|
on Financial Development and Growth |
| By: | Iqbal, Muhammad Adil; Ali, Amjad; Audi, Marc |
| Abstract: | This study investigates the influence of venture capital investments and their proportion relative to gross domestic product on two key macroeconomic variables: gross domestic product growth rate and unemployment rate. By analyzing data from 13 countries over the period 2014 to 2021, the research seeks to clarify the impact of venture capital metrics using a range of statistical techniques, including descriptive statistics, correlation and covariance assessments, panel ordinary least squares, and panel generalized method of moments. The results from the panel ordinary least squares regression indicate that both dependent variables, gross domestic product growth rate and unemployment rate, exhibit limited explanatory power concerning the impact of venture capital metrics. Even after controlling for heteroskedasticity and autocorrelation, and incorporating dynamic specifications and endogeneity adjustments, the results remain largely unchanged. The empirical findings further indicate that gross domestic product growth rates are non-stationary, while unemployment rates are stationary, underscoring the greater importance of structural and policy-driven factors in shaping economic performance. The only notable result from this analysis is the significant persistence of gross domestic product growth rates through their own lagged values, which emphasizes the primacy of historical economic trends over external capital inflows. Overall, the results reveal that venture capital metrics do not have a statistically significant or economically meaningful effect on either gross domestic product growth rate or unemployment rate. These findings challenge the commonly held assumption that venture capital metrics directly influence or enhance key macroeconomic indicators. Consequently, policymakers should view venture capital investments as secondary rather than primary drivers of economic growth and employment, and should instead prioritize comprehensive strategies focused on education, labor market reforms, and institutional development to achieve sustained macroeconomic progress. |
| Keywords: | Venture Capital, Artificial Intelligence, Research and Development, Economic Growth, Employment |
| JEL: | O3 O4 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127492 |
| By: | Jabrane Amaghouss (Cadi Ayyad University); Hanane Elmasmari (Cadi Ayyad University) |
| Abstract: | This study investigates the effects of financial inclusion on youth unemployment and mortality rates, using panel data from 17 countries in the MENA region over the period 2004-2022. Controlling for variables such as the ICT development index, economic growth, and inflation rates, the results reveal a causal relationship between financial inclusion and both youth unemployment and mortality rates. Moreover, the Fully Modified Ordinary Least Squares (FMOLS) model results support the hypothesis that an inclusive financial system contributes to reducing both youth unemployment and mortality rates in the long term. Additionally, the GMM estimates further corroborate the role of financial inclusion in achieving SDGs 3 and 8. In contrast, the control variables show that an increase in the ICT development index raises unemployment but reduces the likelihood of youth mortality. Meanwhile, economic growth and inflation rate have a relatively weak impact on both youth unemployment and mortality risk in the MENA region. |
| Date: | 2025–12–14 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1813 |
| By: | Wiem El Abed (USO - جامعة سوسة = Université de Sousse = University of Sousse); Mongi Lassoued (USO - جامعة سوسة = Université de Sousse = University of Sousse) |
| Abstract: | This study analyzes the interaction between institutional quality and FDI dynamics in driving economic growth across 16 MENA countries over the period 2011-2024. Using the Generalized Method of Moments (GMM) developed by Arellano and Bond (1991), it addresses the endogeneity between growth, FDI, and institutional factors. The results suggest that FDI positively contributes to growth, but its impact largely depends on the quality of institutions. Countries with strong governance and sound regulatory frameworks benefit more from technology transfer and productivity spillovers generated by FDI. The study therefore highlights that institutional improvement is a key lever for maximizing the benefits of foreign investment and fostering sustainable growth in the MENA region. |
| Keywords: | FDI, GMM method, Institutional quality, Economic growth |
| Date: | 2026–01–27 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05491999 |
| By: | Wedemeyer, Laura; Kaplan, Lennart; Kluve, Jochen; Reiners, Lennart |
