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on Financial Development and Growth |
| By: | Yuichi FURUKAWA (Chuo University and RIETI); Tat-kei LAI (IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Economie Management); Sumiko NIWA (Wakayama University) |
| Abstract: | This study offers a monetary growth theory that can explain the declining business dynamism observed over the past few decades in some developed countries by developing a new R&D-based growth model; the main departure from existing models is the introduction of an entry cost after innovation and an endogenous survival investment that is subject to a cash-in-advance constraint. Due to this, in our model, the entry/exit rates and firm age distribution are all endogenous. The core finding is that, theoretically, the nature of business dynamism at the macro level essentially depends on nominal factors. Specifically, lower inflation leads to declining business dynamism, characterized by lower entry and exit rates and a maturity bias in the firm age distribution, if the entry cost is sufficiently high. Empirically, we also find supportive evidence that, among a set of European countries, firm entry/exit rates are positively associated with nominal interest rates and inflation rates. Then, calibrating the model to the E.U. economy, we verify that lower inflation leads to declining business dynamism under empirically plausible values of entry, exit, and inflation rates. |
| Keywords: | Cash-in-advance constraint, inflation, firm dynamics, R&D-based growth |
| JEL: | E40 O31 O34 O41 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ies:wpaper:e202602 |
| By: | Karin Klieber (Oesterreichische Nationalbank, Monetary Policy); Michael Sigmund (Oesterreichische Nationalbank, Research Section); Maria Teresa Valderrama (Oesterreichische Nationalbank, Economic Analysis Division) |
| Abstract: | We study how monetary policy affects firm-level total factor productivity in the presence of financial frictions using a panel of Austrian non-financial firms. A dynamic firm model and causal empirical framework show that tighter monetary policy reduces productivity-enhancing investment and firm-level TFP. The effects are stronger for highly leveraged firms and are more pronounced for persistent changes in financing conditions than for transitory highfrequency policy surprises. |
| Keywords: | total factor productivity, monetary policy shocks financial frictions |
| Date: | 2026–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:284 |
| By: | Caitlin Hegarty; Matias Moretti; Pablo Ottonello; Diego J. Perez |
| Abstract: | We study how global financial conditions transmit to firms’ investment. We document that increases in risk premia are followed by large investment contractions, particularly among firms with higher default risk. We develop a quantitative heterogeneous-firm open-economy model where firms finance investment with defaultable debt priced by risk-averse global investors. We identify a strong risk channel linking changes in the global price of risk to financing costs through firms’ quantity of risk—the sensitivity of debt repayment to global shocks. This introduces a risk dimension to stabilization policy: smoothing cash flows reduces firms’ quantity of risk and dampens international financial transmission. |
| JEL: | E22 F00 F30 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35918 |
| By: | Larissa Nawo (Associated student HEC Montréal) |
| Abstract: | How do financial conditions shape U.S. macroeconomic tail risk, and what is their incremental forecasting value beyond standard macroeconomic predictors? Using quarterly U.S. data from 1971Q1 to 2026Q1, this paper compares macro-only and macro-financial Bayesian VARs. First-lag financial-conditions coefficients are negative for GDP growth and positive for unemployment, with 95% posterior credible intervals excluding zero; second-lag coefficients have opposite signs. Adding financial conditions to the Gaussian VAR raises predicted probabilities of negative GDP growth by 1.5 and 2.5 percentage points at four- and eight-quarter horizons and lowers GDP tail quantiles. However, out-of-sample tests do not establish a general forecast-accuracy improvement. Student-t forecast innovations, simulated with the same Gaussian posterior parameter draws, produce heavier predictive tails. Their positive GDP log-score differences reverse when 2020Q1–2021Q4 forecast targets are excluded, while CRPS favors Gaussian innovations in several comparisons. Financial conditions change measured tail risk without consistently improving forecast accuracy. |
| Keywords: | Financial conditions; macroeconomic tail risk; recession risk; macroeconomic vulnerability |
| Date: | 2026–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:ris:crcrmw:023696 |
| By: | Armando Álvarez (Department of Economics, Trinity College, USA) |
