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on Financial Development and Growth |
| By: | Carl Magnus Magnusson; Laura Torelli |
| Abstract: | The development of capital markets as a means of promoting economic growth has increasingly become a policy priority worldwide. But can changes in financial structure alone deliver this promise? This paper examines the capital market-growth relationship, drawing on both theoretical and empirical literature to provide a conceptual framework for thinking about this question. Market-based finance can improve allocative efficiency, facilitate high-risk, long-term investment, and possibly increase resilience during economic downturns. But the broad empirical evidence linking financial structures and economic outcomes is far from conclusive, and equity and debt markets operate through very different channels. The literature also points to clear complementarities between banks and securities markets, as well as possible risks associated with non-bank debt finance. The impact of capital markets on growth is real, but far less mechanical than is sometimes implied in contemporary policy debate. Because they enable growth through very specific channels, their effectiveness depends on the nature of the growth constraint being addressed; capital markets can help overcome financial barriers to growth, but may have limited impact in other areas. |
| JEL: | E44 G10 G18 G21 G23 O16 |
| Date: | 2026–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:oec:dafaad:50-en |
| By: | Braun, Benjamin; Baccaro, Lucio; Cova, Joshua |
| Abstract: | Current account imbalances, which have surged again in recent years, are key drivers of global economic instability and conflict. Political economy explanations tend to focus on wage restraint and currency undervaluation. However, in a world of unrestricted cross-border capital mobility, the binding constraint for sustaining imbalances over time is financial flows. To address this gap, we develop a theoretical framework linking current account imbalances, growth models, and domestic financialization. We hypothesize that deep and liquid financial markets enable the reproduction of consumption-led growth by relaxing the current account constraint, while financial underdevelopment favors export-led growth by incentivizing capital exports. We test our theoretical propositions with a series of error correction models and an event history analysis, based on panel data on 55 countries over the period 1970-2022. We find broad support for the theoretical expectations but a dissimilarity in the relationship between growth models and financialization: While financial development is crucial for the long-term maintenance of consumption-led growth in advanced economies especially, results are inconclusive regarding the role of financial underdevelopment as a facilitating factor for export-led growth. |
| Date: | 2026–09–25 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:q7p2e_v1 |
| By: | Dipoo, Riyaad R.; Dikgang, Johane |
| Abstract: | This study investigates whether the relationship between foreign direct investment (FDI) and economic growth has diminished over time in OECD economies. We analyze World Bank data for 38 OECD countries from 2000 to 2023 using country- and year-fixed-effects models that relate real GDP growth to lagged FDI inflows and macroeconomic controls. Using the 2008- 2009 global financial crisis as an economically motivated benchmark, we compare 2001-2008 with 2009-2023. A one-percentage-point increase in lagged FDI relative to GDP is associated with 0.026 percentage points higher annual growth in the earlier period but only 0.006 percentage points in the later period, a decline of roughly 79%. The estimated weakening remains negative across alternative inference methods, lag structures, macroeconomic control strategies, and financial-centre exclusions, although statistical precision varies across specifications. A candidate-date analysis identifies 2009 as the strongest empirical division among start dates from 2005 through 2015, but does not establish a unique structural break. A significant FDIby- time interaction further indicates a gradual weakening across the sample. Overall, aggregate FDI has become less strongly associated with subsequent economic growth, consistent with, but not directly identifying, changes in the composition and economic content of recorded international investment. |
| Keywords: | FDI, economic growth, OECD, global financial crisis, international investment, phantom FDI |
| JEL: | F21 F43 O47 E22 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1819 |
| By: | Craig A. Chikis (University of Chicago); Jonathan Goldberg (Board of Governors of the Federal Reserve System); David López-Salido (Banco de España) |
| Abstract: | Firms' hurdle rates exceed their financial cost of capital. This gap varies across firms and has widened in the aggregate. In our Schumpeterian model, two frictions drive this gap: firm decision-makers require an innovator's risk premium for undiversifiable innovation risk, and innovation profits are imperfectly pledgeable. Higher undiversifiable risk lowers the financial cost of capital while hurdle rates remain sticky or even rise. Widening gaps weaken creative destruction; profits and superstar valuations rise despite firms forgoing positive-NPV projects. The calibrated model matches cross-sectional patterns in gaps, R&D, market power and firm dynamics, and explains weak productivity growth and declining dynamism. |
