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on Financial Development and Growth |
| By: | Gakpa Lewis Landry (École Nationale Supérieure de Statistique et d’Économie Appliquée (ENSEA)-Abidjan-Côte d’Ivoire) |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:372&r=all |
| By: | Luciano Amaral (Universidade Nova de Lisboa, Portugal); Concha Betr‡n (Universidad de Valencia, Spain); Vicente Pinilla (Universidad de Zaragoza and Instituto Agroalimentario de Arag—n (IA2), Spain) |
| Abstract: | This paper analyses the stages of structural change between the three main sectors of the Iberian economies. We also measure the contribution of structural change to economic growth in the long term and we disaggregate within the three sectors to determine the leading industries at each stage of economic transformation. Finally, we also study the contribution of these sectors to economic growth. Our work shows that both Iberian countries were latecomers in industrialisation and also in agricultural success. With a late start in the mid-nineteenth century in relation to the core European countries, they advanced in terms of structural change during the interwar period and experienced post-1950 growth miracles. Major changes took place when technological change and foreign markets were adapted to their factor endowments. The main differences between both countries were the slow path of Portugal in relation to Spain, and the less intense Portuguese structural change, with agriculture having a lower and services a higher share of GDP and employment during the nineteenth century with the opposite being the case in the twentieth century. Within the industrial sector, light industries and industries less intensive in skilled labour and capital had a higher importance in Portugal than in Spain. |
| Keywords: | Iberian economic history, Structural change, European economic history, Economic growth |
| JEL: | N14 O47 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:2010&r=all |
| By: | Chu, Angus C. |
| Abstract: | In this survey, we provide a selective review of the literature on inflation, innovation and economic growth. The relationship between inflation and economic growth is a fundamental question in economics. Most studies in this literature explore this relationship in capital-based growth models. This survey reviews a recent branch of this literature on inflation and innovation-driven growth. Specifically, we develop a canonical monetary Schumpeterian growth model to demonstrate the effects of inflation on innovation and the macroeconomy via different channels. We find that the cash-in-advance constraints on consumption and R&D investment have drastically different implications on the macroeconomic effects of inflation. |
| Keywords: | inflation; innovation;, economic growth |
| JEL: | E31 O3 O4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103740&r=all |
| By: | Joseph G. Haubrich |
| Abstract: | Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But many details are matters of dispute: When and where does the yield curve predict successfully, which aspects of the curve matter most, and which economic forces account for the predictive ability? Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, have addressed these issues. For the US, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War Two period. The spread also predicts future real GDP growth for the US, although the forecast ability varies by time period, in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the UK and Germany, among others. |
| Keywords: | Yield curve; term structure; prediction; recessions |
| JEL: | E43 G12 E32 |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:89008&r=all |
| By: | Andrea Modena (Institute for Financial Economics and Statistics Department of Economics, University of Bonn) |
| Abstract: | This paper studies the link between bank recapitalization and welfare in a dynamic production economy. The model features financial frictions because banks benefit of a cost advantage at monitoring firms and face costly equity issuance. The competitive equilibrium outcome is inefficient because agents do not internalize the effects banks’ capitalization over the allocation of capital, its price and, in turn, firms’ investments. It follows, individual recapitalizations are sub-optimal and bailout policies may benefit social welfare in the long run. Bailouts improve capital allocation in states where aggregate banks are poorly capitalized, therefore enhancing their market valuation, fostering investments, and stabilizing the economy recovery path. |
| Keywords: | Banks, bailout, general equilibrium, financial frictions, recapitalization, welfare |
| JEL: | D51 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2020:23&r=all |
| By: | O'Brien, Patrick Karl; Palma, Nuno |
