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on Financial Development and Growth |
| By: | Cristian Alonso; Tristan Hennig; Henry Hoyle; Haibo Li; Monica Petrescu; Ying Xu; Yizhi Xu |
| Abstract: | Asia-Pacific has undergone a profound transformation over the past few decades, increasing its share in global trade and GDP. This paper assesses to what extent Asia-Pacific’s role in global finance has expanded commensurately and whether it has become more integrated by systematically analyzing crossborder financial data. We combine descriptive analyses of past trends in financial positions with network analysis to understand how inter- and intra- regional financial linkages have evolved for economies in the region. We find that Asia-Pacific’s role in global finance still significantly lags its role in global trade and that there is considerable heterogeneity within the region. Advanced economies in the region are well integrated into global financial markets, whereas most emerging markets exhibit more limited integration. Financial integration within the region is also low but diverges significantly by instrument. Intra-regional financial integration is advancing in foreign direct investment (FDI) and cross-border banking (the latter from low levels), but has remained limited in foreign portfolio investment (FPI). Gravity model analysis indicates a significant association between trade and FDI, but not between trade and FPI. We conclude the paper with policy recommendations to promote resilient financial integration in Asia-Pacific. |
| Keywords: | Financial integration; Foreign direct investment (FDI); Foreign portfolio investment (FPI); Cross-border banking; Gravity models; Network analysis |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/154 |
| By: | Haibo Li; Estelle X Liu; Yinqiu Lu; Anne Oeking |
| Abstract: | This paper explores how demographic shifts, particularly population aging, are reshaping banking in Asia-Pacific’s bank-dominated financial systems. Using household surveys as well as bank-level and country-level panel data, we show that aging populations are associated, with shifts in bank portfolios away from traditional loans (with lower loan-to-deposit and loan-to-asset ratios), driven by changes in households’ financial behavior. These changes affect banks’ funding structures, profitability, and risk profiles, with implications for financial stability. We also provide new evidence on cross-border dynamics, showing that demographic divergence spurs asset reallocation toward younger economies. Our findings highlight evolving risks and supervisory challenges as demographic transitions unfold unevenly across economies. |
| Keywords: | Population aging; demographic change; bank balance sheets; household financial behavior; cross-border asset allocation |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/150 |
| By: | Sanoh Yusuf (Graduate School of Economics, The University of Osaka) |
| Abstract: | This study investigates the causal impact of financial inclusion on household welfare in West Africa by analyzing consumption diversification using Living Standards Measurement Study (LSMS) data from the World Bank on 51, 851 households across seven countries of the West African Economic and Monetary Union (WAEMU). Instrumental Variables (IV) and Propensity Score Matching (PSM) were used for causal inference. The findings show that financial inclusion operates through distinct channels: it promotes food expenditure concentration via quality upgrading, expands non-food consumption into areas such as education and health, and induces structural reallocation from food to non-food budgets, with effects varying by financial modality. The results demonstrate that formal banking and microfinance drive long-term structural change. In contrast, mobile banking primarily facilitates short-term liquidity, offering targeted policy insights for enhancing financial inclusion strategies in the region. |
| Keywords: | Financial Inclusion, Theil entropy, consumption diversification, welfare, West Africa. |
| JEL: | G21 O16 I32 D12 O55 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2610 |
| By: | Bhusal, Binod; Khanal, Aditya; Thapa, Samjhauta |
| Abstract: | Access to financial institutions and local credit supply is crucial for local economic development, particularly in supporting business growth in rural communities. This study analyzes the relationship between banking access, credit supply, and agri-food business establishments in rural areas of the Southern United States using a ZIP code-level panel dataset covering 2000–2023. Fixed-effects and dynamic panel Difference-in-difference (DID) models are used to account for unobserved heterogeneity and persistence in business establishment growth in relation to financial access. Results support that greater bank branch presence is positively associated with the number of agri-food business (AFB) establishments, emphasizing the importance of local banking infrastructure for rural entrepreneurship and economic activity. Our loan count and loan volume measures in rural areas, using Community Reinvestment Act (CRA) lending, provide additional evidence that local credit supply supports entrepreneurs—we found around 17-23% dynamic sustained growth in AFBs can be attributable to the loan volume receipt of the top quantile recipient. The findings suggest that maintaining access to financial institutions and strengthening local credit markets have significantly contributed to agri-food business growth and broader rural economic resilience in the Southern United States. |
