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on Financial Development and Growth |
| By: | Andrea Panozzo, Lorenzo Spadavecchia, Adam Mugume, Elizabeth Kasekende, Samuel Namwanja Musoke, Mariss Nakayaga, Deo Sande, Anita Mpagi, Nzima Ghislain |
| Abstract: | In developing economies, output statistics arrive with long lags and omit a large informal sector, while digital payment systems record a growing share of transactions in near real time. We assess whether these records improve GDP nowcasts in Uganda, exploiting two national systems that observe complementary segments of the economy: Mobile Money, covering retail and informal transactions, and real-time gross settlement (RTGS), covering large-value formal payments. Within a pseudo-real-time design respecting each series’ publication lag, we augment a conventional macroeconomic panel with payment data across linear and machinelearning models. Payment data cut forecast errors by up to 16 percent and rank among the most informative predictors, with up to over three times the weight of a typical macroeconomic indicator. The improvement delivered by payment data is robust to macroeconomic disturbances, such as the COVID-19 contraction. Placebo tests attribute these gains to economic content, not added predictors. Already held by central banks, payment data offer a timely, low-cost input for surveillance where conventional statistics are weakest. |
| Keywords: | Nowcasting, Digital payments, Mobile money, RTGS |
| JEL: | C53 E37 G21 O17 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp26282 |
| By: | Ryan, Alexander |
| Abstract: | To assist policymakers and economic developers in measuring the effectiveness of using firm-specific incentives to attract large manufacturing investments and catalyze broader economic development, I study the role of access to community bank capital in catalyzing spillovers from large manufacturing plants to small business development. I construct a novel dataset of large manufacturing plant openings between 2010 and 2018 and estimate the impact of these openings on small business lending, creation, and expansion in the local economy, using difference-in-differences designs with multiple control groups. The results suggest that community banks drive post-opening increases in small business lending, which translates to higher growth rates in small business creation and expansion. Small businesses in complementary industries experience the largest growth, while small businesses that may compete for labor and other resources do not. These findings will inform policymakers evaluating which places will benefit from place-based policies and financial regulators monitoring the consolidation of the banking industry. |
| Keywords: | Community/Rural/Urban Development |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404879 |
| By: | Marta Domínguez-Jiménez (CEMFI, Centro de Estudios Monetarios y Financieros); Santiago Etchegaray (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | Why do some economies experience a pronounced manufacturing phase during structural transformation, while others move more directly into low-skilled services? This paper shows that financial underdevelopment, by shaping export competitiveness and domestic investment demand, is a quantitatively important driver of flat-manufacturing paths. Motivating evidence links financial depth to manufacturing activity and export performance. We then quantify the mechanism in a dynamic multi-country model of structural transformation and trade, where financial underdevelopment both weakens competitiveness in finance-dependent sectors and lowers demand for manufacturing-intensive investment goods. Moving flat-manufacturing economies halfway to the financial frontier closes over a quarter of the observed flat–steep peak gap; it raises real output per worker by 13 to 17 percent and real consumption per worker by 8 to 12 percent. Paired with lower nonfinancial trade costs, the same financial improvement closes almost three quarters of the peak gap, as finance shapes the manufacturing response that openness amplifies. |
| Keywords: | International trade, Financial frictions, Structural transformation. |
| JEL: | F12 F14 F36 F43 O14 O16 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:cmf:wpaper:wp2026_2607 |
| By: | Kidane, Won L. |
| Abstract: | This Article examines China’s and India’s differing investment treaty and dispute settlement experiences and the resulting implications for Africa. It attempts to answer the question of whether there is evidence of China’s and India’s attempt to take advantage of the default structural imbalance enabled by centuries of international investment laws and institutions that favor the investor. The Article begins by presenting the background of the current economic reality and trends that necessitate the evaluation of the existing rules and institutions. It then presents a detailed assessment of this phenomenon by focusing on the investment cases brought against India for context, followed by a critical appraisal of India’s reaction to the perceived deficiencies of the existing system as evidenced by its new BIT Model Text and the text’s implications for Africa. Next, the Article evaluates the most important body of evidence that comes in the form of bilateral investment treaties, i.e., China’s and India’s investment treaties with African states. Finally, it offers a summary of conclusions. |