| Abstract: | From its foundation as a private corporation in 1694 the Bank of England extended large amounts of credit to support the British private economy and to support an increasingly centralized British state. The Bank helped the British state reach a position of geopolitical and economic hegemony in the international economic order. In this paper, we deploy recalibrated financial data to analyse an evolving trajectory of connections between the British economy, the state, and the Bank of England. We show how these connections contributed to form an effective and efficient fiscal-naval state and promoted the development of a system of financial intermediation for the economy. This symbiotic relationship became stronger after 1793. The evidence that we consider here shows that although the Bank was nominally a private institution and profits were paid to its shareholders, it was playing a public role well before Bagehot's doctrine. |
| Keywords: | Bank of England,State-building institutions,National defence |
| JEL: | H41 N13 N23 N43 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eabhps:2003&r=all |
| By: | Régis MARODON |
| Abstract: | Les grands sujets planétaires, dont le climat, la perte de la nature et la solidarité entre les êtres humains font parties, appellent des actions concertées à tous les niveaux, à l’échelle des problèmes. Cette transformation, qui nécessite une mobilisation de tous les acteurs, ne peut pas se réaliser du jour au lendemain. Elle passe par une période de transition, pour permettre aux acteurs de bâtir des modèles socioéconomiques en phase avec cette vision. Alors que le multilatéralisme est à la peine pour relever ces défis, les banques publiques de développement (BPD), qu’elles soient actives dans un périmètre local, national, continental ou international, peuvent coopérer et participer à la recherche de ces modèles économiques et sociaux porteurs d’avenirs. En s’appuyant sur leur fonction duale de financeur public mais aussi de force de mobilisation de la finance privée, elles doivent se doter d’outils et d’indicateurs qui leur permettent de sélectionner et de soutenir de façon privilégiée les opérations faiblement émissives de carbone. Elles doivent mettre en place une grille d’analyse « développement durable » pour sélectionner les opérations sur d’autres critères que purement financiers et, si nécessaire, allonger la durée des crédits pour les opérations à fort impact. Elles doivent aussi garantir qu’aucun de leurs financements n’est susceptible d’encourager des activités allant à l’encontre de la réalisation des objectifs du développement durable, notamment le climat et la nature. Le présent document explore les raisons pour lesquels les banques de développement peuvent assurer un rôle moteur pour favoriser la transition vers le développement durable. Il propose cinq recommandations pour les décideurs afin de favoriser les conditions de la réussite.Ce papier de recherche est publié dans le cadre des groupes de travail de l'International Research Initiative on Public Development Banks, et à l'occasion de la 14ème conférence internationale de recherche de l’AFD sur le développement.Réaliser le potentiel des banques publiques de développement pour atteindre les objectifs de développement durable, c’est l’ambition du programme de recherche lancé par l'Institut de la nouvelle économie structurelle de l'université de Pékin (INSE), et soutenu par l’Agence française de développement, la Fondation Ford et l’International Development Finance Club (IDFC).Consulter la synthèse pour un aperçu rapide de ce travail et des résultats de rechercheVisionner le pitch vidéo |
| JEL: | Q |
| Date: | 2020–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:fr11701&r=all |
| By: | Jiajun Xu,; Régis Marodon,; Xinshun Ru |
| Abstract: | L'Institut de la nouvelle économie structurelle (INSE) de l'Université de Pékin et l'Agence française de développement (AFD) collaborent pour créer la première base de données complète sur les banques publiques de développement (BDP) et les institutions financières de développement (IFD) dans le monde. Le présent rapport sur la base de données vise à s'appuyer sur le premier rapport de recherche sur le financement du développement de l’INSE, “Mapping Development Finance Institutions Worldwide: Definitions, Rationales, and Varieties” afin de proposer des principes pour établir une liste crédible de BDP et IFD, d'affiner les critères de qualification, de proposer des classifications potentielles des BDP et IFD pour révéler leur diversité, et de présenter les faits stylisés : de leur année de création, répartition géographique, mandat, de la taille de leurs actifs, et de leur poids économique relatif dans leurs économies respectives, etc.Ce papier de recherche est publié dans le cadre des groupes de travail de l'International Research Initiative on Public Development Banks, et à l'occasion de la 14ème conférence internationale de recherche de l’AFD sur le développement.Réaliser le potentiel des banques publiques de développement pour atteindre les objectifs de développement durable, c’est l’ambition du programme de recherche lancé par l'Institut de la nouvelle économie structurelle de l'université de Pékin (INSE), et soutenu par l’Agence française de développement, la Fondation Ford et l’International Development Finance Club (IDFC).Visionner le pitch vidéo |