| Keywords: | Agricultural Finance, Farm Management |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404342 |
| By: | Fiorini, Matteo; Hoekman, Bernard; Quinn, Dennis |
| Abstract: | We investigate the relationship between manufacturing sector productivity and two new measures proxying for barriers to trade in services – restrictions affecting payment for cross-border imports of services and receipts for inward investment. Our services trade policy proxies span the 1965-2018 period, a much longer time span than extant services trade restrictiveness indicators, allowing analysis of the pre-hyper globalization period as well as the post-global financial crisis years that has been the focus of the services trade literature. We find that (i) lower restrictions on services trade and cross-border investment are associated with higher productivity in manufacturing industries that rely more intensely on service inputs; and (ii) that international services payment restrictions and inward investment restrictions are complements: manufacturing productivity is higher when both are simultaneously liberalized. The relationship between international payment restrictions and manufacturing sector performance is heterogenous, varying across time and countries with differing per capita incomes and governance quality. |
| Keywords: | Financial openness; Liberalization; Services input intensity; Services trade policy; Manufacturing productivity |
| JEL: | F13 F15 F21 F23 L60 L80 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19884 |
| By: | Aleksandra Jandric (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague); Adam Gersl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague) |
| Abstract: | This paper examines the relationship between private equity investment and industry-level performance in Europe over 2008-2023. We combine Invest Europe and Eurostat data to construct harmonized country-sector-year panels covering 16 countries overall and 10 sectors, with outcome-specific estimation samples. PE intensity is measured relative to sectoral production value and enters the models with a one-year lag. Baseline fixed-effects models are complemented by additional fixed-effects structures, timing tests and robustness checks. Results indicate that higher lagged PE intensity is consistently associated with stronger subsequent nominal growth in output and value added. Personnel-cost growth is also generally positively associated with PE intensity. By contrast, the employment association is weaker: it loses statistical significance under several robustness checks and does not display the temporal ordering observed for the monetary outcomes. The paper updates the limited European industry-level evidence using a novel harmonized dataset and a period covering substantially different economic conditions, offering new insight into the extent to which PE investment intensity is associated with broader sector-level outcomes. |
| Keywords: | Private equity; Investment; Industry growth; Production; Employment; Panel data; Europe |
| JEL: | G24 G32 C23 E44 L25 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2026_22 |
| By: | Kumar, Labesh; Neumann, Rebecca |
| Abstract: | Whether financial development promotes industrial innovation depends not just on how developed a country’s financial system is, but on which dimensions of that system are well developed. This paper examines how depth, access, and efficiency of both financial institutions and financial markets shape R&D investment across industries that differ in their reliance on external finance. Using industry-level data from the ISIC Rev. 4 classification across 18 OECD countries from 1995 to 2019, and drawing on the IMF’s multidimensional Financial Development Index, we analyze how country-level financial development measures interact with an industry-level external finance dependence measure to influence R&D intensity measured relative to output and value added. Our findings show that the overall level of financial development matters primarily through depth. In particular, the depth of financial institutions and, to a lesser extent, the depth of financial markets significantly raise R&D intensity in industries that depend more heavily on external funding. Measures of access and efficiency display little systematic effect. The results are strongest within manufacturing industries, where innovation activity is concentrated. These findings highlight the importance of financial structure and, in particular, the scale and capacity of financial intermediation, in shaping the allocation of innovative investment across industries. |
| Keywords: | R&D intensity, financial development, financial institution depth, external finance dependence, innovation |
| JEL: | G10 G20 O16 O30 |
| Date: | 2026–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128447 |
| By: | Mr. Etibar Jafarov; Chingis Matayev |