| Date: | 2026–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:osf:lawarc:2egqd_v1 |
| By: | Nyholm, Juho; Silvo, Aino |
| Abstract: | The Global Financial Crisis of 2007-2009 moved research on household debt and its aggregate implications to the forefront of macroeconomics. In this review, we offer a synthesis of this large body of both empirical and theoretical research, and an overview of the most important themes for future research. Empirical studies robustly find that rapid aggregate household debt growth is associated with an increased incidence of financial crises and slower future economic growth. There is a broad consensus in the literature, both empirical and theoretical, that this statistical association is mostly driven by changes in credit supply and lending standards. This is also the dominant view of the drivers of the Global Financial Crisis, in particular in the U.S. However, the narrative emerging from the literature, heavily concentrated on the U.S. experience, is not easy to generalize. The mechanisms that define how credit expansions ultimately lead to responses in aggregate economic activity depend both on cross-sectional heterogeneity in household balance sheets and on local credit market institutions. These factors shape the credit constraints that households face, creating externalities that can ultimately cause large output losses and slow recoveries when the economy is faced with unexpected shocks. Overall, there remains many open questions in quantifying the relative importance of credit demand and supply factors in explaining observed household credit booms and busts, as well as in understanding the theoretical underpinnings of such cycles. |
| Keywords: | household debt, household balance sheets, economic growth, business cycles, credit frictions, financial stability |
| JEL: | E32 E37 E44 G17 G21 G51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:342400 |
| By: | Santiago Camara; Sanaa Latif |
| Abstract: | This paper studies whether news about banks' balance sheets propagates to aggregate financial conditions and macroeconomic activity. We construct high-frequency Canadian bank net-worth shocks using stock-price reactions around earnings announcements of the six large Canadian banks. Guided by a model in which higher intermediary net worth expands credit supply and lowers borrowing spreads, we use the co-movement between bank equity prices and Canadian corporate spreads to purge raw bank equity surprises from contaminating information. Favorable purged credit-supply bank net-worth shocks lower corporate spreads, raise bank valuations and broader equity prices, appreciate the Canadian dollar, and increase real activity over the medium run. The results are robust across specifications, samples, and additional outcomes, and suggest that bank earnings news is macroeconomically relevant in concentrated banking systems. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.30381 |
| By: | Oliver de Groot; Gustavo Mellior; |
| Abstract: | We study how heterogeneity in bank balance sheets and bank-customer relationships shapes the pass-through of interest rates to deposit rates and affects monetary policy. Using US branch-level deposit rates, we document two new stylized facts about the heterogeneous response of deposit rates to financial and monetary shocks. First, banks with the largest deposit bases reduce their relative deposit rates after both financial uncertainty shocks and contractionary monetary policy shocks. Second, highly leveraged banks respond differently across shocks: they lower their relative deposit rates after financial uncertainty shocks, but raise them after contractionary monetary policy shocks. To explain these facts, we develop a continuous-time general equilibrium heterogeneous-bank model in which banks face an occasionally binding leverage constraint, have market power in deposit markets, and accumulate customer capital through deep habits in household demand for banking services. The model is consistent with the cross-sectional distribution of banks and qualitatively reproduces the empirical impulse responses. It shows that customer capital amplifies the aggregate effects of financial and monetary shocks. |
| Keywords: | Balance sheet channel, Interest rate margin, Financial frictions, Customer capital |
| JEL: | C63 E44 E52 G21 |
| URL: | https://d.repec.org/n?u=RePEc:liv:livedp:202601 |
| By: | Gaudio Francesco Saverio (Sapienza University of Rome); Petrella Ivan (Collegio Carlo Alberto, University of Turin and CEPR); Santoro Emiliano (Catholic University of Milan) |
