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on Financial Development and Growth |
| By: | Audi, Marc; Ali, Amjad; Fayad Hamadeh, Hani |
| Abstract: | Studying the level of economic growth remains a topic of discussion among economists and policymakers. As economic growth further impacts the socioeconomic development of the country. The present study has investigated the impact of innovations and financial development on economic growth in case 58 developing counties from 2000 to 2020. To analyze the stationarity of the variables LLC, ADF-Fisher, IPS, and PP-Fisher unit roots have been used. This study uses a panel autoregressive distribution lag co-integration approach and a vector error-correction model for short-run dynamics of the model. For investigating the causal relationship among the variables variance decomposition and impulse response function have been applied. The outcomes of the study show that innovations, availability of physical capital, and trade have a positive and significant impact on economic growth. The results show that financial development has a negative and significant impact on economic growth. It is suggested that for higher economic growth, developing countries improve the threshold level of financial development and use an innovative process of production. Urbanization and inflation hurt economic growth. Thus, developing countries should promote a stable inflation rate with liberalized trade, innovation, and physical capital to enhance economic growth. |
| Keywords: | economic growth, financial development, inflation rate, innovations |
| JEL: | E31 G20 O30 O40 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115220&r=fdg |
| By: | Yakubu, Ibrahim Nandom |
| Abstract: | This study investigates how globalization and financial development interactively stimulate economic growth in Sub-Saharan Africa (SSA). The author employs annual data spanning from 2000 to 2017 for 30 Sub-Saharan African countries and applies the generalized method of moments (GMM) technique. The results show that while globalization significantly reduces economic growth, the impact of financial development on growth is positive when examined independently. With the interactive effect of globalization and financial development, a positive and statistically significant impact is documented. The study further reveals that trade openness significantly enhances growth while inflation inhibits growth. In light of the findings, the author presents key policy recommendations. |
| Keywords: | Globalization, Financial development, Economic growth, Sub-Saharan Africa |
| JEL: | F43 F62 G20 |
| Date: | 2022–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115230&r=fdg |
| By: | Yakubu, Ibrahim Nandom; Bunyaminu, Alhassan |
| Abstract: | This paper examines the impact of financial inclusion on economic growth in the Economic Community of West African States (ECOWAS) countries. The study also investigates how financial inclusion through financial openness enhances growth. Applying the pooled estimated generalized least squares (EGLS) technique with data from 10 countries in ECOWAS over the period 2010-2017, the results reveal that financial inclusion exerts a positive significant influence on economic growth through its direct effect and via financial openness. The findings also show that while inflation reduces growth, trade openness and foreign direct investment significantly stimulate economic growth in ECOWAS. The study emphasizes the need for greater efforts to address the challenges involved in accessing financial services as one of the most effective ways of realizing inclusive growth. |
| Keywords: | Financial inclusion, Economic growth, Pooled EGLS, ECOWAS |
| JEL: | G21 O40 O43 |
| Date: | 2021–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115183&r=fdg |
| By: | Maria Aristizabal-Ramirez; John V. Leahy; Linda Tesar |
| Abstract: | This paper is motivated by a set of cross-country observations on growth, structural transformation, and investment rates in a large sample of countries. We observe a hump-shaped relationship between a country's investment rate and its level of development, both within countries over time and across countries. Advanced economies reach their investment peak at a higher level of income and at an earlier point in time relative to emerging markets. We also observe the familiar patterns of structural change (a decline in the agricultural share and an increase in the services share, both relative to manufacturing). The pace of change observed in the 1930 to 1980 period in advanced economies is remarkably similar to that in emerging markets since 1960. We develop a two-region model of the world economy in which regions are isolated from each other up to the point of capital market liberalization in the early 1990s. At that point, capital flows from advanced economies to emerging markets and accelerates the process of structural change in emerging markets. The majority of gains from financial liberalization accrue to emerging economies. We consider the impact of a “second wave” of liberalization when China fully opens its economy to capital inflows. |
| JEL: | E2 F62 O10 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30584&r=fdg |