| Keywords: | hurdle rates, cost of capital, idiosyncratic risk, innovation, market power, firm valuations |
| JEL: | E43 G12 G31 G32 O31 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2628e |
| By: | Samson Gebrerufael (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Renee van Eyden (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This paper empirically evaluates the technological learning trajectory models of Porcile et al. (2023) across African countries categorized into three institutional regimes: developmental (Ethiopia, Mauritius, Rwanda), conflicting claims (Ghana, Kenya, Namibia, Tunisia), and neoliberal (Seychelles, South Africa). Using panel ARDL modeling, the study investigates the impact of real effective exchange rate (REER) depreciation on technological learning-by-doing, proxied by the growth rate of export income elasticity (GIEX). The results show no significant learning effects in the developmental regime due to immediate equilibrium adjustment and insignificant coefficients of REER depreciation. The conflicting claims regime demonstrates the same results, driven by low-complexity export baskets. Conversely, the neoliberal regime achieves a relatively persistent short-lived technological learning. However, its long-run REER growth coefficient is negative, confirming that over-reliance on price competitiveness retards long-run growth per Thirlwall's law. Ultimately, state failure hinders heavy intervention regimes in Africa, whereas moving toward the neoliberal framework yields better short-run learning outcomes. |
| Keywords: | technological learning-by-doing, REER depreciation, income elasticity of exports, developmental regimes, state failure |
| JEL: | F13 F41 F14 O47 O11 O33 O30 O43 P48 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202625 |
| By: | Alessandro, Arrighetti; Simone, Baglioni; Andrea, Lasagni; Maria, Molinari |
| Abstract: | This paper examines migrants' remittances for entrepreneurial investments (REIs), focusing on the mechanisms that shape both entrepreneurial intention and its translation into actual business investment in countries of origin. While remittance behaviour has been widely studied, less attention has been devoted to migrants' entrepreneurial engagement and to the factors enabling the shift from intention to implementation. Using original survey data on 2, 122 first-generation migrants residing in Italy, the analysis adopts a staged framework distinguishing between non-intenders, intenders, and actual investors.Our findings indicate that entrepreneurial remittances appear more widespread than often assumed in the literature. Transnational engagement and return orientation significantly increase the likelihood of developing entrepreneurial intentions, highlighting the strategic and forward-looking nature of these projects. Most importantly, the transition from intention to implementation is primarily associated with migrants' entrepreneurial capabilities, opportunity perception, and perceived institutional constraints, rather than with demographic characteristics or general transnational orientation alone. Overall, the results support a staged interpretation of entrepreneurial remitting and underscore migrants' role as strategic transnational economic agents, with important implications for diaspora entrepreneurship policies. |
| Keywords: | Remittances, Entrepreneurial remittances, Transnational migrant entrepreneurship, Diaspora investments, Remittance intention–implementation process |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:343300 |
| By: | Dean Karlan; Natalia Rigol; Benjamin N. Roth |
| Abstract: | Evaluations of microenterprise credit typically measure effects only on borrowing firms. But what about their customers? If microenterprises sell relatively undifferentiated goods and services, as is often hypothesized, credit may simply reallocate sales across firms and create little consumer benefit. In a randomized controlled trial in Chile, large loans increased treated firms’ profits by USD 292 per month, a 13.4% increase. Customer survey data indicate even larger benefits for customers: a gain of USD 494 per month in consumer surplus. Furthermore, using a sample of more than 125, 000 non-treated firms operating in the same markets, we find little evidence of business stealing. The welfare gains from credit expansion thus extend well beyond the borrowers themselves. |
| JEL: | D53 L26 O12 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35729 |
| By: | Tiziano Ropele (Bank of Italy); Giordano Zevi (Bank of Italy) |
