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on Financial Development and Growth |
| By: | Onwioduokit, Emmanuel; O'Neill, Harold |
| Abstract: | The research investigates challenges faced by investors in Nigeria despite government efforts to promote credit expansion in the private sector. The primary obstacle identified is financial exclusion, coupled with limited access to credit. The study spans from 1980 to 2022 and measures credit expansion using parameters such as credit to the private sector and deposits at rural bank branches. Other relevant variables, including exchange rates and interest rates, are considered. Economic growth, indicated by the growth rate of real gross domestic product, serves as the benchmark for assessing the impact of credit expansion. The Autoregressive Distributive Lag (ARDL) estimation technique is used to analyze short and long-term relationships among variables. The study establishes a long-term relationship among the variables, emphasizing the substantial impact of credit on Nigeria's economic growth. The Error Correction Mechanism (ECM) results within the ARDL framework underscore this impact. The study recommends that policymakers, particularly the Central Bank of Nigeria, actively promote financial inclusion by expanding loans through commercial banks. Encouraging commercial banks to consistently increase credit to the private sector, with a focus on low single-digit interest rates, is crucial. Additionally, the research advocates for careful structuring and supervision of deposit money banks to ensure allocated funds are used appropriately and not diverted to less productive ventures. |
| Keywords: | Credit Expansion, Financial Inclusion, Economic Growth |
| JEL: | G00 |
| Date: | 2023–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119552&r=fdg |
| By: | Bakari, Sayef |
| Abstract: | The aim of this study is to assess the influence of financial development, domestic investments, and corruption on economic growth, through the analysis of data from 42 Latin American and Caribbean countries spanning the period from 1998 to 2022. Utilizing estimation techniques such as the static fixed-effects gravity model, the random-effects gravity model, and the Hausman test, our findings indicate that domestic investments and financial development exert a positive influence on economic growth. However, it has been observed that corruption control has no significant impact on economic growth. It is recommended to prioritize policies aimed at stimulating domestic investments and financial development to foster economic growth, while implementing specific strategies to strengthen corruption control mechanisms and promote an integrity-focused business environment, despite its relatively limited impact on economic growth. |
| Keywords: | Financial Development, Domestic Investment, Corruption, Economic Growth, LAC Countries. |
| JEL: | G31 O43 O47 O54 P33 P37 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120411&r=fdg |
| By: | Yumeng Gu; Sanjay R. Singh |
| Abstract: | We incorporate incumbent innovation in a Keynesian growth framework to generate an endogenous distribution of market power across firms. Existing firms increase markups over time through successful innovation. Entrant innovation disrupts the accumulation of market power by incumbents. Using this environment, we highlight a novel misallocation channel for monetary policy. A contractionary monetary policy shock causes an increase in markup dispersion across firms by discouraging entrant innovation relative to incumbent innovation. We characterize the circumstances when contractionary monetary policy may increase misallocation. |
| Keywords: | monetary policy; markup dispersion; allocative efficiency; market power |
| Date: | 2024–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97992&r=fdg |
| By: | Victoria Ivashina; Ṣebnem Kalemli-Özcan; Luc Laeven; Karsten Müller |
| Abstract: | Using a new dataset on sectoral credit exposures covering financial and non-financial sectors in 115 economies over the period 1940–2014, we document the following evidence that corporate debt plays a key role in explaining boom-bust cycles, financial crises, and slow macroeconomic recoveries: (i) corporate debt accounts for two thirds of the aggregate credit expansion before crises and three quarters of total nonperforming loans during the bust; (ii) expansions in corporate debt predict crises similarly to household debt; (iii) a measure of imbalance in credit growth flowing disproportionately to some sectors, such as construction and non-bank financial intermediation, is associated with crises; and (iv) the recovery from financial crises is slower after a boom in corporate debt, especially when backed by procyclical collateral values, due to higher nonperforming loans. |
| JEL: | E30 F34 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32225&r=fdg |
| By: | Bo Li |