| By: | Morgan, Stephen; Farris, Jarrad; Johnson, Michael E. |
| Abstract: | The African Continental Free Trade Area (AfCFTA) connects 1.3 billion people across 55 countries and presents a significant opportunity for increased economic growth in Africa. AfCFTA may also spur increases in foreign direct investment (FDI) on the continent by reducing regulatory barriers and expanding market access. This report examines emerging trends in FDI in Africa that may further shift under AfCFTA. Particular attention is given to assessing the sources and destinations of private investment in Africa and sectoral investment patterns. European investors remain the most important source of FDI stock in Africa, but the relative share of Africa’s FDI stock originating from Europe declined over the past decade, while Asia’s share increased. The destinations of FDI in Africa also shifted, with Northern and Southern Africa—which made up the majority of FDI stock in the mid-2000s—losing FDI share to Eastern Africa. Additionally, industries related to natural resource extraction that once dominated the sectoral composition of newly created subsidiaries in Africa made up less than one-third of greenfield FDI in Africa in 2016–20. |
| Keywords: | Financial Economics, International Development, International Relations/Trade, Political Economy, Resource /Energy Economics and Policy |
| Date: | 2022–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:ags:usdami:329077&r=fdg |
| By: | Wu, Zhe (Monash University) |
| Abstract: | We investigate the role of international credit market constraint in a dynamic stochastic general equilibrium model in determining the effect of government spending policies on macroeconomic variables such as consumption and the real exchange rate in a small open economy. The numerical results show that increasing government expenditure under certain economic shocks can increase the value of the real exchange rate and reduce the chance of the small open economy reaching the borrowing limit. Hence, the dynamics of consumption and the real exchange rate can be significantly affected by government spending policies under international credit market constraints. |
| Keywords: | Credit Constraint ; Real Exchange Rate ; Government Spending JEL Classification: F41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkesp:42&r=fdg |
| By: | Yasin Kürsat Önder (-) |
| Abstract: | I investigate the introduction of GDP-indexed bonds as an additional source of government borrowing in a quantitative default model. The idea of linking debt payments to developments in GDP resurfaced with the 1980s debt crisis and peaked with the COVID-19 outbreak. I show that the gains from this idea depend on the underlying indexation method and are highest if payments are symmetrically tied to developments in GDP. Optimized indexed debt can eradicate default risk, halve consumption volatility, and increase asset prices while raising the government’s debt balances. These changes occur because an optimally chosen indexation method does a better job at completing the markets. |
| Keywords: | GDP-indexed bonds, sovereign default, risk sharing, state-contingent assets |
| JEL: | G11 G23 F34 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:22/1056&r=fdg |
| By: | Zunera Rana; Dirk-Jan Koch |
| Abstract: | In this paper, we explore the relationship between foreign aid fungibility and aggregate welfare. Using panel data from 35 low-income and lower-middle-income countries, we first check the presence of sectoral aid fungibility in our sample and find evidence for it. We then use econometric methods to empirically analyse the impact of this fungibility on aggregate welfare as measured through the Human Development Index. Our findings suggest that in some cases sectoral aid fungibility can lead to an improvement in aggregate welfare. |
| Keywords: | Foreign aid, Econometrics, Aggregate welfare, Fungibility, SDGs |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2022-122&r=fdg |
| By: | Oludele Folarin (University of Ibadan, Ibadan, Nigeria); Isiaka A. Raifu (University of Ibadan, Ibadan, Nigeria) |
| Abstract: | With the global sustainable development goals, it has become imperative for developing countries, especially sub-Saharan African countries, to think inward on ways to increase domestically mobilized revenue. The recovery of the global economy within the last few years has increased foreign assistance inflow into African countries. However, the direction of its impact on domestic mobilized revenue is unclear. This study revisited the relationship between foreign aid and domestic mobilized revenues for 32 sub-Saharan African countries using a more recent and novel dataset on tax revenue. We employed instrumental fixed effect Quantile regression, a novel technique in aid and tax revenue literature. The study findings show that the impact of foreign aid varies across tax revenue distribution. We found a negative and significant effect in countries with high tax effort, while the effect is insignificant in countries with low tax effortsub-Saharan African countries, especially those with low tax revenue, need to use foreign aid to strengthen their tax administration and adopt modern tax revenue collection technologies. As a result, sub-Saharan African countries should request advanced countries or donors to provide technical support in tax revenue mobilization. |
