to-GDP levels in the United States have raised concerns about future financial market stability and fiscal sustainability. We use high-frequency data and consider Treasury futures price changes within narrow windows around auction announcements to identify two distinct Treasury supply shocks: debt expansion shocks that capture changes in the level of public debt, and maturity extension shocks that reflect changes in the maturity structure. We find that debt expansion shocks raise yields across the curve by increasing term premia, leading to tighter financial conditions. These shocks crowd out private sector activity by reducing investment and production, particularly during periods of rapid debt growth. In contrast, maturity extension shocks steepen the yield curve while lowering credit risk premia and fiscal uncertainty. By reducing risk premia, these shocks stimulate near-term investment and production, even as higher long-term borrowing costs weigh on longer-horizon investment. We also show that the Treasury debt management policy can either reinforce or offset the Federal Reserve’s asset purchase programs. |
| Keywords: | Treasury supply; shocks; debt maturity; term premium |
| JEL: | E44 E63 H63 |
| Date: | 2026–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:103021 |
| By: | Diwan, Ishac; Ferry, Marin |
| Abstract: | Do poor countries systematically over-borrow, leading to cyclical debt crises, or are the current debt difficulties caused by unusually large external shocks? To answer this question, the paper focuses on the debt situation in 2019, before a series of negative shocks started hitting developing countries. The authors dispute the cynical view that for poor countries, debt crisis is destiny. They show that in the recent period, there is a much greater heterogeneity of cases that suggested by this deterministic pessimism. The findings suggest that while some countries’ current debt difficulties mirror past patterns, others face challenges that are distinct and influenced by external shocks. |
| Keywords: | external debt, debt distress, HIPIC, terms of trade shock, investment and growth |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2505 |
| By: | Diwan, Ishac; Harnoys-Vannier, Brendan |
| Abstract: | Over the past decade, borrowing costs for Low- and Lower-Middle-Income Countries (LLMICs) have risen sharply. In 2015, their Eurobond spreads were broadly in line with those of Upper-Middle-Income Countries (UMICs). Today, LLMICs’ spreads are three times higher and far more volatile—placing them in a separate asset class. This divergence raises urgent questions: Why has market confidence in LLMICs deteriorated so much? And why is the gap with UMICs widening, even though both groups face the same global shocks—such as the COVID-19 pandemic and rising U.S. interest rates? |
| Keywords: | external debt, debt distress, agency costs, inflexible debt, credit heterogeneity, overshooting, investment and growth |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2514 |
| By: | Benjamin Born (University of Bonn, CEPR, CESifo, & ifo Institute); Gernot J. Müller (University of Tübingen, CEPR, & CESifo); Johannes Pfeifer (University of the Bundeswehr Munich); Susanne Wellmann (Unternehmer Baden-Württemberg) |
| Abstract: | Interest rate spreads vary widely across time and countries and are a central driver of business cycles in emerging market economies (EMEs). Since 2008, advanced market economies (AMEs) have exhibited persistently higher and more volatile spreads, alongside increased macroeconomic volatility and stronger co-movement with EMEs. We document six facts showing that AMEs have become more similar to EMEs along key dimensions. We interpret these patterns through a small open economy model and uncover a stark dichotomy: higher spreads reflect greater indebtedness and lower debt tolerance, whereas greater macroeconomic volatility and co-movement are driven by stronger global shocks. |
| Keywords: | Country spreads, debt, interest rate shocks, business cycle, financial frictions |
| JEL: | F41 G15 E32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:403 |
| By: | Lysenko, Tatiana |
| Abstract: | Sovereign credit ratings are crucial to Sub-Saharan Africa's financial landscape, yet debates continue over their accuracy, fairness, and impact. While access to global capital has widened SSA’s financing options, it has also exposed the region to high borrowing costs and sudden shifts in investor sentiment. In light of these challenges, SSA sovereign ratings have been subject to intense scrutiny. This paper analysis highlights the major role of structural factors in anchoring SSA sovereign ratings at the lower end of the global scale. |
| Keywords: | Credit Rating Agencies, Sovereign Credit Ratings, Sovereign Debt, Sub-Saharan Africa |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2513 |
| By: | Jonathan Swarbrick (University of St Andrews) |
| Abstract: | This paper studies monetary policy in a New Keynesian economy with frictional bank lending, rationalising evidence that lending conditions can remain tight despite liquidity injections. The model features a policy trade-off in which increases in banking sector liquidity can incentivise more lending by lowering the overnight rate and the marginal cost of funds, but can also incentivise less lending by compressing bank margins as interest rates approach the policy floor, worsening adverse selection and credit rationing. As a result, quantitative easing can exert a contractionary effect when the economy is away from the effective lower bound, with outcomes depending on borrower risk and the size of the programme. However, both channels raise inflation expectations, and so liquidity policies are always expansionary at the lower bound. Optimal policy features a deflation bias under credit rationing, while commitment to future accommodation eases current credit conditions and implies gradualism in quantitative tightening. |
