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on Financial Development and Growth |
| By: | Sackey, Lawrence; Nortah-Ocansey, Derick A.; Mensah, Daniel |
| Abstract: | Macroeconomic imbalances as manifested through persistent inflationary pressures, exchange-rate volatility, and sustained fiscal stress, have become a defining feature of Ghana's macroeconomic environment over the past decade. While these imbalances intensified globally following the 2007-2008 financial crisis, their effects have been particularly pronounced in emerging and developing economies, where financial systems are bank-dominated and highly sensitive to macroeconomic shocks. In Ghana, the period since 2019 has been marked by severe macroeconomic disruptions that have fundamentally reshaped banking sector behavior and private-sector credit dynamics as the banking industry constitute more than 76% of the total asset base of the financial subsector with very high interconnectedness with the insurance subsector and others. This policy brief examines the effect of macroeconomic imbalances on bank lending in Ghana, with particular emphasis on exchange-rate movements, inflation, and fiscal conditions. Bank lending behavior is analyzed through loans and advances to customers, asset quality, and banks' risk posture. Using a panel dataset covering 18 universal banks over the period 2015-2024, the study applies fixed effects and dynamic System Generalized Method of Moments (GMM) estimation techniques to account for persistence in lending behavior, endogeneity, and unobserved bank-specific heterogeneity. The findings show that bank lending in Ghana is highly persistent and strongly constrained by deteriorating asset quality, as reflected in elevated non-performing loans. Exchange-rate movements exert a significant influence on lending, largely through nominal and valuation effects associated with currency depreciation. Inflation and fiscal stress primarily affect lending indirectly, operating through tighter monetary conditions, higher interest rates, and heightened risk aversion. Persistent Fiscal imbalances as captured by weak primary balances and rising public debt are found to suppress bank lending by increasing macroeconomic uncertainty and reinforcing crowding-out effects. Overall, the results indicate that macroeconomic imbalances shape bank lending in Ghana more through risk management, pricing behavior, and balance-sheet adjustments than through sustained real credit expansion. The study highlights the importance of credible macroeconomic policies, fiscal discipline, and forward guidance in restoring confidence, strengthening bank risk appetite, and supporting sustainable private-sector credit growth. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabpbs:336967 |
| By: | Sackey, Lawrence |
| Abstract: | This study examines the short-run dynamics between interest rates and non-performing loans (NPLs) in Ghana's banking sector, with particular emphasis on how fluctuations in lending rates influence credit risk and financial stability. Using quarterly data spanning 2008 to 2023, the study applies time-series econometric techniques, including unit root tests and a dynamic autoregressive distributed lag (ARDL) framework, to capture lagged responses and adjustment behaviour in NPLs. The findings reveal a statistically significant short-run relationship between interest rates and NPLs, with increases in lending rates leading to higher credit risk after a lag. Inflation is found to mitigate NPLs in the short term, while credit expansion initially improves loan performance but subsequently contributes to higher default levels, suggesting that NPL dynamics are driven primarily by short-run adjustments rather than persistent long-run relationships. By providing updated empirical evidence on the short-run monetary policy-credit risk nexus in an emerging market context using an extended Ghanaian dataset, the study contributes to the literature on monetary transmission and financial stability. The results highlight the need for monetary authorities to balance inflation control with credit market stability and underscore the importance of coordinated macroeconomic and prudential policies in sustaining credit access, protecting borrower viability, and strengthening the resilience of Ghana's financial system. |
| Keywords: | Interest rate, Non-Performing Loans, Inflation, credit risk, Financial Stability, ARDL |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:gabwps:336970 |
| By: | Sattar, Sarmad; Alvi, Aramish Altaf; Audi, Marc |
