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on Financial Development and Growth |
| By: | Olivia Bordeu; Gustavo González; Marcos Sorá |
| Abstract: | We study how banking market structure and branch networks shape the spatial mobility of capital. Using administrative loan-level data from Chile, we show that bank-level deposit shocks lead receiving banks to increase lending and lower interest rates relative to other banks. Interest rate reductions are concentrated in cities where the bank has a small market share, consistent with local market power. We develop and estimate a quantitative spatial model with multi-city banks, oligopolistic local credit markets and frictions in interbank lending. These channels lead to spatial dispersion in interest rates and the marginal productivity of physical capital, reducing GDP. Interbank frictions reduce steady-state GDP by 0.04%, while spatial variation in loan markups reduces GDP by 0.5%. Bank mergers improve financial integration between cities but reduce competition, generating heterogeneous welfare effects that depend on the merging banks’ geographic overlap. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1066 |
| By: | Merissa Piazza |
| Abstract: | Community development financial institutions (CDFIs) support low- and moderate-income areas by providing not only investment, but also technical assistance, capacity building, financial coaching, and more. Drawing on transaction-level investment data and interviews with CDFI loan funds from across the Fourth Federal Reserve District, this report examines how these mission-driven organizations play a key role in community and economic development. |
| Date: | 2026–04–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:c00034:103087 |
| By: | Martin Trombetta (Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política (IIEP UBA–CONICET). Buenos Aires, Argentina.); Joaquín Waldman (Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política (IIEP UBA–CONICET). Buenos Aires, Argentina.); Lautaro Souto (Universidad de Buenos Aires. Facultad de Ciencias Económicas. Instituto Interdisciplinario de Economía Política (IIEP UBA–CONICET). Buenos Aires, Argentina.) |
| Abstract: | We study the effect of inflation on poverty in a large panel dataset of 160 countries observed from 1970 to 2024. We estimate two-way fixed effects models that control for per capita GDP and calculate the sensitivity of internationally harmonized poverty measures (using different poverty lines) to the inflation rate. Our results point to a statistically significant positive impact of inflation on poverty, but only when relatively high poverty lines are used. Heterogeneity analysis reveals that the size of this effect is positively associated to country income level. Furthermore, unconditional quantile regressions suggest that the effect is larger in the second quartile of the international poverty rate distribution, implying the link is particularly strong for upper-middle income countries (notably, Latin American economies). Our findings replicate in a subsample of disinflation episodes. These results contribute to the relevant ongoing debate on the consequences of inflation and disinflation, suggesting a rationale for the political popularity boost usually associated to successful disinflations. |
| Keywords: | Inflation; Poverty; Distribution; Cross-country; Two-way fixed effects; Unconditional quantile regressions |
| JEL: | E31 I32 O11 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ake:iiepdt:2026-116 |
| By: | Elías Albagli; Guillermo Carlomagno; Javier Ledezma; María Teresa Reszczynski |
| Abstract: | We propose a structural framework to uncover the key forces shaping global asset prices and financial conditions. Our approach identifies seven distinct shocks: four U.S.-centric (growth, monetary policy, common risk premium, and a novel dollar-hedging risk), alongside a global hedging risk premium, a China-growth shock and an emerging market-specific risk premium shock. Using daily financial data from 2010–2025, we estimate a Structural VAR to trace how these shocks propagate across advanced and emerging economies. Our contributions are threefold. First, we introduce a real-time monitoring tool that provides structural interpretation and scenario analysis, equipping policymakers with a unified lens to assess asset price dynamics. Second, we improve shock identification through three innovations: (i) incorporating the dollar-hedging risk shock to explain anomalies observed since 2025, (ii) improving U.S. shock identification by leveraging non-U.S. data, and (iii) highlighting the pivotal role of Chinagrowth shocks in shaping emerging-market conditions. Finally, we develop a novel Financial Conditions Index (FCI) grounded in structural shocks, enabling country-specific assessments and enhancing interpretability. Unlike traditional FCIs, our index directly links financial conditions to their economic drivers, improving realtime monitoring and outperforming existing alternatives in nowcasting economic activity. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1080 |