| Abstract: | This paper develops a simple and teachable shifting equilibrium model of Minsky's Financial Instability Hypothesis by integrating a benchmark post-Keynesian model of endogenous money with Minsky's own ideas of the introduction of money through credit, the profit-seeking behavior of the banking sector, and his classification of financial postures. The paper highlights how financial crises are intrinsically connected to economic decisions made under fundamental uncertainty that Minsky, following Keynes, considered inherent in capitalism. The model focuses on credit-financed investment decisions by non-financial firms and the corresponding lending by profit-seeking banks. The paper introduces a ratio of Ponzi-speculative to hedge units, which connects the macroeconomic outcome with the micro classification of individual firms according to Minsky's financial postures. |
| Keywords: | Endogenous money, financial instability, financial postures |
| JEL: | E12 E44 G01 G21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2611 |
| By: | Tanu M. Goyal (Indian Council for Research on International Economic Relations (ICRIER)); Ketaki Gaikwad; Ankit Bansal |
| Abstract: | The paper argues that the outcomes of India's 2026 BRICS Presidency provide a timely opportunity to address this gap. The Jaipur Consensus to Study the Establishment of an Invoice Discounting Mechanism proposes exploring a cross-border digital platform for financing confirmed export invoices, drawing on India's Trade Receivables Discounting System (TReDS) experience. Complementing this, the BRICS Guiding Principles for Credit Assessment Frameworks for Export-Oriented MSMEs promote greater reliance on cashflow and transaction-level information. Implementing these initiatives will require complementary global and domestic reforms to digital trade-finance infrastructure, receivables verification, information sharing, risk assessment and regulatory frameworks. |
| Keywords: | International Trade, MSMEs, Trade Finance, BRICS, icrier |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdc:ppaper:78 |
| By: | Arnaud Natal (BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IFP - Institut Français de Pondichéry - MEAE - Ministère de l'Europe et des Affaires étrangères - CNRS - Centre National de la Recherche Scientifique); Damien Girollet (BSE - Bordeaux sciences économiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | How does social proximity between borrowers and lenders influence informal lending terms in rural areas of the Global South? We answer this question using a unique dataset collected in 2020-2021 in rural South India. We examine four dimensions of loan agreements: interest rates, collateral, services provided by lenders and borrowers. We analyse the role of social proximity (i.e., homophily and strength of ties) in determining credit terms using loan-level probit models. We find two key results. First, social proximity operates as an ambivalent resource: while homophily and strong ties reduce the financial cost of borrowing, they are also associated with reciprocal obligations. Second, the benefits of social proximity are unequally distributed across social groups. These findings suggest that informal credit markets are deeply embedded in local hierarchies and that policies addressing household indebtedness must go beyond financial inclusion to tackle the structural inequalities shaping credit relations. |
| Keywords: | Tamil Nadu, Strength of ties, Homophily, Debt, Interpersonal networks |
| Date: | 2027 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05701286 |
| By: | Francis Annan; Seth Garz |
| Abstract: | Expanding access to financial services may not be enough to develop markets in low-income settings: providers also need to be held accountable to consumers. We test this in a field experiment across 195 rural Sierra Leonean communities, upgrading Village Savings and Loan Associations (VSLAs) into mobile money and bank agents, cross-randomized with a monthly consumer feedback mechanism. Upgrading expands access, but feedback drives large operational improvements (+20.5 pp, 85%), particularly in privacy and consumer protection, raising usage and revenues. Upgraded VSLAs also show higher savings digitization and higher incomes, evidence that disciplining agent actions benefits not only consumers but also the principal that finances and stands behind its agent. Interpreted through a framework of delegated intermediation, we show accountability, not infrastructure alone, aligns provider incentives with consumer welfare and is central to designing scalable financial intermediaries. |
| JEL: | C93 D22 D82 G21 O17 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35912 |
| By: | Maryam Farboodi; Péter Kondor; Pablo Kurlat |