| Keywords: | Foreign aid, Tax revenue, Quantile regression, Sub-Saharan Africa |
| JEL: | F35 H2 H27 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/088&r=fdg |
| By: | Olivier Najar,; Pascale Scapecchi; et Ysaline PADIEU |
| Abstract: | Entre 2010 et 2019, le montant des prêts engagés par la communauté internationale à destination des pays en développement (PED) atteint 1 700 Mds USD, dont près de 60 % octroyés par les banques de développement multilatérales. Sur les 40 % restants, la moitié environ a été consentie par les BRICS, en premier lieu desquels la Chine, la Russie et dans une moindre mesure l’Inde. Cette publication a pour objectif d’exposer les divers enjeux liés à la montée en puissance relative de trois bailleurs de fonds issus du monde émergent, à savoir la Chine, l’Inde et la Turquie. |
| Keywords: | Chine, Inde, Turquie |
| JEL: | E |
| Date: | 2022–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:fr14502&r=fdg |
| By: | Zsófia L. Bárány (CEU - Central European University [Budapest, Hongrie], CEPR - Center for Economic Policy Research - CEPR); Nicolas Coeurdacier (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Stéphane Guibaud (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We investigate the importance of worldwide demographic evolutions in shaping capital flows across countries. Our lifecycle model incorporates crosscountry differences in fertility and longevity as well as differences in countries' ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers uphill capital flows from emerging to advanced economies, while country-specific demographic evolutions reallocate capital towards countries aging more slowly. Our quantitative multi-country overlapping generations model explains a large fraction of long-term capital flows across advanced and emerging countries. |
| Keywords: | Aging,Household Saving,International Capital Flows |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03803869&r=fdg |
| By: | Devine, Kenneth (Central Bank of Ireland) |
| Abstract: | Demographic dynamics and the shift of population pyramids towards an inverted pyramid shape in advanced economies are leading to relative scarcity of labour and excess savings. What are the effects of these dynamics on the relative wealth accumulation journeys of different cohorts? Within a fixed-effect cross country panel framework, I find that savings by an increasing share of households aged between 45 and 65, a rise in retired over-65s, and a decrease in working-age and low-wealth agents in their twenties and thirties can explain most of the decline in rates of return across countries in the last few decades, and similarly a large part of the increase in wages. In this context and looking to the future, wealth accumulation out of income and capital returns by cohorts living in advanced economies and retiring in future decades is set to become increasingly difficult, as higher wages are not sufficient to compensate for lower returns over long periods of time. Current young and future generations are therefore set to face progressively lower standards of living at retirement and/or increasingly high saving ratios in working age. |
| Keywords: | Demographics, Rates of return, Inter-generational inequality, Wealth. |
| JEL: | E21 E25 J11 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:6/rt/22&r=fdg |
| By: | Salvatore Nisticò (Department of Social Sciences and Economics, Sapienza University of Rome); Marialaura Seccareccia (Department of Economics and Finance, LUISS Guido Carli) |
| Abstract: | Cyclical inequality and idiosyncratic risk imply additional channels that amplify the transmission of persistent balance-sheet policies, through their effects on private sector's expectations and consumption risk. Through these channels, unconventional monetary policy improves the central bank's ability to anchor expectations and rule out endogenous instability. Moreover, they allow the central bank to optimally complement interest-rate policy in particular in response to financial shocks that expose the economy to the effective-lower-bound on the policy rate, and can promote a swifter exit from the liquidity trap. |
| Keywords: | Cyclical inequality; idiosyncratic risk; optimal monetary policy; HANK; THANK, ELB. |
| JEL: | E21 E32 E44 E58 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:saq:wpaper:7/22&r=fdg |
| By: | Karmakar, Sudipto (Bank of England); Melolinna, Marko (Bank of England); Schnattinger, Philip (Bank of England) |