| By: | Xin Tian; Jan P.A.M. Jacobs; Jakob de Haan; J. Paul Elhorst; Jan Jacobs |
| Abstract: | Although financial market fluctuations that move together are often interpreted as evidence of a global financial cycle, driven by macroeconomic and financial shocks, they may also result from spillover effects generated by local financial linkages and interdependencies among countries. This study is among the first to jointly test the impact of global common factors and local spatial spillover effects by integrating both mechanisms into a unified dynamic spatial panel data model. The global common factors are determined not only by means of a latent dynamic factor derived from a large panel of monthly data on financial variables, but also by means of cross-sectional averages of the dependent variable. Local spatial spillover effects are determined by means of spatial lags determined by neighboring countries through different metrics of proximity. Using quarterly data on national financial cycles in credit and equity markets in 25 countries over the period 1997-2019, along with four distance matrices and two control variables, we find that the dependence between countries in national financial cycles stems from a combination of all the proposed model elements. In addition, geographic distance appears to be the best performing representation of the local spillover effects between national credit cycles and economic distance between national equity cycles. |
| Keywords: | global financial cycle, national financial cycle, dynamic spatial panel model, cross-sectional dependence, spillovers |
| JEL: | C13 E44 F32 F36 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12622 |
| By: | Fernando Pérez (Banco Central de Reserva del Perú) |
| Abstract: | The increase in uncertainty has harmful effects on both financial markets and the aggregated economy. At a global level, we have observed events that are known to have increased uncertainty and volatility in different indicators, especially the recent announcements associated with changes in trade policies (2025). These shocks generally involve an increase in indicators such as the VIX (volatility), the EPU (economic policy uncertainty), as well as collateral effects in both advanced and emerging financial markets. These effects are generally observed as a supply shock, generating higher inflation and lower economic activity. In this context, we seek to measure the impact of this type of combined shock on Latin American financial markets (measured through the EMBI, the exchange rate, and stock market indexes), as well as on activity and inflation. The countries analyzed are Brazil, Chile, Colombia, Mexico, and Peru, and the sample includes monthly data from January 2004 to September 2025. To quantify these effects, we estimated a Bayesian Hierarchical Panel VAR model, which has an external block that represents global markets and is not affected by shocks in the LATAM block. The global uncertainty shocks are identified through zero and sign restrictions. Results indicate that these shocks produce a favorable effect on the financial markets of the economies under analysis, in terms of a strengthened currency, lower country risk, and a temporary expansion in the stock market. |
| Keywords: | Panel Bayesian Vector Autorregressions, Uncertainty |
| JEL: | C23 E44 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-008 |
| By: | César M. Ciappa; Eduardo Levy Yeyati; Franco M. Vazquez |
| Abstract: | Emerging markets have accumulated large reserve buffers, but whether these buffers causally affect inward foreign direct investment (FDI) remains an open question. Using an unbalanced panel of emerging market economies over 2001–2020, we estimate twoway fixed-effects models of net inward FDI inflows with a rich set of lagged controls. We address the endogeneity of reserve accumulation by instrumenting lagged reserves with the two-year-lagged log of each country’s commodity import price index—a source of balance-of-payments pressure orthogonal to export-driven profitability shocks, conditional on a country-specific commodity export price index. The IV estimates imply that a 10% increase in reserves raises FDI inflows by about 18.5% (an elasticity of 1.85), more than four times the fixed-effects OLS estimate of 0.4. The effect is amplified during global stress episodes: the IV elasticity is 1.85 in the full sample but falls to 1.34 when crisis years (2008–2009, 2020) are excluded, consistent with reserves functioning as insurance that matters most when downside risks are salient. |
| Keywords: | international reserves; foreign direct investment; emerging markets; commodity prices; instrumental variables. |