| JEL: | Q |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:fr11748&r=all |
| By: | Jiajun XU; Kedi WANG; Xinshun RU |
| Abstract: | L'accès à des sources de financement importantes, stables et à long terme est une condition préalable à la réalisation des objectifs des banques nationales de développement (BND). En collectant systématiquement des données sur les sources de financement des BDN dans le monde, nous sommes les premiers à répondre aux questions suivantes : quels sont les principaux types de sources de financement dont disposent les BDN et quels sont les faits stylisés de ces sources de financement. Nous constatons que les agences publiques et les acteurs du marché sont les deux principales sources de financement des NDB, les gouvernements déployant à la fois des mesures administratives et des moyens basés sur le marché pour mobiliser des fonds pour les NDB. En particulier, les NDB peuvent compter sur le soutien du gouvernement pour utiliser des moyens basés sur le marché afin de jouer pleinement l'effet de levier de la solvabilité souveraine, transformant les fonds du marché en de grands fonds à long terme pour faire avancer les objectifs de développement. En outre, un soutien financier direct et explicite, tel que les transferts budgétaires directs du gouvernement ou l'aide publique au développement, est également important pour les NDB. En nous appuyant sur les principales caractéristiques des sources de financement des NDB dans le monde, nous proposons enfin dix questions de recherche à explorer à l'avenir du point de vue de la Nouvelle Economie Structurelle et nous encourageons les chercheurs qui s'intéressent à ce domaine à mener des recherches plus approfondies.Ce papier de recherche est publié dans le cadre des groupes de travail de l'International Research Initiative on Public Development Banks, et à l'occasion de la 14ème conférence internationale de recherche de l’AFD sur le développement.Réaliser le potentiel des banques publiques de développement pour atteindre les objectifs de développement durable, c’est l’ambition du programme de recherche lancé par l'Institut de la nouvelle économie structurelle de l'université de Pékin (INSE), et soutenu par l’Agence française de développement, la Fondation Ford et l’International Development Finance Club (IDFC).Consulter la synthèse pour un aperçu rapide de ce travail et des résultats de rechercheVisionner le pitch vidéo |
| JEL: | Q |
| Date: | 2020–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:fr11688&r=all |
| By: | Beichen HUANG; Tianyang XI; Jiajun XU |
| Abstract: | A long standing view in the political economy of bureaucracy holds that the quality of political governance is the foundation of high quality development agencies. However, the existing literature does not provide an adequate account of how political leadership shape the capacity of development agencies. Motivated by the discrepancy between formal political institutions and large within country variation of bureaucratic governance in reality, this paper argues that the governing structure and capacity of development agencies crucially depend on the interaction between formal institutional constraints entrenched in the political system and the strength of political leadership. Specifically, neither institutional constraints nor strong leadership alone guarantees a sufficient degree of bureaucratic autonomy for development agencies. Without strong leadership, institutional checks and balance may give rise to excessive veto points in policy making and underminebureaucratic autonomy. Without proper institutional checks and balance, development agencies’ autonomy and capacity tend to compromised by the moral hazard of strong leadership. In turn, our theoretical argument predicts that development agencies exhibit strong autonomy and capacity with the presence of both strong leadership and institutional constraints. We use a crosscountry dataset of national development banks to test the theory. The regression results and case studies of national development banks are consistent with the theory.This Research Paper is published in the framework of the International Research Initiative on Public Development Banks working groups and released for the occasion of the 14th AFD International Research Conference on Development. It is part of the pilot research program “Realizing the Potential of Public Development Banks for Achieving Sustainable Development Goals”. This program was launched, along with the International Research Initiative on Public Development Banks (PDBs), by the Institute of New Structural Economics (INSE) at Peking University, and sponsored by the Agence française de développement (AFD), Ford Foundation and International Development Finance Club (IDFC). Have a look on the key findings for a quick overview of the research resultsSee the video pitch |
| JEL: | Q |
| Date: | 2020–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:en11708&r=all |