| Abstract: | This paper analyzes credit developments in the Caucasus and Central Asia (CCA) using several complementary approaches. First, it estimates long-run equilibrium credit levels based on economic fundamentals, providing benchmarks to assess whether observed credit levels are broadly aligned with country characteristics. Second, it applies statistical “gap” measures to identify periods of unusually rapid credit expansion that may signal emerging financial vulnerabilities. Third, it uses the Kalman filter to decompose credit into trend and cyclical elements conditional on macro variables. The results suggest there is scope for further financial deepening in all CCA economies, but the speed of household credit expansion warrants close monitoring. A comparative “horse race” of alternative indicators suggests that no single measure consistently outperforms others across countries, implying that combining various credit gap measures enhances the robustness of risk assessments. |
| Keywords: | Credit growth; credit cycles; credit gaps; financial deepening; financial stability; early warning indicators; Caucasus and Central Asia |
| Date: | 2026–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/137 |
| By: | Hong, Sehyun; Mo, Zhexun; Yang, Jiwei |
| Abstract: | This paper constructs the first long-run estimates of top wealth concentration in South Korea from 1970 to 2021, using newly assembled estate tax tabulations and applying a simplified mortality multiplier method. The series uncovers a pattern that diverges sharply from the gradual postwar increase in wealth inequality seen in many Western economies. Korea experienced two distinct regimes: a two-decade period of low and stable concentration from 1970 to 1990, when the top 0.1 percent held a roughly stable 3 to 5 percent of wealth, followed by a substantial rise beginning in the late 1990s to a new, higher plateau of around 10 percent. This abrupt “Great Unleveling, ” plausibly linked to institutional and market changes surrounding the 1997 Asian Financial Crisis, coincided with a shift in elite portfolios from land-based to financial assets. Independent property-tax records show that land concentration stayed flat across this break, indicating that the rise originated in financial rather than landed wealth. In international perspective, Korea moves from a low-inequality profile typical of developing economies to a moderately high-inequality regime similar to contemporary France and Japan. The findings highlight how sudden institutional breaks, rather than gradual trends alone, shape the long-run distribution of wealth. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2026–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:n9ta8_v1 |
| By: | Glebocki, Helena (Fairfield University); Simpson, Nicole (Colgate University); Alarcon Vaca, Felipe (Colgate University) |
| Abstract: | This paper analyzes the macroeconomic push–pull determinants of bilateral remittance flows among 33 pairs of Latin American countries using quarterly data between 2005 and 2023. We apply a panel Autoregressive Distributed Lag (ARDL) framework combined with a Poisson Pseudo Maximum Likelihood (PPML) gravity model specification, distinguishing between short-run dynamics and long-run equilibrium relationships. The results show strong evidence of long-run cointegration between remittance flows and macroeconomic fundamentals. Among the determinants, GDP at origin emerges as the most important driver: stronger economic performance in the origin country is associated with significantly higher eemittance flows, suggesting that remittance-sending capacity increases during periods of economic expansion. GDP in the destination, or remittance-receiving, country is a critical driver of short-run remittance flows between countries. Inflation at origin leads to lower remittances flows in the long-run, but has no short-run impact. Overall, macroeconomic push–pull factors shape remittance corridors primarily through long-run structural channels rather than short-term cyclical fluctuations. |
| Keywords: | remittances, emerging markets, international flows |
| JEL: | F31 F42 F65 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18829 |
| By: | Arrighetti, Alessandro; Lasagni, Andrea; Tredicine, Luigi |
| Abstract: | This study examines the multidimensional nature of remittance allocation, moving beyond the traditional consumption-centred perspective. Whereas previous research has often analysed individual remittance uses separately, focused on transfer volumes or treated alternative purposes as mutually exclusive, this study investigates the relative importance migrants assign to a broad set of remittance destinations, revealing their underlying priorities and value hierarchies. We draw on original data from a face-to-face survey of 1, 359 international remitting migrants residing in Italy. Principal Component Analysis identifies three latent dimensions of remittance allocation: (1) essential household needs, (2) productive and entrepreneurial investment, and (3) symbolic and community-oriented purposes. Multivariate regression models show that these remittance logics are shaped by different determinants. Income, return intentions and transnational engagement are associated with investment-oriented remittances; education, gender and migrants’ dual embeddedness shape symbolic remitting; household vulnerability and migrant income primarily explain consumption-oriented transfers. The findings show that remittances reflect plural and context-sensitive rationales rooted in migrants’ resources, obligations and transnational affiliations. By unpacking the relative prioritization of remittance uses, the paper advances a multidimensional understanding of migrant agency and highlights the productive, social and protective functions of remitting practices. |