| Abstract: | We study how redistribution between assetholders and non-assetholders links macroeconomic fluctuations to expected stock returns. Using U.S. household data, we show that aggregate and relative consumption growth forecast excess returns with opposite signs and at different horizons. We interpret these patterns through a production-based asset-pricing model with limited asset market participation and external habits. In the model, aggregate consumption captures variation in the price of risk, while relative consumption reflects changes in the quantity of risk borne by investors. Technology shocks drive most macroeconomic fluctuations, whereas redistributive shocks generate large short-run movements in inequality and represent the main source of risk priced in financial markets. This points to a macro-finance disconnect between the drivers of business cycles and those governing risk premia. |
| Keywords: | Consumption, Heterogeneity, Limited participation, Asset pricing |
| JEL: | E21 E25 E32 E44 G12 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:108 |
| By: | Disslbacher, Franziska (Vienna University of Economics and Business); Morelli, Salvatore; , Matteo |
| Abstract: | Using the novel GC Wealth Project Data Warehouse, this paper shows that wealth inequality has increased since the early 2000s in roughly 60% of the countries in our sample, although trends are not uniform across countries. While the largest gains in wealth shares accrue to the top 10%, relative losses are borne by the bottom 50% and the middle 40% alike. We reveal substantial variation of estimates across data sources and units of analysis, which complicates international comparison of wealth inequality. Yet, core trends at the country level are generally robust. Individual-based series generally report higher inequality than household-based ones. Regional patterns reveal sharp increases in inequality in Latin America, North America, India, and China, while Europe and Asia-Pacific exhibit more stable trends. Incorporating Forbes billionaire data extends coverage to low-income countries and Africa—where, notably, billionaire wealth relative to GDP has remained stable, marking a distinct exception to global patterns. (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2026–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:xrnpj_v1 |
| By: | Tomohiro Hirano; Alexis Akira Toda |
| Abstract: | We analyze how equilibrium housing prices are determined along with economic development in an overlapping generations model with perfect housing and rental markets, in which housing prices and rents are both endogenous. We focus on demand-side factors: home buyers income and the elasticity of substitution between consumption and housing. We characterize the long-run rent growth rate in all equilibria and show that, when this elasticity exceeds one (the empirically relevant case), rents grow more slowly than income. The economy then exhibits a two-stage phase transition in the income ratio of home buyers relative to home sellers. When this ratio is low, only fundamental equilibria exist. Above a first threshold, fundamental and bubbly equilibria coexist and the outcome is selected by self-fulfilling expectations. Above a second threshold, fundamental equilibria cease to exist and housing bubbles are necessary for equilibrium. We further prove that the fundamental equilibrium is always unique and the bubbly equilibrium is unique whenever the elasticity of intertemporal substitution is not far below 1/2. Uniqueness lets us study expectation-driven booms: if agents anticipate future income growth, housing prices rise and contain a bubble today even when current incomes lie in the fundamental region, with the price-income and price-rent ratios rising together. Finally, contrary to the common understanding that land eliminates dynamic inefficiency in overlapping generations models, we show that inefficient equilibria arise robustly, and only for intermediate income ratios. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-011e |
| By: | Anastasiou, Dimitris; Katsafados, Apostolos; Ongena, Steven; Tzomakas, Christos |
| Abstract: | Building on Gorodnichenko et al. (2023) we propose a novel measure that quantifies the voice sentiment of the Chair of the Federal Reserve press conference responses and examine its impact on the stock price crash risk of U.S. banks. We find that a more positive vocal sentiment, indicative of happiness, significantly reduces banks’ stock price crash risk, whereas negative emotions, such as sadness and anger, amplify it. These effects are economically meaningful and robust across various specifications, alternative crash risk proxies, and endogeneity checks, including an instrumental variables (IV) strategy and reverse causality tests. Additionally, the emotional sentiment has asymmetric effects on stock price crash risk, depending on bank size. Beyond the textual content of monetary policy statements, the emotional delivery of central bank communication plays a critical role in shaping financial stability outcomes, providing empirical evidence for the theoretical channels of uncertainty, systemic risk, and investor sentiment. |