| Abstract: | Empirical business cycle studies using cross-country data usually cannot achieve causal relationships while within-country studies mostly focus on the bust period. We provide the first causal investigation into the boom period of the 1999-2010 U.S. cross-metropolitan business cycle. Using a novel research design, we show that credit expansion in private-label mortgages causes a differentially stronger boom (2000-2006) and bust (2007-2010) cycle in the house-related industries in the high net-export-growth areas. Most importantly, our unique research design enables us to perform the most comprehensive tests on theories (hypotheses) regarding the business cycle. We show that the following theories (hypotheses) cannot explain the cause of the 1999-2010 U.S. business cycle: the speculative euphoria hypothesis, the real business cycle theory, the collateral-driven credit cycle theory, the business uncertainty theory, and the extrapolative expectation theory. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.04104&r=fdg |
| By: | Alin Marius Andries (Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Nicu Sprincean (Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iași; National Institute for Economic Research, Romanian Academy) |
| Abstract: | We examine the association between sectoral credit dynamics and systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000-2014, we find that lending to households and corporates in the non-tradable sector increases system-wide distress. Conversely, credit granted to corporations and to the tradable sector reduces banks’ systemic behavior. The findings emphasize critical policy implications considering sectoral heterogeneity. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability. |
| Keywords: | systemic risk; sectoral credit; financial stability |
| JEL: | G21 G32 E51 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2423&r=fdg |
| By: | Charles W. Calomiris; Matthew S. Jaremski |
| Abstract: | The high social costs of financial crises imply that economists, policymakers, businesses, and households have a tremendous incentive to understand, and try to prevent them. And yet, so far we have failed to learn how to avoid them. In this article, we take a novel approach to studying financial crises. We first build ten case studies of financial crises that stretch over two millennia, and then consider their salient points of differences and commonalities. We see this as the beginning of developing a useful taxonomy of crises – an understanding of the most important factors that reappear across the many examples, which also allows (as in any taxonomy) some examples to be more similar to each other than others. From the perspective of our review of the ten crises, we consider the question of why it has proven so difficult to learn from past crises to avoid future ones. |
| JEL: | E30 G01 N20 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32213&r=fdg |
| By: | Rustam Jamilov; Tobias König; Karsten Müller; Farzad Saidi |
| Abstract: | We study the macroeconomic causes and consequences of bank runs in 184 countries over the period of 1800-2022. A new narrative chronology of bank run events coupled with a newly constructed historical dataset on banking sector deposits allows us to distinguish between systemic bank runs—those associated with substantial declines in aggregate deposits—and non-systemic episodes. We find that bank runs are typically associated with large contractions in deposits, credit, and output, as well as exchange rate crashes and sudden stops. Whether deposits contract during runs, in turn, predicts the severity of output declines, highlighting that bank runs are particularly costly when they are systemic in nature. Using several sources of historical and contemporary bank-level data, we show that systemic bank runs are associated with a wide dispersion in deposit growth rates and a flow of deposits from more leveraged to safer banks. Taken together, our analysis highlights a key role for the liability side of banks in financial crises, and our new quantitatively validated measure of bank runs provides unprecedented scope for studying such episodes. |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:1039&r=fdg |
| By: | Damane, Moeti; Ho, Sin-Yu |
| Abstract: | International policymakers prioritize financial stability and inclusion, but often view them as separate goals, overlooking potential overlap and trade-offs. If synergies and trade-offs between the two concepts are not recognized and understood, policy design may yield less-than-ideal results. This paper provides a systematic review of the theoretical literature on financial inclusion and financial stability as well as empirical research initiatives examining the relationship between the two concepts. We found that current studies do not always present a unified theoretical approach or conceptual framework to explain the channels of the relationship between financial inclusion and stability. Empirical studies to date offer divergent views on the financial inclusion and stability nexus, a dispensation that may be due to country specificities, the multi-faceted nature of financial inclusion and stability or the seldom uniform use of proxies to capture these concepts in the literature. Not only are some studies inconclusive, but some also suggest that financial inclusion has a positive and significant impact on financial stability, as explained by the institutional theory. While other studies, supported by the aggressive credit expansion theory, reveal that financial inclusion can have a negative influence on financial stability. Through this comprehensive review, we intend to improve awareness and cohesion among scholars and policy makers of financial inclusion and financial stability while also facilitating the development of solid foundations to address future research and policy making challenges. |
