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on Financial Development and Growth |
| By: | Diana Lima; Duarte Maia; Rita Basto |
| Abstract: | We discuss the implications of macroprudential policymakers' welfare choices based on a policy exercise that determines optimal capital requirements for banks. The inter-linkages between the financial system and the real economy are analyzed with a DSGE model with financial frictions, providing a rationale for capital regulation. The existence of heterogeneous agents allows several equilibria depending on the balance between potential conflicting objectives of savers - who favor banking resilience - and borrowers - who benefit from better credit conditions. These equilibria can be translated into preferences policymakers have between promoting the resilience of the banking system and economic growth. These preferences are modeled through three welfare-maximising strategies. We find that policymakers' preferences play a role in determining optimal capital requirements, which, in turn, conditions bank resilience, economic growth and well-being in the long-run. The sum of welfare gains strategy yields higher banking sector resilience, while improving the well-being of savers without disregarding the interests of borrowers. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202607 |
| By: | KONAN, Estelle; SOPOUDE, Anne-Marie; DADAKPETE, David |
| Abstract: | Faced with an ever-increasing financing gap, African economies need to find urgent solutions. With domestic capital markets underdeveloped, private investment is struggling to take off and fully play its role as a lever of economic growth. For some, the key could be greater financial integration, as this would revitalize the domestic financial system. Yet, some studies suggest that this effect is mainly observed in more advanced economies. This paper contributes to this debate by investigating the relation between financial development and financial integration using a sample of 39 African countries observed from 2000 to 2019. Dynamic panel estimation using GMM suggests that increased financial integration leads to higher financial development in Africa. This result can be attributed to the recent upward trend in financial development and financial integration observed in African countries. Expanding our empirical framework to include the spatial dimension, we observe that African countries are surrounded by neighbors with similar levels of financial development. Additionally, our spatial econometric modeling reveals that a country’s total assets held by deposit money banks, are positively influenced by those of its neighboring countries. |
| Keywords: | Financial Integration, Financial Development, GMM |
| JEL: | C21 C23 E44 F36 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128121 |
| By: | McAdam, Peter; Capelle, Damien; Fernandes, Adriano; Krüger, Jan Jakob |
| Abstract: | We quantify barriers to cross-border bank lending to firms within the euro area and their consequences for credit allocation and output. Using loan-level data from the European credit registry (AnaCredit) and group structures (RIAD), we estimate barriers to relationship formation, loan pricing, and banks’ branching decisions at the country-pair level. We find that barriers to cross-border relationships between banks and firms and cross-border bank entry are large while wedges on interest rates and loan quantities are comparatively small. The estimated wedges are strongly associated with differences in national banking regulations, measured using a novel dataset on regulatory distances. We embed our estimates into a quantitative spatial general equilibrium model with heterogeneous banks and firms subject to cross-border frictions in relationship formation, loan pricing, and bank entry. Partially relaxing frictions predicts sizable and heterogeneous output gains across euro area countries. These gains are primarily driven by increases in capital and labor rather than improvements in allocative efficiency. JEL Classification: F36, G21, O16 |
| Keywords: | banks, credit allocation, cross-border frictions, European financial integration |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263249 |
| By: | Michael Cauvel; Y.K. Kim |
| Abstract: | We examine the potential linkages between two empirically-observed patterns in aggregate macroeconomic data. The cyclical relationship between economic activity and the labor share—referred to as the Goodwin pattern—has been well documented by a number of papers in the literature (Barrales-Ruiz et al., 2021). On the other hand, some recent studies have uncovered evidence of a cyclical relationship between economic activity and household credit, suggesting that household debt is a critical driver of macroeconomic cycles (Mian et al., 2017). We study these two cyclical processes in combination with one another. We illustrate the empirical plausibility of a pseudo- Goodwin cycle in which fluctuations in household indebtedness create the appearance of a Goodwin cycle, even in the absence of any causal effects between demand and distribution. Therefore, we argue that it is necessary to consider debt, demand, and distribution as essential elements in an interrelated system. Our analysis of such a three-dimensional system using both U.S. data and a panel of 30 advanced economies suggests that debt is a more important driver of economic activity over the business cycle than income distribution. |
