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on Financial Development and Growth |
| By: | Jiri Podpiera |
| Abstract: | This paper analyzes the credit-growth nexus by shifting the focus from aggregate leverage and credit stocks to new credit flows. Using quarterly data for 12 euro area countries over 2007–24, covering 96 percent of euro area GDP, the analysis shows a robust empirical association between newly granted bank credit and private final domestic demand (PFDD), a close proxy for GDP. A 10 percent increase in new private credit is associated with about 0.5–0.7 percentage points growth in PFDD. In contrast, specifications based on credit stocks or leverage produce unstable or counterintuitive estimates, reflecting measurement biases related to debt repayments and denominator effects. Nothwithstanding the importance of debt levels and leverage for financial stability and through debt service for the economy, the findings suggest that new credit flows appear to provide a more empirically reliable proxy for the macroeconomic role of bank lending. |
| Keywords: | Bank lending; Economic growth; Macrofinance |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/184 |
| By: | Jeffery (Jinfan) Chang; Wei Xiong |
| Abstract: | This paper investigates why China’s recurrent credit expansions have coincided with persistently weak inflation. We argue that this pattern reflects the country’s production-oriented monetary regime. At the aggregate level, faster monetary-financial expansion temporarily raises PPI inflation but depresses it over longer horizons. At the sectoral level, liability growth among listed industrial firms is followed by weaker producer prices, lower profitability, higher leverage, rising inventories, and reduced capacity utilization. We also find asymmetric supply-chain transmission: downstream liability growth raises upstream PPI inflation, while upstream liability growth does not generate a corresponding downstream price response. These findings indicate that credit expansion in China tends to sustain production and balance sheets rather than stimulate final demand. As a result, monetary policy operates less as a conventional tool for demand management and durable reflation, and more as a mechanism for preserving production capacity and supporting growth. |
| JEL: | E5 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35562 |
| By: | Tiessé Traoré (USSGB - Université des sciences sociales et de gestion de Bamako); Mohamed Traoré (USSGB - Université des sciences sociales et de gestion de Bamako); Salifou Konimba (USSGB - Université des sciences sociales et de gestion de Bamako); Ibrahim Sanogo (USSGB - Université des sciences sociales et de gestion de Bamako) |
| Abstract: | Small and medium-sized enterprises (SMEs) play a central role in Mali's economic fabric by contributing significantly to wealth and job creation. According to the African Development Bank (AfDB), Malian SMEs account for 55% of the country's gross domestic product (AfDB, 2021). However, despite this strategic role, their access to bank financing remains limited. Various studies have highlighted several factors in the literature; however, certain aspects related to country specific characteristics appear to have been overlooked. The objective of this article is to identify the main factors related to SME financing and Mali's specific context. Methodologically, this research adopts an exploratory approach based primarily on the use of secondary data, supplemented by an analysis of the Malian financial system and its financing mechanisms. The results show that the main factors relate to the Malian financial system and aspects specific to SMEs. The study highlights that, generally speaking, microenterprises have greater access to bank financing than SMEs in the WAEMU region and in Mali in particular. The study could serve as a basis for examining the factors underlying this paradox. Finally, it suggests alternative approaches notably those based on the quality of the financial system, financial literacy, and managerial competence to examine the specific challenges SMEs face in accessing financing in Mali. |