| Abstract: | This study examines the determinants of foreign direct investment inflows by categorising them into three overarching dimensions, which are economic, social, and institutional. Recognising the heterogeneity of global economies, the analysis differentiates between developed and developing countries according to income classifications. Based on panel data for 178 countries covering the period from 1996 to 2019. The empirical results reveal notable differences in the drivers of foreign direct investment across income groups. In developing countries, economic factors such as market size, trade openness, and macroeconomic stability emerge as the most influential determinants. This explains that investors in less mature markets place the greatest importance on strong economic fundamentals. In contrast, in developed economies, social factors, including infrastructure quality, education levels, and human capital development, play a more prominent role in attracting foreign direct investment. This reflects investors’ greater responsiveness to social infrastructure and workforce capabilities in advanced markets. Institutional factors such as governance quality, regulatory frameworks, and political stability show a weak and statistically insignificant relationship with foreign direct investment inflows in both developed and developing countries. This finding challenges the prevailing view that strong institutions are a prerequisite for attracting foreign investment and indicates that their influence may be context-dependent or overshadowed by more immediate economic and social considerations. Overall, the study provides a nuanced understanding of the heterogeneous nature of foreign direct investment determinants and highlights the need for policy strategies that are tailored to the specific developmental stage and structural characteristics of each country. These insights can help policymakers align economic and social development priorities more effectively with the objective of enhancing foreign direct investment attractiveness. |
| Keywords: | Foreign Direct Investment, Economic Determinants, Social Infrastructure, Institutional Quality |
| JEL: | F21 O1 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127562 |
| By: | Raab, Georg |
| Abstract: | This paper assesses the debt financing gap for SMEs, which undermines their competitiveness and leads to sub-optimal investments |
| JEL: | F34 G18 G21 G28 H81 M13 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:bda:wpsmep:wp2025/45 |
| By: | Bobojanov, Shakhrukh; Ilyosov, Imron |
| Abstract: | This study examines the determinants of access to bank financing for enterprises in Uzbekistan, addressing both the decision to apply for credit and the probability of approval conditional on applying. Using World Bank Enterprise Survey data (n=1, 008 enterprises), we employ a twostage analytical framework: binary logit regression models examine factors associated with having an existing loan, and Heckman probit selection models jointly estimate the loan application decision and approval probability, accounting for potential selection bias. The study reveals severe credit rationing in Uzbekistan, with only 13.3% of enterprises holding bank loans and 10.1% applying for new credit. The most striking finding is the dominant effect of existing banking relationships: enterprises with current loans achieve 87.0% approval rates compared to 41.7% for first-time applicants. The Heckman outcome equation confirms this relationship banking effect, representing approximately 30-35 percentage point higher approval probability. Medium-sized enterprises enjoy substantial advantages in both application propensity and approval probability. Export activity and checking account ownership significantly enhance credit access. Contrary to international evidence, female-managed enterprises show positive approval coefficients, though statistical significance is marginal. The highly significant selection parameter confirms substantial selection bias, validating the Heckman approach. |
| Keywords: | SME financing, Credit access, Heckman selection model, Relationship banking, financial inclusion, Transition economies, Uzbekistan |
| JEL: | G21 G32 O16 P34 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127588 |
| By: | Alina Kristin Bartscher; Georg Duernecker; Johannes Goensch; Nils Wehrhöfer |
| Abstract: | We study firms' financial and real decisions after an exogenous change in their interest rate beliefs induced by a survey experiment with an information treatment. Firms revise their expectations downward after learning about the European Central Bank's policy rate. Moreover, we find a reduction in interest rate uncertainty. We link the survey to credit register data and find that treated firms both increase their loan amounts and shift their loan structure toward longer-term, fixed-rate credit with lower interest rates. Using balance sheet data, we also show that treated firms invest more following the RCT. These effects are driven by small firms. We rationalize our findings in a stylized model of firms with imperfect information about the interest rate. |