| Keywords: | Migrant remittances, Remittance allocation, Productive remittances, Symbolic and community-oriented remittances, Transnational engagement, Dual embeddedness |
| JEL: | F24 F22 O15 D64 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:342103 |
| By: | Luis Rodrigo Asturias; Guglielmo Maria Caporale; Luis Alberiko Gil-Alana; Carlos Ramirez |
| Abstract: | This paper uses fractional integration methods to estimate the degree of persistence of annual real remittances per capita to 21 Sub-Saharan African (SSA) and 12 Latin American and Caribbean (LAC) countries using data from World Bank World Development Indicators covering the period from 1980 to 2024. The results reveal substantial heterogeneity across both regions. In Sub-Saharan Africa, 5 (Kenya, Senegal, Benin, South Africa and Cameroon) of 21 countries show statistically significant mean reversion, whilst three others (Somalia, Côte d’Ivoire and Tunisia) display explosive persistence. In Latin America and the Caribbean, only the Dominican Republic and Panama display mean reversion. These findings shed light on whether shocks have transitory or permanent effects and therefore have crucial implications for the design of appropriate stabilization and development policies. |
| Keywords: | remittances, Africa, Latin America, persistence, fractional integration |
| JEL: | C22 F10 F13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12840 |
| By: | Dawit Tessema; Sotima J Koussere |
| Abstract: | This paper uses a structural model calibrated to an aid-dependent economy to analytically explore the macroeconomic and distributional effects of a permanent aid cut under three alternative policy responses: non-concessional borrowing, domestic revenue mobilization, and uncompensated spending cuts. We find that a borrowing-only response leads to unsustainable debt and highly regressive outcomes. An uncompensated cut results in economic stagnation, higher poverty, and adverse inequality. Within the model, a strategy combining moderate borrowing with ambitious domestic revenue mobilization, while painful in the medium term, produces the most favorable path to fiscal sustainability and moderates the rise in poverty and inequality. These findings are analytical and model-based; they illustrate the trade-offs inherent in fiscal adjustment under aid dependence rather than prescribing specific policy actions. |
| Keywords: | Aid Dependence; Fiscal Adjustment; Domestic Revenue Mobilization; Distributional Analysis |
| Date: | 2026–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/151 |
| By: | Jin-Chuan Duan; Mr. Dimitrios Laliotis; Ms. Wei Sun |
| Abstract: | This paper examines macrofinancial linkages between property developers, financial institutions, and macroeconomic outcomes in China. Using a parsimonious vector autoregressive (VAR) model enabled by a machine learning algorithm, it quantifies how idiosyncratic shocks can propagate and be amplified across sectors, with potential implications for financial stability. Stress originating from privately owned developers and regionally focused financial institutions—though relatively limited in scale—can generate persistent spillovers through lending relationships, common exposures, shared markets, and changes in market sentiment. A decline in property prices may undermine investment, weaken consumer confidence, and adversely affect the health of both the property and financial sectors, thereby disrupting financial intermediation and weighing on broader economic growth. Policy considerations should take into account these feedback loops. Market- and exposure-based tools can be helpful for monitoring macrofinancial linkages and assessing the transmission of shocks. |
| Keywords: | Macrofinancial linkage; property development; financial system; machine learning; model selection |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/134 |
| By: | Xiong, Jian (School of Economics and Management, Southeast University, Nanjing, China); Yin, Wei (School of Economics and Management, Southeast University, Nanjing, China); Li, Guangzi (Institute of Finance and Banking, Chinese Academy of Social Sciences, Beijing, China); Zhou, Peng (Cardiff Business School, Cardiff University, Cardiff, UK) |
| Abstract: | This paper examines the underexplored role of China’s policy bank loans as a countercyclical tool for stabilizing economic fluctuations, complementing conventional fiscal and monetary policies. Utilizing panel data on Chinese listed companies from 2005 to 2023, we demonstrate that policy bank loans effectively mitigate the adverse impacts of economic downturns and ensure corporate value stability during periods of contraction. The research further identifies that the countercyclical effect of these loans is influenced by both internal factors, including political and economic stability and tax revenue growth, as well as external factors such as global financial uncertainty. Additionally, the study highlights the complementary role of policy bank loans alongside conventional stabilization interventions, strengthening the combined capacity to enhance macroeconomic stability. |
| Keywords: | Policy banks; Countercyclical; Listed firms; Economic stability |
| JEL: | G21 G32 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2026/11 |
| By: | Muñoz, Manuel A.; Smets, Frank |