| Keywords: | Financial inclusion; Financial stability; Financial regulation, Literature review |
| JEL: | G0 G20 G21 G28 |
| Date: | 2024–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120369&r=fdg |
| By: | A. Fronzetti Colladon; R. Vestrelli; S. Bait; M. M. Schiraldi |
| Abstract: | Various macroeconomic and institutional factors hinder FDI inflows, including corruption, trade openness, access to finance, and political instability. Existing research mostly focuses on country-level data, with limited exploration of firm-level data, especially in developing countries. Recognizing this gap, recent calls for research emphasize the need for qualitative data analysis to delve into FDI determinants, particularly at the regional level. This paper proposes a novel methodology, based on text mining and social network analysis, to get information from more than 167, 000 online news articles to quantify regional-level (sub-national) attributes affecting FDI ownership in African companies. Our analysis extends information on obstacles to industrial development as mapped by the World Bank Enterprise Surveys. Findings suggest that regional (sub-national) structural and institutional characteristics can play an important role in determining foreign ownership. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.10239&r=fdg |
| By: | Camarero, Mariam (University Jaume I and INTECO, Department of Economics); Moliner, Sergi (University of Valencia and INTECO, Department of Economic); Tamarit, Cecilio (University of Valencia and INTECO, Department of Applied Economics II) |
| Abstract: | This paper analyzes how European monetary integration has affected US outward FDI. It finds that at a worldwide level, the Single Market had a larger impact on US FDI than the euro. However, the effect of the euro is also sizeable, ranging between 15% and 64%. |
| Keywords: | FDI determinants, US, European Union, BMA, PPML, G-PPML |
| JEL: | F21 F23 C11 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bda:wpsmep:wp2024/18&r=fdg |
| By: | Eichenauer, Vera; Wang, Feicheng |
| Abstract: | Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007-2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers' attention to weighing the benefits of national security and the economic costs of introducing investment screening. |
| Keywords: | foreign direct investments, national security, M&A, investment screening, global capital allocation, geoeconomic fragmentation, deglobalization |
| JEL: | F21 F52 G34 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:287757&r=fdg |
| By: | Nicola Comincioli; Paolo M. Panteghini; Sergio Vergalli; Paolo Panteghini |
| Abstract: | In this article we study start-up investments in developing countries. Using a representative firm, we wonder how relevant are the effects of taxation and risk on new business activities. It is worth noting that developing countries are usually characterized by three main characteristics. Firstly, a firm’s Earnings Before Interest and Taxes (EBIT) is likely to be more volatile than in developed jurisdictions. Secondly, firms in developing countries can be affected by a higher risk of expropriation. In particular, this may happen when early-stage businesses are supported by multinational companies. Thirdly, financial market show higher inefficiencies, compared to countries. Using a real-option approach, we study start-up investment decisions. We find that, although tax rates are usually higher than the developed countries’ ones, taxation has an almost negligible effect. If however a policy-maker aims at boosting new business activities it must decrease both EBIT volatility and the expropriation risk, as well as improving financial market efficiency. |
| Keywords: | real options, business taxation, default risk, developing countries, numerical simulations |
| JEL: | H25 G33 G38 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11014&r=fdg |
| By: | Yasumasa Morito (University of Wisconsin); Kenichi Ueda (University of Tokyo) |
| Abstract: | Using the bilateral international investment data across countries for 2009-2018, we find that the returns on international investments are lower for rich countries than for poor countries, seemingly consistent with the Lucas Paradox. However, when we look at the excess returns on international investments relative to domestic investments, rich countries are investing more wisely than poor countries. A puzzle arises: Why do poor countries invest mostly in rich countries where relative returns are negative? We investigate the effects of institutional qualities of investor countries, in addition to recipient countries’ characteristics, which the literature has been focusing on. We find that investor countries’ institutional qualities do matter for participating in a wider set of investment destinations, but that they do not affect return sensitivity in allocating funds across participating markets. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf581&r=fdg |
| By: | Meyer, Timothy Andreas |