| Abstract: | This paper studies the effects of different types of investment and levels of debt on productivity in the UK, using firm-level data. We set out a stylised model of a dynamic firm profit-maximisation problem, and augment this model with an external financing option in a novel way. We use the model to illustrate why productivity-enhancing investment differs from other uses of company funds in terms of its effects on total factor productivity (TFP), and how these positive effects can be stronger for firms that have higher indebtedness. We then examine the issue empirically with data on listed firms in the UK. Our main finding is that intangibles investment are a good proxy for productivity-enhancing investment, as they have a positive effect on TFP, and in those firms that have high debt and high levels of intangibles, these effects are even more pronounced. On the other hand, we find no consistent evidence of positive TFP effects for other uses of funds, like tangible capital expenditure or dividends and equity buybacks. The effects of debt on TFP are smaller and more tenuous, but we find no evidence of a negative TFP effect of debt in firms that have high levels of intangibles intensity. |
| Keywords: | Dynamic programming; firm-level productivity; intangible assets; panel regression |
| JEL: | C61 D22 D24 O30 |
| Date: | 2022–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0992&r=fdg |
| By: | Cesa-Bianchi, Ambrogio (Bank of England); Harrison, Richard (Bank of England); Sajedi, Rana (Bank of England) |
| Abstract: | We use a structural overlapping-generations model to quantify the effects of five exogenous forces that drive the global trend equilibrium real interest rate, Global R*. We use data for 31 countries to extract the global trend components of the five drivers and to derive an empirical estimate of Global R*, which we use to calibrate the model. We design a recursive simulation method in which beliefs about the future path of the drivers are updated gradually. In our simulation, Global R* rises from the mid-1950s to the mid-1970s, declining steadily thereafter. The decline is driven predominantly by slowing productivity growth and increasing longevity. |
| Keywords: | Equilibrium interest rates; structural change; demographics |
| JEL: | E22 E43 J11 |
| Date: | 2022–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0990&r=fdg |
| By: | Paulo Rodelio Halili (Asian Development Bank); Rogelio V. Mercado, Jr. (South East Asian Central Banks (SEACEN) Research and Training Centre) |
| Abstract: | This paper examines the importance of trade ties, macro-financial volatilities, and US dollar trade invoicing in explaining Asia’s international investment assets and liabilities denominated in world currencies, including the US dollar (USD), euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Chinese yuan (CNY). The results show heterogeneous patterns of relevant covariates across different currencies. More importantly, the estimates offer evidence that the region hedges its currency risk by investing in US dollar denominated assets as greater US dollar trade invoicing significantly covaries with greater debt asset holdings denominated in US dollar. |
| Keywords: | currency composition, international investment assets and liabilities, trade invoicing, bilateral trade, macro-financial volatilities |
| JEL: | F31 F36 F41 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp49&r=fdg |
| By: | Simone Arrigoni (Department of Economics, Trinity College Dublin) |
| Abstract: | This paper studies whether the advent of financial globalisation has contributed to increasing wealth inequality in the United States, France, and the United Kingdom. I find that (i) positive changes in the benchmark measure of financial globalisation are associated with a positive change in the top 1% and 10% wealth shares and a negative change in the wealth share of the bottom 50% of the distribution. This is equivalent to an average gain of $1 trillion for the top 10% and $1.6 trillion for the top 1%, over the period of interest. (ii) Portfolio equities and financial derivatives appear to be the driving components behind the increase in wealth share. (iii) The implied change in wealth shares is driven by the accumulation of new financial wealth (flow) rather than the valuation of existing one. (iv) The dynamic is strengthened when a banking crisis hits the economy, possibly because people at the top of the distribution can recover their lost wealth faster than people at the bottom. |
| Keywords: | financialglobalisation,internationalfinancialintegration,wealth inequality |
| JEL: | C23 D63 F21 F30 E21 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0322&r=fdg |
| By: | Anusha Chari; Karlye Dilts Stedman; Christian Lundblad |
| Abstract: | Global risk and risk aversion shocks have distinct distributional impacts on emerging market capital flows and returns. In particular, we find salient consequences of these different global shocks for tail risk in emerging markets. Open-end mutual fund trading provides a key mechanism linking shocks facing global investors to extreme capital flow and return realizations. The effects are heterogeneous across asset classes and fund types. The limited discretion and higher conformity of passive fund investments linked to benchmarking amplify pass-through effects that engender abnormal co-movements in emerging market flows and returns. |
| JEL: | F3 F32 G11 G15 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30577&r=fdg |
| By: | Ndiweni, Zinzile Lorna; Bonga-Bonga, Lumengo |