| Abstract: | We build a quantitative macro-banking model to study the optimal setting of the counter-cyclical capital buffer (CCyB) over the cycle. The model provides a rationale for micro and macro-prudential capital regulations by allowing for empirically-relevant bank default risk and binding borrowing constraints faced by banks and firms. We find that over-the-cycle adjustments in the CCyB can induce significant stabilization and welfare gains. Such gains: (i) are the largest if the CCyB is built in response to expected upward shifts in the bank lending spread, and (ii) increase with aggregate economic volatility and with the share of firms whose borrowing capacity is tied to their property collateral (rather than to their earnings). The calibrated optimal positive neutral CCyB for the case of the euro area lies between 1.8% and 2.5%. |
| Keywords: | Macroprudential policy; Collateral and borrowing constraints; Financial frictions; Bank risk; Bank capital requirements; CCyB |
| JEL: | E3 E44 E6 G21 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19790 |
| By: | Bräutigam, Marcel; Figueres, Juan Manuel; Giglio, Carla; Grassi, Alberto; Prieto, Barbara Montero; Rodriguez d’Acri, Costanza; Salleo, Carmelo |
| Abstract: | We design an econometric framework to simulate multiple adverse macro-financial scenarios that can be used in top-down stress tests. First, we create a financial stress index informed by shocks generated via a non-parametric copula estimated on a large dataset of daily financial indicators. Second, we simulate the joint dynamics of macroeconomic indicators conditional on the copula-based financial shocks in a large multi-country Bayesian VAR model. This framework, which we refer to as the Multiple macro-financial stress scenario Simulation Engine, MuSE, allows us to replicate thousands of macro-financial stress scenarios where adverse shocks generated in the financial sector propagate into the overall economy, triggering significant macroeconomic fluctuations. We demonstrate its functionality by generating a large number of scenarios inspired from past crises capturing stress stemming from financial markets, sovereign debt, and geopolitical tensions. Using a top-down solvency stress test model, based on recent EU-wide stress tests, we project the capital depletion for euro area banks and find that adverse scenarios triggered by stock market and sovereign shocks appear to threaten the resilience of the euro area banking sector the most at this juncture. JEL Classification: C15, G01, G17, G21 |
| Keywords: | Bayesian techniques, financial copulas, financial institutions, macrofinancial scenario calibration, stress testing |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263270 |
| By: | Kellner, Domenic; Lang, Jan Hannes; Rusnák, Marek; Nagy, Lukas Joseph |
| Abstract: | Financial stability risks consist of two distinct components: vulnerabilities and possible trigger events. While there has been considerable progress regarding the measurement of vulnerabilities, the assessment of possible trigger events remains largely qualitative. To fill this gap, we employ Large Language Models to extract information about the Severity and Probability Of potential Trigger events (SPOT) from a large dataset of financial news articles over the period2005 – 2026. The SPOT indicator increases ahead of major historical trigger events, correctly identifies trigger sources, and helps to improve forward looking model estimates of downside risks to the economy. The results indicate that the use of AI-based signal extraction from text can be a promising avenue to improve the monitoring of financial stability risks. JEL Classification: C55, C88, E32, E44, G01 |
| Keywords: | artificial intelligence, crisis indicators, financial stability, growth-at-risk |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263262 |
| By: | John Geanakoplos (Yale University; Santa Fe Institute); David E. Rappoport (Federal Reserve Board) |
| Abstract: | The Credit Surface along the leverage dimension gives the bond spread as a function of the loan-to-value ratio. Empirically, we show that uncertainty shocks typically increase spreads and steepen the credit surface, profoundly affecting the supply of credit. Theoretically, we derive necessary and sufficient conditions for the convexity of the credit surface, and for changes in the anticipated distribution of collateral prices that lead to steepening of the credit surface. Finally, we show that the credit surface itself fully reveals the entire distribution of collateral prices, thus providing a new and vivid language with which to describe uncertainty and stochastic orders. Credit surface steepening itself is a new stochastic order that may better capture our intuitive notion of more uncertainty. |
| Date: | 2026–07–13 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2547 |
| By: | Gatopoulos, Georgios; Louka, Alexandros; Peppas, Konstantinos; Vettas, Nikolaos |
