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on Financial Development and Growth |
| By: | ALFAZEMA, ANTONIO |
| Abstract: | This article aims to analyze some critical aspects of the International Financial System - SFI in its current configuration, that is, as an alleged field of reflection and interpretation of the international economic and financial reality, as well as to highlight fundamental elements of bank credit for the understanding of relations between the financial system and banks in the granting of credit in the international sphere emanating from classic authors. In this sense, the article has an eminently exploratory character and seeks only to stimulate a debate in order to promote the construction of a fundamental milestone for the development. |
| Keywords: | Financial system, credit, Bank credit. |
| JEL: | G21 |
| Date: | 2020–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103309&r=all |
| By: | Jakob Miethe |
| Abstract: | This paper studies financial service provision booked through offshore financial centers (OFCs). Based on several novel data sources and recent advances in event study methodology, I exploit the natural experiment of re-occurring hurricanes hitting small islands and compare local reactions to reactions in financial service activity. I find that local conditions, captured by monthly satellite data on nightlight intensity, deteriorate significantly for nine months. However, in OFCs, the international bank sector does not react. Non-OFC islands on the other hand do show strong negative reactions. Similar (non-)reactions are visible in equity prices. Additionally, a link of OFC service provision to activity in London, Tokyo, and New York is visible in leaked data. Finally, a long term relationship between offshore finance and local development is absent, but only on OFCs. These results indicate that international regulation attempts that aim at forcing OCFs to provide information on financial service activity could be targeted better, they show that we mis-allocate financial risk to OFCs, and they cast doubt on offshore finance as a valid development strategy. |
| Keywords: | offshore finance, international bank claims, nightlights, hurricane impacts |
| JEL: | H26 G15 C82 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8625&r=all |
| By: | Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University); Valentina Peruzzi (LUISS University) |
| Abstract: | The re-regulation wave following the global financial crisis is putting pressure on local community and cooperative banks. In this paper, we show that cooperative banking can play a pivotal role in reducing income inequalities in local communities. By analyzing Italian local (provincial) credit markets over the 2001-2011 period, we find that cooperative banks mitigate income inequality more than their commercial counterparts. The results also suggest that it is the specific nature and orientation of cooperative banks, more than their relationship lending technologies, that improve income distribution. The impact of cooperative banking on inequality appears however to be partly channeled by a reduced dynamism of local economies, especially lower migratory flows and business turnover. |
| Keywords: | Cooperative banks, income inequality, financial development. |
| JEL: | G21 G38 O15 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc31&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon) |
| Abstract: | The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency. |
| Keywords: | Finance; Institutions; Investment: Property Rights; Africa |
| JEL: | G20 G24 E02 P14 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/080&r=all |
| By: | Ichiro Iwasaki; Evžen Kocenda; Yoshisada Shida |
| Abstract: | In this paper, we traced the survival status of 94,401 small businesses in 17 European emerging markets from 2007–2017 and empirically examined the determinants of their survival, focusing on institutional quality and financial development. We found that institutional quality and the level of financial development exhibit statistically significant and economically meaningful impacts on the survival probability of the SMEs being researched. The evidence holds even when we control for a set of firm-level characteristics such as ownership structure, financial performance, firm size, and age. The findings are also uniform across industries and country groups and robust beyond the difference in assumption of hazard distribution, firm size, region, and time period. |
| Keywords: | small business, institutions, financial development, survival analysis, European emerging markets |
| JEL: | C14 D02 D22 G33 M21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8641&r=all |
| By: | Torfs, Wouter |
| Abstract: | This working paper elaborates on the most recent update of the EIF SME Access to Finance (ESAF) Index, a composite indicator used to monitor the state of SME external financing markets in the 27 EU countries and the UK. The current update, using the latest available data, constitutes the seventh iteration of this exercise. The paper is used to provide some background information underlying the aggregate ESAF results. The latest available data at the time of writing refer to the year 2019, and therefore do not incorporate the impact of the COVID-19 crisis on EU SME financing markets. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202068&r=all |
| By: | Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Sheriffdeen A. Tella (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Kolawole Subair (Yobe State University, Damaturu, Nigeria); Soliu B. Adegboyega (Olabisi Onabanjo University, Ogun State, Nigeria) |
| Abstract: | Despite the magnitude of remittances as an alternative source of investment financing in Africa, the financial sector in Africa has significantly remained underdeveloped and unstable. Finding a solution to Africa's financial deregulation problems has proved tenacious partly because of inadequate literature that explain the nature of Africa capital and financial markets which has shown to be unorganised, spatially fragmented, highly segmented and invariably externally dependent. We examine the structural linkages between remittances and financial sector development in Africa. Panel data on indices of remittances was regressed on indices of financial sector development in fifty-three (53) African countries from 1986 through 2017 using the Pooled Mean Group (PMG) estimation procedure. We accounted for cross-sectional dependence inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Findings revealed a positive long-run relationship between remittances and financial development with a significant (positive) short-run relationship. It is suggested that, while attracting migrants' transfers which can have significant short-run poverty-alleviating advantages, in the long run, it might be more beneficial for African governments to foster financial sector development using alternative financial development strategies. |