| Abstract: | This paper provides a comprehensive empirical assessment of investment developments in the euro area and its four largest member economies over 1996-2025, using National Accounts data disaggregated by country, asset type, and sector. Investment dynamics are tightly synchronised during systemic downturns, while recoveries are markedly heterogeneous. A shift-share decomposition shows that persistent cross-country differences in investment growth are driven mainly by within-category performance rather than by differences in allocation across assets and sectors. At the same time, investment is gradually shifting towards intangible assets, with intellectual property products displaying a sustained upward trend largely independent of the business cycle. An augmented accelerator model identifies economic activity as the main driver of investment fluctuations, with financial conditions exerting a significant influence - especially for construction - and confidence and uncertainty playing a complementary role at cyclical turning points. Estimated elasticities vary substantially across countries and asset classes, pointing to heterogeneity in shock transmission within the monetary union. A historical decomposition highlights cross-country differences in recent dynamics, with Germany's weakness reflecting structural and supply-side factors, and Italy's post-2019 recovery also driven by fiscal measures. More broadly, the post-2022 period is characterised by a generalised weakening in investment, consistent with tighter financial conditions and heightened geopolitical uncertainty. |
| Keywords: | investment, euro area, accelerator model, financial conditions, economic uncertainty, cross-country heterogeneity |
| JEL: | D22 E22 E32 F13 F14 F45 G21 O16 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1059_26 |
| By: | Farhat Mahmood (Pakistan Institute of Development Economics); Saud Ahmed Khan (Pakistan Institute of Development Economics) |
| Abstract: | This study investigates the major determinants of national savings and total investment in Pakistan from 1981 to 2023 using the ordinary least squares (OLS) approach. The results of the savings function suggest that savings in Pakistan are significantly influenced by inflation, remittances, GDP, deposit rates, and the age dependency ratio. On the other hand, foreign direct investment (FDI) and gross domestic product (GDP) are found to be positive determinants of total investment. However, a comparison with selected Asian countries reveals that Pakistan lags behind all of them in both savings and investment rates. To follow the path of sustained economic growth taken by these countries, Pakistan needs to increase its total investment through higher national savings. Moreover, both savings and investment can be enhanced in the economy through operational policy measures that take into account the key determinants of both national savings and total investment. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pid:wpaper:2026:5 |
| By: | Noelia Cámara; Sirenia Vázquez |
| Abstract: | This study analyzes the saving capacity of Spanish households in 2024. Income is the determining factor. Additionally, household size and housing tenure are key variables that significantly influence family savings. |
| Keywords: | Savings, Inequality, Spain, Consumption, Employment, Real Estate, Pensions, Working Paper |
| JEL: | D14 D12 C21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bbv:wpaper:2615 |
| By: | Shi, Liangkun; Wu, Huanqi; Yang, Hanfei |
| Abstract: | Local government financing channels provide an essential perspective for understanding the investment decisions of local governments and their economic effects. In China, broadly defined local government debt includes two categories: statutory debt and the debt incurred by local government financial vehicles (LGFVs). This paper uses provincial-level panel data from 2016 to 2025, constructs a data-driven industrial structure index, and estimates a two-way fixed-effects model controlling for the overall debt scale. The empirical evidence suggests that the different financial channels on industrial structure are associated with different and opposing changes in industrial structure. When the debt composition shifts toward LGFV debts, the share of relatively high-productivity efficiency industries increases, particularly that of the tertiary sector. In contrast, when the debt composition shifts toward statutory debt, the share of relatively low-production efficiency industries increases, particularly that of the secondary sector. Therefore, the composition of local government debt, rather than its scale alone, is relevant to changes in regional industrial structure. |
| Date: | 2026–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:3waq5_v1 |
| By: | Vadlamannati, Krishna; Iacono, Roberto (Norwegian University of Science and Technology) |
| Abstract: | The question of whether aid supplements or substitutes government spending has long been debated in public finance literature. Building on Vadlamannati and Iacono (2026), who examine how development aid affects discretionary fiscal transfers to Indian states, we address a distinct fiscal question: how does aid exposure affect the composition of subnational government expenditure? Using panel data for 30 Indian states over 1979-2019 (41 years) and an instrumental variable strategy addressing potential endogeneity, we find that greater exposure to aid is associated with a lower share of capital expenditure and a higher share of revenue expenditure. This pattern is consistent with substitution of externally aided projects for domestically financed spending. The effect however varies systematically with electoral incentives. In states with greater electoral competition, aid is more strongly associated with capital expenditure, suggesting that electoral incentives can encourage state governments to channel external resources towards visible capital investments. Our findings extend the evidence on fiscal consequences of aid in India from the allocation of intergovernmental discretionary transfers to the composition of state government expenditure. Our findings reveal that the developmental effects of aid depend not only on how resources reach subnational governments but also on how governments subsequently allocate them. |
