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on Financial Development and Growth |
| By: | Grimm, Maximilian; Schularick, Moritz; Verner, Emil |
| Abstract: | Financial liberalization is often seen as a way to deepen credit markets and stimulate economic growth, but it may also fuel credit booms that end in crisis. We construct a new cross-country database of banking regulation policies covering 21 regulatory indicators for 18 advanced economies since World War II. We distinguish liberalizations that directly relax constraints on credit supply from broader financial reforms. Liberalizations that directly affect credit supply lead to substantial expansions in private credit. Credit expansion is concentrated in non-tradable sectors and is not accompanied by higher interest rates or credit spreads in the short run, consistent with an outward shift in credit supply. Real GDP rises over the following 2 to 4 years, but the gains are temporary. On average, GDP returns to trend in the medium run, and there is an increase in the risk of financial crisis and worse downside growth outcomes. Only liberalizations that directly expand credit supply generate these boom-bust dynamics. Based on these estimates, financial liberalization is welfare-improving for coefficients of relative risk aversion below 7.2, a moderately high value. |
| Keywords: | banking regulation, financial liberalization, bank lending, growth, banking crises |
| JEL: | E44 G01 G21 G28 N20 O43 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkwp:340837 |
| By: | Daisuke Ikeda (Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp)); Hidehiko Matsumoto (Associate Professor, Faculty of Economics, Keio University (E-mail: hmatsu.hm@gmail.com)) |
| Abstract: | Banking crises are infrequent macroeconomic events with the potential to inflict significant and lasting harm on the real economy. Drawing from the empirical literature, this paper highlights five facts on banking crises from a macroeconomic perspective. It conducts a targeted review of the literature on financial frictions and banking crises in a dynamic general equilibrium framework, and introduces a dynamic general equilibrium model of bank runs. The model's ability to account for the five facts is examined, alongside its implications for policy. Finally, the paper explores the challenges of integrating macroprudential policy into the model. |
| Keywords: | Banking crises, macroeconomic models, macroprudential policy |
| JEL: | E32 E44 G21 G28 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:25-e-17 |
| By: | Ahmed-Amine El Azdi; Onur Ozlu; Mr. Felix Fischer |
| Abstract: | This paper studies how granular bank shocks propagate to aggregate credit in Mauritania’s banking system. Using confidential monthly data, we extract size-weighted innovations to lending growth and profitability. At the aggregate level, lending shocks are large and exhibit a near one-for-one mapping into monthly credit growth, accounting for roughly 80 percent of its short-run fluctuations. By contrast, profitability shocks are small, statistically insignificant, and contribute almost nothing to explaining aggregate credit. This pattern suggests that fluctuations in intermediation are driven by shifts in lending at a few dominant banks, while high earnings are largely retained as buffers rather than recycled into new credit, revealing a persistent wedge between profitability and the provision of financial services. The results have direct policy relevance for Mauritania and, more broadly, for low-income and emerging economies with concentrated and nascent banking sectors. |
| Keywords: | Banking sector granularity; financial intermediation; aggregate credit; idiosyncratic shocks; low-income country; emerging economies |
| Date: | 2026–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/087 |
| By: | Barbieri, Claudio; Guerini, Mattia; Napoletano, Mauro |
| Abstract: | We investigate the structure and evolution of credit growth across Italian provinces. Using an econometric approach based on Random Matrix Theory, we decompose regional credit dynamics into common and idiosyncratic components. We use a longitudinal dataset of credit at the provincial level (NUTS-3 regions) covering the period 2000–2020 and document substantial heterogeneity in the synchronization of credit growth across local economies. Our results suggest that, while aggregate credit growth is largely driven by a strong common component, substantial heterogeneity emerges across disaggregated credit categories. Household mortgage lending displays strong and persistent co-movement across provinces, whereas corporate mortgages and unsecured credit are characterized by higher dispersion and relatively weaker common dynamics. Regional divergence intensifies sharply between 2010 and 2014, coinciding with the European sovereign debt crisis, suggesting a fragmentation of local credit supply and demand. Importantly, divergence does not display any clear geographical pattern, underscoring the role of nonspatial factors in shaping regional credit dynamics. |