| Keywords: | Goodwin cycle, household debt, income distribution, business cycles |
| JEL: | E12 E25 E32 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2617 |
| By: | phelps, robert |
| Abstract: | We present a minimal (‘toy’) model of an economy as a simple set of equations modelling confidence, consumption, price, investment and debt. Behaviour in the model is grounded in simple heuristics that use available recent information and ‘animal spirits’ instead of complex intertemporal optimization. It is shown that such a model can endogenously generate business cycles where booms are driven by high spirits and credit, while recessions are driven by saving to reduce accumulated debt. We discuss the potential of this minimal model as the basis of a more elaborate core economic model exhibiting cycles and non equilibrium dynamic behaviour |
| Keywords: | macroeconomics economics business cycle debt toy model confidance animal spirits Keynes |
| JEL: | A1 E10 E12 |
| Date: | 2024–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126453 |
| By: | Aykut Sengul; Abdullah Kursat Merter |
| Abstract: | The present study documents the conditional association between corporate leverage and firm employment growth using an economy-wide administrative panel of nearly one million Turkish firms over the 2009–2023 period. Drawing on 6.8 million firm-year observations and multi-dimensional fixed effects, we report four principal patterns. First, firm age and size are negatively associated with employment growth, while asset tangibility, liquidity, profitability, and export orientation are positively associated with it. Second, the leverage–growth association follows an asymmetric inverted-U pattern, and this non-linearity is most pronounced for short-term and trade-credit-intensive liabilities rather than long-term financial debt. Third, the point at which the association turns negative varies substantially across sectors: it occurs at higher leverage levels in energy & mining, trade, and services, and at considerably lower levels in construction. Fourth, the 2018 currency crisis coincides with a leftward shift in this association, with moderate leverage becoming less positively associated with growth and high leverage becoming more negatively associated with it. The paper's contribution lies in documenting these patterns at an unusually comprehensive scale — covering the entire Turkish corporate universe — and in showing how they vary by debt composition, sector, and macroeconomic conditions. |
| Keywords: | Leverage, Debt overhang, Firm growth, SMEs, Manufacturers, Exporters, Emerging markets |
| JEL: | G32 L25 O16 E44 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2612 |
| By: | Aldasoro, Inaki; Hördahl, Peter; Schrimpf, Andreas; Zhu, Sonya |
| Abstract: | Using newly constructed market conditions indicators (MCIs) for three pivotal markets centered around the US dollar (Treasury, foreign exchange, and money markets), we demonstrate that tree-based machine learning (ML) models significantly outperform traditional time-series approaches in predicting the full distribution of future market stress. Through quantile regressions, we show that the random forest method achieves up to 27\% lower quantile loss than autoregressive benchmarks, particularly at longer horizons (up to 12 months). Shapley value analysis reveals that variables related to macro expectations and uncertainty — especially about the monetary policy stance — are important predictors of future tail realizations of market conditions. For individual market segments, the state of the global financial cycle, as well as liquidity conditions, also play important roles. These results highlight the value of ML in forecasting tail risks and identifying systemic vulnerabilities in real time, bridging the gap between high-frequency data and macroeconomic stability frameworks. |
| Keywords: | Shapley value |
| JEL: | G01 C53 G17 G12 G28 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20439 |
| By: | Sai Ma; Viktors Stebunovs; Judit Temesvary |