| JEL: | F21 F31 F32 E58 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpgobi:wp_gob_2026_08 |
| By: | Mirjalili, Seyed hossein; Keshtgar, Nafiseh; Abdurahimian, Mohammad Hossein; Fakhar poor, saeed |
| Abstract: | This study aims to identify the macroeconomic factors influencing the likelihood of a banking crisis in Iran, with a particular focus on macroprudential policy. We employed a discrete econometric model (Logit/Probit) using data from 2011 to 2023. The independent variables include the loan-to-deposit ratio (LTD) as a proxy for macroprudential policy, the interbank interest rate as a proxy for monetary policy, as well as the inflation rate and exchange rate volatility as indicators of macroeconomic instability. The positive and significant coefficient of LTD confirms that liquidity risk arising from excessive credit expansion is the main domestic factor increasing the probability of a crisis. The strong and positive coefficients for inflation and exchange rate volatility suggest that macroeconomic and currency shocks threaten financial stability by deteriorating asset quality and increasing loan defaults. The coefficient for the interbank rate implies the dominance of the disciplinary and supervisory effects of monetary policy over liquidity risk, meaning that a targeted increase in the policy rate by the central bank effectively reduces the probability of a crisis by imposing higher costs on riskier banks. Overall, the findings indicate that financial stability in Iran is influenced by short-term liquidity management and macroeconomic shocks, and that macroprudential policy plays an effective role in curbing risk-taking behavior. |
| Keywords: | Banking crisis; macroprudential policy; Loan to Deposit ratio; Exchange Rate Volatility; Systemic risk. |
| JEL: | G28 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128879 |
| By: | Esteban Méndez-Chacón (Department of Economic Research, Central Bank of Costa Rica); Ana Patricia Villalta-Castro (Department of Economic Research, Central Bank of Costa Rica) |
| Abstract: | This paper proposes a methodology to review and establish the minimum operating capital requirements for private banks and non-bank financial institutions in Costa Rica, in accordance with Article 151 of the Organic Law of the National Banking System. The analysis concludes that the minimum capital level in force for private banks in 2025, amounting to ₡17.121 million, is relatively high compared to that of countries belonging to the Organisation for Economic Co-operation and Development (OECD). The proposed methodology is based on an econometric approach using linear regression with variable selection based on the Akaike Information Criterion (AIC) with a correction for small sample sizes. To implement this, a database is constructed using data from OECD countries on variables that reflect their economic conditions and the characteristics of their financial systems. The results suggest that the expected minimum capital for Costa Rica should be around ₡12.765 million, implying that the current level is nearly 25% above those estimated in this paper. ***RESUMEN: Este documento propone una metodología para revisar y establecer el monto de capital mínimo de operación exigido a los bancos privados y a las entidades financieras no bancarias en Costa Rica, conforme al artículo 151 de la Ley Orgánica del Sistema Bancario Nacional. Del análisis se concluye que el nivel de capital mínimo vigente en 2025 para los bancos privados, de ₡17.121 millones, es relativamente alto en comparación con el imperante en países adscritos a la Organización para la Cooperación y el Desarrollo Económicos (OCDE). La propuesta metodológica se basa en un enfoque econométrico que utiliza una regresión lineal con selección de variables mediante el criterio de información de Akaike con una corrección para tamaños de muestra pequeños. Para su implementación, se construye una base de datos con información de los países miembros de la OCDE sobre variables que reflejan sus condiciones económicas y las características de sus sistemas financieros. Los resultados sugieren que el capital mínimo esperado para Costa Rica ronda los ₡12.765 millones, lo que implica que el nivel actual es cerca de un 25% superior al estimado en este estudio. Además, la evidencia recopilada indica que la mayoría de los países de la OCDE no aplica ajustes automáticos ni recurrentes al capital mínimo. |
| Keywords: | Minimum Capital, Financial Regulation; Capital mínimo, Regulación financiera |
| JEL: | G21 G28 C51 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:apk:nottec:2602 |
| By: | Zsofia Döme (Financial Market Authority Liechtenstein); Michael Sigmund (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division) |