| Abstract: | With the global interconnectedness among markets, contagion literature has received immeasurable attention from researchers and academics. This study proposes a test to distinguish between interdependence, contagion and the decoupling hypothesis between advanced markets and emerging markets based on entropy theory to expand this pool of literature. The test is applied to time-varying conditional correlations obtained from an asymmetric dynamic conditional correlation generalised autoregressive conditional heteroscedasticity (A-DCC GARCH) model by comparing the extent of correlations over quiet and turmoil periods across financial crises. In this study, the US and EU are identified as advanced economies, and emerging markets are identified by region to uncover whether they are homogenous or heterogenous as receivers of shocks from advanced economies. Our findings present evidence in support of the decoupling hypothesis in the cases of Brazil and Russia during the GFC and Turkey during the ESDC. Furthermore, substantial evidence supporting the existence of contagion effects between advanced and emerging markets is reported, and the presence of interdependence was constantly rejected. The findings of this paper provide valuable insights for policymakers, investors and asset managers. |
| Keywords: | Contagion, interdependence, decoupling, A DCC GARCH, entropy test, emerging markets, advanced markets. |
| JEL: | C5 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115170&r=fdg |
| By: | Julian di Giovanni; John H. Rogers |
| Abstract: | This paper uses cross-country firm-level data to explore the impact of U.S. monetary policy shocks on firms’ sales, investment, and employment. We estimate a sizable impact of U.S. monetary policy on the average foreign firm, while controlling for other macroeconomic and financial variables like the VIX and exchange rate fluctuations that accompany U.S. monetary policy changes. We then quantify the role of international trade exposure and financial constraints in transmitting monetary policy shocks to firms, allowing for a better identification of the importance of external demand effects and the interest rate channel. We first exploit cross-country sector-level data on intermediate and final goods trade to show that greater global production linkages amplify the impact of U.S. monetary policy at the firm level. We then show that the impact varies along the firm-level distribution of proxies for firms’ financial constraints (for example, size and net worth), with the impact being significantly attenuated for less constrained firms. |
| Keywords: | U.S. monetary policy spillovers; Foreign firms; production linkages; financial constraints |
| JEL: | E52 F40 |
| Date: | 2022–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:95087&r=fdg |
| By: | Dirk Niepelt |
| Abstract: | We analyze retail central bank digital currency (CBDC) in a two-tier monetary system with bank deposit market power and externalities from liquidity transformation. Resource costs of liquidity provision determine the optimal monetary architecture and modified Friedman (1969) rules the optimal monetary policy. Optimal interest rates on reserves and CBDC differ. A calibration for the U.S. suggests a weak case for CBDC in the baseline but a much clearer case when too-big-to-fail banks, tax distortions or instrument restrictions are present. Depending on central bank choices CBDC raises U.S. bank funding costs by up to 1.5 percent of GDP |
| Keywords: | Central bank digital currency, reserves, two-tier system, bank, liquidity, equivalence |
| JEL: | E42 E43 E51 E52 G21 G28 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2212&r=fdg |
| By: | Du, Chuan (Bank of England) |
| Abstract: | In periods of stress, acute liquidity squeeze can manifest in the riskier segments of the credit market, even amid a surplus of aggregate liquidity. In such scenarios, central bank interventions that directly lower the risky interest rate can be more effective than reductions in the risk-free interest rate. Specifically, the central bank lends to the market at more favourable interest rates while simultaneously reducing the haircuts imposed on eligible collateral. In doing so, the central bank takes on greater credit risk, but achieves an outcome that is more productively efficient than simply reducing the risk-free interest rate. |
| Keywords: | Collateral; leverage; credit conditions; monetary policy; general equilibrium |
| JEL: | D53 E44 E51 E52 E58 |
| Date: | 2022–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0987&r=fdg |
| By: | Luísa Farinha; Sotirios Kokas; Enrico Sette; Serafeim Tsoukas |
| Abstract: | Using granular bank-firm level credit data, we show that the characteristics of bank-firm matches affect firms’ access to credit and real outcomes during crises. We identify a set of potential matches in pre-crisis years, and we use them to predict match formation in crisis times. We generate a measure of “imperfect matches" given by the difference between realized and predicted matches. In crisis times, imperfect matches deteriorate firm outcomes. The effects are economically important. A one standard deviation worsening in the index is associated with a drop in firms’ employment, tangible assets, and survival by 0.9%, 2.7%, and 4.2%, respectively. |