| Keywords: | Financial Economics, Risk and Uncertainty |
| Date: | 2026–05–04 |
| URL: | https://d.repec.org/n?u=RePEc:ags:feemwp:399465 |
| By: | Girish Bahal; Damian Lenzo; Jia-Wei Loh |
| Abstract: | Idiosyncratic volatility in the stock returns of large firms can drive aggregate volatility and real activity. Using daily stock price data for firms in 21 countries over 1999 to 2020, we isolate firm-specific volatility shocks and exploit the fat-tailed distribution of market capitalization to construct a granular instrument for country-level volatility (uncertainty). A one standard deviation increase in aggregate volatility reduces real GDP by 1%, raises unemployment by 1.2 percentage points, and lowers investment by 7% over three years. We validate 389 firm episodes using contemporaneous news coverage and show that narratively verified shocks generate even larger macroeconomic effects. |
| Keywords: | uncertainty shocks, granular instrumental variables, firm-level volatility, aggregate uncertainty, investment |
| JEL: | E32 E44 G10 E22 C26 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-28 |
| By: | Lin William Cong; Guanhao Feng; Jingyu He; Yuanzhi Wang |
| Abstract: | We argue that return predictability is a latent, asset-specific, and state-dependent characteristic. We develop an interpretable Panel Tree that endogenously partitions the U.S. equity panel into out-of-sample and persistent “mosaic” patterns, and estimate cluster-specific forecasting models. Predictability concentrates in stocks with large earnings surprises, high earnings–price ratios, and low trading volume. It is countercyclical, stronger when market dividend yields are high and liquidity is low. Accounting for predictability heterogeneity, which conventional models ignore, improves forecasts and yields portfolios with out-of-sample Sharpe ratios around 2. Across 50 years of data, the mosaic map shows where signals arise and where noise dominates. |
| JEL: | C38 C53 C55 G12 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35158 |
| By: | Yusuke Oh (Deputy Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuusuke.ou@boj.or.jp)); Mototsugu Shintani (The University of Tokyo (E-mail: shintani@e.u-tokyo.ac.jp)) |
| Abstract: | We forecast Japanese recessions by integrating machine learning methods, mixed-frequency data, and text-based indicators within an unrestricted mixed data sampling (U-MIDAS) framework. The model combines monthly macroeconomic variables with weekly financial indicators and newspaper-based text indicators. A pseudo-real-time forecasting exercise over three decades shows that machine learning models consistently outperform traditional logit benchmarks. The model confidence set (MCS) suggests horizon dependence: Text indicators are more informative at short horizons, while financial variables are more informative at longer horizons. To improve interpretability, we apply sparse principal component analysis (Sparse PCA) to the text indicators and identify three economic narratives: 'Corporate Distress, ' 'Financial Distress, ' and 'Deflationary Pressure.' Furthermore, SHAP (SHapley Additive exPlanations) analysis indicates that different recession episodes are associated with different combinations of these narratives, underscoring the heterogeneous nature of economic downturns. |
| Keywords: | business cycles, mixed data sampling, model confidence set, text analysis, recession forecasting |
| JEL: | C32 C53 E37 O53 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:26-e-07 |
| By: | Dimitris Christelis (University of Glasgow, CSEF, and CFS); Dimitris Georgarakos (European Central Bank, University of Glasgow and CEPR); Tullio Jappelli (University of Naples Federico II, CSEF, and CEPR); Geoff Kenny (European Central Bank); Justus Meyer (European Central Bank, University of Glasgow) |
| Abstract: | We examine recent changes in stock market participation using newly available survey data from eleven euro area countries over the period 2020–2024. The evidence points to substantial turnover, with around10% of non-stockholders entering the market each year, and more than 20% of stockholders exiting. New entrants tend to have lower education, income, financial literacy, and risk tolerance than established investors, indicating a shift in the composition of market participants. We also highlight the growing importance of cryptocurrency investments among retail investors. Overall, these findings shed new light on evolving household financial behavior and its implications for market participation and financial stability. |