| Abstract: | Les petites et moyennes entreprises (PME) occupent une place centrale dans le tissu économique malien en contribuant significativement à la création de richesse et d'emplois. Selon la BAD, les PME maliennes contribuent dans l'économie à hauteur de 55 % au produit intérieur brut (BAD, 2021). Toutefois, malgré ce rôle stratégique, leur accès au financement bancaire demeure limité. Diverses études ont soulignés plusieurs facteurs dans la littérature, cependant certains aspects relatifs à la particularité des pays semblent négligés. L'objectif de cet article est d'identifier les principaux facteurs relatifs au financement des PME et la particularité malienne. Sur le plan méthodologique, cette recherche adopte une approche exploratoire fondée principalement sur l'exploitation de données secondaires, complétée par une analyse du système financier malien et de ses mécanismes de financement. Les résultats montrent que les principaux facteurs sont relatifs au système financier malien et des aspects spécifiques aux PME. L'étude souligne que d'une manière générale les microentreprises ont plus accès au financement bancaire que les PME dans l'espace UEMAO et au Mali en particulier1. L'étude pourrait être un élément d'appui pour étudier les facteurs explicatifs de ce paradoxe. En fin, elle propose d'autres approches notamment celle basée sur la qualité du système financier, la culture financière et la compétence managériale pour étudier la particularité des difficultés d'accès au financement des PME au Mali. |
| Keywords: | Mali. JEL Classification : G21, PME financement bancaire rationnement du crédit asymétrie d'information Mali. JEL Classification : G21 O16 L26 O55 Type du papier : SME bank financing credit rationing information asymmetry Mali. Classification JEL: G21 O16 L26 O55, PME, financement bancaire, rationnement du crédit, asymétrie d'information, O55 Type du papier : SME, O16, L26, O55, Mali. Classification JEL: G21, information asymmetry, credit rationing, bank financing |
| Date: | 2026–06–07 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05686373 |
| By: | Gideon Bornstein; Laura Castillo-Martinez |
| Abstract: | Governments often intervene to prevent firm closures during crises, fearing that financially constrained but viable firms may fail. We develop a firm dynamics model with incomplete financial markets and show how financial frictions generate excessive firm exit. A key statistic governing this dynamic inefficiency is the marginal propensity to exit with debt. Using confidential U.S. Census data, we estimate the relationship between debt and exit and use it to discipline the model. The calibrated model implies that eliminating financial frictions reduces firm exit from 9.3% to 5.0% and generates welfare gains of 3.6% in consumption-equivalent terms. We show that the welfare costs of financial frictions rise sharply during financial crises but change little during standard productivity recessions. Finally, we compare government-guaranteed loans and grants, quantifying the trade-off between fiscal cost and effectiveness in preventing excessive exit. |
| JEL: | E32 E44 G33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35479 |
| By: | Demir, Banu; Rappoport, Veronica |
| Abstract: | This article reviews recent evidence on how credit availability shapes exports. Advances in empirical strategies and the increasing availability of detailed firm- and transaction-level data shed light on mechanisms linking firms’ financial conditions to their entry, survival, and growth in export markets. Emerging work on the interaction between bank and trade credit highlights additional channels affecting export contracts. We conclude by outlining open questions and directions for future research. |
| Keywords: | trade finance;credit constraints;exports;letters of credit;trade credit;global value chains |
| JEL: | F14 F40 G21 |
| Date: | 2026–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138927 |
| By: | Brancati, Emanuele (Sapienza University of Rome); Nucci, Francesco (Sapienza University of Rome); Pietrovito, Filomena (University of Molise); Pozzolo, Alberto (Roma Tre University) |
| Abstract: | This paper explores the interplay between firms' credit constraints, innovation, and export decisions. Using survey data for Italian manufacturing firms, we document strong complementarity between the two activities: innovation raises export participation, while exporting stimulates R&D. Credit rationing significantly reduces both the probability and intensity of exporting and innovation, but its effects are heterogeneous. The negative impact of credit rationing on export participation is substantially attenuated by innovation, whereas exporting provides only limited protection against the effects of financing constraints on innovation. We interpret these findings through a stylized theoretical framework in which exporting and innovation are mutually reinforcing but operate through distinct channels: innovation directly enhances export profitability through cost reductions, whereas exporting stimulates innovation only indirectly by expanding market opportunities. Overall, our findings suggest that policies fostering innovation may generate a double dividend by promoting technological upgrading while simultaneously strengthening firms' ability to sustain export activity under financial constraints. |
| Keywords: | innovation, exporting, financial constraints |