| Keywords: | survey experiment, administrative data, firm expectations, incomplete information |
| JEL: | D14 D15 G51 E21 J26 J32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12442 |
| By: | Pieter Nel (Department of Economics, University of Pretoria); Renee van Eyden (Department of Economics, University of Pretoria) |
| Abstract: | Does media sentiment create artificial volatility, or do stock markets efficiently filter media sentiment as noise? This study tests these hypotheses using daily data (1994-2024) across the S&P 500, Dow Jones, and NASDAQ. Principal Component Analysis decomposes four uncertainty measures into fundamental uncertainty (PC1) and media-amplified supply sentiment (PC2). EGARCH modeling reveals that media sentiment mutes rather than amplifies volatility contradicting behavioral finance predictions. Time Varying Granger causality tests suggests no causality from uncertainty variables to volatility, but volatility has a causal relationship with fundamental uncertainty. The asymmetric relationship demonstrates that information flows from stock markets to uncertainty sentiment, not uncertainty sentiment to stock markets. These findings support rational updating hypothesis where investors observe volatility and correctly infer elevated uncertainty, rather than being misled by media sentiment. |
| Keywords: | Media sentiment, EGARCH modeling, Principal component analysis, Time-varying causality |
| JEL: | G41 C58 E44 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202605 |
| By: | K. MUYA, Jonathan |
| Abstract: | The Democratic Republic of Congo (DRC) faces a structural paradox: a massive need for financing to support its economic and social development, in a context of limited domestic resource mobilization capacity. Public borrowing therefore appears to be an unavoidable lever to bridge the financing gap. However, the accumulation of debt is not neutral with respect to the effectiveness of economic policies, particularly countercyclical policies. This article analyzes the existence of critical public debt thresholds in the DRC beyond which borrowing no longer supports growth and instead weakens the effectiveness of macroeconomic instruments. Using a threshold effects approach applied to Congolese macroeconomic data, the study identifies two major thresholds (32% and 110% of GDP) and draws strong implications for the development financing strategy and debt sustainability. |
| Keywords: | Public debt, countercyclical policies, threshold effects, sustainability, Democratic Republic of the Congo (DRC), development financing. |
| JEL: | E62 F34 H63 O23 |
| Date: | 2026–02–23 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128137 |
| By: | Yasin Mimir; Yasin Kürşat Önder; Jose Villegas (-) |
| Abstract: | We document that grace periods are widespread, characterizing 83% of the external sovereign debt stock. This prevalence is largely driven by concessional (official) loans, which account for 73% of the stock and universally feature grace periods. To examine their macroeconomic role, we develop a quantitative model showing that grace periods enhance household welfare by reducing default risk and improving market completeness, yet also increase long-run dependence on non-contingent debt and raise sovereign spreads. We empirically validate these mechanisms using local projection estimates and conduct policy counterfactuals on shortened grace periods, voluntary debt exchanges, and the stigma premium associated with concessional finance. |
| Keywords: | Sovereign debt, default, concessional loans, grace period, stigma premium |
| JEL: | E44 F34 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:rug:rugwps:26/1137 |
| By: | António Afonso; José Alves; João Tovar Jalles; Sofia Monteiro |
| Abstract: | Climate change is reshaping sovereign risk and macroeconomic stability by amplifying fiscal and external fragilities. This paper develops a unified framework to assess how climate vulnerability and resilience jointly influence fiscal–external solvency. We construct a market-based sustainability index that integrates time-varying fiscal and external reaction coefficients – estimated using Schlicht’s (2021) method-weighted by sovereign yields. Using a global panel of more than 60 economies (1981–2024), we document four key findings. First, structural vulnerability exerts a large and persistent drag on sustainability, even after controlling for macro fundamentals, as higher exposure magnifies expected losses and tightens financing conditions. Second, resilience does not display a strong unconditional effect but significantly mitigates the adverse impact of vulnerability, acting as a state-contingent stabilizer. Third, local projections with smooth transition (LP-STAR) reveal sharp nonlinearities: identical climate shocks trigger modest, short-lived effects in low-vulnerability or high-resilience regimes but cause deep and persistent deterioration when vulnerability is high and resilience weak. Fourth, these dynamics generate an “adaptation trap” – a self-reinforcing cycle where vulnerability raises yields, yields compress fiscal space, and limited adaptation perpetuates vulnerability. Policy implications are clear: resilience investment yields sizable macro-financial returns by reducing expected losses and compressing climate risk premia, while delaying adaptation risks entrenching fragility. Our results highlight the need to embed climate parameters into debt sustainability analyses and sovereign risk frameworks, particularly for emerging markets facing tighter financing constraints. |
| Keywords: | climate vulnerability, climate resilience, fiscal sustainability, external sustainability, sovereign risk premia |
| JEL: | C33 E62 F34 H63 Q54 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12389 |
| By: | Itay Goldstein; Ming Yang; Yao Zeng |
| Abstract: | We study competition between monies that provide separate payment and non-payment (e.g., store-of-value) functions. Our central insight is that payment adoption is governed not by absolute payment superiority, but by comparative advantage between payment and non-payment roles. A money that is “too good” as a store of value may circulate less as a payment instrument, even if it is technologically superior, because agents prefer to hoard it rather than spend it. The model delivers equilibria in which monies either specialize into distinct roles or coexist as payment instruments with one emerging as dominant. These mechanisms provide a unified microfoundation for classic monetary phenomena such as Gresham’s law and the big problem of small change, and offer a new perspective on modern debates over stablecoins and central bank digital currencies (CBDCs). Contrary to the common view that interest-bearing digital currencies necessarily threaten bank deposits, we show that higher yields can weaken payment adoption by raising the opportunity cost of spending. As a result, traditional bank deposits may coexist with, and even retain dominance over, technologically superior digital alternatives. |
| JEL: | E41 E42 E58 F33 G21 G23 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34865 |
| By: | Mark A. Carlson |
| Abstract: | Prior to the establishment of the Federal Reserve, commercial banks issued "bank notes" that circulated as a privately issued form of money. In addition to being backed by the issuing bank, these notes were backed by various types of collateral, including state government bonds and U.S. government bonds. |
| Date: | 2026–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:102444 |
| By: | International Monetary Fund |
| Abstract: | Selected Issues |
| Keywords: | e-money payment; payment digitalization; payment revolution; employment share; staff team; QR payment standard; Digital financial services; Structural transformation; Productivity; Currencies; Global; Asia and Pacific; East Asia |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/042 |
| By: | Rem Sadykhov; Geoff Goodell; Philip Treleaven |
| Abstract: | In this paper, we analyse the impacts of exogenous and endogenous factors on wealth distribution in the Bitcoin token economy, where wealth distribution refers to the distribution of BTC between economic participants or groups of economic participants. The objective of the paper is to analyse the impact of economic policies on wealth distribution in the Bitcoin ecosystem. Different macroeconomic and microeconomic time series are used to eliminate noise in the wealth distribution time series, and the causality analysis is performed between Bitcoin Improvement Proposals (i.e., BIPs) and the cleaned wealth distribution data to reveal possible patterns in the impacts that the endogenous policies have on wealth distribution in token economies. Lastly, a structure for economic policy taxonomy in token economies is proposed where different the policy implementations are illustrated by existing BIPs. This approach highlights the actions available to the policy makers, as well as providing a technique for analysis of policy impacts in token economies and their categorization. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.17373 |
| By: | Serigne Moussa Dia (UADB - Université Alioune Diop de Bambey) |
