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on Financial Development and Growth |
| By: | Hassan, Ramzi Abdullah Ahmed |
| Abstract: | This paper examines the impact of savings on economic growth, a critical topic in economic theory with differing views from classical and Keynesian perspectives. Classical economic theory posits that savings drive economic growth by providing funds for investment, while Keynesian theory argues that savings can reduce aggregate demand and slow growth. The study also looks at factors that influence saves behavior, such as income, interest rates, and cultural views, as well as different types of savings, such as personal, corporate, and government savings. The findings show that savings are critical to long-term economic growth because they fuel investments and stabilize economies during downturns. However, the relationship between saves and growth is complicated, as excessive savings can stifle growth if not properly channeled toward productive investment. The study suggests that savings' function in economic development significantly depends on how they are used and handled within an economy. Future research should focus on the importance of saves in various economic settings, as well as the efficacy of policies aimed at increasing the influence of savings on growth. |
| Keywords: | Savings, Economic Growth, Capital Formation, Investment, Keynesian Economics, Classical Economics. |
| JEL: | E21 E22 E62 O16 O40 |
| Date: | 2024–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124860 |
| By: | Francesco Ferlaino |
| Abstract: | This study examines how different types of financial frictions influence household wealth and consumption inequality in response to a contractionary monetary policy shock. The analysis considers two key frictions: those affecting production firms and those related to household borrowing, both incorporated into a HANK model. The results suggest that frictions in the productive sector have a stronger impact on wealth inequality, whereas frictions in household borrowing lead to greater consumption dispersion relative to the counterfactual scenario. This divergence primarily arises from dynamics around the zero-wealth threshold, particularly the behavior of the household borrowing spread. |
| Keywords: | Heterogeneous agents; financial frictions; monetary policy; New Keynesian models; inequalities |
| JEL: | E12 E21 E44 E52 G51 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp263 |
| By: | Moritz Kuhn; José-Víctor Ríos-Rull |
| Abstract: | We provide a comprehensive overview of earnings, income and wealth inequality based on the 2022 Survey of Consumer Finances from the United States. We document the current state of inequality and its evolution over the last three decades organizing the data along key demographic dimensions including age, education, and marital status. The 2022 data reveal that wealth remains highly concentrated, with the top 1% holding 35% of total wealth down from a peak of 39% in 2016. This recent decline in wealth concentration—occurring despite rising income inequality—reflects strong housing price appreciation that disproportionately benefited middle-class households. We extend previous analyses with new perspectives on inequality, including: (1) the role of labor market segmentation in generating wealth disparities beyond standard employment categories; (2) differences in wealth accumulation across birth cohorts showing that younger generations accumulate less wealth than their predecessors at comparable ages; (3) disparities associated with family structure, particularly the financial vulnerability of single-parent households; and (4) heterogeneity in self-reported savings motives, with precautionary savings dominating for lower-wealth households while retirement planning and bequests become more prominent at the top of the distribution. These findings enhance our understanding of the multifaceted nature of inequality and offer essential inputs for structural models and policy design. |
| JEL: | A1 C0 E24 Y10 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33823 |
| By: | Ferrando, Annalisa; Mulier, Klaas; Ongena, Steven; Delis, Manthos |
| Abstract: | Monetary policy can have contrasting effects on economic inequality via distinct channels. We examine the effect working via the credit channel, whereby monetary policy induces heterogeneous access to credit for business owners based on their wealth. Using unique data on business loan applications from small firms, we find that monetary expansions increase the bank’s likelihood to approve loan applications, particularly so for low-wealth entrepreneurs, translating to higher future income and wealth. Survey data from 19 euro area countries on loan applications by SMEs confirms these findings, and shows that the effect transmits especially via weakly capitalized and less liquid banks. JEL Classification: E51, E52, D63 |