| Abstract: | We study equilibrium market structure in a model of credit-market competition with correlated or uncorrelated screening errors and endogenous screening technologies. A pool externality arises because rejected borrowers reapply elsewhere, so lenders’ screening and pricing choices affect competitors’ applicant pools. With independent errors, a single market segment emerges, with rates rising smoothly as lenders who choose better technologies lend to more adversely selected borrowers. With correlated screening errors, potentially stemming from similar AI systems and overlapping financial-sector data, ex-ante identical lenders instead specialize across qualitatively distinct segments, generating a hockey-stick interest-rate schedule: segments with uniform rates but heterogeneous borrower quality coexist with segments featuring uniform quality but dispersed rates, echoing traditional banking, fintech, and high-rate indiscriminate lending. We show how technological and regulatory changes affecting screening costs, including frontier AI innovation and various forms of open banking, unevenly affect financial access and can either benefit or harm financially excluded borrowers. |
| JEL: | D82 D83 G19 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35905 |
| By: | Martin Aragoneses; Young Soo Jang; Amir Sufi |
| Abstract: | Venture capital specializes in the financing of customer capital intensive firms—firms with higher sales and marketing expense to revenue ratios, a higher wage bill for sales and marketing employees, and a higher tendency to apply for trademarks—and they do so more than other financial intermediaries. Venture capitalists target high customer capital industries with low knowledge capital but avoid high knowledge capital industries that lack customer capital. Firms tilt investment toward customer capital leading up to the initial venture capital investment, after which their scale accelerates rapidly. Venture capitalists focus on financing customer capital because such investments require tolerance for substantial risks of failure in pursuit of extreme upside potential, as characterized by power law returns. This return profile fits customer capital investments more closely than investments in knowledge capital. Venture capitalists that sprinkle small investments across a large number of firms, colloquially referred to as the “spray and pray” strategy, target customer capital industries for investment, whereas venture capitalists that commit larger amounts to a small number of firms target knowledge capital industries. The venture capital focus on customer capital reflects a shift away from its traditional focus on knowledge capital intensive firms over the past 30 years. |
| JEL: | G2 G24 G3 G32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35919 |
| By: | Kuikeu, Oscar |
| Abstract: | Since the beginning of year 2026 some of CEMAC countries even those considered as the most prosperous like Cameroon use the external debt extensively until to finance the public expenditures as the country’s national budget. Considering the current debate on debt dynamics into the area this paper aims investigating the relationship between debt and economic growth. Once more in investigating this relationship the literature in general fails to design a parcimonious model where most of the parameters are significant. Then to overcome this gap we use here a statiscal model limited to financial series. From an empirical side, we use a nonlinear short-run adjustment of a STR (Smooth Transition Regression) form for the CEMAC zone as a whole between 2004-2025. According to our results, we support the Old literature of a positive association between public debt and growth. Then the CEMAC zone as a whole is a supportive case where the Keynesian view of the economy holds as this have been advocated in earlier developments on the same area. The main Recommendation of this study is that his members States should avoid the use of external debt as this has been done considerably into the area since the beginning of this year. |
| Keywords: | Public Debt, External Debt, Economic growth, Keynesian thought, STR Model, CEMAC |
| JEL: | H60 O47 C22 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:344074 |
| By: | Marc Raffinot (Université Paris Dauphine, LEDa DIAL, PSL); Fabrice Yidalpin Oyo Badolo (Laboratoire d’Économie Appliquée (LABEA), Université Norbert Zongo (Koudougou/Burkina Faso)) |