| Abstract: | We analyze the negative externalities of “zombie†firms on investment, employment, and productivity in the context of the Greek crisis, during which the share of zombie firms and non-performing business loans peaked at 20% and 50% respectively. Using a panel dataset by firm size and sector during 2002-2021, we find a strong correlation between non-performing business loans and zombie firms. Empirical analysis reveals that zombie firms impact on the economy in several ways: (1) healthy firms outperform zombies in investment, employment, and productivity; (2) high zombie firm density hinders investment growth among healthy firms; (3) healthy firms must increase productivity to survive in zombie-dense sectors; and (4) zombie firms’ capital concentration limits resource reallocation to more productive uses. Younger and larger firms generally perform better across key metrics, also during crisis conditions. Resolving zombie firms and non-performing loans can enhance resource allocation, both within and across sectors of economic activity, boosting growth in the medium to long term. |
| JEL: | G20 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19868 |
| By: | Olmstead Rumsey, Jane |
| Abstract: | The Panic of 1825 was a significant crisis in British financial history. We document how this crisis spread from London banks to England’s real economy. England’s correspondent banking network propagated trouble in sovereign debt markets to small banks outside of London and ultimately to non-financial firms. Using exogenous variation in district-level exposure to the crisis, we show that bank failures led to a substantial number of bankruptcies among non-financial firms. We discuss two potential mechanisms by which the financial system affected the real economy: a fall in aggregate demand and a credit supply shock. |
| JEL: | N0 |
| Date: | 2026–07–13 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140167 |
| By: | Alessio Emanuele Biondo; Mauro Gallegati |
| Abstract: | We develop an agent-based model in which inflation emerges from decentralized price-setting and credit-financed production in an endogenous-money economy. Firms operate under working-capital constraints, form market-based price expectations through heterogeneous adaptive learning, and set prices via cost-plus rules with endogenous mark-ups. Bank lending simultaneously creates deposits, while heterogeneous lending rates and credit rationing shape firms' financing costs and, through unit costs, their pricing decisions. The economy features interacting production and credit networks: intermediate-input linkages propagate cost shocks across supply chains, while bank--firm relationships transmit financial conditions across firms. The interaction of network-based pass-through, state-dependent pricing incentives, and evolving credit conditions generates inflationary regimes, including episodes driven by pricing cascades and feedback loops. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.07864 |
| By: | Gulan, Adam; Silvo, Aino |
| Abstract: | In both the U.S. and the euro area, the share of market finance in aggregate corporate credit has grown over time. To study the implications of the corporate debt structure for the transmission of monetary policy, we develop a New Keynesian DSGE model in which firms differ in productivity and may finance themselves with either bonds or loans. Our setup makes the aggregate corporate debt composition and firms' credit access endogenous and dependent on aggregate economic conditions. The model rationalizes the empirically documented substitution from bank loans to bond finance following a monetary policy contraction. Credit is squeezed for those bank-dependent firms that cannot access the bond market. A structural shift in the aggregate bond-to-loan ratio among credit-eligible firms affects financial market dynamics, but does not materially change the overall impact of monetary policy shocks on the macroeconomy. Instead, in an economy with greater credit access, aggregate demand is less responsive to monetary policy shocks. |
| Keywords: | Monetary policy, corporate debt, bonds, bank credit |
| JEL: | E32 E44 E52 G32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:342406 |
| By: | Vera-Cossio, Diego A.; Garbay Flores, Sergio Andres |
| Abstract: | We study the eects of sectoral lending quotas in Bolivia, which required lenders to allocate a minimum share of their portfolios to priority sectors. Exploiting the timing of the reform and variation in pre-policy compliance at the lender and locality levels, we estimate impacts on credit markets and economic activity. To meet the quotas, lenders compressed their nancial margins and expanded their branch networks. The resulting credit expansion outpaced deposit growth, raising loan-to-deposit ratios persistently, leaving lenders more exposed to liquidity shocks. At the local level, the credit expansion raised household income by 7.8%, driven largely by self-employment in non-priority sectorsthe very sectors the policy did not target. Our ndings illustrate how sectoral policies can generate important trade-os and equilibrium consequences that extend well beyond their intended objectives. |
| JEL: | G21 G28 O16 R11 D21 O25 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14680 |
| By: | De Sanctis, Alessandro; Gebauer, Stefan; Holm-Hadulla, Fédéric; Sirani, Matteo |
| Abstract: | We show that monetary policy transmission is shaped not only by a sector’s own financial frictions but also by those prevailing in the broader production network. The latter, indirect frictions amplify the output and price effects of monetary policy and empirically dominate the direct ones. The amplification results from a downstream demand channel, as customers respond to tighter policy by purchasing fewer inputs. This is partly offset by an upstream cost channel, reflecting that suppliers raise prices to protect margins when financing costs rise. We inspect the mechanism in a multi-sector general equilibrium model with input-output linkages and working-capital constraints. JEL Classification: C32, C67, E31, E32, E52 |