| Keywords: | Stocks, Mutual Funds, Crypto Assets, Household Finance, Consumer Expectations Survey |
| JEL: | D14 E21 G51 |
| Date: | 2026–04–28 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:780 |
| By: | Avishek Bhandari; Ipsita Parida; Hitesh Kumar Sahu |
| Abstract: | We address the joint detection-and-attribution problem in cross-border financial contagion through a two-stage framework. The first stage applies wavelet-quantile transfer entropy across time-scales and lower, median, and upper-tail quantiles. The second stage attributes each significant link to one of five channels comprising of i) Trade, ii) Financial, iii) Geopolitical, iv) Behavioural, and v) Monetary Policy, via instrumental-variables two-stage least squares with channel-specific external instruments, LASSO-based instrument selection (Belloni, Chernozhukov and Hansen, 2014), local projections at one-, five-, and twenty-two-day horizons (Jorda, 2005), heteroskedasticity-based identification (Rigobon, 2003) for episodes in which over-identification is rejected, and Cinelli-Hazlett (2020) sensitivity bounds. The framework is applied to 18 G20 equity markets across eight crisis sub-periods spanning January 2006 to March 2026. Network density varies meaningfully across sub-periods (range 14% to 32%). Dominant-channel identification is robust across methods in the Pre-Crisis baseline and the European Sovereign Debt Crisis, both dominated by financial frictions; for the remaining six episodes identification is method-sensitive, and we report the share posterior alongside an explicit identification-status classification. Trade is empirically prominent across all post-2007 episodes, ranging from 9% during Pre-Crisis to 28% during the Global Financial Crisis. The behavioural channel is bounded above by 22% across all eight episodes under the de-confounded composite. The framework provides a methodologically disciplined account of cross-border contagion mechanisms and offers identification-status disclosure not systematically present in the existing literature. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.26546 |
| By: | Haiqiang Chen; Li Chen; Difang Huang; Yuexin Li; Zhengjun Zhang |
| Abstract: | We show that the leading bubble test suffers severe size distortion when fundamentals incorporate general-purpose technology adoption. Embedding a hump-shaped technology shock in the Campbell-Shiller present-value model, we prove that the fundamental price becomes locally explosive during adoption, contaminating the test's limit distribution with a non-centrality parameter proportional to the shock's peak. We propose a fundamental-versus-speculative decomposition that projects prices onto observable technology proxies and applies the test to the residual. Empirically, the decomposition eliminates evidence of speculation in the 2020-2025 AI rally while confirming a speculative peak confined to December 1999-March 2000 in the dot-com episode. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.25826 |
| By: | Erdinc Akyildirim; Gonul Colak; Giray Gozgor; Thang Ho |
| Abstract: | This paper constructs a novel firm-level measure of geopolitical risk using textual analysis of 130, 061 earnings conference call transcripts and examines its impact on firms' reliance on bank-based financing. Using a panel of 4, 692 listed firms across 38 countries over 2005–2024, we find that higher firm-level geopolitical risk is associated with a significant increase in the bank debt ratio. Instrument-level analysis shows that this effect is driven by greater reliance on term loans, while revolving credit facilities exhibit no systematic response. The relationship holds across United States and non-United States firms, as well as across developed and emerging economies, with stronger effects in emerging markets and in institutional environments that facilitate contracting and enforcement. A comprehensive set of robustness tests confirms that the results are not driven by industry composition, regional concentration, crisis periods, or omitted institutional factors. Difference-in-differences evidence around the Russia–Ukraine war provides additional support, showing that firms with higher pre-war geopolitical risk increase their reliance on bank debt after 2022. Overall, the findings identify geopolitical risk as a time-varying determinant of corporate financing decisions. |
| Keywords: | geopolitical risk, bank debt, term loans, capital structure, institutional environment, difference-in-differences |
| JEL: | G32 G21 F34 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12624 |
| By: | Giacomo Como; Fabio Fagnani; Elisa Luciano; Alessandro Milazzo; Marco Scarsini |