| Abstract: | U.S. equity outperformance and sustained dollar appreciation have led to large valuation gains for the rest of the world on the U.S. external position. The author constructs their global distribution, carefully accounting for the role of tax havens. Valuation gains are concentrated and large in developed countries, while developing countries have been mostly bypassed. To assess the welfare implications of these capital gains, the author adopts a sufficient statistics approach. In contrast to the large wealth changes, most countries so far did not benefit much in welfare terms. This is because they did not rebalance their portfolios and realize their gains, while they were further hurt by rising import prices from the strong dollar. |
| Keywords: | Foreign Assets, Global Imbalances, Valuation Effects |
| JEL: | F21 F32 F40 G15 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:287755&r=fdg |
| By: | Bippus, B.; Lloyd, S.; Ostry, D. |
| Abstract: | Using data on the external assets and liabilities of global banks based in the UK, the world’s largest centre for international banking, we identify exogenous cross-border banking flows by constructing novel Granular Instrumental Variables. In line with the predictions of a new granular international banking model, we show empirically that cross-border flows have a significant causal impact on exchange rates. A 1% increase in UK-based global banks’ net external US dollar-debt position appreciates the dollar by 2% against sterling. While we estimate that the supply of dollars from abroad is price-elastic, our results suggest that UK-resident global banks’ demand for dollars is price-inelastic. Furthermore, we show that the causal effect of banking flows on exchange rates is state dependent, with effects twice as large when banks’ capital ratios are one standard deviation below average. Our findings showcase the importance of banks’ risk-bearing capacity for exchangerate dynamics and, therefore, for insulating their domestic economies from global financial shocks. |
| Keywords: | Capital flows, Exchange Rates, Granular instrumental variables, International banking |
| JEL: | E00 F00 F30 |
| Date: | 2023–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2314&r=fdg |
| By: | Mengting Zhang; Andreas Steiner; Jakob de Haan; Haizhen Yang |
| Abstract: | We analyse how reversals of several types of capital flows impact currency crises in emerging market and developing economies. Estimates of logit models show that reversals of (equity and debt) portfolio flows significantly increase the likelihood of currency crises in emerging market economies. In developing economies, reversals of portfolio debt flows and banking flows have a significant positive impact on currency crises. Finally, our results suggest that countries with mature financial systems and fixed exchange rate regimes are less likely to experience a currency crisis after a capital flow shock. The mediating role of capital account liberalization varies by country type. |
| Keywords: | capital flow reversals, currency crises, event study approach, logit models, domestic financial factors |
| JEL: | E44 E51 F34 F41 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_11008&r=fdg |
| By: | Sebastian Di Tella; Benjamin M. Hébert; Pablo Kurlat |
| Abstract: | We analytically characterize asset-pricing and consumption behavior in two-account heterogeneous-agent models with aggregate risk. We show that trading frictions can simultaneously explain (1) household-level consumption behavior such as high marginal propensities to consume, (2) a zero-beta rate on equities that satisfies an aggregate consumption Euler equation, (3) a return on safe assets that does not, and (4) a flat securities market line. The return of equities is well explained by aggregate consumption, while the return of safe assets reflects a large and volatile liquidity premium. |
| JEL: | E44 G12 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32268&r=fdg |
| By: | Yun Gao (Hong Kong Monetary Authority); Kenichi Ueda (University of Tokyo) |
| Abstract: | We analyze the loan market under symmetrically imperfect information: the project quality is unknown to both a bank and a firm, but it is revealed with noise to the bank with cost. We show that there are three equilibria, that is, (i) a screening and separating equilibrium, (ii) a non-screening and pooling equilibrium, and (iii) a non-screening, cheap-information based separating equilibrium. They emerge depending on parameter values and are all socially optimal. In particular, the screening and separating equilibrium emerges when the average project quality is low, or when the international interest rate is high. Policies, such as credit easing, business subsidy, and public loan guarantees, make banks reduce or even stop screening. Then, more capital is allocated to unviable firms, resulting in a smaller national income and lower social welfare. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf580&r=fdg |
| By: | Flavia Alves |
| Abstract: | How do "Information and Communication Technologies" (ICTs) reshape the banking industry and banking habits? Using panel data containing detailed banking statements for more than 25, 000 public and private bank branches distributed among over 3, 500 municipalities of Brazil, I show that, following the rollout of the 4G mobile network, 6% of private banks exit the municipalities while their branches shrink on average 11% within five years of the introduction of this technology compared to municipalities that do not have it. By contrast, public banks are not reactive to better mobile connectivity. Credit, savings, and deposits also display different patterns in response to better mobile network in public and private banks. Globally, these results suggest that the internet has been deeply reshaping the banking industry and modifying how credit and savings are distributed to the population with different levels of internet access, with important policy implications for both the industry and consumers. |