| Abstract: | This study analyzes the empirical link between German bilateral development finance and Foreign Direct Investment (FDI) at the sub-national (ADM2) level. We construct a unique dataset by merging geo-referenced development aid projects - implemented by KfW Development Bank - over more than two decades with FDI project data. The analysis investigates four research hypotheses, and finds that: (i) development finance activity is positively and significantly associated with FDI inflows; (ii) the positive link is similarly pronounced in both hard and soft sectors; as well as (iii) irrespective of recipient countries' income level; and (iv) the positive aid-FDI association appears to be driven by projects with stronger implementation, as measured by higher ex-post evaluation ratings. For these higher-rated projects, KfW aid is significantly more likely to be associated with FDI from Germany and the EU. Our findings suggest that FDI may be an important channel through which development aid simultaneously benefits both recipient - by providing capital and technology - and donor countries, by signaling investment opportunities for its enterprises. |
| Keywords: | Development aid, development finance, FDI |
| JEL: | F23 F35 O12 O18 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cegedp:336810 |
| By: | Frayman, David |
| Abstract: | We examine the impact of a major lending programme of the European Investment Bank (EIB) on firm investment. Using a difference-in-differences design applied to a unique dataset of loan recipients, we find that EIB loans led to substantial additional growth in recipients’ fixed assets. This provides the first causal evidence on the additionality of large state investment bank loans made directly to firms. The findings highlight the potential for strategic public lending to advance policy agendas for sustainable economic growth. |
| Keywords: | state investment banks; European Investment Bank (EIB); financial constraints; difference-in-differences |
| JEL: | H81 G28 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130858 |
| By: | Erdal Özmen (Middle East Technical University, Ankara); Fatma Tasdemir (Sinop University) |
| Abstract: | This paper investigates the effects of international (IFI) and regional financial integrations (RFI) on structural domestic conditions represented by financial development and governance in Middle East and North Africa economies (MENA). To this end, we first measure RFI in the MENA by using bilateral financial flows. Our results suggest that too much IFI deters whilst higher levels of RFI promote financial development. High levels of IFI and RFI both tend to be positively associated with institutional quality and governance. The empirical findings in this paper propose that MENA economies should engage in structural reforms, encompassing liberalization of capital accounts, eliminating barriers to regional financial integration, enhancing the institutional environment and financial development. In this vein, policymakers may be suggested to formulate strategies with the goal of maximizing the beneficial effects of both international and regional financial integrations. |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:erg:wpaper:1728 |
| By: | Mavrotas, George |
| Abstract: | Development finance is facing mounting pressures amid global economic shocks, the lingering effects of the COVID-19 pandemic, and rising geopolitical tensions. These challenges have disrupted progress toward the Sustainable Development Goals (SDGs) and exposed vulnerabilities in the current financing architecture. The 4th Financing for Development Conference, held in Seville in July 2025, marked a renewed effort to mobilize political commitment and reorient strategies to address these setbacks. Inspired by the precedent set by the 2002 Monterrey Conference, the Seville gathering underscored the need for more pragmatic, accountable, and results-driven approaches. While Monterrey succeeded in galvanizing international support for the Millennium Development Goals (MDGs), its limitations revealed that political momentum must be matched by sustained implementation and realistic planning. In today's more volatile global environment, these lessons are even more critical. As the 2030 deadline approaches, there is growing consensus that development finance must be recalibrated to reflect current realities-through adaptive, context-sensitive strategies that can maintain progress despite uncertainty. This paper examines the evolving landscape of development finance, identifies key structural and political challenges, and issues a call to action for coordinated, concrete efforts. Without such a shift, temporary financial shortfalls risk becoming entrenched structural gaps, further jeopardizing the 2030 Agenda. |
| Keywords: | development finance, SDGs, 2030 Agenda, FfD Seville Conference |
| JEL: | F35 H87 O19 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iedlwp:336687 |
| By: | Bhandary, Rishikesh Ram; Gallagher, Kevin P.; Zucker-Marques, Maria; Colodenco, Maia; Asef Horno, Florencia |