| Abstract: | Abstract This article examines the transmission of climate policies to bank credit allocation in the WAEMU region between 2015 and 2024. The methodology employs a bank-country-quarter fixed effects panel model applied to a sample of 40 banks (n = 1, 560 observations), adapting the approach of Covi et al. (2025). The empirical results reveal an almost non-existent transmission channel: the coefficient associated with the CCPI index is weak and statistically insignificant (β = 0.04; p > 0.10) for green exposures (TAC), as well as for carbon-intensive sectors (β = −0.02; p > 0.10). In contrast, inflation emerges as the main determinant: a one-point increase in the inflation rate leads to an estimated +3.5% reallocation toward more resilient sectors (β = 0.0014; p < 0.05), indicating macroeconomic dominance over climate signals. The findings highlight a substantial gap in the integration of climate risk within WAEMU banking practices. The average share of "green" loans remains below 2% of total portfolios, while exposure to vulnerable sectors still exceeds 28%. The study calls for strengthening the BCEAO's prudential framework: mandatory climate stress tests, standardized disclosure requirements, and targeted regulatory incentives. Keywords: Climate policies; Bank allocation; WAEMU; Transition risk; Green finance; Macroeconomic dominance. JEL Classification: G21, Q54, E58, O55 Paper type: Empirical research article |
| Abstract: | Résumé Cet article analyse la transmission des politiques climatiques à l'allocation du crédit bancaire dans la zone UEMOA entre 2015 et 2024. La méthodologie repose sur un modèle de panel à effets fixes banque-pays-trimestre appliqué à un échantillon de 40 banques (n = 1 560 observations), en adaptant l'approche de Covi et al. (2025). Les résultats révèlent une transmission quasi inexistante des politiques climatiques : le coefficient associé à l'indice CCPI est faible et non significatif (β = 0, 04 ; p > 0, 10) pour les expositions vertes (TAC), de même que pour les secteurs carbonés (β = −0, 02 ; p > 0, 10). En revanche, l'inflation constitue le principal déterminant de l'allocation : une hausse de 1 point du taux d'inflation entraîne un rééquilibrage d'environ +3, 5 % vers les secteurs résilients (β = 0, 0014 ; p < 0, 05), traduisant une dominance des facteurs macroéconomiques sur les signaux climatiques. Ces résultats soulignent un déficit majeur d'intégration du risque climatique dans les comportements bancaires de l'UEMOA. Le ratio moyen de prêts « verts » reste inférieur à 2 % du portefeuille total, et l'exposition aux secteurs vulnérables représente encore plus de 28 % des encours. L'étude appelle à un renforcement du cadre prudentiel de la BCEAO : stress tests climatiques obligatoires, divulgation standardisée et incitations réglementaires ciblées. Mots-clés : Politiques climatiques ; Allocation bancaire ; UEMOA ; Risque de transition ; Finance verte ; Dominance macroéconomique. Classification JEL : G21, Q54, E58, O55 Type de papier : Article de recherche empirique Abstract This article examines the transmission of climate policies to bank credit allocation in the WAEMU region between 2015 and 2024. The methodology employs a bank-country-quarter fixed effects panel model applied to a sample of 40 banks (n = 1, 560 observations), adapting the approach of Covi et al. (2025). The empirical results reveal an almost non-existent transmission channel: the coefficient associated with the CCPI index is weak and statistically insignificant (β = 0.04; p > 0.10) for green exposures (TAC), as well as for carbon-intensive sectors (β = −0.02; p > 0.10). In contrast, inflation emerges as the main determinant: a one-point increase in the inflation rate leads to an estimated +3.5% reallocation toward more resilient sectors (β = 0.0014; p < 0.05), indicating macroeconomic dominance over climate signals. The findings highlight a substantial gap in the integration of climate risk within WAEMU banking practices. The average share of "green" loans remains below 2% of total portfolios, while exposure to vulnerable sectors still exceeds 28%. The study calls for strengthening the BCEAO's prudential framework: mandatory climate stress tests, standardized disclosure requirements, and targeted regulatory incentives. Keywords: Climate policies; Bank allocation; WAEMU; Transition risk; Green finance; Macroeconomic dominance. JEL Classification: G21, Q54, E58, O55 Paper type: Empirical research article |
| Keywords: | Bank allocation, Macroeconomic dominance. JEL Classification: G21, Green finance, Transition risk, WAEMU, Politiques climatiques Allocation bancaire UEMOA Risque de transition Finance verte Dominance macroéconomique. Classification JEL : G21, O55 Climate policies, Dominance macroéconomique. Classification JEL : G21, Finance verte, Risque de transition, UEMOA, Allocation bancaire, Politiques climatiques, O55 Paper type: Empirical research, O55 Climate policies Bank allocation WAEMU Transition risk Green finance Macroeconomic dominance. JEL Classification: G21, E58, Q54 |
| Date: | 2025–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05420001 |