| Abstract: | Cet article étudie l’effet des émissions d’euro-obligations sur la gouvernance dans les pays d’Afrique subsaharienne sur la période 2005-2024. Tout un courant de pensée met l’accent sur la « discipline de marché », la surveillance des investisseurs étant supposée conduire à une meilleure gestion financière et institutionnelle. À l’aide d'un modèle en panel à effets fixes contrôlant l’endogénéité de la politique d’endettement régionale et de l’efficacité gouvernementale, nous montrons que l’émission d’eurobonds affiche une neutralité statistique quasi totale sur la trajectoire institutionnelle globale, malgré une impulsion de court terme sur le contrôle de la corruption et l’efficacité des pouvoirs publics. En revanche, les Eurobonds influencent significativement les indicateurs macroéconomiques du CPIA liés à la gestion financière et d’endettement à l’échelle de la région. À l’inverse, au sein de l’UEMOA, l’accès aux marchés financiers internationaux induit un impact positif et systémique. Si la politique budgétaire pure y reste insensible, la qualité de la gestion financière et monétaire et la politique d’endettement affichent une amélioration très significative, consolidée à long terme. Cette dynamique s’accompagne d’une progression durable de l’État de droit, de la qualité de la réglementation et du contrôle de la corruption. Ces résultats démontrent que la discipline de marché n’est pas une force universelle autonome, mais un mécanisme endogène dont l’efficacité dépend étroitement de la complémentarité avec des contraintes monétaires et des règles budgétaires communautaires préexistantes. This article examines the impact of Eurobond issuance on governance in sub-Saharan African countries over the 2005-2024 period. A substantial body of literature emphasizes "market discipline, " suggesting that investor scrutiny leads to better financial and institutional management. Using a fixed-effects panel model that controls for the endogeneity of regional debt policy and government effectiveness, we show that Eurobond issuance is characterized by near-total statistical neutrality regarding the region's overall institutional trajectory, despite a short-lived positive pulse on corruption control and government effectiveness. Conversely, Eurobonds significantly influence regional CPIA macroeconomic indicators related to financial management and debt policy. In sharp contrast, within the WAEMU, access to international capital markets yields a positive and systemic impact. While pure fiscal policy remains unaffected, both the quality of financial and monetary management and debt policy display highly significant improvements that strengthen over the long term. This dynamic is paired with a durable progression in the rule of law, regulatory quality, and corruption control. These findings demonstrate that market discipline is not an autonomous, universal force; rather, it is an endogenous mechanism whose effectiveness strictly depends on its complementarity with pre-existing monetary constraints and regional fiscal rules. |
| Keywords: | Eurobonds, Gouvernance, Afrique subsaharienne, Discipline de marché, sub-Saharan Africa, market discipline, governance |
| JEL: | F21 F34 G15 O55 |
| Date: | 2026–11 |
| URL: | https://d.repec.org/n?u=RePEc:dia:wpaper:dt202606 |
| By: | Wafae Amrani (FSJES Souissi RABAT - Faculté des Sciences juridiques, économiques et sociales Souissi RABAT); Saad Elouardirhi (FSJES Souissi RABAT - Faculté des Sciences juridiques, économiques et sociales Souissi RABAT) |
| Abstract: | Financial decentralization and its effects on territorial inequalities are a major issue in public economics and territorial development. This study analyzes the effect of financial decentralization on territorial inequalities in Morocco over the period 2014–2022. Territorial inequality is measured by a territorial Gini index, while financial decentralization is apprehended through revenue-side decentralization indices, interpreted as an indicator of local fiscal autonomy, and expenditure-side decentralization, reflecting the share of local budget execution in public spending. The analysis relies on a first-difference model estimated by ordinary least squares, with standard errors corrected using the Newey–West method to account for potential issues of autocorrelation and heteroskedasticity in the errors. The results show that local fiscal autonomy significantly contributes to reducing territorial inequalities, while expenditure decentralization has a positive but statistically more fragile effect. Territorial inequalities appear persistent, suggesting the existence of structural determinants related to the economic, fiscal, and institutional capacities of the regions. |