| Keywords: | Remittance, Financial Development, Pooled Mean Group, Africa |
| JEL: | F37 G21 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/081&r=all |
| By: | Natalie Bau; Adrien Matray |
| Abstract: | We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%. |
| JEL: | F21 F38 F6 O1 O11 O12 O4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27955&r=all |
| By: | Christoph Görtz; John D. Tsoukalas; Francesco Zanetti |
| Abstract: | We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplification of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional ‘news view’ of aggregate fluctuations. |
| Keywords: | News shocks, Business cycles, DSGE, VAR, Bayesian estimation |
| JEL: | E2 E3 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-94&r=all |
| By: | Felipe Benguria (Assistant Professor, Department of Economics, University of Kentucky (E-mail: fbe225@uky.edu)); Hidehiko Matsumoto (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Assistant Professor, National Graduate Institute for Policy Studies, E-mail: hmatsu.hm@gmail.com)); Felipe Saffie (Assistant Professor, Darden School of Business, University of Virginia (E-mail: SaffieF@darden.virginia.edu)) |
| Abstract: | This paper proposes a framework to jointly study productivity and trade dynamics during financial crises. The persistent output loss caused by crises is driven by lower productivity growth, which is determined by changes in product entry and exit margins in domestic and export markets. We calibrate and validate the model using unique data on firms' product portfolios, finding it closely matches the behavior of various margins during Chile's 1998 sudden stop. We decompose the sources of the welfare cost of sudden stops, finding a third of the welfare cost is due to a decline in productivity growth. Lower productivity growth, in turn, is due mostly to slower firm and product entry into the domestic market, while a decrease in production costs induces surviving firms to tilt their product portfolios towards export markets, boosting the productivity recovery in the aftermath of the crisis. |
| Keywords: | Endogenous growth, Firm dynamics, Trade dynamics, Sudden Stops |
| JEL: | F10 F41 F43 F44 O33 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:20-e-13&r=all |
| By: | Andrew Y. Chen; Markus F. Ibert; Francisco Vazquez-Grande |
| Abstract: | Between March and September 2020, broad equity price indexes around the world experienced a historic rally. Although this rally followed a significant decline in stock prices, it appears difficult to explain due to continuing concerns about the global pandemic and national economies running far below their potentials. |
| Date: | 2020–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-10-14-2&r=all |
| By: | Gomez-Gonzalez, Jose Eduardo; Hirs-Garzon, Jorge; Uribe, Jorge M. |
| Abstract: | We estimate the effects of financial, macroeconomic and policy uncertainty from the United States on the dynamics of credit growth, stock prices, economic activity, bond yields and inflation in five of the main receptors of US foreign direct investment from 1950 to 2019: The United Kingdom, The Netherlands, Ireland, Canada and Switzerland. Our multicounty approach allows us to clearly identify the effects of the different sources of uncertainty by imposing natural contemporaneous exogenity restrictions which cannot be used in a single-country perspective, frequently undertaken by the literature. It also considers international common cycle factors that have been previously identified and which are key to adequately measure the dynamics of the effects of uncertainty shocks on financial and real markets, on a global basis. We use an international FAVAR model to carry out our estimations. This approach permits handling a large data set consisting of variables for more than 45 countries at once. Our results point out to financial uncertainty as the main driver (even more than real uncertainty or the US interest rate) of global economic cycles. We show that increases of US financial uncertainty deteriorate economic activity on a global scale, especially by reducing credit and stock prices, and therefore funding opportunities for firms and households (heterogeneously on a country level basis). Our results emphasize the importance of financial markets, and especially financial uncertainty in the United States, as the main origin of global economic fluctuations, which can be said to describe the recent history of the global economy. They also cast doubts on the ability of uncertainty indicators based on the counting of key words in the media as a barometer of traditional economic uncertainty, known to be theoretically associated to negative outcomes in terms of activity and prices. In this sense, uncertainty indicators based on the estimation and aggregation of forecast errors seem more appropriate, hence producing results in line with the understanding of uncertainty as a negative phenomenon on a macro level, especially for investment prospects. |
| Keywords: | macroeconomic uncertainty; financial uncertainty; credit markets; funding; global business cycles |
| JEL: | D80 E44 F21 F44 G15 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:69&r=all |
| By: | Kang, Natasha; Marmer, Vadim |
| Abstract: | Recurrent boom-and-bust cycles are a salient feature of economic and finan- cial history. Cycles found in the data are stochastic, often highly persistent, and span substantial fractions of the sample size. We refer to such cycles as “long†. In this paper, we develop a novel approach to modeling cyclical behavior specifically designed to capture long cycles. We show that existing inferential procedures may produce misleading results in the presence of long cycles, and propose a new econometric procedure for the inference on the cycle length. Our procedure is asymptotically valid regardless of the cycle length. We apply our methodology to a set of macroeconomic and financial variables for the U.S. We find evidence of long stochastic cycles in the standard business cycle variables, as well as in credit and house prices. However, we rule out the presence of stochastic cycles in asset market data. Moreover, according to our result, financial cycles as characterized by credit and house prices tend to be twice as long as business cycles. |