| By: | Abdoulaye Millogo (Université de Sherbrooke) |
| Abstract: | In the aftermath of the 2008 financial crisis, production and employment in advanced economies fell significantly, and remained below their pre-crisis potential level for almost a decade. A recent literature argues that market forces seem to have maintained or amplified this downward trend through hysteresis effects. Particularly intuitive arguments about the emergence of hysteresis effects through financial friction are provided by this literature. However, based on the current state of our knowledge, the theoretical models on hysteresis disregard this important dimension to the understanding of hysteresis. This article contributes to the literature by developing a New-Keynesian model where financial frictions amplify the lingering effects of economic shocks. By calibrating the model on the euro area, the results show that a deterioration of bank capital following a capital quality shock similar to the crisis of high-risk loans generates both persistence and more severity in the fall of production and in the rise of unemployment— more so than the classical models of hysteresis. The impact of shocks is magnified due to the reduction of physical capital in response to a weakening of the financing capacity of investment projects by the banking sector. |
| Keywords: | Production, unemployment, financial frictions, hysteresis, insider-outsider model |
| JEL: | E23 E24 E32 G01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:20-14&r=all |
| By: | Abdoulaye Millogo (Université de Sherbrooke) |
| Abstract: | Based on the Great Recession, this paper investigates the slow recovery-following recessions and the ability of unconventional monetary policies to dampen the adverse effects of shocks. The purpose is to elucidate one of the paradoxes of the business cycle—the slow pace of recovery of macroeconomic indicators and to evaluate the gains from monetary policies initiated by central banks following the financial crisis of 2008. Therefore, the article develops a model by integrating hysteresis mechanisms, modelled by the segmentation of the labour market between insiders and outsiders in the structure of a model with financial frictions to explain the paradox related to production and employment. Financial frictions are incorporated into the model by using a moral hazard problem between financial institutions and households. Calibrated on the U.S. economy, the simulations of the model show that the pace of recovery of output and employment takes more than 6 years to get back to the trend after the shocks. The cost in terms of the welfare of this slow recovery ranges between 0.30% to 5.82% according to the importance of the insiders-outsiders phenomenon. According to the baseline calibration of the model, the simulations also show that credit easing helps to strongly limit the effects and the costs in terms of welfare induced by these hysteresis mechanisms. Output and unemployment begin to converge towards their pre-shock simulations respectively 2.5 years, and 3 years when the central bank intervenes with credit easing. Welfare gains vary from 3.55% to 4.30%. |
| Keywords: | Great Recession, production, unemployment, financial frictions, hysteresis, insiders, outsiders, unconventional monetary policies, credit easing. |
| JEL: | E23 E24 E32 E58 G01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:20-12&r=all |
| By: | Oguzhan Cepni; Yavuz Selim Hacihasanoglu; Muhammed Hasan Yilmaz |
| Abstract: | This paper aims to investigate the co-movement between credit growth and gross domestic product (GDP) growth in Turkey over the period January 2004–October 2019. By taking into account alternative credit decomposition and the variations over time and across different frequencies using the wavelet analysis, the results show that: i) GDP growth highly synchronizes with credit growth compared to other financial variables such as stock exchange, bonds, and exchange rate; ii) There is a high correlation between commercial loan growth and capital formation, whereas a relatively weak one is observed between consumer loans and consumption; iii) Co-movement stemming from Turkish Lira (TL) credits to GDP growth is stronger than foreign exchange (FX) credits where the latter is significant until 2015; iv) Public and domestic private banks are the main drivers of economic activity while the foreign banks are following them. By showing the differential coherence of varied types of credit on GDP growth, we specify that shocks to different credit types are crucial to analyze business cycles. For policymakers, this result implies that the dynamics of different credit types are crucial to analyze the impacts of credit cycles on economic activity. |
| Keywords: | Credit growth, GDP growth, Time variation, Frequency variation, Wavelet analysis |
| JEL: | E32 E44 F43 F44 C49 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2014&r=all |
| By: | Natasha Kang; Vadim Marmer |