| Abstract: | We develop a Transmission Growth-at-Risk (TGaR) framework that incorporates foreign financial vulnerabilities as predictors of U.S. downside growth risk. We distinguish financial conditions, which measure current tightness in credit markets, from financial vulnerabilities, which measure structural fragilities that can amplify shocks. Elevated foreign financial vulnerabilities are associated with lower U.S. growth-at-risk, with transmission through both trade linkages and dollar integration channels. Asset valuation pressures and financial sector leverage abroad have the largest estimated amplification effects. Financial conditions primarily affect near-term tail risk, while foreign vulnerabilities weigh on U.S. GDP at a medium-term horizon. Out of sample, adding foreign vulnerabilities raises the predictive score by 53 percent at the 8-quarter horizon. Crisis-episode evidence points to the same interpretation. These findings show that monitoring foreign financial vulnerabilities is important for gauging U.S. growth prospects. |
| Keywords: | growth-at-risk; financial vulnerabilities; international transmission; risk assessment |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:103562 |
| By: | Biermann, Marcus; Huber, Kilian |
| Abstract: | We show that multinational firms transmit shocks across countries through their internal capital markets. We study a credit supply shock to parent firms in Germany. International affiliates outside Germany supported their parents through internal lending, became financially constrained themselves, and experienced lower real growth. We find that managers were “Darwinist†with respect to international affiliates but “Socialist†in the home country, that internal capital markets transmitted the credit shock more strongly than a nonfinancial shock, and that access to developed credit markets attenuated the real effects. The total real impact of shock transmission through multinationals on foreign economies was large. |
| Keywords: | Multinational firms; Banking crisis; Internal capital markets |
| JEL: | F2 F3 G2 G01 D2 E44 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20336 |
| By: | Messer, Todd; Rieder, Kilian |
| Abstract: | How do negative shocks to borrower income affect bank stability? We show theoretically and empirically that income shocks can explain bank distress via an asset- and a liability-side channel. Exploiting an exogenous commodity price bust that hit the U.S. agricultural sector in the early 1920s and novel micro data, we find that realized and expected declines in income caused loan defaults and deposit withdrawals. While the shock's effects on both sides of the balance sheet drove bank distress, the loss of stable funding represented the key driver. We document that public liquidity provision reduced bank instability and provide evidence suggesting that real adjustment to the financial fallout of the shock took the form of out-migration and changes in ownership structure. |
| JEL: | G21 N12 N22 Q02 Q14 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20372 |
| By: | Carletti, Elena; De Marco, Filippo; Ioannidou, Vasso; Sette, Enrico |
| Abstract: | We study the reaction of corporate clients to bank distress on both sides of banks’ balance sheet, exploiting the 2017 failure of two Italian regional banks. We find that firms initiate deposit runs before households, as soon as the banks’ distress becomes public. At the same time, an endogenous deterioration unfolds on the asset side: while risky firms draw down existing credit lines from distressed banks, creditworthy firms seek new lending relationships with healthier banks. Only the riskier firms reduce investment, as creditworthy firms successfully switch to other banks, which in turn reallocate credit away from riskier firms. |
| JEL: | G21 G28 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20363 |
| By: | Buczak, Maciej |
| Abstract: | The aim of this article is to analyse the 2023 crisis episode - the failures of regional US banks - from the perspective of the effectiveness of the post-crisis financial safety architecture developed in the aftermath of the 2008 global financial crisis. Drawing on a review of the literature and regulatory documents, the article reconstructs the sequence of events, identifies their causes, and confronts them with the paradigms underlying modern banking supervision. The analysis shows that the banks involved in the crisis episode met their capital requirements and, in many cases, their liquidity requirements as well. The source of the problems lay in qualitative factors: poor risk management, unsustainable business models, and inadequate supervision. The episode also revealed a new mechanics of banking crises - social media and digital banking compressed the timeline of deposit runs from days to hours, fundamentally altering the dynamics of tail risk events. The article's main conclusion is that the existing regulatory framework, built on the paradigm of normally distributed phenomena and quantitative risk measures, is ill-suited to this new reality. Distribution tails are fatter, and future crises may be more violent and harder to contain than previously assumed. The 2023 episode, though limited in scale, should be treated as a warning signal for the financial safety system as a whole. |