| Abstract: | Multilateral development banks (MDBs) play a key role in providing developing countries with affordable, long-term finance. In 2024, to help meet development challenges, the G20 agreed on a roadmap to make the MDBs bigger, better and more effective and recommended MDBs conduct resource needs reviews to assess the adequacy of their resources to meet shareholder objectives and shared global challenges. This paper investigates the extent to which MDBs incorporate resource needs into their reviews of capital requirements. We find that MDBs generally do not have rigorous, evidence-based processes in place. Where they exist, the reviews have been ad hoc and focused on preserving the financial robustness of MDBs. Needs assessments exhibit path dependencies reflecting envelopes used in prior rounds. Our analysis is rooted in MDB documents, G20 communiqués, and case studies of MDBs. Forwardlooking resource needs assessments will be crucial to ensure that MDBs have the resources they need to support those objectives. The paper concludes with a set of principles that could govern resource reviews processes. |
| Keywords: | multilateral development banks, G20, development finance, climate finance, development finance institutions |
| JEL: | F33 O19 H81 Q54 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iedlwp:336694 |
| By: | Giuzio, Margherita; Rousová, Linda; Kapadia, Sujit; Kumar, Hradayesh; Parker, Miles; Mazzotta, Luisa; Zafeiris, Dimitris |
| Abstract: | This paper examines the role of insurance in mitigating the adverse macroeconomic effects of climate-related catastrophes. We first develop a stylised theoretical growth model which incorporates a role for natural catastrophes, climate change and insurance. This illustrates how insurance can mitigate the impact of catastrophes and articulates the potential effect of falling insurance coverage as global warming intensifies. The model also provides a basis for our empirical analysis which explores the link between insurance coverage and the macroeconomic impact of catastrophes for a sample of several thousand disaster events across 47 developed and middle income countries between 1996 and 2019. The results confirm that higher insurance coverage is associated with less severe macroeconomic consequences of disasters. With climate-related catastrophes becoming ever more frequent and severe, our findings highlight the importance of developing policies to reduce the climate insurance protection gap. JEL Classification: G22, G52, Q51, Q54 |
| Keywords: | climate Change, economic growth, global warming, insurance protection gap, natural catastrophes |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263184 |
| By: | Eshraghi, Mohsen |
| Abstract: | This paper investigates how microeconomic origins of liquidity shocks at the firm level influence aggregate output and financial stability in a network economy with inter-sectoral linkages. We use firm-level balance sheet data to construct two liquidity measures: the quick ratio, capturing firms’ internal short-term liquidity, and a network-based measure, capturing inter-sectoral network structure of liquidity flows derived from receivables and payables. Using sector-level aggregates, we apply a Structural Vector Autoregression (SVAR) model to examine the dynamic responses of GDP, the repo rates, the quick ratio, and the network measure to liquidity shocks. We further decompose forecast error variance to assess the relative contribution of each shock to business-cycle fluctuations. The main results indicate that the network effect is the dominant driver of businesscycle fluctuations, followed by the quick ratio, with both outweighing the remaining endogenous variables. The findings are relevant for macroprudential oversight, highlighting the importance of monitoring firms’ liquidity imbalances and network structure for financial stability and economic resilience. |
| Keywords: | Firm liquidity; business cycle; macroeconomic fluctuations; Structural VAR; input–output linkages; intersectoral networks |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:esx:essedp:42809 |
| By: | Masami Imai (Department of Economics, Wesleyan University); Koji Sakai (Kyoto Sangyo University); Michiru Sawada (Nihon University) |
| Abstract: | Distortions in credit allocation can slow technological progress by sustaining unproductive firms and generating congestion that crowds out innovation from otherwise healthy firms. We study this mechanism using Japan’s banking crisis of the 1990s, linking firm-level borrowing data to the universe of patent applications with more than fifteen years of historical citation outcomes. Innovation declines more in technology fields facing greater credit distortion, with effects substantially larger for forward citations than for patent counts. Firm-level evidence reveals persistently low innovation by zombie firms and reduced innovation by healthy firms operating in zombie-intensive industries, consistent with congestion effects. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:wes:weswpa:2026-001 |