| Keywords: | bank credit, business loans, entrepreneurs’ private wealth, monetary policy |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253058 |
| By: | Keiichiro Kobayashi |
| Abstract: | We propose a tractable model of nancial crises that replicates the empirical regularities: A credit-fueled assetprice boom tends to collapse, followed by a deep and persistent recession with productivity declines. Riskshifting rms amplify the boom and bust of asset prices by purchasing assets with borrowed money. The resulting debt overhang reduces productivity by discouraging borrowing rms from spending additional e ort. This ine ciency causes shrinkage of the production network through demand externality, which we call debtdisorganization. The larger asset-price boom is followed by a deeper and more persistent recession. Lenders know that debt reduction can increase lenders payo , and when the debt burden is small, they restructure the debt on their own and attain social optimum. When debt is large, government subsidies to encourage lenders to implement debt restructuring are necessary to reduce externality and restore aggregate productivity. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:25-014e |
| By: | Nikolaos Giannakis (Democritus University of Thrace); Periklis Gogas (Democritus University of Thrace); Theophilos Papadimitriou (Democritus University of Thrace); Jamel Saadaoui (University Paris 8); Emmanouil Sofianos (University of Strasbourg) |
| Abstract: | This study aims to predict currency, banking, and debt crises using a dataset of 184 crisis events and 2896 non-crisis cases from 79 countries (1970-2017). We tested eight machine learning methods: Logistic Regression, KNN, SVM, Random Forest, Balanced Random Forest, Balanced Bagging Classifier, Easy Ensemble Classifier, and Gradient Boosted Trees. The Balanced Random Forest had the best performance with a 72.91% balanced accuracy, predicting 149 out of 184 crises accurately. To address machine learning’s black-box issue, we used Variable Importance Measure (VIM) and Partial Dependence Plots (PDP). International reserve holdings, inflation rate, and current account balance were key predictors. Depleting international reserves at varying inflation levels signals impending crises, supporting the buffer effects of international reserves. |
| Keywords: | Currency crises, banking crises, debt crises, international reserve holdings, inflation, machine learning, forecasting |
| JEL: | F G |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.6 |
| By: | Alemnew, Teklebirhan; Taffesse, Alemayehu Seyoum |
| Abstract: | In both developing and developed economies, academic and policy discussions have consistently emphasized that achieving stable economic growth and maintaining internal and external balance require an exchange rate aligned with its long-term equilibrium value. This paper examines the impact of real exchange rate misalignment on Ethiopia's economic growth from 1980 to 2022. The study begins by estimating the equilibrium real exchange rate using the Behavioral Equilibrium Exchange Rate (BEER) approach to calculate the misalignments. It then analyzes the effects of these misalignments on economic growth using Vector Autoregressive (VAR) and Hansen's (2000) threshold regression model. The VAR and Impulse Response Function (IRF) analyses reveal that real exchange rate misalignments have an immediate positive impact on economic growth, which diminishes between the eighth and sixteenth years and stabilizes as a permanent long-term effect. The threshold regression results indicate that undervaluation of the Ethiopian Birr enhances economic growth up to a 13.95% deviation from the equilibrium real exchange rate, while overvaluation supports growth up to a 7.15% threshold. Beyond these limits, misalignments hinder growth. The study underscores the importance of avoiding excessive deviations from the equilibrium exchange rate to sustain economic growth. Furthermore, it highlights the need for consistent macroeconomic policies to minimize the gap between the actual and equilibrium real exchange rates. These findings emphasize the critical role of exchange rate policy in promoting sustainable economic development in Ethiopia. |
| Keywords: | economic growth; policies; exchange rate; Ethiopia; Africa; Eastern Africa; Sub-Saharan Africa |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:ceaspb:172441 |
| By: | Morshed, Monzur; Wallace, Jack |