| Abstract: | This paper studies the transmission of productivity shocks in general equilibrium production networks, when firms in different sectors operate under informational rigidity and rely on external debt. Rigidity breaks the Modigliani-Miller irrelevance of leverage and may generate default following shocks, even in equilibrium. The economy consists of firms, banks, and consumers. Under proportional shock transmission, we prove that a unique Walrasian rigid equilibrium exists and provide explicit expressions for equilibrium quantities, prices, and interest rates. We show that, on the one hand, Hulten's theorem fails under rigidity, even without leverage. On the other hand, we prove that welfare is smaller than in the first best if and only if both leverage and rigidity exist. The latter increase the total cost of debt and have inflationary effects on the levered sectors, which propagate downstream, and shift consumption and labor upstream. The occurrence of default depends solely on real shocks and the network structure, while the magnitude of the losses depends also on the connectedness of the economy and the cost of debt of the connected sectors. We provide conditions for default cascades to occur and study two examples of default propagation. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.23566 |
| By: | Omoyele, Daramola Joseph |
| Abstract: | Illicit financial outflows remain a major constraint on Nigeria’s development, yet much of the literature focuses on their causes and scale rather than their effects on domestic economic linkages. This paper examines illicit financial outflows through the capital flight channel, using residual-method capital flight estimates as an empirical proxy for unrecorded outward resource movements. The paper develops an Economic Linkages Framework to explain how capital flight disrupts the channels through which domestic investment generates multiplier effects, employment, fiscal capacity, supply-chain deepening, and productivity spillovers. Drawing on Hirschman’s (1958) linkage theory, Keynesian multiplier analysis, and endogenous growth theory, it introduces a nine-type typology of domestic linkages covering production, financial, fiscal, labour market, consumption, technology, trade-external, institutional, and spatial-territorial dimensions. The empirical analysis is illustrative rather than causal, given the small sample of 26 annual observations. OLS results show that unemployment is strongly and negatively associated with GDP growth (R² = 0.574), suggesting that the labour market channel is the most visible linkage pathway in the available data. The direct and squared capital flight terms are not statistically significant, so the non-linear linkage disruption hypothesis remains suggestive rather than confirmed. The paper contributes a conceptual framework for analysing illicit financial outflows as a process of domestic linkage disruption and structural fragmentation, with implications for capital retention, employment, fiscal capacity, and institutional reform in Nigeria and comparable resource-dependent economies. |
| Date: | 2026–04–30 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:uh7je_v1 |
| By: | Ernst, Christoph,; Michelena, Gabriel,; Bertin, Pablo, |
| Abstract: | Foreign direct investment and the activities of multinational enterprises play an essential role in shaping employment outcomes, particularly in developing and emerging economies. With globalization and the expansion of global value chains, understanding how FDI influences labour markets has become increasingly relevant. This paper quantifies the global employment supported by foreign affiliates, examining both direct and indirect effects across regions and sectors. Our estimates suggest that foreign MNEs supported around 125 million jobs worldwide by 2021, a significant increase from earlier baselines. Employment is geographically concentrated in the European Union, China, North America, and East Asia, with services accounting for over 40 per cent of total MNE-supported jobs, though manufacturing remains key in China. Poorer countries are further marginalized. The contribution of this paper lies in two main areas. First, it provides a consistent global estimate of employment associated with MNEs by combining firm-level datasets with ILO labour statistics. Second, it provides evidence about the heterogeneity of employment effects across regions and sectors: while the European Union, China, North America, and East Asia account for the largest employment shares, a shift towards services in productive activities and employment has been observed, but manufacturing still remains central in countries such as China. |
| Keywords: | foreign investment, value chains., labour market, multinational enterprise |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ilo:ilowps:995691071902676 |
| By: | Cássio da Silva Brum; Daniel Arruda Coronel; Jose Luis Oreiro |