| Keywords: | banking crisis; systemic risk; prudential regulation; Basel III; tail risk; deposit run; digi-tal banking; Silicon Valley Bank |
| JEL: | C52 F37 G01 G21 G32 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129944 |
| By: | Voss, Dustin |
| Abstract: | Political cleavages in rich democracies are increasingly characterised by struggles over different forms of asset ownership. To explain the outcomes of asset struggles and their cross-country variation, I focus on the role of producer group politics in shaping national credit policy. Producer groups display conflicting preferences regarding credit permissiveness. Easy access to mortgages and housing wealth benefits firms in the financial sector and can help parties expand electoral coalitions, but such policies can also create wage pressures that weaken the competitiveness of exporters. The (re)configuration of political support coalitions determines how this tradeoff is decided. A most-similar comparative case study of credit regulation in Germany and Sweden substantiates the argument. In Germany, an export coalition supported incremental financial liberalisation that followed a purpose-driven path in line with the preferred macroeconomic policies of the manufacturing sector. In Sweden, the financial sector defected from a rigid credit control regime and lobbied for radical financial liberalisation while incumbents lacked organisational capacity and willingness to defend the status quo. The article provides a comparative analysis of asset struggles and improves our understanding of the coalitional mechanisms that create the potential for real estate bubbles, financial crisis, and asset inequalities in rich democracies. |
| Keywords: | asset struggles;credit permissiveness;growth coalitions;homeownership;producer groups |
| JEL: | J1 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140263 |
| By: | Di Pietro Filippo (European Commission - JRC); Haustein Erik (European Commission - JRC); Conte Andrea (European Commission - JRC); D'adamo Gaetano; Winterhager Vincent |
| Abstract: | The Recovery and Resilience Facility (RRF) and the structural funds together account for a substantial share of resources directed at mobilising investment by the European Union, supporting the green and digital transitions, and promoting economic convergence across member states. This paper estimates their short to medium-run effects on capital formation and whether they crowd in private investment. We focus on the RRF and on the European Structural and Investment Funds (ESIF), for which consistent disbursement data are available. Because the two differ in structure, the RRF being a new instrument tied to reform milestones and ESIF a recurring flow of disbursements, they call for distinct identification strategies: synthetic control methods for the RRF and local projections for ESIF. Both raise aggregate investment in the short to medium run, with the response strongly tilted toward private capital formation. ESIF crowds in private investment beyond what direct transfers to firms can account for, and the RRF synthetic control shows a positive and increasing effect on total investment from 2022 onward, driven predominantly by the private side. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:termod:202606 |
| By: | Torsten Wezel; Zulma Barrail; Mr. Salim Dehmej |
| Abstract: | As public debt in emerging markets (EMs) and low-income countries (LICs) has surged since the COVID-19 pandemic, so has the exposure of domestic banks to their sovereigns—raising concerns of destabilizing feedback loops if fiscal conditions deteriorate. This paper provides a comprehensive analysis of this sovereign-bank nexus using a new granular dataset covering over 120 EMs and LICs, combined with IMF Financial Soundness Indicators. We document a marked post-pandemic strengthening of the nexus, particularly in Sub-Saharan Africa and the Middle East and Central Asia, and show that public debt levels, deposit rates, and nonperforming loans are its most robust correlates. While we find no broad evidence of financial repression, higher sovereign refinancing needs significantly increase banks' government debt holdings in countries with substantial state-owned bank presence. Sensitivity analysis illustrates that the consequences of a strong nexus can be severe: even a moderate domestic debt restructuring could render several banking systems undercapitalized, underscoring that high reported capital ratios in strong-nexus countries may provide a false sense of security. |
| Keywords: | Sovereign-bank nexus; emerging markets; low income countries financial stability; sovereign risk; banking sector |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/113 |