| Abstract: | This paper compares the experiences of Argentina, Ecuador, and Lebanon with dollarization as a response to monetary instability. Using historical analysis and regression results, it evaluates how full, partial, or de facto dollarization impacted inflation control, economic stability, and institutional resilience. Ecuador’s full dollarization in 2000 stabilized prices and reduced volatility, while Argentina’s hard peg without full commitment led to recurring crises. Lebanon’s unofficial dollarization collapsed amid financial mismanagement and loss of confidence. The study concludes that while dollarization can curb inflation, its success depends on credible governance and structural reforms; partial or unmanaged approaches can amplify economic fragility. |
| Date: | 2025–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:ayh3e_v1 |
| By: | Ryuichiro Izumi; Weng Fei Leong; Balázs Zélity (Department of Economics, Wesleyan University) |
| Abstract: | Capital controls are often discussed as a potential tool to stabilize macroeconomic fluctuations. However, empirical studies typically find that their use does not systematically respond to the business cycle. This paper revisits the cyclicality of capital inflow controls by considering two possibilities: governments may respond only when output deviations become sufficiently large, and their responses may vary with the underlying macroeconomic policy stance. Using quarterly panel data for 45 advanced and emerging economies from 2000 to 2015, we find that inflow controls are employed countercyclically, but only in response to large output fluctuations. Moreover, the propensity to tighten inflow controls during booms is significantly amplified in countries that pursue more countercyclical fiscal and monetary policies. These findings help reconcile the gap between theoretical expectations and existing empirical findings, suggesting the importance of accounting for threshold effects and macro-policy stance in evaluating capital flow management and incorporating adjustment frictions into theoretical models. |
| Keywords: | capital controls, macroprudential policy, international capital flows |
| JEL: | F32 F33 F41 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:wes:weswpa:2025-006 |
| By: | Álvaro Fernández-Gallardo (BANCO DE ESPAÑA); Iván Payá (UNIVERSIDAD DE ALICANTE) |
| Abstract: | Recent theoretical studies have highlighted that both the level of public debt and the unit cost of servicing the debt (r-g) play a role in the sustainability of public finances. This paper builds on this literature and introduces a new approach to analysing the relationship between economic downturns and sovereign debt risks by considering the total public debt burden, that is, the interaction between the level of debt and r-g. We conduct this analysis for 18 advanced economies over a span of 150 years, uncovering three novel findings. First, we document that the level of public debt and the interest-growth differential convey distinct information about public finances conditions, reinforcing the argument for incorporating both measures in the assessment of sovereign debt sustainability risks. Second, we offer a long-term historical perspective on the role of the total public debt burden in shaping the severity of recessions and the pace of subsequent recoveries. Our findings demonstrate that a high public debt burden is associated with deeper economic contractions, sharper declines in investment, deflationary pressures and pronounced credit contractions during recessions. Further analysis of plausible transmission mechanisms suggests that an elevated total debt burden at the onset of recessions is linked to more limited accommodative policies during financial crises. Third, we document the feedback effects of financial crises on the components of the total public debt burden, demonstrating that both the level and cost of public debt systematically deteriorate, thereby heightening the risk of sovereign debt crises in the aftermath of financial turmoil. |
| Keywords: | financial crises, sovereign debt sustainability, r-g, local projections |
| JEL: | E62 G01 H63 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2527 |
| By: | Yazan Al-Karablieh; José Marzluf; Hector Perez-Saiz; Azzam Santosa; Mr. Fabian Valencia |
| Abstract: | We construct a unique dataset by collecting macro-financial commitments data using textual analysis of the Memorandum of Economic and Financial Policies (MEFPs), a document outlining, inter-alia, policy commitments by member countries, in the context of an IMF-supported program. We combine this data with information on structural conditionality. Using a staggered difference-in-differences methodology, we show that IMF-supported programs with macro-financial policy commitments are followed by periods of lower non-performing loans and in some cases lower credit-to-GDP ratios, relative to IMF-supported programs without macro-financial commitments, mostly for the post global financial crisis (GFC) period before