| Date: | 2026–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:dahwz_v1 |
| By: | Keiichiro Kobayashi; Tomoyuki nakajima |
| Abstract: | This paper develops a theoretical model of financial crisis cycles where credit-driven asset price booms are followed by busts and protracted recessions. The accumulation of private debt during booms generates a debt overhang that discourages borrowers from enhancing productivity in the post-crash period. When this debt burden is substantial, coordination failures among creditors delay necessary debt restructuring, leading to a persistent decline in aggregate productivity. We show that bank recapitalization or subsidies, conditional on debt restructuring, are more efficient than unconditional subsidies to borrowing firms, achieving economic recovery at a lower fiscal cost. Furthermore, we demonstrate that borrower subsidies, or expansionary fiscal policy more broadly, can inadvertently prolong stagnation by discouraging banks from restructuring debt. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-015e |
| By: | Guillermo Calvo; Emilio Colombi; Fabrizio Coricelli; Pablo Ottonello |
| Abstract: | We document the macroeconomic patterns that characterize labor market recovery from financial crises. Using a sample of postwar recession episodes from around the world, we show that financial crises are typically followed by jobless recoveries, with a sluggish recovery in employment relative to output. A departure from this empirical regularity occurs in emerging-market crises with high inflation, which feature strong employment recoveries but persistent declines in real wages and result in “wageless recoveries.” Our findings highlight the central role of financial components in labor input costs and nominal wage rigidities in shaping labor market dynamics following economic crises. |
| Keywords: | Monetary policy; Inflation dynamics and pressures; Real economy and forecasting |
| JEL: | E E2 E3 E31 E4 E44 F F3 F32 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-31 |
| By: | Jordan Roulleau-Pasdeloup |
| Abstract: | I derive an explicit mapping from initial assets, income and the real interest rate to consumption for an income fluctuation problem with a borrowing constraint and CARA utility. I show that there exists a threshold of initial wealth over which the partial equilibrium consumption response to a permanent increase in the real interest rate is positive, consistent with recent empirical evidence. I further show that precautionary savings reinforce the possibility of crowding in and that the possibility of a positive response extends to a more standard CRRA utility whenever the elasticity of intertemporal substitution is strictly less than 1. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.09888 |
| By: | Dunia, Arsène Buzima |
| Abstract: | Does debt overhang distort only investment? This paper analyzes the subsequent effects of debt overhang on firm-level outcomes. Using an event study for German firms from 2004 to 2021, we find that, relative to comparable firms in the same industry and year, highly indebted firms do not merely invest less, which is the classic overhang result. They also hire less, and the two margins together translate into slower sales growth. The composition of the adjustment, however, depends on the firm's growth regime. Highly indebted firms that keep expanding slow their hiring but raise capital per worker over the long run, substituting capital for labour along a flatter expansion path. Highly indebted firms that contract shed workers with no offsetting change in capital intensity: they scale down rather than restructure. These patterns hold in normal times as well as in crises and are concentrated among small and medium-sized limited-liability firms. Debt overhang is therefore not a pure investment wedge but a persistent drag on firm scale, whose incidence across inputs is determined by whether the firm is growing or shrinking. |
| Keywords: | capital-labour substitution, debt overhang, employment, firm growth, firm leverage |
| JEL: | D22 E22 E24 G31 G32 J23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:344000 |
| By: | Khder Alakkari (Department of Statistics and Programming, Faculty of Economics, Latakia University, P.O. Box 2230, Syria; Faculty of Dentistry, Al Andalus University for Medical Sciences, Tartus, Syria; Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria); Bushra Ali (Department of Financial and Banking Sciences, Faculty of Economics, Tartous University, Syria); Mariem Brahim (Paris School of Business, Paris 75005, France); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | In this paper, it is analyzed whether deregulation can be used as a positive or negative state dependent predictor of U.S. stock market bubbles. We use monthly data between February 1973 and May 2025 to calculate the dynamics of these bubbles using 6 Multi-Scale Log-Periodic Power Law Singularity Confidence Indicators, separated by positive and negative bubbles in short-, medium- and long-term horizons. We then use a multivariate quantile-on-quantile regression model to analyse the joint changing nature of the prediction power of deregulation as the distribution of deregulation intensity and the distribution of bubble confidence are controlled for macroeconomic activity and monetary conditions. The results show the best and most consistent results for medium and long horizon positive bubbles. The long-horizon positive bubble confidence is directly associated with deregulation with larger effects in the upper tail of the bubble distribution. Regulation produces broadly opposite patterns, while proposed deregulation displays considerably stronger predictive content than enacted deregulation, supporting an expectations-based regulatory channel. The findings are robust to alternative controls and bandwidth choices. International evidence for the remaining G7 and BRICS markets is more heterogeneous, reinforcing the U.S.