| JEL: | E22 E51 G21 G30 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202210&r=fdg |
| By: | Yakubu, Ibrahim Nandom; Bunyaminu, Alhassan; Abdallah, Iliasu |
| Abstract: | The number of foreign banks operating in emerging market economies has increased significantly in recent years. Financial globalization and technological advancement have dramatically altered the global banking landscape, resulting in an increasing pattern of international banks’ involvement. Aside from the global forces driving bank penetration, this study seeks to assess how country-level factors motivate foreign bank entry in Ghana. In doing so, we employ quarterly data spanning 2000Q1-2017Q4. Applying the autoregressive distributed lag (ARDL) technique, the results establish that while corruption significantly drives foreign bank entry in both short- and long-run, the impact of political stability on foreign bank entry is significant only in the long-run. The findings also show that banking sector profitability and banking sector stability matter for foreign bank entry in both short- and long-term. The study presents some implications for policy based on the findings. |
| Keywords: | Foreign bank entry, Corruption, Political stability, ARDL, Ghana |
| JEL: | G20 G21 |
| Date: | 2022–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115234&r=fdg |
| By: | Gabriel Zsurkis |
| Abstract: | The objective of this paper is to identify the banks’ cost of equity determinants. We rely on a two-step approach. First, we estimate the cost of equity (COE) for listed euro area banks through multi-factor models, which are widely used in the asset pricing literature. We propose a new specification with overall market, banking sector and country risks and conclude that it has the best performance among all considered alternatives to mimic the bank’s realized returns dynamics. Then, this specification is employed to estimate the banks’ return sensitivities to each of the common risk factors and the COE. In the second step, we consider bank-specific and country-level variables and infer whether they explain the estimated COE time series dynamics and differences in COE across banks. We conclude that changes in ECB’s interest rates and government bond rates were crucial to explain the evolution of the COE between 2012 and 2020. Moreover, we find that some variables related to business and financial cycles, and bank-specific variables such as Nonperforming Loan ratio, Tier1 ratio and Return on Assets are also important. |
| JEL: | E44 G1 G20 G21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202209&r=fdg |
| By: | Merike Kukk; Natalia Levenko |
| Abstract: | The paper studies the determinants of the interest rate spreads in Estonia, a country that stands out among European countries for its wide spreads. Four distinct credit markets are considered for housing loans, consumer loans, long-term corporate loans and short-term corporate loans. The paper uses quarterly panel data from 2000Q1–2021Q1. It uses a two-stage approach to disaggregate the observed spread into a component determined by the bank-specific factors and a component determined by the market-specific factors, which is labelled in the literature as the pure spread. For each of the two components, the paper finds substantial differences in the determinants of the spreads across different types of loan. While credit risk is important for long-term corporate and housing loans, operating costs are significant in the segment of short-term loans. Similarities found between the loan markets were that the pure spreads are found to be related to the business cycle and market concentration, while the relationship with interest rate risk is found to be insignificant. |
| Keywords: | interest rate spreads, interest rate margins, banking sector, housing loans, consumer loans, corporate loans, market concentration |
| JEL: | G21 G28 D40 E43 |
| Date: | 2022–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2022-7&r=fdg |
| By: | Olegs Matvejevs (Latvijas Banka); Olegs Tkacevs (Latvijas Banka) |
| Abstract: | This study explores the relationship between public and private investment using a sample of 33 industrialized economies of the OECD. The methodology relies on the fact that the relation between stocks of public and private capital can affect private investment also in the short term. We demonstrate that the immediate effect of public investment on private investment is either small or statistically insignificant, whereas in the medium to long term, extra public investment crowds in private investment as the latter adjusts in order to bring the stock of private capital closer to its long-term cointegrating relationship with public capital. The estimated median public investment multiplier over a horizon of seven years is around 2, which means that each additional dollar of public investment attracts approximately two dollars of private investment. Additionally, we examine whether the crowding-in effect depends on a country’s institutional quality and the area of public spending. We show that it gets stronger with improvements in the quality of institutions related to the rule of law, government effectiveness and control of corruption. Public investment in economic affairs, education and health infrastructure is the most effective in attracting private investment. |