| By: | Umair, Syed Muhammad; Ali, Amjad; Audi, Marc |
| Abstract: | This study explores the influence of financial technology adoption on financial stability across 35 emerging market economies over the period 2015–2024. A fintech adoption index is constructed using data from the GSMA mobile money metrics, World Bank database, and Bank for International Settlements Fintech Statistics, including indicators such as mobile payment transactions, transaction volumes, and the number of fintech startups. Principal component analysis is employed to reduce dimensionality and enhance the validity and comparability of the index across countries and time. To assess the relationship between fintech adoption and financial stability, this study applies the cross-sectionally augmented autoregressive distributed lag model, which is particularly suitable for panel datasets with mixed integration orders and cross-sectional dependence features commonly observed in macroeconomic analyses of emerging economies. Regulatory quality, measured using the World Bank’s Worldwide Governance Indicators, is examined as a moderating factor. The results reveal that higher levels of fintech adoption improve financial stability, especially in environments with stronger regulatory frameworks. Robustness is confirmed through several diagnostic checks, including the CIPS unit root test, alternative model specifications, and interaction term analysis. |
| Keywords: | Fintech Adoption, Financial Stability, Emerging Markets, Regulatory Quality |
| JEL: | G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127487 |
| By: | Arturo Andia; Jose Aurazo; Marcelo Paliza |
| Abstract: | Digital wallets like Yape and Plin have gained widespread popularity in Peru, allowing users to make instant payments through quick response (QR) codes or mobile phone numbers. This paper examines the drivers of their adoption and their impact on everyday life. Using market share data for six digital payment instruments and cash from January 2019 to April 2024, we estimate the demand for payment instruments and find that features such as lower fees, 24/7 immediate payments, QR code payments, and interoperability with point-of-sale (POS) terminals are key to their success. Our estimates suggest that a PEN 0.01 (USD 0.003) increase in payer fees would reduce the market share of the digital wallets by 0.31 percentage points (pp), while debit cards and cash would gain usage. Simulations further indicate that removing 24/7 immediate transfers would reduce digital wallet usage by 15.75 pp, discontinuing POS payments by 26.01 pp, and eliminating QR code functionality by 4.45 pp. Furthermore, our findings suggest that the adoption of digital wallets has contributed to a sustained increase in consumer welfare per transaction among banked individuals over time. |
| Keywords: | consumer welfare, demand estimation, digital payments, digital wallets, innovation, Peru |
| JEL: | G23 G28 L51 L96 O16 R11 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1329 |
| By: | Tatsuru Kikuchi |
| Abstract: | This paper evaluates the causal impact of Generative Artificial Intelligence (GenAI) adoption on productivity and systemic risk in the U.S. banking sector. Using a novel dataset linking SEC 10-Q filings to Federal Reserve regulatory data for 809 financial institutions over 2018--2025, we employ two complementary identification strategies: Dynamic Spatial Durbin Models (DSDM) to capture network spillovers and Synthetic Difference-in-Differences (SDID) for causal inference using the November 2022 ChatGPT release as an exogenous shock. Our findings reveal a striking ``Productivity Paradox'': while DSDM estimates show that AI-adopting banks are high performers ($\beta > 0$), the causal SDID analysis documents a significant ``Implementation Tax'' -- adopting banks experience a 428-basis-point decline in ROE as they absorb GenAI integration costs. This tax falls disproportionately on smaller institutions, with bottom-quartile banks suffering a 517-basis-point ROE decline compared to 129 basis points for larger banks, suggesting that economies of scale provide significant advantages in AI implementation. Most critically, our DSDM analysis reveals significant positive spillovers ($\theta = 0.161$ for ROA, $p |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.02607 |
| By: | Carlos Castro Iragorri (Universidad del Rosario); Juan Camilo Medellín Martínez (Universidad del Rosario) |