| Abstract: | La décentralisation financière et ses effets sur les inégalités territoriales constituent une question majeure de l'économie publique et du développement territorial. Cette étude analyse l'effet de la décentralisation financière sur les inégalités territoriales au Maroc sur la période 2014-2022. L'inégalité territoriale est mesurée par un indice de Gini territorial, tandis que la décentralisation financière est appréhendée à travers les indices de décentralisation par les recettes, interprétée comme un indicateur d'autonomie fiscale locale, et par les dépenses, reflétant le poids de l'exécution budgétaire locale dans les dépenses publiques. L'analyse repose sur un modèle en différences premières estimé par la méthode des moindres carrés ordinaires, avec correction des erreurs-types selon la méthode de Newey-West, afin de tenir compte d'éventuels problèmes d'autocorrélation et d'hétéroscédasticité des erreurs. Les résultats montrent que l'autonomie fiscale locale contribue significativement à réduire les inégalités territoriales, tandis que la décentralisation par les dépenses présente un effet positif, mais plus fragile sur le plan statistique. Les inégalités territoriales apparaissent persistantes, ce qui suggère l'existence de déterminants structurels liés aux capacités économiques, fiscales et institutionnelles des régions. |
| Keywords: | Financial decentralization, OLS, Local government expenditure, Fiscal autonomy, Territorial inequalities, MCO, Dépenses des collectivités territoriales, Autonomie fiscale, Inégalités territoriales, Décentralisation financière |
| Date: | 2026–07–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05704374 |
| By: | Arthur Mendes; Wataru Miyamoto; Thuy Lan Nguyen; Steven Pennings |
| Abstract: | This paper studies the local and aggregate effects of cash transfers in developing countries, and how both change as the cash transfer program scales up. We build a two-region New Keynesian small open economy model and calibrate it to rich pre-treatment microdata from an ongoing cash transfer experiment in Malawi. The model implies a local multiplier on temporary transfers of about one, which depends on price stickiness, the share of liquidity-constrained households, and home bias in consumption. Spillovers to the rest of the country are negative under Malawi’s restricted international capital mobility and parallel exchange rate regimes, as cash transfers appreciate the real exchange rate and reduce exports. Consequently, the aggregate multiplier is less than the local multiplier. As the program scales up, the local multiplier converges toward the aggregate multiplier, so a scaled-up program may have smaller multipliers than micro-level estimates suggest. However, with unrestricted capital mobility, spillovers can be positive, especially under a fixed exchange rate. These results highlight the importance of the macroeconomic policy environment for aggregate multipliers and the effects of scaled-up transfer programs. |
| Keywords: | cash transfers; randomized controlled trials (RCTs); local multipliers; developing countries; exchange rate regimes |
| Date: | 2026–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:103935 |
| By: | Dean Karlan |
| Abstract: | Foreign aid has become a melting pot of motivations and policies, where differently-motivated actors often converge on recommended policies while the similarly-motivated diverge. Breaking down the “why” and the “how” can illuminate real tensions and reveal false ones. The “why” asks which problems to tackle and who benefits: the recipient, the donor through economic, political, or soft-power returns, or everyone through global public goods. The “how” asks which strategy most cost-effectively addresses a chosen problem. Evidence is central to the “how”: use it where it exists, produce it where it does not. In particular, approaches which improve state capacity to use and generate evidence can satisfy multiple objectives: strengthen recipient countries, benefit donors, and provide a global public good of knowledge. Ultimately, the “how” is not a linear process, but rather an iterative one of learning, adopting, adapting, repeating, and then sharing so others can learn as well. |
| JEL: | F35 O1 Q0 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35926 |
| By: | Barreix Sibils, Gonzalo; Volmir Rezende Anderle, Rodrigo; Ferreira da Silva, Andrea; de Oliveira Ferreira de Sales, Lucas; Pena, Daiana; Monti, Caterina; Garcia Vaz, Claudia; Esposito, Lucio; Anderson, Edward; Jara, H. Xavier; Santa, Hugo; Dos Santos de Jesus, Gabriela; Medeiros Cavalcanti, Daniella; Nhacolo, Ariel; Macicame, Ivalda; Bassat, Quique; Rasella, Davide |
| Abstract: | Background. The ongoing decline in funding for humanitarian and development assistance stands in stark contrast to the global rise in wealth concentration and widening socioeconomic inequalities. This study aimed to assess whether the implementation of wealth-redistribution policies proposed in recent high-level international agreements to support development could mitigate the health impact of the current Official Development Assistance (ODA) defunding crisis. Methods. We conducted an integrated retrospective and forecasting analysis using longitudinal panel data from 59 low-income and lower-middle-income countries (LLMICs). First, we estimated the association between per-capita ODA and mortality outcomes from 2002 to 2021 using two-way fixed-effects multivariable Poisson regression models with robust standard errors, adjusting