| Abstract: | Recurrent boom-and-bust cycles are a salient feature of economic and financial 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. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.13877&r=all |
| By: | Eduard Gracia Rodríguez (Universitat de Barcelona) |
| Abstract: | A widespread misbelief asserts that an efficient market would arbitrage out any cyclical or otherwise partially-predictable, non-random-walk pattern on the observed market prices time series. Hence, when such patterns are observed, they are often attributed to either irrational behavior or market inefficiency. Yet, strictly speaking, the efficient markets hypothesis only rules such patterns out of the expected (i.e. mean) path, whereas, if the probability diffusion process is asymmetric (as in most economic and financial stochastic models), the observed time series will approximate the median path, which is not subject to such constraint. This paper combines a general imperfect-competition production function specification (i.e. one generating economic rents) with the concept of time-to-build to develop a rational-expectations, efficient-markets model displaying a valuation cycle along its median path. This model may therefore help to explain the bull-and-bear cycles observed in asset markets generating economic rents e.g. real estate, commodities or, for that matter, most if not all of the assets quoted in the stock exchange. |
| Keywords: | Business Cycles, Bull and Bear Markets, Financial Market Fluctuations, Economic Rents, Time to Build, Efficient Markets. |
| JEL: | E32 E44 G1 G12 G14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:400web&r=all |
| By: | Hang Bai; Lu Zhang |
| Abstract: | Labor market frictions are crucial for the equity premium in production economies. A dynamic stochastic general equilibrium model with recursive utility, search frictions, and capital accumulation yields a high equity premium of 4.26% per annum, a stock market volatility of 11.8%, and a low average interest rate of 1.59%, while simultaneously retaining plausible business cycle dynamics. The equity premium and stock market volatility are strongly countercyclical, while the interest rate and consumption growth are largely unpredictable. Because of wage inertia, dividends are procyclical despite consumption smoothing via capital investment. The welfare cost of business cycles is huge, 29%. |
| JEL: | E32 E44 G12 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28001&r=all |
| By: | Khalid ElFayoumi |
| Abstract: | During both the 2008 and the COVID crises, aggregate employment in Europe and the US fell despite continuing growth in the aggregate capital stock. Using more than one million firm-year observations of small and medium European firms between 2003 and 2018, this paper introduces new stylized facts on how firms’ relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides the first micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. The analysis uses the heterogeneous effects of ECB monetary policy surprises across the firm distribution to identify exogenous firm-level external financing shocks. The results suggest that maintaining a well functioning credit market supports a higher labor share of economic growth. |
| Keywords: | Labor demand, financial frictions, jobless growth, labor share |
| JEL: | E3 E5 G3 J2 J3 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1908&r=all |
| By: | Tim E. DORE; OKAZAKI Tetsuji; ONISHI Ken; WAKAMORI Naoki |
| Abstract: | This paper investigates how additional credit supply affects the growth of small and medium enterprises (SMEs) by looking at a unique policy-based, small business lending program in Japan. Combining the loan-level data provided by the Japan Finance Corporation with the financial statement database for SMEs, we compare outcomes between SMEs receiving the loan (treated group) and SMEs not receiving the loan (control group). We find that policy-based credit supply increases investment and employment, which results in a higher long-run growth rate of SMEs. SMEs increase their asset value and hire more employees immediately after the credit supply and the effects stay persistent over years. On the other hand, sales increases gradually over years, which suggests that the credit supply changes the growth rate of SMEs, though we cannot detect any improvement in labor productivity. The persistent differences in long- and short-term loans between treated and control groups may suggest that SMEs are indeed credit constrained and face difficulty finding alternative financing sources. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:20082&r=all |
| By: | William D. Lastrapes; Ian Schmutte; Thor Watson |
| Abstract: | We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small businesses. We find, using standard panel data methods and restricted-use microdata from the US Census Bureau, that the Texas amendment increased the use of home equity finance by small businesses, increased new business and job creation and reduced establishment exit and job loss. The effects are larger and significant for businesses with fewer than ten employees. |