| Abstract: | This article analyzed the impact of Foreign Direct Investment (FDI) on the competitiveness of high- and medium-technology exports in Latin America and the Caribbean (2002–2021). The econometric results indicated a negative impact of FDI on the competitiveness of exports in countries with lower per capita income, using the Autoregressive Distributed Lag (ARDL) model, estimated by Pooled Mean Group (PMG). However, this impact can become positive after a specific threshold of per capita income; that is, the empirical results revealed a non-linear relationship between the effects of FDI on export competitiveness and the per capita income level of the countries in the sample. The empirical evidence presented in the article showed that FDI harms the competitiveness of exports in countries with low per capita income but becomes beneficial after a critical value of US$ 5, 172.44. This dynamic is due to the greater absorptive capacity of technologies entering through this channel (FDI) in countries with higher per capita income levels, as they have more consolidated, mature, and competitive companies. In contrast, low-income countries may have their companies displaced from the market, decreasing their competitiveness. The robustness of the econometric evidence is confirmed by the Error Correction Term (ECT) of -0.74, indicating a rapid adjustment (74% per year) to long-term equilibrium. The article concludes that institutional development and domestic income are preconditions for foreign capital to be able to drive regional technological sophistication. |
| Keywords: | International trade; Technological competitiveness; Multinational companies |
| JEL: | F20 F21 F43 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2613 |
| By: | Koch, Svea; Bergmann, Julian; Erforth, Benedikt; Hackenesch, Christine; Keijzer, Niels |
| Abstract: | The international order is undergoing profound change as rivalry among major powers realigns the global balance. This is also having an impact on European development policy. In many European Union (EU) member states, funding for official development assistance (ODA) is declining. At the same time, EU countries are reforming their development policies and increasingly channelling their remaining resources towards priorities that serve primarily their own interests. So far, these reforms have largely been defined bilaterally, whereas a political debate on the role, added value and joint objectives of EU development policy is largely absent. Yet, without strengthening European cooperation in development policy, Europe will not succeed in providing an adequate response to the current upheavals in global politics. In this policy brief, we argue that reform efforts in European development policy must strengthen cooperation and complementarity to respond effectively to the changed geopolitical landscape. Our analysis identifies four key policy areas where European actors are pursuing ongoing reforms and where development policy should make significant contributions: 1) promoting economic cooperation and privatesector engagement, 2) security policy, 3) managing and shaping migration and 4) human development including poverty reduction, particularly in least developed countries (LDCs). So far, a joint European strategic direction in these areas has been lacking. Negotiating these shared priorities requires a revitalisation of the political dialogue between EU institutions and member states, as well as further development of the "Team Europe" approach. "Team Europe 2.0" would then have two functions: to strengthen substantive complementarity "internally" through an understanding of how the various actors individually contribute to jointly defined objectives; and "externally" by making visible what Europe stands for strategically. A key element of Team Europe 2.0 should be an improved substantive dialogue among member states and within issue-specific, informal groups cofacilitated by individual member states and the European Commission. Such "thematic champions" could initiate the development of joint strategies for larger, transformative initiatives. Improved political dialogue and coordination on substance in key areas of European development policy are prerequisites for a united and more strategic external presence of "Team Europe", including in multilateral contexts. |
| Keywords: | EU development policy, complementarity, Team Europe, Global Gateway, economic development, security, migration, human development |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:idospb:340865 |
| By: | Randy Moise Kambana (Université catholique du Congo - Université catholique du Congo); Gaël Ngongo (UPC - Université protestante au Congo) |