| Keywords: | ICT, internet, 4G mobile network, banks, credit, savings, financial inclusion, competition |
| JEL: | D14 G21 G40 L10 L86 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1174&r=fdg |
| By: | Isha Agarwal (Sauder School of Business/University of British Columbia); David Jaume (Bank of Mexico); Everardo Tellez de la Vega (Sauder School of Business/University of British Columbia); Martin Tobal (Bank of Mexico) |
| Abstract: | We provide the first empirical evidence that the “type” of bank lending to the government affects the extent of crowding out in an Emerging Market and Developing Economy (EMDE). For this purpose, we build a new dataset combining proprietary information on all loans granted by commercial banks to non-financial private firms and the government in Mexico, along with data on government bonds held by these banks. By exploiting heterogeneity in firms’ exposure to different types of bank lending to the government within this unique dataset, we show for the first time that the size of crowding out of credit to small and medium-sized firms (SMEs) varies significantly across debt instruments. Specifically, we find that the crowding-out effect is around three times larger for bank loans than for bank holdings of government bonds. This reduced crowding-out effect of bonds is linked to banks’ ability to use them as collateral in the interbank market, which helps them raise secured funding and reduces the need to curtail credit supply to firms. Our findings underscore the importance of welldeveloped sovereign bond markets in mitigating the adverse effects of government borrowing on credit access for SMEs, particularly in EMDEs where credit markets are underdeveloped and these firms are more credit-constrained. |
| Keywords: | Crowding Out, Firm Credit, Public Sector Financing |
| JEL: | E44 H63 G20 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:314&r=fdg |
| By: | Yuan, Mingqing |
| Abstract: | This study examines the relationship between economic policy uncertainty (EPU) and corporate investment by employing the two-step system generalized method of moments approach and panel data from 4619 listed firms in China spanning 2003–2022. We comprehensively analyze EPU’s impact on various timelines of investment and show non-linear dynamics within the EPU–investment nexus. Our findings suggest that EPU negatively affects total and short-term investments, but positively influences long-term investment. Total and short-term investments demonstrate a U-shaped association with EPU, while long-term investment follows an inverted U-shaped pattern. Additionally, we explore the effects of ownership and capital structures. Ownership concentration and institutional ownership amplify the negative impact of EPU on total and short-term investment but alleviate it for long-term investment. State ownership exacerbates the adverse effects on total and short-term investments, with no significant impact on long-term investment. We find that increased debt financing and equity financing intensify the adverse impact of EPU on total and short-term investments, while not significantly affecting long-term investment. This study offers policy implications based on investment horizon, ownership structure, and financial leverage, guiding policymakers and corporate decision-makers. |
| Keywords: | Economic policy uncertainty, Corporate investment, Ownership structure, Capital structure |
| JEL: | C23 D81 E22 G32 P34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119992&r=fdg |
| By: | Sandra Eickmeier; Josefine Quast; Yves Schuler |
| Abstract: | We examine how natural disasters impact the US economy and financial markets using monthly data since 2000. Our analysis reveals large sustained adverse effects of disasters on overall economic activity, with significant implications across various sectors including labor, production, consumption, investment, and housing. Our findings suggest that these effects stem from heightened financial risk, increased uncertainty, declining confidence and heightened awareness of climate change, leading to negative repercussions on the economy. Additionally, consumer prices increase temporarily, likely due to rising energy and food costs. We find a decline in the monetary policy rate and an increase in government spending, which potentially mitigate the adverse macroeconomic effects. However, we also observe a prolonged rise in public debt relative to GDP and a decrease in r-star following the disasters. With climate change persisting, this could constrain the flexibility of monetary and fiscal policies in the future. Overall, our findings emphasize the urgency of combating climate change and, in tandem, enhancing economic and financial resilience. |
| Keywords: | climate change, natural disasters, transmission, local projections |
| JEL: | C22 E31 E32 E44 E52 E62 Q54 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2024-23&r=fdg |