| Abstract: | Since 2014, several countries have implemented the Basel III countercyclical capital buffer (CCyB) to enhance the banking sector’s resilience against risks arising from excessive credit growth. We analyze the CCyB decision-making process of macroprudential authorities across Europe. Our findings indicate that macroprudential authorities neither follow the Basel Committee on Banking Supervision (BCBS) guide, based on the credit-to-GDP gap, nor do they rely on the variables recommended by the European Systemic Risk Board when setting the CCyB rate. However, we demonstrate that had the BCBS CCyB guide been applied prior to the global financial crisis of 2007–2008, capital reserves within the European banking sector would have been sufficient to cover the 240 billion euros in government support used to stabilize financial institutions. Our results show that CCyB decision rates are predominantly influenced by a positive cycle-neutral CCyB approach and the funding structure of banking supervision. |
| Keywords: | Countercyclical capital buffer; Macroprudential policies; Financial cycles |
| JEL: | E32 E58 E61 G21 G28 |
| Date: | 2025–10–23 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:269 |
| By: | Gustavo S. Cortes; Lucas A. Mariani; Vinicios Sant'Anna |
| Keywords: | Financial Markets, trade |
| Date: | 2024–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:rza:ersawp:890 |
| By: | Kujtim Avdiu; Jochen Güntner (JKU Linz); Karin Mayr-Dorn (JKU Linz); Esther Segalla (Oesterreichische Nationalbank, Economic Studies Division) |
| Abstract: | We describe a novel mechanism via which multinational enterprises (MNEs) can serve to propagate productivity and credit supply shocks across borders. We augment the costly-state-verification model of Bernanke et al. [1999] with the internal capital market constraint of an MNE to analyze the external and internal financing and investment decisions of MNE parents and affiliates. We validate our theoretical predictions empirically using mandatory-reporting data on all Austrian MNEs and their FDI relationships with German affiliates for 2007–2022. Importantly, we find that Austrian parent firms extend less internal credit to more productive German affiliates and reduce their own stock of external liabilities with domestic banks relative to the affiliate’s total assets. In turn, more productive German affiliates reduce their share of internal liabilities with Austrian parents and increase their external leverage instead. |
| Keywords: | Bank lending, external finance, financial friction, internal capital markets, multinational firms |
| JEL: | D24 E44 F23 G32 |
| Date: | 2026–03–09 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:274 |
| By: | Jennie Bai; Luc Laeven; Yaojun Ke; Hong Ru |
| Abstract: | We study the global footprint and real effects of Chinese overseas corporate ownership. By assembling a comprehensive micro-level dataset of 161, 773 firms across 159 countries (2012–2021), we independently reconstruct multi-layered ownership chains to trace capital through offshore tax havens to its ultimate origin. This approach reveals a global footprint substantially broader than official FDI statistics. Chinese-controlled foreign assets expanded at 20% annually, reaching $2.1 trillion or roughly 3% of global corporate assets by 2021. Chinese investors—particularly state-owned enterprises (SOEs)—strategically target R&D-intensive and supply-chain-linked firms. Following acquisition, target firms increase capital stock and R&D expenditures, yet these inputs fail to generate higher patent output and are accompanied by a significant decline in profitability. We document a novel 'innovation spillback' mechanism: while target innovation remains stagnant, Chinese parent firms experience a sharp acceleration in granted patents following their first developed-economy acquisition. Furthermore, a greater Chinese presence crowds out R&D at non-target peer firms, though aggregate industry-level innovation remains unchanged. China thus represents a distinctively state-driven model of global ownership that accepts weaker near-term performance to internalize technological capacity at home. |
| JEL: | F3 G32 G34 O3 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35106 |
| By: | Juliana Robbert; Vladyslav Sushko; Frank Westermann |
| Keywords: | geography of currency trading, foreign exchange, renminbi internationalization, cross-border banking |
| JEL: | F31 F33 G15 G18 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1345 |
| By: | Kimani, Stephanie |