| Keywords: | Financial stability |
| JEL: | G01 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20308 |
| By: | Ece Ozge Emeksiz; Andres Fernandez; Nikhil Patel; Ivan Petrella; Tatjana Schulze |
| Abstract: | This paper proposes a sign-narrative VAR approach to identifying financial shocks in currency markets. The approach imposes minimal sign restrictions shared across canonical exchange rate models, leveraging their key insights while remaining robust to misspecification relative to structural models typically used in the literature. To sharpen the identification, sign restrictions are complemented with narrative restrictions anchored on episodes of well documented FX market dysfunction. Focusing on two emerging economies (Brazil and Chile), our estimates suggest that financial shocks account for about one third of UIP fluctuations, and contribute less than 10% to the variance of macro variables including output and inflation. While infrequent, when they do materialize, financial shocks trigger sharp declines in output, suggesting economically meaningful spillovers from frictions in currency markets to the real economy. |
| Keywords: | Exchange rates; financial shocks; uncovered interest parity; narrative VARs |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/162 |
| By: | Dick-Nielsen, Jens; Feldhütter, Peter; Lando, David |
| Abstract: | We show that bonds issued by financial firms have higher spreads than bonds issued by industrial firms with the same rating and maturity, and we call this difference the financial premium. During the period 1987–2020 the premium is on average 43bps in the U.S., higher for lower ratings, higher in financial crises, and is increasing in bond beta. We derive a model that explains the financial premium: banks hold diversified portfolios of non-financial debt and bank debt therefore reflect more systematic risk than non-financial debt. |
| Keywords: | Credit spreads |
| JEL: | C23 G12 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20307 |
| By: | Beck, Thorsten; Silva-Buston, Consuelo; Wagner, Wolf |
| Abstract: | We examine the effects of cross-border regulatory arbitrage on corporate lending and firm performance. We show that subsidiaries of banking groups improve loan conditions for firms when the group’s opportunities to take risks elsewhere are curbed. The expansion in lending is targeted towards firms of higher quality and firms that the group is already familiar with. The improved lending conditions have positive real effects, allowing recipient firms to increase capital spending and leading to higher profits. Taken together, our results suggest that there can be benefits for firms in countries that receive lending inflows due to the regulatory arbitrage. |
| Keywords: | Corporate lending |
| JEL: | G1 G2 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20051 |
| By: | Pereira, Ana; Tereanu, Eugen; Minnella, Enrico |
| Abstract: | This paper develops an agent-based framework (DeTail) to assess the state-contingent tail effects of releasable macroprudential capital buffers. The model features heterogeneous firms, households, and banks, and a single central bank, all interacting in a fully integrated, stock-flow consistent framework which generates endogenous credit cycles. Using this approach, we evaluate how time-varying capital requirements affect the time-varying distributions of credit growth, firm and household default rates, and bank losses along the credit cycle. Policy experiments show that releasing capital buffers during economic downturns preserves credit supply by improving risky (lower-tail) credit outcomes, reduces both household and firm defaults, and supports macro-financial resilience by limiting tail bank losses. At the same time, capital buffer accumulation during upturns imposes minimal costs and does not significantly constrain lending. These findings support the active use of releasable buffers to mitigate systemic risk and smooth credit cycles without weakening the banking system. JEL Classification: C63, E44, E58, G28 |
| Keywords: | agent-based modelling, and state-dependent effects, credit cycles, macro-financial linkages, macroprudential policy |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263257 |
| By: | Marijn A. Bolhuis; Jakree Koosakul; Mr. Neil Shenai; Jie Yang |