| By: | Javier Bianchi; Sebastian Horn; Giovanni Rosso; César Sosa-Padilla |
| Abstract: | This paper studies how geopolitical risk shapes financial fragmentation and international risk-sharing, using bilateral official lending data from 1910 to 2024. We document that when geopolitical risk is high, bilateral lending increasingly follows geopolitical alignment. Because geopolitically aligned countries experience more synchronized shocks, this fragmentation limits the effectiveness of international risk-sharing. To rationalize these patterns, we introduce geopolitical considerations into a limited-commitment model of sovereign borrowing. The model shows that, even with non-discriminatory default, higher geopolitical tensions redirect international lending toward allied countries and weaken risk-sharing. |
| JEL: | F34 G01 H63 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35389 |
| By: | António Afonso; José Alves; Periklis Gogas; Theophilos Papadimitriou |
| Abstract: | Using annual EU-27 data for 1995-2024, we examine whether sovereign ratings mainly reflect common macro-fiscal fundamentals or whether agency-specific departures from that benchmark are also priced into sovereign funding conditions. Pooled ordered probits and a machine-learning diagnostic layer for nonlinearities and thresholds for Fitch, Moody’s, and S&P identify a stable set of core rating determinants centred on inflation, debt-to-GDP, current account balance, budget balance rule indicator, output gap, old-age dependency, and revenue capacity, while within-country variation is narrower and concentrated mainly in inflation, debt, and unemployment. The machine-learning analysis confirms that flexible models absorb nearly all systematic variation between fundamentals and ratings, validating the shadow-rating decomposition used in the market-pricing test. ECB-based bond-yield regressions show that both the fundamentals-implied shadow rating and the agency-specific deviation are priced in euro-area Bund spreads: a one-notch more favourable value of either component is associated with about 50 basis points lower spreads. Evidence indicates that this pricing effect strengthens as debt rises and intensifies further once debt exceeds 100% of GDP, while a shorter crisis-period interaction is directionally similar but less precise. Sovereign ratings therefore appear to combine a common fundamentals core with discretionary overlays that markets treat as economically relevant signals. |
| Keywords: | sovereign ratings, sovereign risk pricing, sovereign bond spreads, rating agencies, ordered probit, panel data, machine-learning, macro-financial transmission |
| JEL: | C23 C25 E44 F34 G15 H63 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12832 |
| By: | Lee, Neil; Arman, Husam; Pardy, Martina; Iammarino, Simona; Alawadhi, Ahmed; Al-Jalal, Yasmeen |
| Abstract: | Strategic Investment Funds – Sovereign Wealth Funds that include some focus on domestic economic development – have become an increasingly important policy tool. Yet, there is little systematic literature on these funds, their scope, design and the policy issues they raise. In this report, we present a global overview of these funds. Of the 100 largest Sovereign Wealth Funds worldwide, we find evidence that 53 are undertaking a domestic economic development role. We conduct a systematic review of fund activities and show blurred boundaries between these funds and development banks, and a variety of policy aims and mechanisms. We conduct detailed case studies of four different funds – Temasek (Singapore), Mubadala (United Arab Emirates), Nigeria Sovereign Investment Authority (NSIA), and Samruk-Kazyna (Kazakhstan) – to consider the tensions and policy issues they raise. Finally, we formulate broad policy indications for governments seeking to use these funds, and extract lessons for the Kuwaiti case. |
| JEL: | N0 E6 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140258 |
| By: | João Tovar Jalles |
| Abstract: | This paper reassesses the claim that Economic and Monetary Union (EMU) membership generated large external wealth losses among Southern European economies. Replicating the synthetic control estimates of Alcobia et al. (2025), we confirm sizeable post-EMU deteriorations in the net international investment positions (NIIP) of several peripheral economies, particularly Portugal and Greece. However, the estimated e??ects prove highly sensitive to treatment timing, donor-pool composition, predictor selection, and estimator choice. Alternative treatment definitions reveal substantial anticipation e??ects associated with Maastricht convergence and pre-EMU financial integration. Broader donor pools and macro-financial predictor sets frequently alter the magnitude and even the sign of estimated e??ects. Estimates obtained using Augmented SCM, Synthetic Di??erence-in-Di??erences, Interactive Fixed E??ects, and local projections are generally smaller, less stable, and considerably more uncertain than baseline SCM results. We further argue that NIIP deterioration partly reflected convergence dynamics and global financial conditions rather than EMU-specific institutional failures alone. |