| Abstract: | This study investigates the sector-specific determinants of MSME credit in Kenya across three dominant sectors-real estate, trade, and transport & communication-that collectively account for nearly 70% of bank MSME lending. Using quarterly data from 2012 to 2024, we apply sectoral Autoregressive Distributed Lag (ARDL) models to capture both short-run dynamics and long-run equilibrium relationships. The analysis integrates supply-side indicators (non-performing loan ratios, lending interest rates, and banking sector liquidity) with demand-side proxies (sectoral GDP), while also introducing a structural policy shock through the 2016-2019 interest rate cap as a dummy variable. Findings reveal significant sectoral heterogeneity: MSME credit in real estate is decoupled from GDP growth and more sensitive to liquidity; trade credit strongly follows sectoral GDP but is vulnerable to NPL shocks; and transport & communication lending exhibits the fastest adjustment to equilibrium, shaped by both demand conditions and borrowing costs. The results provide novel empirical evidence on the differentiated nature of MSME credit drivers in Kenya and highlight the importance of sector-sensitive credit policies, robust risk-sharing frameworks, and targeted liquidity support mechanisms. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kbawps:340178 |
| By: | Cheruiyot, Josea K. |
| Abstract: | This paper examines the incidence and determinants of credit rationing and borrower discouragement among Kenyan SMEs using firmlevel data from the 2018 World Bank Enterprise Survey. Only about onequarter of firms report no financing obstacles, while the majority face constraints of varying severity. Younger, informally registered, femaleowned, and unaudited firms are significantly more likely to be constrained, consistent with informational opacity and limited collateral. Credit application patterns indicate extensive selfexclusion: roughly threequarters of SMEs do not apply for loans despite plausible financing needs, citing anticipated rejection, high interest rates, collateral requirements, or other perceived deterrents. Among those who apply, approval rates exceed 90 percent, suggesting that effective rationing arises mainly from preapplication barriers rather than lender denial. These findings indicate that frictions-limited transparency, weak disclosure, and elevated borrower risk perceptions-play a central role in suppressing SME participation in the formal credit market. Policies that expand collateral substitutes, strengthen credit information systems, and support financial reporting could alleviate these frictions and broaden access to credit. |
| Keywords: | SMEs, Credit, Financing Constraints, Discouraged Borrowers, Kenya |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kbawps:340183 |
| By: | Ochenge, Rogers |
| Abstract: | Partial Credit Guarantees (PCGs) are central to MSME finance, yet their pricing impact is uneven. Using loan-level evidence from 28, 356 guaranteed MSME loans issued in Kenya between 2013 and 2024, this paper examines whether PCGs reduce defaults and borrowing costs, and separately benchmarks Kenya's treasury-run Credit Guarantee Scheme (CGS) against international standards. The results show that higher coverage reduces default rates, especially in high-risk sectors such as agriculture and community services, and modestly lowers interest rates. However, when loans are already collateralized, the marginal benefit of guarantees is limited, and sectoral pricing disparities persist, suggesting that banks do not fully transmit risk-sharing gains to MSMEs. The comparative review highlights several design gaps in Kenya's treasury CGS: coverage is fixed rather than risk-based, allocation of guarantees is largely bank-driven, fees do not reflect borrower risk. These features contrast with leading international models such as the U.S. SBA 7(a) program, Korea's KODIT, and Chile's FOGAPE, which use tiered coverage, risk-based pricing, and stronger governance mechanisms. Overall, while PCGs in Kenya expand credit and reduce lender risk, they have not consistently lowered borrowing costs. Reforms that introduce flexible, risktiered coverage, risk-based fees and transparent allocation would align Kenya's system with global best practice and enhance its role in supporting MSME finance under Vision 2030. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kbawps:340175 |
| By: | Giannoulakis, Michael |
| Abstract: | This paper presents a comprehensive review of the literature on non-performing loans (NPLs) and their determinants, covering studies published between 1987 and 2025. In contrast to earlier reviews, it introduces a novel dichotomy that distinguishes between behavioural determinants, such as managerial practices, governance structures, and strategic decision-making, and non-behavioural determinants, including macroeconomic and systemic conditions. This classification provides a clearer conceptual framework for understanding the processes underlying NPL formation and dynamics. Beyond synthesising prior evidence, the paper highlights key trends in the literature, documents the growing academic and policy attention devoted to NPLs, and identifies critical gaps. In particular, it calls for deeper analysis of behavioural drivers, cross-country comparative studies, and the interaction between financial innovation and credit risk. By providing both synthesis and direction, this review offers an updated and structured resource for researchers, policymakers, and practitioners concerned with credit risk and financial stability. |