the COVID-19 pandemic. The NPL-to-loans ratio does not seem to decrease as a result of credit expansion. The results point to stronger and more abrupt declines in credit-to-GDP following ex-post macro-financial policies, those implemented after a crisis occurs (e.g., restructuring), and milder and more gradual declines following ex-ante policies, those implemented before risks materialize (e.g., regulatory requirements). The responses are also larger when countries have positive credit gaps at the start of the program than when credit gaps are negative. These results point to the importance of considering the country’s position in the credit cycle in program design and in addressing vulnerabilities preemptively to reduce the need for abrupt corrections when risks materialize. Finally, macro-financial policies targeting financial inclusion tend to increase credit-to-GDP ratios in low credit-to-GDP program countries. |
| Keywords: | Textual analysis; non-performing loans; credit growth; IMF-supported programs; macro-financial policies |
| Date: | 2025–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/097 |
| By: | Jovid Ikromi |
| Abstract: | This paper rethinks development finance in Tajikistan through the lens of fiscal sociology, arguing that sustained reliance on foreign aid and external borrowing may weaken state-society trust and erode institutional legitimacy. Anchored in the political economy of development finance, the paper explores how alternative financing strategies, such as tax reform, diaspora bonds, thematic bonds, and blended finance, interact with domestic institutions, investor confidence, and citizen perceptions of fiscal fairness. |
| Keywords: | Tajikistan, Development finance, Debt sustainability, domestic resource mobilization, Climate change |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-37 |
| By: | José Fillat; Mattia Landoni; John Levin; J. Christina Wang |
| Abstract: | The private credit market has grown rapidly in recent years, approaching the lending volume of some traditional sources of business credit, including commercial and industrial loans from banks, broadly syndicated loans, and high-yield bonds. This brief looks at the role US banks have played in that growth and the implications for stability in the US financial system. |
| Keywords: | private credit; banking linkages; liquidity provision |
| JEL: | G20 G23 G32 |
| Date: | 2025–05–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedbcq:99999 |
| By: | Anah\'i Rodr\'iguez-Mart\'inez; Silvia Bartolucci; Francesco Caravelli; Victoria Landaberry; Pierpaolo Vivo; Fabio Caccioli |
| Abstract: | Understanding how credit flows through inter-firm networks is critical for assessing financial stability and systemic risk. In this study, we introduce DebtStreamness, a novel metric inspired by trophic levels in ecological food webs, to quantify the position of firms within credit chains. By viewing credit as the ``primary energy source'' of the economy, we measure how far credit travels through inter-firm relationships before reaching its final borrowers. Applying this framework to Uruguay's inter-firm credit network, using survey data from the Central Bank, we find that credit chains are generally short, with a tiered structure in which some firms act as intermediaries, lending to others further along the chain. We also find that local network motifs such as loops can substantially increase a firm's DebtStreamness, even when its direct borrowing from banks remains the same. Comparing our results with standard economic classifications based on input-output linkages, we find that DebtStreamness captures distinct financial structures not visible through production data. We further validate our approach using two maximum-entropy network reconstruction methods, demonstrating the robustness of DebtStreamness in capturing systemic credit structures. These results suggest that DebtStreamness offers a complementary ecological perspective on systemic credit risk and highlights the role of hidden financial intermediation in firm networks. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.01326 |
| By: | K. P. Krishan (Retired civil servant); Ajay Shah (xKDR Forum); Susan Thomas (xKDR Forum); Diya Uday (xKDR Forum); Harsh Vardhan (Independent consultant) |