| Keywords: | financial frictions, input-output linkages, monetary policy, production networks |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263271 |
| By: | Fernando Toledo; Luis Dimotta Br\'e; Gabriel Montes-Rojas |
| Abstract: | This paper examines how algorithmic and AI-driven fund management shapes the international transmission of U.S. monetary policy to emerging markets. It argues that the key source of instability is not algorithmic intermediation itself, but the similarity of models across funds. When algorithms rely on similar signals and make correlated errors, their trades reinforce one another and intensify capital-flow responses during periods of stress. When models are diverse, errors offset each other and algorithmic investors can stabilize flows. The paper develops a two-region macro-financial framework and tests its central prediction using equity portfolio flows to nineteen emerging markets from 2000 to 2024. The evidence shows that algorithmic herding amplifies outflows after U.S. monetary shocks only in high-volatility regimes, while faster adjustment alone has no comparable effect. The results imply that policy should focus on preserving model diversity rather than limiting the size of non-bank intermediation. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.15385 |
| By: | Phurichai Rungcharoenkitkul |
| Abstract: | The AI build-out ranks among the largest technology-driven investment booms in US history. Its scale, reliance on debt and circular equity ties raise questions about the boom's sustainability and financial stability. We study a dynamic contest in which firms competing for a few dominant positions over-commit resources. The over-investment leaves the sector exposed to revenue disappointment that could turn boom into bust. The larger the boom, the deeper the eventual bust. The race to commit early through debt and circular financing also makes a bust more likely. Calibrated to balance sheet and deal data, the model points to over-investment of around 1.5 times the efficient level, rising to around three times where demand is less elastic. A network analysis shows that stress in one firm could cascade to others through chains of financial exposures. |
| Keywords: | artificial intelligence, investment, contest theory, circular financing, boom-bust cycle, financial fragility, network |
| JEL: | G01 G32 L13 O33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1367 |
| By: | Ricci, Luca Antonio; Ahokpossi, Calixte; Belianska, Anna; khandelwal, khushboo; Lee, Sunwoo; Li, Bin Grace; Mu, Yibin; Quayyum, Saad; Nunez, Silvia Guadalupe; Ree, Jack Joo; Souto, Marcos Rietti; Simione, Felix |
| Abstract: | This paper reports key findings from the Sub-Saharan Africa Central Bank Digital Currency (CBDC) and Digital Payments Survey, shedding light on the motivations, benefits, and challenges of CBDC adoption, as well as the developments of digital private money and crypto assets in sub-Saharan Africa. It emphasizes the pivotal role of collaboration and shared knowledge in navigating the intricate landscape of digital currencies and assets in sub-Saharan Africa. As this evolving digital frontier is explored, the experiences and aspirations of the region’s central banks, as expressed in the survey, will help harness the potential for digital currencies, assets, and payments, and foster cooperation among countries in sub-Saharan Africa. A forthcoming IMF Departmental Paper will focus on key issues for countries in sub-Saharan Africa pertaining to CBDCs, private digital payments, and crypto assets. It will provide a deeper discussion of the benefits, costs, and risks of these digital payment systems and present policy options to enhance financial digital development and inclusion, while safeguarding macroeconomic and financial stability. |
| JEL: | E41 E42 E44 E58 G20 G21 G23 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19889 |
| By: | Baccianti, Claudio; Baltzer, Markus; Boesel, Nils; Finck, David; Hagemann, Tim; Kuntz, Laura-Chloé; van der Meyden, Friso; Schlam, Carina; Schober, Dominik; Unger, Robert |
| Abstract: | Achieving Germany's goal of greenhouse gas neutrality by 2045 requires a shift to non-fossil energy sources and low-carbon production and consumption patterns. This transformation necessitates substantial investments. According to existing evidence, estimates of additional investment needs - beyond replacement investments - range between 2% and 4% of GDP per annum. This study explores the capacities of the German banking system to finance these additional investment requirements. We conclude that the German banking sector's, given solid excess capital and assuming frictionless credit allocation between banks, is capable of financing these additional investments even under conservative assumptions. However, the results of firm and household surveys conducted by the Bundesbank show that in both groups, a majority is reluctant to decarbonize and undertake the necessary investments in the coming years. |
| Keywords: | Banks, Capital regulation, Climate investment, Net-zero emission pathways |
| JEL: | G21 G28 G31 Q43 Q54 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubtps:342511 |