| Keywords: | Non-performing loans; credit risk; banking sector; macroeconomic determinants; governance; financial stability |
| Date: | 2025–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:gpe:wpaper:51102 |
| By: | Giannoulakis, Michael |
| Abstract: | This chapter investigates the interconnectedness of non-performing loans (NPLs) across 30 European economies, including the UK, using the Diebold–Yilmaz spillover index. Employing a linear VAR model of order 2 and Lanne–Nyberg variance decomposition on 12-period-ahead forecast errors over 2010Q1–2022Q2, the analysis reveals a persistently high total spillover index, indicating strong cross-country linkages in NPL dynamics. The results uncover an important asymmetry: economies that emerged from the global financial crisis in a relatively resilient position often act as net transmitters of NPL spillovers, while more vulnerable banking systems typically absorb them as receivers. This finding challenges the conventional view that fragility is the primary source of contagion, instead highlighting the role of resilient systems in propagating shocks through regional financial networks. The paper contributes to understanding the interplay between macroeconomic stability and credit risk transmission, with implications for European financial stability policy and cross-border supervision. |
| Keywords: | NPL; credit risk; spillovers; financial crisis |
| Date: | 2025–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:gpe:wpaper:51103 |
| By: | Farrukh Nematov (The Central Bank of Uzbekistan) |
| Abstract: | This paper develops a risk-based stress-testing framework for emerging microfinance banks using a structural vector autoregressive (SVAR) approach. The model captures the dynamic transmission of key macroeconomic shocks, including economic activity, monetary policy, and exchange-rate movements, to supervisory-relevant banking indicators, including nonperforming loans, capital adequacy, and lending behaviour. The empirical analysis focuses on identifying macro-financial transmission channels that are particularly relevant for supervisory stress testing in newly established banking segments. Impulse response functions are used to derive baseline and adverse macroeconomic scenarios and to evaluate how shocks propagate to banking-sector risk indicators over time. The results highlight the important role of external and monetary shocks in shaping asset quality and capital resilience, underscoring the relevance of macro-financial linkages for the supervision of microfinance banks. The framework proposed in this study provides a transparent and operational tool for translating macroeconomic disturbances into supervisory risk indicators and supports the implementation of risk-based supervision as the microfinance banking sector develops in Uzbekistan. |
| Keywords: | stress testing; SVAR; macro-financial linkages; microfinance banks; exchange rate shocks; capital adequacy; non-performing loans |
| JEL: | C32 E44 E58 F31 G21 G28 |
| Date: | 2026–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp12-2026 |
| By: | Gleb Kozliakov; Emile A. Marin; Sanjay R. Singh |
| Abstract: | Can idiosyncratic risk explain the equity premium? We revisit this question using a novel measure of imperfect risk sharing, implied by a large class of heterogeneous-agent models, constructed using household-level panel data. We identify a group of households – with relatively high income but low net worth – whose consumption is sufficiently volatile and risky to explain 94% of the observed U.S. Sharpe ratio. In contrast, the consumption dynamics of high net-worth individuals predict a negative Sharpe ratio and so do not constitute the relevant pricing factor, consistent with models featuring wealth motives. |
| Keywords: | uninsurable idiosyncratic risk; heterogeneous agents; wealth dynamics; equity premium |
| JEL: | G12 B52 E21 |
| Date: | 2026–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:103059 |
| By: | Nitin Nair |
| Abstract: | This paper causally shows that non-financial corporate liquidity dampens monetary policy transmission. While standard analyses of financial heterogeneity rely on exposure-based esti- mates, I additionally employ Granular Instrumental Variables (GIV) to overcome endogeneity concerns. GIVs exploit idiosyncratic shocks to the largest corporate cash holding firms to identify exogenous variation in the aggregate cash ratio. I then develop a stock-flow consistent growth model to identify the structural conditions under which corporate cash accumulation weakens transmission. These results have direct implications for the effectiveness of monetary policy and motivate the inclusion of corporate liquidity into mechanisms like the financial accelerator and investment functions. |