-centered nature of the main results. Overall, deregulation contains state-dependent information about the evolution of equity-market imbalances and may complement conventional indicators used to monitor emerging risks to financial stability. |
| Keywords: | Stock market bubbles, MS-LPPLS confidence indicators, Quantile-on-quantile regression, Regulatory policy, Financial stability |
| JEL: | G01 G12 G18 C22 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202627 |
| By: | Chakraborty, Lekha (National Institute of Public Finance and Policy); Prasanth C. (Christ (Deemed to be University), Bengaluru) |
| Abstract: | This paper investigates whether AI adoption has induced structural changes in the determinants of Indian sovereign bond yields across the maturity spectrum. The rapid global adoption of artificial intelligence (AI) in times of macroeconomic turmoil, particularly generative AI technologies since late 2022, has prompted intense debate about its potential macroeconomic consequences, including the measurement issues. Using monthly data from 2000 to 2025 and autoregressive distributed lag (ARDL) models augmented with an AI dummy variable and slope interactions on expected inflation and broad money (M3) growth, we identify significant regime shifts. Results indicate that in the post-AI period, longer-maturity yields exhibit markedly reduced sensitivity to expected inflation and money supply growth. This dampening is statistically significant, with interaction terms largely offsetting baseline positive elasticities. By contrast, short-term yields (91-day Treasury bills) show heightened inflation sensitivity in the AI era, while intermediate yields display mixed patterns. These findings are consistent with theoretical predictions that AI-driven productivity gains could lower equilibrium real interest rates and weaken traditional monetary transmission channels at the long end of the yield curve. For an emerging market like India, where inflation expectations have historically influenced borrowing costs, such changes may enhance monetary policy independence but complicate fiscal-monetary coordination. The paper contributes to the sparse empirical literature on AI’s financial market implications in emerging economies. Policy implications include the need for the Reserve Bank of India (RBI) to recalibrate forward guidance and liquidity operations in light of evolving yield dynamics. |
| Keywords: | Sovereign bond yields ; artificial intelligence ; ARDL bounds testing ; structural change ; monetary transmission ; India |
| JEL: | E43 E44 O33 G12 C22 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:npf:wpaper:26/450 |
| By: | Valentina Michelangeli (Bank of Italy); Silvia Sacco (IVASS); Valentino Bado (Bank of Italy); Valeria De Chiara (Bank of Italy); Ginette Eramo (Bank of Italy); Francesco Ficarola (IVASS); Irene Mavilia (Bank of Italy); Claudia Miani (Bank of Italy); Ivan Quaglia (Bank of Italy); Giuseppe Reale (Bank of Italy); Francesco Sciarretta (IVASS); Riccardo Scimone (Bank of Italy); Laura Sigalotti (Bank of Italy) |
| Abstract: | We analyse the structure and evolution of the Italian financial system over the period 2019-2025 using a multilayer network framework that captures interconnections across financial institutions and instruments. The network has a bank-centred core, with insurance companies acting as intermediate connectors and investment funds forming a broad periphery. Although the overall number of institutions remains broadly stable, sectoral dynamics diverge, as consolidations among banks and insurers are offset by the expansion of the investment fund sector. While individual layers have distinct topological characteristics, cross-sector linkages account for a growing share of total connections, underscoring their increasing role in shock transmission. Despite its sparse structure, the network exhibits small-world properties, implying a rapid contagion potential. Consolidation episodes are associated with temporary but meaningful structural shifts, while the network's overall architecture remains remarkably stable over time. |
| Keywords: | banks, insurers, investment funds, interconnections, network analysis |
| JEL: | G21 G22 G23 G18 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1049_26 |
| By: | Marco Albori (Bank of Italy); Andrea Zaghini (Bank of Italy) |