for key demographic, socioeconomic, and health-system covariates. We performed extensive sensitivity and triangulation analyses to assess the robustness and plausibility of the findings. We then evaluated ten wealth-redistribution policies with validated country-level microsimulation models to forecast mortality under alternative wealth redistribution scenarios versus defunding through 2030. Findings. Higher ODA funding levels were associated with a 24% reduction in age-standardised all-cause mortality (rate ratio [RR]:0.76;95%CI:0.67-0.87) and a 33% reduction in under-five mortality (RR:0.67;95%CI:0.50-0.89). Forecasting analyses showed that under the current ODA funding reductions in LLMICs, all ten wealth redistribution policies were associated with millions of averted deaths by 2030: in all ages, from 6, 591, 984 (95%UI:4, 884, 075–8, 374, 138) for a 3% Crypto Tax of the top 10, 000 holders to 29, 509, 934 (95%UI:20, 273, 842–38, 603, 961) for a 3% wealth tax on ultra-high-net-worth individuals; in children under-five, from 1, 312, 912 (95%UI:802, 926–1, 785, 121) to 3, 464, 607 (95%UI:1, 235, 930–5, 609, 331), respectively. Interpretation. The implementation of wealth-redistribution policies proposed in recent high-level international agreements could mitigate the health consequences of the current ODA defunding crisis, avert millions of deaths, and support the achievement of the Sustainable Development Goals. |
| JEL: | N0 E6 J1 |
| Date: | 2026–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:139081 |
| By: | Pierre André; Paul Maarek; Mickael Melki (CY Cergy Paris Université, THEMA) |
| Abstract: | Why do some democratizing countries receive substantial increases in foreign aid while others receive little or no additional aid? We show that the aid response to democratization is highly heterogeneous. Using a comprehensive bilateral donor–recipient panel combining multiple international aid datasets with democratization episodes identified in V-Dem’s Episodes of Regime Transformation (ERT) dataset, we find that aid increases are concentrated in episodes associated with major geopolitical realignment and among donors with weaker pre-existing aid relationships. These findings provide the strongest support for a strategic interpretation of the democratization premium. They suggest that donors reward democratization primarily to support particular political transitions in specific geopolitical contexts, rather than because they intrinsically value democracy or expect institutional improvements to enhance aid effectiveness. We further show that democratization in one country does not crowd out aid to others, contributes to donor proliferation by increasing the number of active donors, and elicits weaker aid responses in poorer countries, particularly for basic-needs assistance. |
| Keywords: | Foreign aid, Democratization, Aid allocation, Donor heterogeneity, Political economy of aid, Post-communist transitions, Sanctions |
| JEL: | F35 F53 O19 P26 P33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2026-13 |
| By: | Beata Cichocka (Center for Global Development); Ian Mitchell (Center for Global Development) |
| Abstract: | This paper updates an earlier analysis of China’s role across multilateral development banks, vertical funds, and development-oriented UN entities, examining China as shareholder, contributor, borrower, recipient, and institutional actor. It also estimates China’s attributable multilateral climate finance under the accounting approach relevant to the $300 billion climate finance goal agreement at COP29. We find that China’s contributions to the development-oriented multilaterals covered have grown more than tenfold since 2010, reaching over $3 billion in 2024, but remain highly selective. Recent growth is concentrated in multilateral development bank concessional windows, especially the International Development Association, and in attributable multilateral development bank climate finance, which reached $5.3 billion by 2025. China remains a modest vertical fund donor and a limited voluntary UN funder. These trends, alongside China’s likely transition to high-income status, matter for debates about multilateral burden sharing and institutional reform. |
| Date: | 2026–10–08 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:406 |
| By: | Carlo A. Favero, Alessandro Melone, Sean Myers, Andrea Tamoni |
| Abstract: | Aggregate stock prices and aggregate consumption share a common stochastic trend. We estimate this long-run relation in real time and recover a price–consumption cycle that captures transitory deviations of stock prices from their consumption-implied value. These deviations mean-revert over business-cycle horizons and predict future returns on the aggregate market and characteristics sorted portfolios, both in- and out-of-sample, from one quarter to two years ahead. The cycle does not forecast consumption growth, but contains information about future dividend growth, and its return-predictive power disappears when consumption is excluded from the long-run relation. A simple model with permanent and transitory consumption shocks rationalizes these findings. The evidence identifies consumption as a macroeconomic anchor for asset prices and departures from this anchor as a source of time-varying expected returns. |