| Keywords: | Monetary Policy Transmission; Local Projections; Granular Instrument Variables; Corporate Finance; Stock–flow consistent model |
| JEL: | C36 E12 E22 E52 G32 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2610 |
| By: | Denys Casiano (Banco Central de Reserva del Perú) |
| Abstract: | This paper estimates the causal effect of the Central Reserve Bank of Peru's (BCRP) Retail Payments Interoperability Strategy on payment instrument choice and household financial fragility in Peru. Interoperability connected previously segmented digital-wallet networks and payment rails, reducing compatibility and coordination frictions that limit the effective use of digital payments. I combine quarterly microdata from the National Household Survey (ENAHO, 2022–2024) with administrative information to build a predetermined district-level exposure measure based on the relative pre-rollout (December 2022) presence of institutions that become interoperable in each implementation phase. I exploit the staggered rollout and this territorial heterogeneity in a staggered-adoption difference-in-differences design following Callaway and Sant'Anna (2021), complemented with robustness checks and placebo tests. The results suggest a reallocation away from traditional instruments toward more digitized payment channels enabled by interoperability. In particular, I find a decline in cash use for everyday and recurring expenditures and a reduction in card use, alongside an increase in digital channel use (internet banking: +3.3 pp). In parallel, financial fragility falls by 2.3–2.4 pp, consistent with lower liquidity frictions and a greater ability to smooth shocks through timely transfers. The evidence is consistent with a technology channel, as more exposed districts experience a 7.5–7.9 pp increase in the probability of having prepaid mobile internet, in line with households acquiring the minimum connectivity needed to operate mobile payments. Effects concentrate in districts with higher pre-treatment connectivity, human capital, and formality, indicating that interoperability can accelerate the transition away from cash, although its reach remains constrained by persistent structural barriers. |
| Keywords: | Payment systems; interoperability; digital wallets; demand for cash; retail payments; household finance; mobile internet; network externalities. |
| JEL: | D14 D83 E41 E42 G21 L86 O33 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-010 |
| By: | Odongo Kodongo |
| Date: | 2024–08–29 |
| URL: | https://d.repec.org/n?u=RePEc:rza:ersawp:893 |
| By: | Ngunza Maniata, Kevin; Pinshi, Christian P. |
| Abstract: | This article provides a structured review of the rapidly growing literature on the implications of artificial intelligence (AI) for central banking and proposes an organizing taxonomy of the main macro-financial and institutional channels discussed in recent contributions. As a general-purpose technology, AI has the potential to influence productivity growth, price-setting behavior, inflation dynamics, and the transmission of monetary policy, while its diffusion in the financial system may introduce new sources of systemic risk through algorithmic coordination, model opacity, and cyber vulnerabilities. The article synthesizes recent contributions from international financial institutions and academic research to organize these channels within a coherent macro-financial framework. It also reviews documented applications of AI within central banks, including macroeconomic forecasting and nowcasting, supervisory technology, payments oversight, and internal information processing. Attention is given to the emerging literature on African central banks and other emerging market economies, where AI offers opportunities to alleviate data constraints but also raises challenges related to skills, infrastructure, and governance. By organizing and critically assessing existing evidence, the article clarifies why AI constitutes a structural issue for central banking and identifies key areas for future research on monetary and financial stability. |
| Keywords: | Artificial intelligence; Central banks; Monetary policy; Financial stability; Emerging markets. |
| JEL: | E31 E52 E58 G01 G28 O33 O55 |
| Date: | 2026–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128352 |
| By: | Francesca Carapella; Arazi Lubis; Alexandros Vardoulakis |
| Abstract: | This note examines recent developments in the stablecoin industry and their implications for financial stability. During 2025, stablecoins have grown by about 50 percent in terms of market capitalization, with transaction volume and use in DeFi protocols also surging. |
| Date: | 2026–04–08 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:103072 |