| Abstract: | We study how the emergence of generative artificial intelligence (AI) affected corporate bond pricing. Using bond-level issuance data for U.S. non-financial corporations and a difference-in-differences design centered on the launch of ChatGPT, we examine whether debt investors differentiate firms according to their position in the AI value chain. We find that hyperscalers experienced a significant decline in borrowing costs relative to comparable issuers, while software firms faced less favorable financing conditions. The results suggest that credit markets rapidly incorporated expectations regarding the distribution of gains and losses from generative AI. More broadly, the evidence indicates that technological shocks affect not only firm valuations but also the cost of external finance, thereby influencing the allocation of capital across firms during periods of technological transition. |
| Keywords: | artificial intelligence, asset pricing, bonds, corporate finance |
| JEL: | G12 G32 C23 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1057_26 |
| By: | Antonia Manzini (Bank of Italy); Diego Scalise (Bank of Italy) |
| Abstract: | Technological innovation has profoundly transformed financial services. This paper examines the diffusion of technology-intensive firms operating in the financial sector (fintech) and the pivotal role of venture capital in supporting their development. The analysis reveals an ecosystem predominantly consisting of small fintech firms, which cluster in the financial centres of countries with more developed capital markets. These locations are home, in particular, to business-to-business (B2B) firms, which frequently develop digital solutions for financial institutions. In this environment, incumbent financial intermediaries become the natural acquirers of the most promising fintech start-ups, integrating their technologies and capabilities into their value chains. Access to diversified sources of finance is a key determinant of these firms' growth. Venture capital acts as a catalyst by fostering strategic partnerships and facilitating the integration of innovative technologies, thereby contributing to the transformation of traditional financial intermediation. The distribution of fintech firms and the evolution of their financing cycle portray a sector undergoing a transition from an initial phase of rapid expansion to one of gradual consolidation. |
| Keywords: | fintech concentration, fintech venture capital |
| JEL: | G15 G24 G34 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1055_26 |
| By: | Louis-Alexandre Bayol (Banque de France) |
| Abstract: | Using Google Search Volumes (GSV), I develop the GSV-based Digitization of Payments Index (GSVDPI), a multidimensional metric built via machine and deep learning models, to track the evolution of digital payments. This index allows for quantifying the changes in the use of digital payment instruments (card, contactless, mobile, and others) in France and comparison with other European countries like Germany, Italy, and Spain. Compared with standard payment digitization statistics published by institutions like the European Central Bank (ECB), the GSVDPI offers distinctly valuable and real-time insights. Consequently, the GSVDPI accounts for the complex dynamics and policy expectations of the digitization process, which are typically overlooked by univariate metrics. I contribute to the literature by identifying the economic mechanisms driving digital payment adoption and examining its macroeconomic effects through a cross-country analysis. I show that incorporating the GSVDPI into the explanatory variables of a multivariate cash demand framework significantly enhances model performance, thereby offering deeper insights into future payment trends. |
| URL: | https://d.repec.org/n?u=RePEc:boc:carp26:11 |
| By: | Pawel Janas |
| Abstract: | Large financial intermediaries are more stable than small ones, and the largest are also the most geographically diversified. Whether that breadth is a source of stability or a byproduct of scale is difficult to establish, since intermediaries diversify by growing large. I examine how the diversified intermediary is assembled, using a newly digitized firm-by-state panel of the near-universe of U.S. life insurers from 1888 to 1940, the largest nonbank institutional investors of the period. Over these decades, the number of insurers per state more than quadrupled and within-state concentration declined by half, yet a small number of geographically extensive insurers retained a stable share of national premiums. I decompose firm-level outcomes into the insurer’s underwriting level and the composition of its book. Insurers entered new states before attaining scale, each entry constituting a small and favorably selected position with the convex payoff of a real option. The most successful decile of entries generated half of a cohort’s premium. Expansion was costly on two margins: a broad insurer earned less per dollar of coverage and paid 15.1 percent more in claims than an equally large insurer writing in the same state and year. The pricing cost is attributable to the composition of a broad insurer’s book, the claims cost to the insurer itself. A comparison across firms understates the claims cost, since the markets a broad insurer adds exhibit favorable claims experience of their own. Stability, by contrast, is attributable to scale, since breadth’s advantages in volatility and survival vanish conditional on size. Risk pooling was bounded: approximately nine tenths of an insurer’s loss-ratio variance was common to its markets. Diversification was the product of costly expansion, and the stability attributed to it is the scale that expansion produced. |