| Keywords: | Consumption Levels, Cointegration, Time-Varying Equity Premium, Return Predictability |
| JEL: | C22 E32 E44 G12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp26287 |
| By: | Rohan Kekre; Moritz Lenel |
| Abstract: | We propose a general equilibrium model in which U.S. monetary policy affects global risk premia by revaluing the wealth of currency-mismatched arbitrageurs. Assuming their portfolios are mean-variance efficient, arbitrageurs must be short the dollar. A U.S. tightening thus erodes arbitrageurs' net worth and raises the global price of risk. We discipline this mechanism to rationalize the effects of U.S. monetary policy on international asset prices, and we quantify the associated macroeconomic spillovers and role of policy responses abroad. In a potential future with higher dollar interest rates, arbitrageurs' dollar funding and U.S. monetary policy spillovers are dampened. |
| JEL: | E44 E52 F31 G15 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35902 |
| By: | Masaru Inaba; Takeo Hori; Keiichi Kishi; Shiba Suzuki |
| Abstract: | The successive creation of new assets generates bubbles in dividend-yielding assets. Because assets that have not yet been created cannot be traded in advance, arbitrage between existing and future assets is limited. Consequently, the prices of newly created assets may deviate from their fundamental values, resulting in asset bubbles. However, if no new assets are created, or if future assets can be traded, arbitrage trading eliminates these bubbles. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-018e |
| By: | Juan Jose Battaglia |
| Abstract: | This paper examines the determinants of current account balances in a panel of 45 emerging market economies over the period 1986–2024, drawing on the IMF External Balance Assessment (EBA) framework. The results identify fiscal balances, real exchange rate dynamics, foreign exchange intervention, and foreign direct investment as the most robust determinants of current account outcomes. Fiscal balances emerge as a particularly strong and robust determinant of current account outcomes in the emerging-market sample. The findings remain broadly unchanged across alternative specifications and robustness exercises. Local projection estimates further indicate that fiscal balances and the share of foreign direct investment in external liabilities of a country exert the most systematic effects on current account adjustment. Overall, the results suggest that estimating current account models exclusively for emerging economies provides additional insights beyond those obtained from pooled advanced and emerging economy samples. |
| Keywords: | Current Account; External Balance Assessment; Emerging Markets; Foreign Exchange Intervention; Foreign Direct Investment. |
| JEL: | F32 F41 F62 C23 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04332026 |
| By: | Stefan Hohberger |
| Abstract: | This paper analyses the structural drivers of bilateral real exchange rate dynamics within the euro area and between the euro area and the United States over 1999-2025, using an estimated seven-country New Keynesian DSGE model of the world economy. The model features an ex ante identical structure across the country blocs and is estimated on a unified information set. International financial market shocks dominate the EA-US bilateral real exchange rate dynamics, with productivity differentials generating persistent euro appreciation pressure. Rising world demand and a secular decline in EA home bias exert partially offsetting euro depreciation pressure. Within the monetary union, the pre-crisis appreciation of France, Italy, and Spain relative to Germany reflects country-specific combinations of demand, supply, and trade disturbances that broadly unwind after 2008. Trend productivity differentials emerge as the dominant low-frequency driver, most starkly for Italy, where persistently slower trend productivity growth drives the bilateral real exchange rate through the sample. Model validation against empirical moments, exchange rate pass-through benchmarks, and off-model indicators confirms the empirical plausibility of the structural identification. |
| Keywords: | real exchange rates, euro area competitiveness, multi-country DSGE, Bayesian estimation |
| JEL: | C51 E32 F41 F45 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-85 |
| By: | Wenxin Du; Catherine Huang; David Scharfstein |