| Keywords: | Monetary policy; quantitative easing; small business lending; credit rationing; bank liquidity |
| JEL: | E5 E44 G21 |
| Date: | 2026–03–25 |
| URL: | https://d.repec.org/n?u=RePEc:san:econdp:2601 |
| By: | Timmer, Yannick; Van der Ghote, Alejandro; Perez-Orive, Ander |
| Abstract: | We revisit the credit channel of monetary policy when firms face multiple financing constraints, a common feature of corporate financing we document empirically. Our theory shows that the multiplicity of constraints dampens the transmission of expansionary policy to firm borrowing and investment notably but amplifies the transmission of policy tightening. This asymmetry arises because, when policy tightens (eases), the most (least) responsive constraint binds. Using U.S. firm-level data and exploiting a quasi-natural experiment, we find strong support for these predictions and for our proposed channel. Embedding the mechanism into a New Keynesian framework, we find that the drop in investment after contractionary shocks is twice as large as its increase following equally-sized expansionary shocks, thus providing an explanation for why monetary policy tightenings have stronger effects than easings, a longstanding puzzle in monetary economics. Moreover, our analysis implies that the effectiveness of monetary policy is strongly determined by the distribution of financial constraints across firms and that similar asymmetries likely characterize the transmission of other macroeconomic shocks. JEL Classification: D22, D25, E22, E44, E52 |
| Keywords: | asymmetry, financial frictions, firm heterogeneity, investment, monetary policy |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263217 |
| By: | Thomas Drechsel; Ko Miura |
| Abstract: | Bank regulation supports financial stability, but might constrain economic activity. This paper estimates the macroeconomic effects of bank regulation using a high-frequency identification approach. We measure market surprises in a bank stock price index during a narrow time window around Federal Reserve speeches that discuss the US banking system and its regulation. We then develop a sign restriction procedure to elicit the variation in these market surprises that can be interpreted as news about bank regulation. News that bank regulation will be tighter than expected mitigates risk in the banking sector, but reduces economic activity by increasing banks' funding costs and tightening loan supply. A 10 basis point regulation-induced peak reduction in bank risk premiums is accompanied by a 15 basis point peak increase in the unemployment rate. Compared to previous studies, these magnitudes suggest a relatively high macroeconomic cost of tightening bank regulation, at least in the short run. |
| JEL: | E44 E51 E52 E58 G28 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35071 |
| By: | Kammourieh, Sima; Devie, Jules |
| Abstract: | Emerging markets and developing economies continue to face significant economic and financial challenges. The world bank’s 2024 international debt statistics highlight persistent negative external transfers impacting sovereign debt worldwide, driven mainly by high interest rates. Lower middle-income countries are most affected, but more integrated markets feel these pressures, too. Global uncertainty—like us trade policies and potential interest rate hikes—adds further complexity. As discussions around the cost of capital in developing countries (Africa especially) have come to the fore, one key question has gained renewed focus in recent times, namely: did the changes to the regulatory regime of commercial banks enacted after the Global Financial Crisis (GFC) play a role in changing the quantity and quality of private financial flows to EMDEs? |
| Keywords: | Banking, Capital Markets, Emerging Markets, Financial Flows, Prudential Regulation |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:notfdl:2510 |
| By: | Imbierowicz, Björn; Loeffler, Axel; Ongena, Steven; Vogel, Ursula |
| Abstract: | We examine how foreign macroprudential tightening transmits through multinational firms' internal capital markets. Using subsidiary exposure to countercyclical capital buffer (CCyB) increases, we find that while bank credit to subsidiaries falls 10 percent, parents fully substitute this via internal debt. Parents refinance this internal support by increasing borrowing from domestic banks and nonbanks, meeting the substitution needs of their subsidiaries. As a result, foreign CCyB tightening increases the exposure and risk borne by the parent's home jurisdiction. These findings reveal an unintended spillover: tightening in one country raises credit exposure and thereby borrower risk borne by lenders elsewhere through proactive internal financial redistributions within multinational corporations. |
| Keywords: | multinational corporation, internal capital market, countercyclical capital buffer, banks, nonbanks |
| JEL: | F23 F34 F36 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:340012 |
| By: | Bippus, B.; Lloyd, S.; Ostry, D. |
| Abstract: | Using data on the external positions of global banks in the world's largest banking hub, the UK, and a granular international-banking model, we show that large banks' idiosyncratic net flows into USD debt influence exchange-rate dynamics. UK-resident banks' USD demand is, on average, price-elastic, whereas their counterparties' USD supply is price-inelastic. We document a structural shift—from banks' being price-inelastic before the Global Financial Crisis to price-elastic afterwards—linked to a marked rise in banks' hedging on-balance-sheet USD net exposures via FX derivatives. This change may help explain the tighter link between exchange rates and macroeconomic fundamentals since the crisis. |