| Abstract: | Governments have historically used financial repression to reduce debt and fiscal pressures, yet few systematic measures of repression exist. To fill this gap, we introduce two quantity-based repression indicators grounded in a structural portfolio-choice model, exploiting the gap in government-bond demand between captive and non-captive investors. A narrow fiscal indicator captures pressure on banks to hold government bonds. A consolidated measure adds the perimeter of central bank liabilities. Applying our measures to a novel dataset of 17 advanced economies since 1920, we find that financial repression has been a persistent feature of modern history, peaking after World War II, receding during the capital account liberalization era, and rising again after the Global Financial Crisis. Our measures correlate with conditions typically associated with repression—such as high debt burdens and restricted capital mobility—along with crowding out of private investment and credit. Using a debt decomposition framework, we show that repression was a major driver of debt reduction after World War II, generating larger fiscal savings than traditional seigniorage, and has again generated fiscal savings since the Global Financial Crisis. With the conditions historically associated with elevated repression present today, our evidence suggests that financial repression may see increased use going forward. |
| Keywords: | financial repression; sovereign debt dynamics; captive markets; banks' sovereign holdings |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/160 |
| By: | Gambacorta, Leonardo; Sabatini, Fabiana; Schiaffi, Stefano |
| Abstract: | We study the interaction between banks’ adoption of artificial intelligence (AI) in credit scoring and relationship lending. Using a unique dataset on Italian banks’ investments in AI for the purpose of integrating their credit scoring techniques, matched with credit register data from one year before and one year after the outbreak of the Covid-19 crisis, we find that AI investments help banks mitigate the typical countercyclical effects of relationship lending on firms’ credit supply, as well as on their investment and employment decisions. |
| Keywords: | Artificial intelligence; Machine learning; Credit supply; Relationship lending |
| JEL: | G01 G21 E50 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20010 |
| By: | Berg, K.; Danyu-Zhang, J.; Gaviano, L. G.; Yannelis, C. |
| Abstract: | For most households, human capital is the largest asset they own, and rapid advances in artificial intelligence (AI) may change its value. This paper studies whether workers whose occupations are more exposed to AI use financial and labor markets to hedge this risk, by investing in firms that gain from the new technology. We develop a portfolio-choice model with nontradable human capital in which AI-related equity pays off in states where exposed workers’ labor income falls through technological unemployment. The model predicts that more exposed workers should hold more equity, especially when human capital is large relative to financial wealth. We test these predictions using linked Norwegian administrative data on workers’ occupations, employers, income, wealth, and equity holdings. Workers in more AI-exposed occupations are more likely to participate in equity markets and, conditional on participation, hold more equity, especially from firms located in countries with firms more exposed to the AI boom. The exposure–equity relationship is stronger for younger workers, consistent with life-cycle hedging. Following the release of ChatGPT, workers with greater AI exposure also become more likely to move into lower-exposure industries and senior management roles. Our results highlight a channel through which financial markets may partially insure workers against technological unemployment. |
| Keywords: | Artificial Intelligence, Portfolio Allocation, Income Risk, Stock Market Participation |
| JEL: | G11 G51 J32 |
| Date: | 2026–07–27 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2660 |
| By: | Andras Komaromi; Federico Grinberg; Mr. Diego A. Cerdeiro; Yang Liu |
| Abstract: | Understanding financial activity beyond traditional regulatory frameworks is essential for policymakers. Yet cryptocurrency mining—which offers a direct entry point into the crypto ecosystem without relying on traditional financial intermediaries—remains highly opaque. We propose a novel measurement approach using detailed customs data that tracks exports of crypto mining hardware from the world’s dominant producers. This trade-based proxy allows us to analyze the global distribution of mining hardware imports and identify their key drivers, guided by a stylized model. Empirically, mining surges respond strongly to global factors such as cryptocurrency prices and hardware costs, while domestic factors—including electricity prices and ambient temperature—shape the cross-country distribution of activity. Our findings highlight how global crypto markets, natural endowments, and policy choices jointly influence mining incentives, offering valuable insights for policymakers concerned with financial stability risks and energy subsidy misuse. |
| Keywords: | crypto assets; crypto mining; bitcoin; capital controls |
| Date: | 2026–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/146 |