| Keywords: | Economic and Monetary Union, synthetic control methods, external imbalances, net international investment position, financial integration. |
| JEL: | C21 C23 F32 F45 O52 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04222026 |
| By: | International Monetary Fund |
| Abstract: | The Portuguese financial sector has been resilient to shocks over the past decade, reflecting substantial deleveraging after the 2012 European debt crisis. Banks dominate the financial landscape, with strong capital and liquidity buffers and high profitability relative to peers. Credit growth is recovering after years of decline; while risks are currently moderate, ongoing monitoring is needed as the cycle evolves and the Middle East conflict unfolds. The sector has so far been resilient to rising global uncertainty. |
| Date: | 2026–06–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/149 |
| By: | Best, Lea; Born, Benjamin; Menkhoff, Manuel |
| Abstract: | We study how firms’ investment responds to interest rate changes based on a German firm survey, combining hypothetical vignettes, open-ended questions, and rich firm data. We estimate a 7 percent semi-elasticity of investment to loan rates—about half the total corporate investment response to monetary policy shocks. Adjustment is heterogeneous: many firms do not react, citing cash buffers or a lack of opportunities, while adjusters revise sharply. Managers’ narratives about monetary policy transmission to investment emphasize direct borrowing-cost effects and rarely mention general-equilibrium channels. Local projections show this direct channel is central to output dynamics after monetary policy shocks. |
| Keywords: | Interest rates; Firm investment; Survey experiment; Monetary policy; Narratives; Hurdle rate; Aggregate investment |
| JEL: | D25 E43 E52 G31 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20695 |
| By: | Anyfantaki, Sofia; Cucic, Dominic; Fricke, Daniel; Hartmann, Philipp; Kaufmann, Christoph; Lukmanova, Elizaveta; Maddaloni, Angela; Barahona, Ricardo |
| Abstract: | The growing importance of non‑bank financial intermediaries (NBFIs) also has important implications for the transmission of monetary policy in the euro area. It alters the composition of credit supply and strengthens the role of market‑based finance for the corporate sector. In the aggregate, NBFIs tend to amplify the transmission of monetary policy within the financial sector. In particular, intermediaries with uninsured short‑term funding amplify monetary transmission to credit. This becomes particularly pronounced during episodes of financial stress, when liquidity pressures and valuation losses can trigger asset sales and spillovers to banks. By contrast, institutions that benefit from stable long-term funding, such as insurers, pension funds and certain specialised finance companies, may attenuate the transmission of monetary policy to credit, although only to a limited extent. The implications for monetary policy transmission arising from NBFIs also extend beyond lending, notab JEL Classification: G2, G23, G28 |
| Keywords: | collateral, insurers, investment funds, monetary policy, non-bank intermediation |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026391 |
| By: | Mihet, Roxana |
| Abstract: | New financial information technologies were expected to democratize finance and narrow wealth gaps. I show they can do the opposite. In a noisy-rational expectations general equilibrium model of the stock market, technology works through two distinct frictions: participation and information. Lowering participation frictions broadens entry, improves risk sharing, and reduces wealth and return inequality. Lowering information costs reallocates surplus to informed traders and increases cross-sectional inequality. Broadly shared gains thus require targeting participation frictions; subsidizing information acquisition alone can exacerbate dispersion. The model's distributional predictions are consistent with recent data. |
| Keywords: | Financial technology; stock market; Gini coefficient |
| JEL: | E21 G11 G14 L1 L15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20736 |
| By: | Mazzocchetti, Andrea; Monasterolo, Irene; Vismara, Andrea |