| Abstract: | Cross-border payments remain slow and expensive despite significant improvements in digital financial infrastructure over the past several decades. This paper compares the cost of sending cross-border payments across three payment rails: traditional banks operating through the correspondent banking system and SWIFT, fintech money trans fer operators (MTOs) such as Wise, Remitly, and the digital arm of Western Union, and stablecoin-based transfers. We construct harmonized all-in costs measures across these three rails for different corridors and payment values. We find that fintech MTOs have significantly compressed the costs of cross-border payments, and demonstrate that stablecoins are not a panacea for frictions in cross-border payments. |
| Keywords: | cross-border payments, fintechs, stablecoins, SWIFT |
| JEL: | E42 F31 G21 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1385 |
| By: | Abad, Jorge; Nuño, Galo; Bigio, Saki; Garcia-Villegas, Salomon; Marbet, Joël |
| Abstract: | How does heterogeneity in banks’ interest-rate risk exposure shape monetary policy transmission? We develop a quantitative macroeconomic model of heterogeneous banks to answer this question. We establish an irrelevance result: differences in interest-rate risk exposure between fixed- and variable-rate banking systems matter for transmission only when bank solvency concerns become relevant. Calibrating the model to the euro area, we show that idiosyncratic default risk pushes a substantial share of banks toward the solvency threshold, making heterogeneity quantitatively important. When policy rates rise, fixed-rate banks suffer net interest margin compression—funding costs increase while legacy loan income stays unchanged—eroding capital and triggering sharper deleveraging. The lending elasticity to monetary policy is one-third larger in fixed-rate economies. The effects extend to financial stability: tightening raises bank failure rates in fixed-rate systems while lowering them in variable-rate systems. The results provide a rationale for macroprudential and monetary policy coordination and for monetary policy gradualism. JEL Classification: E51, E52, G21, G28 |
| Keywords: | bank solvency, capital requirements, interest-rate risk, macroprudential policy |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263299 |
| By: | Diana Lima; Duarte Maia; Paul Levine; Jonathan Swarbrick; Stylianos Tsiaras |
| Abstract: | The recent period of rising inflationary pressures and monetary policy tightening posed new challenges for macroprudential authorities in the euro area. In a monetary union, national authorities are unable to set independent monetary policy and rely on macroprudential tools to deal with domestic financial imbalances. This paper examines how inflation and interest rate tightening originating in the broader euro area spill over to a small open economy within the union, and assesses the role of national macroprudential policy in mitigating these effects. Using a structural model with banking frictions, housing, and both borrower-based and capital-based instruments, we show that pre-emptive and countercyclical macroprudential policy can strengthen banking sector resilience and dampen the impact of external shocks. In contrast, procyclical tightening may worsen outcomes, particularly when resilience is initially low. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202609 |
| By: | Iñaki Aldasoro; Rashad Ahmed |
| Abstract: | We test whether stablecoins and bank deposits act as substitutes by estimating the semi-elasticity of stablecoin market capitalization with respect to deposit rate changes. Using local projections fit to weekly U.S. data from January 2019 to June 2025, we find that deposit rate increases predict slower stablecoin growth. To address endogeneity, we exploit a nonlinearity in deposit rate pass-through. Whereas other money market rates track the federal funds rate roughly linearly, banksreprice deposits more aggressively once it exceeds approximately 3%. Against average ten-week stablecoin growth of 15%, ordinary least squares estimates imply a reduction of roughly 3 percentage points per basis point of deposit repricing, or about 3.75 percentage points per one-standard-deviation move. Instrumental variable estimates are roughly three times larger and pass a placebo test using non-stablecoin cryptocurrencies. Effects are stronger for USDC than for USDT, consistent with the former’s closer ties to U.S. depositors. Cross-sectional variation in repricing across deposit tiers provides independent evidence of substitution. The size of the stablecoin sector therefore depends in part on howbanks price deposits. |
| Keywords: | stablecoins, bank deposits, deposit rates, substitution, monetary policy |
| JEL: | E42 E43 G21 G23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1382 |