| JEL: | F14 G21 O31 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18902 |
| By: | Poorya Kabir; Adrien Matray; Karsten Müller; Chenzi Xu |
| Abstract: | Trade financing through export credit agencies is a key tool of modern industrial policy. We provide a theory to evaluate its welfare effects, and we study its causal impact on trade, firm investment, and capital misallocation by using the effective shutdown of the US export credit agency from 2015 to 2019 as a natural experiment. First, we show that the US Export-Import Bank (EXIM) has large causal effects: comparing industries exposed and unexposed to the shutdown, we find that exposed industries experience a product-level export reduction of approximately $4.49 for each $1 lost in EXIM financing. EXIM-dependent firms also experience substantial contractions in revenues, investment, and employment. Second, shutting down EXIM increases capital misallocation because firms with high marginal revenue product of capital (MRPK) disproportionately contract while low-MRPK firms are largely unaffected. Terms-of-trade adjustments and freeing capital for domestic producers do not appear to offset these losses empirically. Our results indicate that even in advanced economies with developed financial markets, industrial policy that lowers financing constraints for exporters can raise output, improve capital allocation, and generate welfare gains. |
| Keywords: | export credit agencies; industrial policy; trade finance; capital misallocation; financing constraints; exports; firm investment |
| JEL: | L52 F13 F14 H81 D24 G28 E22 G32 |
| Date: | 2026–08–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedawp:103700 |
| By: | M. Cecilia Bustamante; Bruno Pellegrino |
| Abstract: | We present a new dynamic model of corporate investment in imperfectly competitive product markets that extends the neoclassical (Q) theory of capital to accommodate heterogeneous, multi-product firms and a rich hedonic demand system. Our model endogenizes firms' markups and generalizes Tobin's Q to a matrix (or network) of product market spillovers, which captures how each firm's investment affects that of its rivals. We provide equilibrium existence and uniqueness results along with global analytical solutions for the firms' investment policies. We then take our model to the data for the universe of US public companies and obtain four novel insights: 1) product market competition is a key driver of aggregate investment and capital allocation; 2) shocks to firms' cost of capital generate highly heterogeneous investment and markup responses across firms, and thus impact industry concentration; 3) monopoly rents account for a large, rising share of firms' value; 4) mergers consummated since 1995 have led to a modest decline in the aggregate capital formation of merging firms, yet firm-level markup increases have been highly heterogeneous. |
| JEL: | C7 D2 E2 G3 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35707 |
| By: | Roshni Sahoo; Joshua Blumenstock; Paul Niehaus; Leo Selker; Stefan Wager |
| Abstract: | We study poverty minimization via direct transfers, framing this as a statistical learning problem while retaining the information constraints faced by real-world programs. Using nationally representative household consumption surveys from 34 countries that together account for 76% of the world's poor, we estimate that reducing the poverty rate to 1% (from a baseline of 13%) would cost $211 B nominal per year. This is 4.0 times the corresponding reduction in the aggregate poverty gap, but only 19% of the cost of universal basic income. Extrapolated globally, the results imply a cost of 0.28% of global GDP to (approximately) end extreme poverty. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.02013 |
| By: | J. Carter Braxton; Kyle F. Herkenhoff; Chengdai Huang; Michael Nattinger; Jonathan L. Rothbaum; Lawrence D.W. Schmidt |
| Abstract: | We document an increase in U.S. income risk from 1969 to 2019 using newly digitized IRS tax returns, distinguishing permanent from transitory risk. Since the 1970s, permanent income risk increased across the distribution, but most sharply among high earners, rising nearly 70% among the top 5%. We show that, even among top earners, large negative income shocks strongly predict financial distress and higher income risk is linked with higher savings. In a quantitative life-cycle model, rising income risk concentrated at the top lowers the risk-free rate by 0.7pp, increases wealth inequality, and contributes to the "savings glut of the rich." |
| JEL: | D15 E21 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35664 |
| By: | Francesco Bianchi; Nicolò Ceneri; Leonardo Melosi; Alessandro T. Villa |