| Abstract: | This paper examines the role of deposit franchise in mitigating interest rate risk among Latin American commercial banks over the period 2005–2023. Using individual bank estimates and a panel dataset across multiple countries, we estimate expense betas—the sensitivity of funding costs to policy rate changes—as a measure of franchise strength. We find that Latin American banks exhibit average betas of 10%, significantly lower than the 35-40% observed in U.S. and European banks, indicating strong franchise effects. We find that overhead costs and market power, rather than bank size, explain beta variation. While interest rate increases reduce deposit and loan volumes, they have limited effects on income, underscoring the franchise’s stabilizing role. |
| Keywords: | Maturity transformation; Deposit franchise; Net interest margins; Market power |
| JEL: | G21 E43 L22 |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:col:000092:022157 |
| By: | Oddone, Nahuel; Stola, Iván |
| Abstract: | Las pequeñas y medianas empresas (pymes) constituyen un pilar de la economía mexicana al generar empleo, dinamizar los territorios y fortalecer la resiliencia productiva. No obstante, enfrentan obstáculos estructurales que limitan su crecimiento, innovación e integración en cadenas de valor. El acceso al financiamiento es la principal restricción; la Encuesta Nacional de Financiamiento de las Empresas (ENAFIN) 2024 indica que el alto costo del crédito (25, 8%) y la falta de financiamiento (20, 7%) fueron los factores más críticos para las pymes en 2023. A este escenario se suman desafíos adicionales, como la baja alfabetización financiera, la limitada digitalización, la dispersión de programas de apoyo y una débil articulación de políticas fiscales, regulatorias y productivas, especialmente en los contextos subnacionales. En este documento se examina el ecosistema de financiamiento público para pymes (integrado por la oferta, la demanda, la regulación y las políticas públicas) y se plantean recomendaciones para ampliar las garantías, simplificar los trámites y promover mecanismos financieros más inclusivos. También se subraya la importancia de impulsar esquemas de mediano y largo plazo que fortalezcan la productividad y resiliencia empresarial. Finalmente, se propone la creación de un fondo nacional de financiamiento pyme con el objetivo de alcanzar la meta del 30% de crédito establecida en el Plan México. |
| Date: | 2025–11–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecr:col094:83270 |
| By: | Mani, Sunil |
| Abstract: | This paper analyses the role of loan guarantees in supporting the internationalisation of Indian firms through outward foreign direct investment (OFDI) since the mid-2000s. Despite a persistent domestic savings-investment gap and recurrent current account deficits, Indian OFDI has expanded significantly, raising questions about its underlying financing mechanisms. The paper argues that regulatory liberalisation and the growing use of loan guarantees have been central to this expansion. Using balance-of-payments analysis and a stylised framework that distinguishes between private and guaranteed financing channels, the study documents a shift in OFDI financing from equity dominance towards a more diversified structure that includes reinvested earnings, intercompany loans, external commercial borrowings, and guaranteed debt. While guarantee issuance has increased markedly, invocation rates remain low, indicating that guarantees primarily serve as credit-enhancement tools rather than realised fiscal liabilities. The paper concludes that India's predominantly private-risk approach has enabled corporate internationalisation while limiting direct sovereign exposure, but also highlights the need for improved transparency and risk monitoring as guarantee volumes continue to rise. |
| Keywords: | loan guarantees, outward FDI, India, corporate internationalisation, financial commitments, policy reforms |
| JEL: | F21 F23 H81 G28 F34 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iedlwp:336699 |
| By: | Simone Arrigoni; Agustín Bénétrix; Tara McIndoe-Calder; Davide Romelli |
| Abstract: | This paper presents a novel dataset that combines granular information on financial assets from the Security Holdings Statistics (SHS) with household characteristics from the Household Finance and Consumption Survey (HFCS). We illustrate one of its potential uses by studying the link between portfolio returns and risk with education. First, we provide a non-parametric exercise taking Ireland as a case study and report a robust link between education levels and returns. Moreover, we find that more educated households exhibit higher risk tolerance and portfolios structured to realise greater gains in periods of elevated positive risk, albeit being more susceptible to losses in challenging times. Second, we expand the illustrative example to a country panel setting and address the previous question following non-parametric as well as parametric methods. Interestingly, the previous results for education and returns also emerge in this setting. These are robust to the inclusion of unobserved conditioning factors and macro-financial controls. We outline avenues for potential research and analysis that our novel dataset may contribute to in the future. |