| Keywords: | natural experiment, Texas, entrepreneur, difference-in-differences |
| JEL: | M2 M13 R0 E0 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:20-32&r=all |
| By: | Joan Calzada (Universitat de Barcelona); Xavier Fageda (Universitat de Barcelona); Fernando Martínez-Santos (Universidad San Pablo CEU) |
| Abstract: | We analyze the role of bank mergers as determinants of the evolution of branch presence at the county level. Panel regressions based on county-level branch density are used to study differences across urban versus rural counties as well as pre- and post-crisis. The results indicate that bank mergers contributed to the increase of branches in the pre-crisis period and to its reduction in the post-crisis period, but the expansion effect of the mergers before the crisis mainly took place in metropolitan counties. Additional results show that broadband penetration has contributed to the reduction in the number of branches after the crisis and that branch closures are associated with an increase in the share of unbanked and underbanked households at the county level. |
| Keywords: | Bank branches, Mergers, Competition, Broadband, Financial Exclusion, United States. |
| JEL: | L16 L22 G21 G34 G38 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:397web&r=all |
| By: | Bedayo, Mikel; Jiménez, Gabriel; Peydró, José-Luis; Vegas, Raquel |
| Abstract: | We show that loan origination time is key for bank lending standards, cycles, defaults and failures. We exploit the credit register from Spain, with the time of a loan application and its granting. When VIX is lower (booms), banks shorten loan origination time, especially to riskier firms. Bank incentives (capital and competition), capacity constraints, and borrower-lender information asymmetries are key mechanisms driving results. Moreover, shorter (loan-level) origination time is associated with higher ex-post defaults, also using variation from holidays. Finally, shorter precrisis origination time —more than other lending conditions— is associated with more bank-level failures in crises, consistent with lower screening. |
| Keywords: | loan origination time,lending standards,credit cycles,defaults,bank failures,screening |
| JEL: | G01 G21 G28 E44 E51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:225986&r=all |
| By: | Vincenzo D'Apice (Center for Relationship Banking and Economics (CERBE).); Franco Fiordelisi (Essex Business School.); Giovanni W. Puopolo (Università di Napoli Federico II and CSEF) |
| Abstract: | We investigate the causal relationship between the efficiency of country’s judicial system and the quality of bank lending, using the enforcing contracts reforms that have been implemented in four European countries as a quasi-natural experiment. We find that improvements of enforcing contracts determine large, significant, and persistent reductions of banks’ non-performing-loans (NPLs). These findings are robust to several difference-in-difference tests and reverse causality concerns. Our results have important policy implications especially at the light of the recent Covid-19 pandemic since they may help the banking system mitigate the virus’ negative financial effects. |
| Keywords: | Judicial Systems, Non-Performing Loans, Banking Stability. |
| JEL: | G21 G28 |
| Date: | 2019–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:588&r=all |
| By: | Giulio Cornelli; Sebastian Doerr; Leonardo Gambacorta; Ouarda Merrouche |
| Abstract: | Policymakers around the world are adopting regulatory sandboxes as a tool for spurring innovation in the financial sector while keeping alert to emerging risks. Using unique data for the UK, this paper provides initial evidence on the effectiveness of the world's first sandbox in improving fintechs' access to finance. Firms entering the sandbox see a significant increase of 15% in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%. Our results furthermore suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty. Our results are confirmed when we exploit the staggered introduction of the sandbox and compare firms in earlier to those in later sandbox cohorts, and when we compare participating firms to a matched set of firms that never enters the sandbox. |
| Keywords: | fintech, regulatory sandbox, startups, venture capital. |
| JEL: | G32 G38 M13 O3 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:901&r=all |
| By: | David Kohn; Fernando Leibovici; Michal Szkup |
| Abstract: | We study the role of financial development on the aggregate effects and welfare implications of reducing international trade barriers on production inputs such as physical capital and intermediates. We document that financially underdeveloped economies feature a slower response of real GDP, consumption, and investment following trade liberalization episodes that improve access to imported production inputs. We set up a quantitative general equilibrium model with heterogeneous firms subject to financial constraints and estimate it to match salient features from Colombian plant-level data. We find that the adjustment to a decline of import tariffs on physical capital and intermediate inputs is significantly slower in financially underdeveloped economies in line with the empirical evidence. Moreover, we find that financial development increases the welfare gains from trade liberalization; low-income agents benefit from higher wages while exporters benefit from a depreciated real exchange rate and lower capital costs. |