| Abstract: | Since the 1980s, the United States has experienced a pronounced saving glut of the rich, a large accumulation of assets among the top 1% of earners. We argue that this development partly reflects a shift in the financing of redistributive policies, from inflationary finance in the 1960s and 1970s to debt finance backed by future taxation beginning in the early 1980s. The central insight is that, in the presence of a progressive tax system, a switch from inflationary to debt financing leads to debt accumulation by top earners. We develop a New Keynesian model with borrowers and savers in which redistributive transfers can be either funded or unfunded. Unfunded transfers generate fiscal inflation that erodes the real value of public and private debt, redistributing wealth through asset revaluation effects. Funded transfers, by contrast, are financed through future taxes borne primarily by high-income households, which respond by accumulating claims on both households and the government. Using a structurally estimated version of the model, we find that the shift from unfunded to funded redistribution in the 1980s contributed significantly to the subsequent saving glut of the rich. |
| JEL: | D31 E50 E62 E63 H63 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35715 |
| By: | Alberto Pavia; Christian Proebsting |
| Abstract: | The United States is a currency union where multiple risk-sharing mechanisms--- migration, fiscal transfers, income diversification and credit markets---buffer consumption from local income fluctuations. We show that risk sharing not only directly smooths consumption but also indirectly stabilizes income by dampening the local multiplier. Combining causal estimates from regional military buildups with a multi-region quantitative model, we find that current levels of risk-sharing cut state-level consumption volatility by a factor of four. Crucially, the indirect stabilization of income accounts for nearly half of this effect, implying substantially larger benefits from integration than conventional measures suggest. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.04977 |
| By: | Ziang Li; Derek Wenning |
| Abstract: | This paper explores how financial institutions pass interest rate risk through to product markets using the life insurance industry as a setting. We show theoretically that it is optimal for insurers to distort product issuance across maturities to offset duration gaps. We examine insurers exogenously exposed to interest rate risk through their variable annuity liabilities after the 2008 financial crisis. Consistent with our mechanism, exposed insurers developed negative duration gaps, increased markups on long-duration products, and shifted issuance toward shorter-duration products to hedge. As a result, long-term life insurance coverage declined by 31% of GDP between 2005 and 2023. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.04925 |
| By: | Laura Deen; Daniel Dimitrov |
| Abstract: | We quantify the implicit too-big-to-fail (TBTF) funding advantage of large Eu-ropean banks using CDS market data. Applying a reduced-form asset pricing frame-work, we decompose spreads into a fundamental credit-risk component and a resid-ual wedge attributable to implicit government support. We do not find evidence that G-SIB designation is associated with lower funding costs once bank funda-mentals and sovereign factors are taken into account. By contrast, banks whose assets exceed half of home-country GDP enjoy at least 30% lower credit spreads than those of otherwise comparable peers. A time-varying specification reveals that the TBTF wedge persists through 2024, and while average spreads are significantly lower across the board compared to the period around the Great Financial Crisis, the implicit bailout guarantee as a proportion of total spreads has not diminished in recent years. Moreover, the results suggest that the TBTF premium depends on sovereign fiscal strength: the funding advantage of systemic banks declines when home-sovereign CDS spreads rise. This points to Europe’s TBTF problem being primarily domestic in nature and relates to the strength of the home sovereign. |
| Keywords: | too-big-to-fail; CDS spreads; implicit subsidies; systemic risk; Euro-pean banking; sovereign-bank nexus |
| JEL: | G21 G28 G12 H81 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:868 |
| By: | Yucheng Guo; Qinxin Yan |