| By: | Lissette Briones; Matías Solorza |
| Abstract: | We study the macroeconomic responses of Chilean regions to extreme weather shocks —floods and wildfires— using local projections and novel administrative data. Our results show persistent GDP losses, temporary declines in consumption, and a delayed rebound in investment, accompanied by rising employment but falling wages and effective hours. These patterns contrast with U.S. county-level evidence on natural disasters, highlighting the role of disaster size, and institutional and financial factors in shaping recovery in emerging markets. We interpret the dynamics through four mechanisms: destruction of productive capital, tighter financial conditions that constrain rebuilding, reallocation of production, and household wealth losses that depress consumption while fueling lowwage reconstruction employment. Embedding these insights into a real business cycle framework with financial frictions, we show that financial constraints amplify disaster impacts and slow recovery. Our findings underscore the importance of targeted financial and reconstruction policies to prevent long-term economic scarring. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1062 |
| By: | Felipe Córdova; Francisco Pinto; Mauricio Salas |
| Abstract: | This study provides the first loan-level climate transition risk stress test for Chile’s banking sector, combining granular credit data with NGFS short-term scenarios stem-ming from a general equilibrium framework. We estimate credit losses under orderly and disorderly transition pathways, integrating sectoral shocks with firm-level probabilities of default and addressing uncertainty through resampling. Results show that despite a gradual decline in exposure to carbon-intensive sectors, banks remain vul-nerable: losses under a disorderly transition could nearly double and rapidly approach levels seen during the Global Financial Crisis, with significant heterogeneity across institutions. These findings highlight the systemic and institution-specific nature of transition risks and underscore the need to embed climate risk into supervisory stress testing and capital planning to safeguard financial stability. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1070 |
| By: | Fernando E. Alvarez; David Argente; Diana Van Patten |
| Abstract: | We study the resilience of payment systems to large disruptions in digital infrastructure caused by natural disasters and outages. While advanced economies have rapidly shifted toward electronic payments, these systems depend critically on electricity and information technology, raising concerns about their reliability during crises. We combine high-frequency county-level electricity outage data with detailed weather records, transaction-level expenditure data, household scanner data, and new representative surveys from the United States, Spain, and Sweden. Event-study evidence shows that natural disasters---especially hurricanes---generate persistent outages that sharply reduce expenditures. Natural disasters by themselves do not alter households' choice of payment method; instead, shifts toward cash arise through three channels: electronic payment methods become unavailable, households increase cash holdings for precautionary reasons, and cash is subsequently spent once available ("cash burn"). Consistent with these mechanisms, payment composition shifts markedly: spending rises before disasters due to stockpiling, largely financed with credit, while after disasters digital payments decline and cash usage rises, particularly in areas experiencing outages. Survey evidence confirms that nearly half of consumers are unable to use their preferred electronic payment during outages and that cash serves as a key fallback. Exploiting variation in cash holdings across households and locations, we find that greater access to cash increases the likelihood of completing transactions during outages and mitigates expenditure declines. Complementary survey evidence and the immediate response to our information treatment show that outages and official guidance increase desired cash holdings. Finally, we embed an RCT in the NielsenIQ panel: roughly half of panel households receive authoritative preparedness guidance, and we follow their realized purchases through the subsequent hurricane season. This design provides a clean framework for causal identification of whether greater cash preparedness smooths consumption during weather shocks. Together, the observational, survey, and experimental components of the paper show that cash plays a critical role in sustaining economic activity during payment-system disruptions and point to the value of offline-capable payment instruments, including CBDCs, in increasingly digital economies. |
| JEL: | Q54 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35115 |