| Keywords: | Household Finance, International Macroeconomics, Portfolio Return, Investment Risk |
| JEL: | G50 G11 E22 F21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1034 |
| By: | Jieun Lee; Ilhyock Shim |
| Abstract: | Using a large quarterly consumer credit panel dataset from Korea covering 2017–2023, we present four key findings on the characteristics, lending sources, and macroeconomic consequences of vulnerable borrowers-namely, delinquent borrowers whose debt repayment is overdue at least 30 days, and borrowers whose debt service ratio is higher than 50% but who are not delinquent ("zombie borrowers"). First, zombie borrowers persist over time and rarely switch to delinquency, and hold large amounts of mortgage and other secured loans and thus are asset-rich. Second, we find evidence of continued extension and rollover of loans ("evergreening") to zombie households driven by non-banks. Third, zombie borrowers experience slower consumption growth over three years than normal borrowers, while delinquent borrowers' consumption growth is slower over two years but recovers in three years. Moreover, when interest rates increase, vulnerable borrowers' consumption is more negatively affected than that of normal borrowers. Finally, when the share of zombie borrowers increases in a city, the city's consumption growth significantly declines, driven by low-income and young borrowers. Given that zombie borrowers have a substantial impact on aggregate consumption dynamics in Korea, it is important to introduce stringent and comprehensive regulation on the debt service ratio applied to all types of financial institutions, and design debt relief programs which balance mitigating consumption slowdown and reducing moral hazard. |
| Keywords: | bank, consumption, debt service ratio, delinquency, household debt, non-bank financial institution, zombie borrower |
| JEL: | E12 G51 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1331 |
| By: | Sangyup Choi (Yonsei University); Junghyuk Lee (Bank of Korea) |
| Abstract: | Leveraging Korea's unique jeonse system-a lump-sum lease arrangement that enables inference of intrinsic housing values-and urban district-level monthly-frequency data, this paper proposes a novel method to decompose housing price fluctuations into supply, residential demand, and speculative demand shocks. We find speculative demand accounts for nearly 50% of cumulative housing price growth in Korea and over 60%in the Seoul metropolitan area. Importantly, housing booms driven by residential demand increase regional consumption, employment, and output ("good booms"), while those driven by speculation reduce them ("bad booms"). Using comprehensive quarterly individual panel data, we show that only speculative demand shocks trigger excessive household leverage, creating a debt overhang that explains these differential aggregate effects. While monetary easing significantly amplifies speculative demand, an equivalent tightening fails to produce a comparable contraction. Conversely, macroprudential tools-such as lower loan-to-value limits-curb speculative surges more effectively, yet they also risk dampening residential demand. |
| Keywords: | House prices; Good booms and bad booms; High-frequency identification; Sign-restriction approach; Jeonse; Debt overhang; Policy mix |
| JEL: | E50 G10 R30 R21 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-275 |
| By: | McLeay, Michael; Tenreyro, Silvana; von dem Berge, Lukas |
| Abstract: | With the monetary policy lower bound a re-emerging concern in some locations, we present new insights on the impact of negative policy rates. We develop a new theoretical model to match the empirical evidence on their effects. The model features a heterogeneous, oligopolistic banking sector where loan pricing is determined in part by the availability of deposit funding and in part by wholesale funding. The use of non-deposit funding ensures that the bank lending channel of negative rates remains active. We explore the impact of the policy on different types of banks: High-deposit banks may experience a fall in interest margins and profitability, which can result in reduced lending. But this is more than compensated for by greater lending from low-deposit banks. We embed this banking sector in an open-economy macroeconomic model, featuring exchange-rate and capital market transmission channels, which continue to work as normal when rates are negative. These non-bank channels, combined with general equilibrium effects and an active bank lending channel, mean that the transmission of negative rates is only somewhat weaker than the transmission of conventional policy. |
| JEL: | J1 |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130299 |