| Abstract: | We study a systemic-risk control problem in which a central planner allocates losses generated by bank defaults across the surviving institutions. Banks are modeled through their distances to default, evolving as absorbed Brownian motions with downward jumps induced by redistributed default losses. Unlike bailout models, the planner cannot inject external capital or reduce the aggregate loss, and the only admissible intervention is to decide how each endogenous loss is assigned among solvent banks. The objective is to maximize terminal system health, including survival mass as a leading special case and, more generally, increasing concave welfare functionals of the terminal distribution. Our main result identifies an optimal allocation rule with a simple economic interpretation: losses should be concentrated on the currently healthiest institutions. In discrete time, this rule takes the form of a cutoff or taxing-the-richest policy, which reduces banks above an endogenous threshold down to that threshold while leaving weaker banks untouched. We prove convergence of the time-discretized mean-field control problem as the allocation time step tends to zero and characterize the limiting problem as a singular mean-field control problem. The optimally controlled law is described by a reflected free-boundary formulation, in which the cutoff becomes the moving upper edge of the support, and the associated value function satisfies a Hamilton-Jacobi equation on Wasserstein space. Finally, we formulate the corresponding finite-particle control problem and show, under suitable assumptions, that the cutoff-controlled particle system converges to the continuous-time mean-field model. This provides a finite-system foundation for the optimal mean-field loss-allocation rule. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.18113 |
| By: | Jongrim Ha; Dohan Kim; M. Ayhan Kose; Francis E. Warnock |
| Abstract: | Identifying the impact of capital inflows on output is challenging because inflows are forward-looking and respond to expectations about future economic conditions. We develop a new measure of capital inflow shocks using a simple and broadly applicable expectations-based framework that isolates the unexpected component of inflows by purging movements predicted by professional forecasters’ expectations. Estimates using the new measure for 27 emerging market economies indicate that capital inflows have sizable expansionary effects on output, operating through stronger domestic consumption and investment and easier financing conditions. Additional analysis indicates that equity-type inflows generate greater and more persistent effects than debt-type inflows, while large inflow reversals result in more pronounced effects than comparable increases in inflows. These results are robust to a wide range of alternative specifications. |
| JEL: | E32 F32 F41 G11 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35716 |
| By: | Zhengyang Jiang |
| Abstract: | Does financial opening necessarily lead to currency internationalization? To study the competition between incumbent and rising powers under financial interdependence, we develop a model of asset demand with microfounded network effects. Search frictions with currency-specialized intermediaries generate distinct notions of liquidity at asset-market and currency-area levels, which jointly shape the trajectory of currency competition. In the U.S.-China context, China at early stages of financial development benefits from pooling its assets with the dollar area, which reinforces the status quo. As China's financial markets deepen, RMB issuance allows China to internalize network effects and erode the dollar's dominance, triggering a discrete shift toward fragmentation. This transition is further shaped by sanctions, financial repression, and third-country responses, highlighting how financial interdependence transforms cooperation into rivalry in the evolution of the international financial order. |
| JEL: | E42 F34 G15 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35541 |
| By: | Pablo D. Azar; Maryam Farboodi; Nish Sinha |
| Abstract: | We study how stablecoins impact global capital flows by constructing a novel wallet-level dataset linking geotagged Ethereum Name Service registrations to stablecoin transactions around banking restrictions, currency crises, sanctions, and monetary disruptions. We find that crisis-country wallets experience significant increases in USD stablecoin inflows and receipt activity during crisis weeks. Motivated by this evidence, we develop a small-open-economy New Keynesian model in which household adoption of programmable stablecoins weakens the government’s enforcement technology for capital controls by making capital mobility endogenous. The empirical evidence validates the model’s central assumption that flight pressure increases stablecoin adoption. Stablecoins therefore tighten the Mundell–Fleming trilemma by reducing the government’s ability to sustain independent monetary policy under a fixed exchange-rate regime. |
| Keywords: | Mundell–Fleming trilemma; capital controls; blockchain; stablecoins; financial infrastructure |
| JEL: | F32 F33 F38 E58 G28 |
| Date: | 2026–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103702 |