| Abstract: | This paper investigates the dynamics of de-dollarization in the Democratic Republic of Congo (DRC), exploiting the 2024 monetary reforms as quasi-exogenous shocks observable in both regulatory texts and payment practices. Three key findings stand out. First, by opening the "black box" of payments—POS, ATS, and mobile money—we provide evidence of increased use of the Congolese franc and incipient substitution away from foreign currency deposits. Second, econometric tests (event studies, difference-in-differences, local projections) identify a sharp break in price transmission: exchange rate pass-through to inflation declines significantly from the second quarter of 2024. Third, forward-looking simulations (2025–2050) demonstrate that only strict and sustained reform execution, combined with deepening domestic financial markets (yield curve in CDF, collateral, Treasury securities), can achieve a durable reduction in dollarization (−9.5 percentage points) and a contraction in pass-through of nearly 40%. These findings underscore that de-dollarization is not decreed but built: through repeated and credible usage of the national currency, anchored in market depth and institutional credibility. Beyond the Congolese case, this study contributes to global debates on dollarized regimes, providing new insights into how resource-rich emerging economies can reconstruct monetary credibility and restore effective policy transmission. |
| Abstract: | Français)Cet article explore la dynamique de la dé-dollarisation en République démocratique du Congo (RDC) en mobilisant les réformes de 2024 comme chocs quasiexogènes, identifiables dans les textes officiels et observables dans les pratiques de paiement.Trois résultats majeurs émergent. Premièrement, l'ouverture de la « boîte noire » des paiements POS, ATS, mobile money révèle un accroissement mesurable de l'usage du franc congolais, amorçant une substitution aux dépôts en devises. Deuxièmement, les tests économétriques (études d'événement, diff-in-diff, local projections) mettent en évidence une rupture nette de la transmission prix : le pass-through du taux de change à l'inflation se réduit de manière significative à partir du deuxième trimestre 2024. Troisièmement, les simulations prospectives (2025-2050) montrent que seule une exécution stricte et soutenue des réformes, couplée à une profondeur financière domestique (courbe des taux en CDF, collatéral, titres publics), permet une baisse durable de la dollarisation (-9, 5 points) et une contraction du pass-through de près de 40 %. Ces résultats démontrent que la dé-dollarisation ne procède pas du décret, mais de l'usage répété et crédible de la monnaie nationale, combiné à la profondeur institutionnelle des marchés. En inscrivant la RDC dans une trajectoire cohérente, cette recherche éclaire non seulement les perspectives nationales mais enrichit aussi le débat international sur les régimes dollarisés et la reconstruction de la crédibilité monétaire dans les économies émergentes riches en ressources. Mots-clés : Dédollarisation ; Politique monétaire ; Dollarisation financière ; Pass-through du taux de change ; Systèmes de paiement ; TPE (terminaux de paiement électronique) ; Monnaie locale (CDF) ; Courbe des taux en CD. |
| Keywords: | Exchange-rate pass-through, Financial dollarization, Monetary policy, De-dollarization, Payment systems, POS (point-of-sale) terminals, CDF yield curve, Local currency (CDF) |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05229895 |
| By: | Giancarlo Corsetti; Keith Kuester; Gernot J. Müller; Sebastian Schmidt; Ben Schumann; Gernot Müller |
| Abstract: | We confront the notion that flexible exchange rates insulate countries from external disturbances with new evidence for the euro area (EA) and 20 of its neighbors. Using high-frequency data, we first establish that countries with flexible exchange rates ("floats") let their currencies depreciate in response to EA monetary policy shocks, while "pegs" raise interest rates. Yet at business cycle frequency, these depreciations do not translate into insulation: floats contract just as much as pegs—not only in response to monetary policy shocks but also to other shocks originating in the EA. This result appears puzzling in light of received wisdom, but we show that it can be rationalized within a state-of-the-art HANK model and flesh out the underlying transmission channels. |
| Keywords: | exchange-rate regime, Insulation, external shock, exchange-rate disconnect, monetary policy |
| JEL: | F42 E31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12635 |
| By: | Lorenzo Menna (Banco de México); Martín Tobal (Banco de México); Alejandro Werner (Georgetown Americas Institute) |