| By: | Salomón García-Villegas (Banco de España); Enric Martorell (Banco de España) |
| Abstract: | How should bank capital requirements be set to deal with climate-related transition risks? We build a general equilibrium macro banking model where production requires fossil and low-carbon energy intermediate inputs, and the banking sector is subject to volatility risk linked to changes in energy prices. Introducing carbon taxes to reduce carbon emissions from fossil energy induces risk spillovers into the banking sector. Sectoral capital requirements can effectively address risks from energy-related exposures, benefiting household welfare and indirectly facilitating capital reallocation. Absent carbon taxes, implementing fossil penalizing capital requirements does not reduce emissions significantly and may threaten financial stability. During the transition, capital requirements can complement carbon tax policies, safeguarding financial stability and trading off long-run welfare gains against lower investment and credit supply in the short run. |
| Keywords: | climate risk, financial intermediation, macroprudential policy, bank capital requirements |
| JEL: | Q43 D58 G21 E44 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2410&r=fdg |
| By: | Goetz von Peter; Sebastian von Dahlen; Sweta C Saxena |
| Abstract: | This paper examines the patterns of macroeconomic recovery following natural disasters. In a panel with global coverage from 1960 to 2011, we make use of insurer-assessed losses to estimate growth responses conditional on risk transfer. We find that major disasters reduce growth by 1 to 2 percentage points on impact, and over time produce an output cost of 2% to 4% of GDP, on top of the initial damage to property and infrastructure. Akin to wars and financial crises, natural disasters have permanent effects, in the sense that output losses are not fully recovered over time. But it is the uninsured losses that drive the macroeconomic cost; insured losses are less consequential in the aggregate, and can even stimulate growth. By helping to finance the recovery, insurance mitigates the macroeconomic cost of disasters. Many countries lack the capacity to (re)insure themselves and would stand to benefit from international risk sharing. |
| Keywords: | natural disasters, growth, recovery, risk transfer, reinsurance, development |
| JEL: | G22 O11 O44 Q54 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1175&r=fdg |
| By: | Robert Engle; Shan Ge; Hyeyoon Jung; Xuran Zeng |
| Abstract: | As the frequency and severity of natural disasters increase with climate change, insurance—the main tool for households and businesses to hedge natural disaster risks—becomes increasingly important. Can the insurance sector withstand the stress of climate change? To answer this question, it is necessary to first understand insurers’ exposure to physical climate risk, that is, risks coming from physical manifestations of climate change, such as natural disasters. In this post, based on our recent staff report, we construct a novel factor to measure the aggregate physical climate risk in the financial market and discuss its applications, including the assessment of insurers’ exposure to climate risk and the expected capital shortfall of insurers under climate stress scenarios. |
| Keywords: | insurance; climate change; physical risk |
| JEL: | G1 G2 G3 |
| Date: | 2024–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:98025&r=fdg |
| By: | Abir Khribich (Université Côte d'Azur, CNRS, GREDEG, France); Rami H. Kacem (Faculty of Economic Sciences and Management of Nabeul, University of Carthage, Tunisia; LEGI, Tunisia Polytechnic School); Damien Bazin (Université Côte d'Azur, CNRS, GREDEG, France) |
| Abstract: | Numerous studies have been proposed in the literature to analyse the determinants of renewable energy consumption and their effects. Nevertheless, despite the various proposed methods and obtained results, nothing is known about which factors are most or least important. This paper proposes to contribute to the literature by comparing their effects and ranking them according to their importance. This additional information may be important when developing policies for energy transition. The proposed procedure is based on the estimation of a panel vector autoregressive (PVAR) model including simultaneously the commonly considered factors affecting renewable energy consumption in the literature, to be able to compare their effects. Next, impulse response functions are drawn, and variances decompositions are made to provide additional information about how renewable energy consumption responds to shocks in each of the considered factors. Empirical validation for 22 high-income countries reveals that financial development is the most important factor that can affect positively renewable energy consumption. Also, it is found that the response of renewable energy consumption to one shock in financial development is the strongest among the studied factors and lasts to the long run. The variance decompositions show that the contributions to the variation in renewable energy consumption are different from one factor to another. |
| Keywords: | Renewable energy consumption, determinant factors, comparative analysis, PVAR model, high-income countries |
| JEL: | Q20 Q28 Q48 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2024-08&r=fdg |