| Keywords: | financial development; trade liberalization; welfare |
| JEL: | F1 F4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88990&r=all |
| By: | Lee E. Ohanian; Paulina Restrepo-Echavarria; Diana Van Patten; Mark L. J. Wright |
| Abstract: | This paper quantifies the positive and normative effects of capital controls on international economic activity under The Bretton Woods international financial system. We develop a three region world economic model consisting of the U.S., Western Europe, and the Rest of the World. The model allows us to quantify the impact of these controls through an open economy general equilibrium capital flows accounting framework. We find these controls had large effects. Counterfactuals show that world output would have been 6% larger had the controls not been implemented. We show that the controls led to much higher welfare for the rest of the world, moderately higher welfare for Europe, but much lower welfare for the U.S. We interpret the large U.S. welfare loss as an estimate of the implicit value to the U.S. of preventing capital flight from other countries and thus promoting economic and political stability in ally and developing countries. |
| Keywords: | Bretton Woods; International Payments; Capital Flows |
| JEL: | E21 F21 F41 J20 |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88995&r=all |
| By: | Tiriongo Samuel; Esmie Kanyumbu (Monetary Policy Committee SecretariatCentral Bank of Kenya) |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:367&r=all |
| By: | Mirriam Muhome Matita; Takondwa Chauma (Lilongwe University of Agriculture and Natural Resources, Malawi) |
| Abstract: | Mobile financial services are gaining prominence and could be a possible avenue for fast-tracking financial inclusion in developing countries, including Malawi. However, adoption and usage of such services remains low among the Malawi population. This study investigates the influence of financial literacy on financial behaviour of individuals in Malawi, specifically use of mobile phone-based financial transactions. Descriptive and econometric analyses were conducted using cross-sectional data obtained from the Reserve Bank of Malawi. Findings reveal that the likelihood of using mobile financial services increases with increasing levels of financial literacy, type of employment and peri-urban residence. Furthermore, men are more likely to transact on mobile phones than females and that although income levels matter in the use of mobile financial transactions, the magnitude of effect is negligible. Results suggest opportunities for expanding access to financial services and products such as differentiation in financial literacy education by characteristics of population including gender of users. Informal settings do not preclude expansion of digital payments, and therefore financial product innovation and addressing rural resident’s constraints to access mobile financial services is crucial. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:369&r=all |
| By: | Hans Degryse (KU Leuven and CEPR); Tarik Roukny (KU Leuven); Joris Tielens (National Bank of Belgium) |
| Abstract: | In the race against climate change, financial intermediaries hold a key role in rapidly redirecting resources towards greener economic activities. However, this transition entails a dilemma for banks: entry of innovative and green firms in polluting industries risks devaluating legacy positions held with incumbent clients. As a result, banks exposed to such losses may be reluctant to finance innovation aiming to reduce polluting activities such as green house gas emissions. In this paper, we formalize potential banking barriers to investments in green firms that threaten the value of legacy contracts by affecting collateral pledged by incumbent clients to banks as well as probabilities of default. We show that themore homogeneous and concentrated the banking system is in a given industry, the fewer new innovative firms will be granted loanable funds. We further exploit data on credit allocations in Belgium between 2008 and 2018, to investigate the empirical relevancy of such barriers in polluting industries with larger exposures to green technology disruption. The results indicate that the market structure of the banking system may be key to facilitating a green economic transition highlighting the need for policies to address the role of brown legacy positions and heterogeneous bank business models. |
| Keywords: | Financial Intermediation, innovation, barriers, climate change |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202010-391&r=all |