| Abstract: | We provide the first micro-level evidence on the mechanisms through which monetary policy transmits in an emerging market. Using high-frequency identification and a dataset covering over 10 million firm-month bank-loan observations, we move beyond only documenting policy effects to identify the transmission itself in Mexico. Credit falls earlier, more sharply, and persistently for young firms, SMEs, and firms with recent delinquencies, consistent with a financial-frictions channel. Credit to durable-goods producers also declines more, consistent with an interest-rate channel. However, unlike the pattern documented for advanced economies, the financial-frictions channel dominates. Further evidence suggests that this dominance extends to employment growth. |
| Keywords: | monetary policy, financial frictions, emerging markets; credit growth; bank capitalization |
| JEL: | E52 E51 E44 O54 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:394 |
| By: | Arrigoni, Simone; Ferrari Minesso, Massimo |
| Abstract: | This paper provides novel evidence on how income inequality shapes the heterogeneity of US monetary policy spillovers to GDP across foreign economies. Using state-dependent local projections and exploiting variation in disposable income inequality across 87 countries over 1966-2020, we show that household heterogeneity influences how foreign GDP responds to a US monetary tightening. GDP contracts up to one and a half times more when inequality is above average. However, while higher inequality amplifies negative spillovers in advanced economies, it mitigates them in emerging markets. To rationalise this finding, we use a three-country open economy Two-Agent New Keynesian (TANK) model, which suggests this divergence is driven by differences in participation in international financial markets. Households in emerging markets face greater barriers to international investment, limiting their ability to re-balance portfolios towards higher-return foreign bonds after the shock. JEL Classification: D31, E21, E52, E58, F42 |
| Keywords: | income inequality, local projections, spillovers, state-dependence, US monetary policy |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263221 |
| By: | Rösl, Gerhard; Seitz, Franz |
| Abstract: | This paper analyzes the affordability of cash in an international context. After outlining why cash should remain a core component of a diversified payment mix within a resilient and efficient payment system, we discuss methodological challenges associated with measuring the costs of payment instruments and explain why consumers should ultimately be at the center of the analysis. The paper then reviews the existing literature on the costs of payment instruments and subsequently traces the cost structure across the entire cash cycle-from printers and mints to central banks, cash-in-transit companies, commercial banks, ATM operators, and merchants. Finally, we examine the regulatory frameworks, including cash usage limits and reporting requirements, and analyze their implications for cash demand and the sustainability of cash infrastructure. Building on these findings, the paper derives policy implications and practical recommendations for regulators and cash-cycle participants, emphasizing the need to keep cash affordable. |
| Keywords: | Cash, payments, costs, cash cycle, affordability |
| JEL: | E41 E51 E58 O57 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hawdps:340843 |
| By: | Laura Baselga-Pascual; Lidia Loban; Emma-Riikka Myllymäki (Audencia Business School) |
| Abstract: | This study investigates the relationship between credit risk and bank exposure to sovereign debt. Using an international dataset of commercial banks from 2002 to 2022, we apply various regressions and panel data models to address potential endogeneity issues. Our results reveal that banks with higher levels of impaired loans tend to hold more sovereign debt. Furthermore, we observe that this relationship is stronger in countries with high sovereign credit ratings. This suggests that banks, when confronted with elevated credit risk from impaired loans, may seek safety in sovereign debt as a seemingly secure investment. |
| Keywords: | Financial institutions, Bank risk, Sovereign debt nexus, Credit risk |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05585256 |
| By: | Felix Ward (Erasmus University Rotterdam); Casper de Vries (Erasmus University Rotterdam) |
| Abstract: | Does the preferential tax treatment of debt over equity cause banks to increase their leverage? We construct a novel dataset tracing the evolution of the debt tax shield for banks in advanced economies from 1870 to 2020. Exploiting variation from nearly all changes in banking-sector tax shields since the nineteenth century, we show that a 1 percentage point increase in the tax shield reduces bank capital ratios by 0.25-0.8 percentage points. Our estimates suggest that the tax advantage of debt was an important driver of the rise in bank leverage during the twentieth century. |
| Keywords: | corporate income taxation, debt bias, interest deductibility, financial stability |
| JEL: | E44 G21 G32 |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260016 |