| Keywords: | Stochastic cycles, autoregressive processes, local-to-unity asymptotics, confi- dence sets, business cycle, financial cycle |
| JEL: | C12 C22 C5 E32 E44 |
| Date: | 2020–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:vadim_marmer-2020-3&r=all |
| By: | Gianluca Benigno; Andrew T. Foerster; Christopher Otrok; Alessandro Rebucci |
| Abstract: | We estimate a workhorse dynamic stochastic general equilibrium (DSGE) model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico’s business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt Crisis in the early 1980s, the Peso Crisis in the mid-1990s, and the Global Financial Crisis in the late 2000s. These crisis episodes display sluggish and long-lasting build-up and recovery phases driven by plausible combinations of shocks. |
| Keywords: | financial crises; business cycles; endogenous regime-switching; Bayesian estimation; occasionally binding constraints; Mexico |
| JEL: | G01 E3 F41 C11 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88974&r=all |
| By: | Gregor Boehl |
| Abstract: | I study monetary policy in an estimated financial New-Keynesian model extended by behavioral expectation formation in the asset market. Credit frictions create a feedback between asset markets and the macroeconomy, and behaviorally motivated speculation can amplify fundamental swings in asset prices, potentially causing endogenous, nonfundamental bubbles. These features greatly improve the power of the model to replicate empirical-key moments. I find that monetary policy can indeed dampen financial cycles by carefully leaning against asset prices, but at the cost of amplifying their transmission to the macroeconomy, and of causing undesirable responses to movements in fundamentals. |
| Keywords: | Monetary policy, nonlinear dynamics, heterogeneous expectations, credit constraints, bifurcation analysis |
| JEL: | E44 E52 E03 C63 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_224&r=all |
| By: | Gabriel Garber; Atif Mian; Jacopo Ponticelli; Amir Sufi |
| Abstract: | After the global financial crisis, government banks in Brazil boosted credit provision to households, generating a sharp increase in household debt, which was followed by the most severe re-cession in recent Brazilian history in 2015-2016. Using a novel individual-level data set including matched credit registry and employer-employee information, we show that individuals with higher debt-to-income growth during the boom experienced lower subsequent credit card expenditure during the recession. To identify the credit-supply effect, we exploit individuals borrowing from both government-controlled and private banks. We show that, during the late stages of the boom period, government banks increased their lending more than private banks to the same individual. To study the effect of this credit supply shock on individual consumption, we exploit variation in the sector of employment of each borrower. Individuals employed by the public sector were disproportionately targeted by payroll loans offered by government banks and experienced larger decline in credit card spending during the subsequent recession. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:538&r=all |
| By: | João Barata R. Blanco Barroso; Rodrigo Barbone Gonzalez; José-Luis Peydró; Bernardus F. Nazar Van Doornik |
| Abstract: | We analyze how countercyclical liquidity policy – via reserve requirements (RRs) – affects the credit cycle. For identification, we exploit supervisory credit register data and changes in RRs in Brazil motivated by monetary and prudential purposes. Credit supply effects are binding for firms and twice as large when policy is eased during credit crunches – crisis – than when policy is tightened during credit booms. Effects are stronger for larger domestic banks. During crunches, more affected banks increase the supply of credit volume due to policy easing, but increase collateral requirements, while more financially constrained banks retrench. During booms, foreign banks bypass policy tightening. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:537&r=all |
| By: | Gabriel Chodorow-Reich; Olivier M. Darmouni; Stephan Luck; Matthew Plosser |
| Abstract: | Using loan-level data covering two-thirds of all corporate loans from U.S. banks, we document that SMEs (i) obtain much shorter maturity credit lines than large firms; (ii) have less active maturity management and therefore frequently have expiring credit; (iii) post more collateral on both credit lines and term loans; (iv) have higher utilization rates in normal times; and (v) pay higher spreads, even conditional on other firm characteristics. We present a theory of loan terms that rationalizes these facts as the equilibrium outcome of a trade-off between commitment and discretion. We test the model’s prediction that small firms may be unable to access liquidity when large shocks arrive using data on drawdowns in the COVID recession. Consistent with the theory, the increase in bank credit in 2020:Q1 and 2020:Q2 came almost entirely from drawdowns by large firms on pre-committed lines of credit. Differences in demand for liquidity cannot fully explain the differences in drawdown rates by firm size, as we show that large firms also exhibited much higher sensitivity of drawdowns to industry-level measures of exposure to the COVID recession. Finally, we match the bank data to a list of participants in the Paycheck Protection Program (PPP) and show that SME recipients of PPP loans reduced their non-PPP bank borrowing in 2020:Q2 by between 53 and 125 percent of the amount of their PPP funds, suggesting that government-sponsored liquidity can overcome private credit constraints. |
| Keywords: | liquidity provision; macro-finance; credit; financial constraints; loan terms; banking; credit lines; COVID-19 |
| JEL: | G00 G20 G30 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88956&r=all |