| Keywords: | Capital Flows, Exchange Rates, FX Derivatives, International Banking |
| JEL: | F31 F32 F41 G15 G21 |
| Date: | 2026–03–10 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2359 |
| By: | Kaaresvirta, Juuso; Kerola, Eeva; Nuutilainen, Riikka |
| Abstract: | This paper examines recent developments in the internationalisation of the Chinese yuan, focusing on trade and portfolio flows, foreign exchange markets, cross-border payments, and official reserve holdings. The promotion of the yuan's global role has been a deliberate policy objective for Chinese authorities over the past two decades. The use of the yuan in China's own cross-border trade and portfolio flows has increased in recent years. Still, broader international adoption of the yuan remains very small compared to the US dollar and the euro and has not increased markedly in recent years. Under the current Chinese economic and financial framework-characterized by constrained capital account openness and an emphasis on market and exchange rate stability- the scope for a substantial increase in global yuan use remains limited. |
| Keywords: | China, yuan, currency, internationalisation |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofitb:340029 |
| By: | Zamora-Pérez, Alejandro |
| Abstract: | Using a survey of 39, 507 adults in 17 euro-area countries, I find that crypto-asset owners and the niche subgroup of payers have distinct profiles. Owners – typically younger, male, and financially active – exhibit mixed preferences, valuing both cash-like privacy and card-like speed. Crypto payers display a cash-centric profile, seeking to replicate physical cash’s privacy and ease of use in digital form. While standard specifications show that holding cash reserves is positively associated with owning crypto – challenging the view that early adopters reject cash –, a multiple-instrument IV strategy exploiting pandemic-related payment shocks reveals a causal sign reversal: for compliers, building precautionary cash buffers reduces the probability of crypto ownership under uncertainty. These findings (1) explain the ownership-payment wedge as driven by user profiles beyond merchant-acceptance frictions, (2) show crypto and cash act as portfolio complements but substitutes under stress, and (3) may inform crypto regulation and CBDC design. JEL Classification: E41, E42, E58, G11, O33 |
| Keywords: | digital assets, household finance, money demand, payment choice, store of value |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263215 |
| By: | Maxime L. D. Nicolas; Fran\c{c}ois Sicard; Marion Laboure; Zixin Sun; Anah\'i Rodr\'iguez-Mart\'inez |
| Abstract: | This study investigates the transmission of monetary policy narratives to Bitcoin prices, distinguishing the impact of ex-ante expectations from ex-post interest rate implementation. We introduce a high-frequency Monetary Policy Expectations (MPE) index, using a Large Language Model (LLM)-based classification of 118, 000+ market messages to achieve a precise hawkish/dovish decomposition. Results from a framework combining Long Short-Term Memory (LSTM) networks with SHapley Additive exPlanations (SHAP) indicate that Bitcoin functions as a sensitive barometer of central bank signaling; specifically, hawkish narratives consistently trigger negative price responses independently of actual Federal Funds Rate adjustments. We demonstrate that the MPE index Granger-causes Bitcoin returns at short-to-medium horizons, establishing linear predictive causality, while the LSTM-SHAP framework reveals pronounced non-linear, macroeconomic regime-dependent interactions. These findings highlight Bitcoin's structural sensitivity to global monetary discourse, establishing LLM-derived sentiment as a potent leading macroeconomic indicator for the digital asset landscape. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.08825 |
| By: | Bindseil, Ulrich |
| Abstract: | The retail payment industry is significant, affects every citizen and is a very precondition for a modern society based on the division of labor. It is characterized by two-sidedness, strong network effects, high fixed costs, high concentration and high profitability of successful firms, layering, path dependencies and stability of inferior equilibria. Alternative retail payment architectures may have potentially relatively similar social welfare performances, but vastly different implications on different industry stakeholders. The specificities of the retail payment industry accentuate the incentives to influence public opinion and lawmakers, including through "alternative" narratives. The public discourse on retail payment architecture will be confusing for several reasons: (i) technical complexity of retail payment architectures for non-experts; (ii) expertise concentrated with those having vested interests and who will thus always provide biased explanations and opinion; (iii) significant financial fire power of successful incumbent firms to promote their narratives; (iv) incentives to promote projects "out of the money" with exaggerated arguments, while truly promising projects may be kept secret for long; (v) long deployment times and uncertainty on ultimate implementation and use. We discuss the various perspectives of key retail payment industry stakeholders. For each, we identify their main interest, key preferred and feared narratives. We discuss in more depth specific issues relating to the current discourse around retail CBDC. We draw lessons from a public policy perspective. |
| Keywords: | Monetary architecture, means of payment, network industries, public discourse, vested interests, central bank money |
| JEL: | E42 E58 G21 G23 G28 L11 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:339999 |