| JEL: | G22 G23 N21 N22 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35769 |
| By: | Michael D. Bordo; Carolyn Wilkins |
| Abstract: | This paper uses the history of private money to assess the conditions under which stablecoins could function safely at scale and what their growth may imply for U.S. monetary power. Historical systems of private money in the United Kingdom, the United States, Canada, Sweden, and Switzerland show that par circulation depended on institutional arrangements rather than payment technology. Drawing on the monetary history of private money, convertibility, and international currencies, the paper identifies five foundations for scalable private money: credible convertibility, high-quality and transparent backing, a uniform regulatory perimeter, par clearing infrastructure, and credible crisis management and loss allocation. Stablecoins may improve settlement speed, programmability, and cross-border access, but they do not remove these requirements. Applying this framework to contemporary stablecoins and the GENIUS Act, the paper finds that the Act addresses several of these foundations more fully than others, with crisis management and cross-border coordination less fully developed. Dollar stablecoins could extend the reach of dollar settlement, but historical experience reviewed here suggests that whether this strengthens the dollar system depends both on the institutional framework supporting stablecoins and on the deeper foundations of U.S. monetary dominance: confidence in U.S. institutions, fiscal capacity, monetary credibility, and the rule of law. |
| JEL: | E42 E44 G15 N20 N40 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35768 |
| By: | Olivier Blanchard (Peterson Institute for International Economics, Paris School of Economics, and Massachusetts Institute of Technology); Daniel Leigh (International Monetary Fund); Prachi Mishra (Ashoka University) |
| Abstract: | We look at the effects of debt and primary fiscal balances on sovereign credit ratings through the lens of a simple model. We find that the ratings differ from the implications of the model in three important ways. They give much more weight to debt relative to forecast primary balances. They understate the effects of the difference between the interest rate and the growth rate. They give a very large role to country effects. For the same level of debt and forecast primary balances, they imply extremely different ratings across countries, and imply extremely different levels of debt needed to reach a given rating. |
| Date: | 2026–09–21 |
| URL: | https://d.repec.org/n?u=RePEc:ash:wpaper:171 |
| By: | Raffaela Giordano (Bank of Italy); Luigi Infante (Bank of Italy); Andrea Neri (Bank of Italy); Giada Andrea Prete (Bank of Italy); Matteo Spuri (Bank of Italy) |
| Abstract: | In this paper, we investigate the impact of population ageing on household portfolio choices in Italy, France, Germany, and Spain, drawing on HFCS data for the period 2010–2020. The findings indicate that the propensity to hold risky assets follows an inverted U-shaped pattern over the life cycle and is comparatively lower in Italy; this difference cannot be attributed to demographic factors but rather reflects structural determinants. However, when business wealth is incorporated into the definition of risky assets, cross-country disparities are substantially reduced, suggesting that Italian households are not less exposed to risk per se, but instead hold it through alternative asset compositions. |
| Keywords: | household portfolio, life cycle, financial wealth, non-financial wealth, risky assets |
| JEL: | C25 D14 D15 D31 G51 J11 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1036_26 |
| By: | Yohann Berthelin (Université Lumière Lyon 2, CNRS, Université Jean-Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France); Lise Clain-Chamosset-Yvrard (Université Lumière Lyon 2, CNRS, Université Jean-Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France) |
| Abstract: | We address the question of whether macroprudential policy can extend its mandate beyond correcting financial frictions to also internalizing environmental externalities. We analyze a dynamic general equilibrium model with two externalities: financial frictions and pollution from using brown capital. Our model features heterogeneous agents with infinite lifetimes, of two kinds of capital, polluting and non-polluting, and of a macroprudential policy represented by differentiated loan-to-value (LTV) through a credit constraint faced by entrepreneurs. First, we derive closed-form expressions for optimal differentiated LTV ratios that replicate the social planner’s allocation. Second, the green LTV internalizes financial frictions only, while the brown LTV additionally accounts for pollution externalities, which can turn negative when environmental costs are sufficiently high, indicating that the first-best allocation instead requires a tax-like penalty on the financing of dirty capital rather than a conventional non-negative loan-to-value ratio. Third, the LTV associated with polluting capital becomes more stringent when environmental quality directly affects agents’ utility rather than total factor productivity. |
| Keywords: | Environmental policy, Macroprudential policy, Environmental transition |
| JEL: | E32 Q50 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2608 |