| Abstract: | A banking sector regulator must be non-partisan and separate from government. However, the banking sector in India comprises banks of many kinds: private banks, public sector banks, cooperative banks, and regional rural banks. The laws that govern the sector have evolved to grant special powers over some categories of banks to the Union government, thereby, diluting or sometimes even nullifying the power of the Indian banking regulator, the Reserve Bank of India (RBI), over these banks. In most cases, the power of the RBI has been diluted or nullified in respect of public sector banks and the State Bank of India. This is not desirable from the perspective of ownership neutral regulation and creates an unfair playing field for banks in the sector. It also raises serious conflict of interest concerns, where the government is both a borrower and regulator, can influence the functioning of some banks. This article examines the legal provisions that undermine the regulatory powers of the RBI including on shareholding, appointment of directors, winding up and making schemes. It argues for an ownership-neutral regulatory framework emphasising the need for greater autonomy for the RBI, and the creation of of a clear separation between the governments borrowing and regulatory role. The aim is to chart the pathway towards a more robust regulation of the banking sector in India. |
| JEL: | K39 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:anf:wpaper:39 |
| By: | Biais, Bruno; Rochet, Jean-Charles; Villeneuve, Stéphane |
| Abstract: | In our dynamic general equilibrium model, agents can invest in money and in a production technology exposed to shocks. If the government is non-benevolent and has a monopoly over money issuance it issues too much money, to finance excessive public expenditures. We study the effects of a cryptocurrency in limited supply but with crash risk. If the crash risk is not too large, competition from the cryptocurrency constrains the government’s monetary policy. If the government is non-benevolent, this constraint improves citizens welfare, but if the government is rather benevolent competition from the cryptocurrency can lower citizens’ welfare. |
| Date: | 2025–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130554 |
| By: | Frost, Jon; Rochet, Jean-Charles; Shin, Huyn Song; Verdier, Marianne |
| Abstract: | We compare three competing digital payment instruments: bank deposits, private stablecoins and central bank digital currencies (CBDCs). A simple theoretical model integrates the theory of two-sided markets and payment economics to assess the benefits of interoperability through a retail fast payment system organised by the central bank. We show an equivalence result between such a fast payment system and a retail CBDC. We find that both can improve financial integration and increase trade volume, but also tend to reduce the market shares of incumbent intermediaries. |
| Keywords: | payments; CBDC; big tech; banks; stablecoins |
| JEL: | E42 E58 G21 L51 O31 |
| Date: | 2025–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130555 |
| By: | Rashad Ahmed; Iñaki Aldasoro |
| Abstract: | This paper examines the impact of dollar-backed stablecoin flows on short-term US Treasury yields using daily data from 2021 to 2025. Estimates from instrumented local projection regressions suggest that a 2-standard deviation inflow into stablecoins lowers 3-month Treasury yields by 2-2.5 basis points within 10 days, with limited to no spillover effects on longer tenors. We also find evidence of asymmetric effects: stablecoin outflows raise yields by two to three times as much as inflows lower them. Decomposing the yield impact by issuer shows that USDT (Tether) has the largest contribution followed by USDC (Circle), consistent with their relative size. Our results highlight stablecoins' growing footprint in safe asset markets, with implications for monetary policy transmission, stablecoin reserve transparency, and financial stability. |
| Keywords: | stablecoins, treasury securities, money market funds, safe assets |
| JEL: | E42 E43 G12 G23 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1270 |
| By: | Morshed, Monzur |
| Abstract: | This paper explores the dynamics of mobile money adoption and satisfaction in Kenya, using household survey data from the Research ICT Africa (RIA) series. The study examines demographic and socio-economic determinants of M-Pesa ownership and user satisfaction through logistic and Poisson regression models. Results suggest that traditional barriers such as gender, age, and education have limited influence on M-Pesa adoption and user satisfaction, indicating a narrowing digital divide. Although the intensity of mobile money usage is proxied by self-reported satisfaction scores rather than transaction frequency, the analysis highlights the platform’s widespread acceptance and usability. These findings carry important implications for the design and rollout of central bank digital currencies (CBDCs), particularly in low- and middle-income countries. Kenya’s experience with M-Pesa provides a valuable reference point for future digital currency innovations that are inclusive, trusted, and infrastructure-ready. |
| Date: | 2025–05–28 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:msbz4_v1 |