| Abstract: | We analyse how banks’ climate sentiments affect credit risk adjustments and lending conditions for high- and low- carbon investments and the implications for firms’ investments and the decarbonization of the economy. We model climate sentiments as banks forming expectations about firms’ performance in the low-carbon transition scenarios of the Network for Greening the Financial System, based on firms’ energy technology alignment and on perceived policy credibility. We distinguish between high climate sentiments, i.e. banks’ strong confidence in the success of climate policies and the future performance of low-carbon firms, and low sentiments. To anaylse these dynamics we tailor and extend EIRIN, a macro-financial Stock-Flow Consistent model of an open economy, and widely used by financial supervisors. EIRIN is populated by a limited number of heterogeneous agents and sectors, with the real and financial side of the economy treated in an integrated way. Calibrating EIRIN on the Austrian economy, we find that high banks’ climate sentiments can reinforce the impact of climate policies, resulting in a 4.5% reduction in the GHG emissions to GDP ratio and in a 0.6% increase in GDP growth, compared to the Net Zero scenario without climate sentiments. Conversely, low climate sentiments can counteract climate policy impacts, leading to an 8.5% increase in GHG emissions to GDP ratio. Furthermore, credit constraints on low-carbon investments can further hinder the low-carbon transition, increasing the GHG emissions to GDP ratio by 15%. Our findings highlight the importance for policy makers to deliver clear and credible messages about the low-carbon transition to the banking sector, in order to align expectations and investment decisions. |
| Keywords: | Banks; Climate finance; Climate policy |
| JEL: | B59 C69 G20 Q50 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20520 |
| By: | Salayeva, Guli; Reyimberganov, Baxrom |
| Abstract: | This study examines the relationship between financial technology development and green investment flows across 12 emerging economies from 2015 to 2024. Using fixed effects panel data regression, the findings indicate that FinTech development is significantly associated with increased green investment (β = 0.347, p < 0.01), with threshold effects observed at moderate levels of technological infrastructure. The analysis reveals that mobile payment penetration and digital lending platforms serve as the primary channels through which FinTech influences green capital allocation. Policy implications for emerging market regulators seeking to leverage digital finance for sustainability goals are discussed. |
| Date: | 2026–06–25 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:c6h2v_v1 |
| By: | Grigoriy Korolev (New Economic School) |
| Abstract: | We explore risk-return tradeoff of Decentralized Finance (DeFi). We construct three novel indices for different asset classes: Lending, Decentralized Exchanges (DEX) and Derivatives. Motivated by the cryptocurrency pricing framework of Liu and Tsyvinski (2021), we investigate how DeFi assets comove with financial primitives. We document limited correlation with traditional equities, currencies, interest rates and commodities. We further examine several DeFi-specific factors. Bitcoin and Ethereum returns show no significant association with subsequent DeFi returns, highlighting a decoupling between base-layer assets and application-layer protocols. Meanwhile, we find some in-sample associations with DeFi-specific factors such as momentum, investor attention and performance of centralized platforms. A novel book-to-market ratio constructed using Total Value Locked and market capitalization does not display a systematic relationship with returns. Finally, we find only limited and sector-specific associations with traditional equity industries. |
| Keywords: | Decentralized Finance, cryptocurrency, asset pricing, risk management, factor analysis. |
| JEL: | G12 G23 G32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:abo:neswpt:sp0002 |
| By: | Arifovic, Jasmina; Salle, Isabelle; Schilling, Linda |
| Abstract: | This study examines currency competition between a centrally managed currency, the Dollar, and a rigid-supply alternative, Bitcoin, focusing on the role of monetary policy. Using theoretical modeling and laboratory experiments, we show that proportional transfers, modeled as interest on Dollar balances, increase Dollar trade shares (Dollar dominance) and reduce Dollar velocities, thereby weakening the pass-through of monetary policy to prices. These dynamics are self-fulfilling: low inflation expectations drive trade shifts and slower spending, which in turn suppress Dollar prices. In the lab, we observe how evolving expectations shape trade, velocity, and inflation. Dollar policy induces inflation spillovers into Bitcoin by crowding out trade, despite Bitcoin’s lack of a monetary authority, revealing the limits of central bank influence in an increasingly pluralistic monetary system. |
| JEL: | E5 E4 C92 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20529 |