| Keywords: | public investment, private investment, crowding in, crowding out, public investment multiplier, local projections, forecast errors, governance quality indicators |
| JEL: | C23 E22 E62 H54 |
| Date: | 2022–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:202204&r=fdg |
| By: | S. Borağan Aruoba; Ronel Elul; Ṣebnem Kalemli-Özcan |
| Abstract: | We quantify the role of heterogeneity in households' financial constraints in explaining the large decline in consumption between 2006 and 2009. Using household-level data, we show that in addition to a direct effect of changes in house prices, there are sizable indirect effects from general equilibrium feedback and bank health. About 60% of the aggregate response of consumption to changes in house prices is explained by ex-ante and ex-post financial constraints, where only a specific set of households face binding ex-post financial constraints as a result of declining house prices. We find a negligible wealth effect once we account for the role of heterogonous financial constraints. |
| JEL: | E0 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30591&r=fdg |
| By: | Kim Nguyen (Reserve Bank of Australia) |
| Abstract: | I examine whether and how local income inequality affects household debt and its composition using household panel data for Australia from the Household, Income and Labour Dynamics in Australia Survey. I find that middle-income households without liquidity and credit constraints tend to borrow more for non-residential investment purposes as local income inequality rises, suggesting that they are trying to close the income gap. They also appear to try to close the consumption gap by accumulating more car debt with a rise in local income inequality. Both findings are consistent with households 'keeping up with the Joneses', but unlikely to have implications for macrofinancial stability given that households taking on debt appear well resourced. |
| Keywords: | income; inequality; household debt; financial stability |
| JEL: | D1 D3 G5 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2022-06&r=fdg |
| By: | Sebastián Fleitas; Matthew S. Jaremski; Steven Sprick Schuster |
| Abstract: | Building and Loan Associations (B&Ls) financed over half of new houses constructed in the U.S. during the 1920s but they lost their predominance within the following decades as they were pushed to convert into Savings and Loans (S&Ls). This study examines whether the U.S. government-insured Postal Savings System attracted funds away from B&Ls precisely when they needed them the most in the Great Depression. Annual town- and county-level data from 1920 through 1935 for 3 states show that the sudden rise in local postal savings was associated with local downturns in B&Ls. Using a panel vector autoregression, we find that postal savings significantly reduced the amount of money in B&Ls, yet B&Ls had no significant effect on postal savings banks. Alternatively, postal savings had no significant effect on commercial banks. The results suggest that this competitive dynamic prevented B&Ls from rebounding in the mid-1930s and helped contribute to Great Depression’s local real estate lending decline. |
| JEL: | G21 H42 N22 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30609&r=fdg |
| By: | Matthew S. Jaremski |
| Abstract: | The massive rise in U.S. stockholding during the early twentieth century resulted in the deepening of securities markets, the spread of investment banks, and the expansion of publicly held corporations. This paper makes use of a unique panel database of South Dakota bank stockholders from 1910-1934 to study bank stockholder growth as well as its effect on bank composition and risk. Overall, the average number of stockholders in a bank rose from 8 to 21 over the period with much of the rise occurring after 1924, but many banks remained highly concentrated. The new stockholders are associated with a subsequent increase in a bank’s proportion of loans-to-assets, but no direct effect on bank closure outside of this balance sheet effect. The data thus illustrate the start of a movement towards more diffuse bank stockholding and its potential consequences for the industry. |
| JEL: | G21 G3 N22 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30641&r=fdg |
| By: | Barbara Annicchiarico (CEIS & DEF, University of Rome "Tor Vergata"); Marco Carli (DEF, University of Rome "Tor Vergata"); Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change) |
| Abstract: | We study the performance of alternative climate policies in a dynamic stochastic general equilibrium model that includes an environmental externality and agency problems associated with financial intermediation. Heterogeneous polluting producers finance their capital acquisition by combining their resources with loans from banks, are subject to environmental regulation, are hit by idiosyncratic shocks, and can default. The welfare analysis suggests that a cap-and-trade system will entail substantially lower costs of the business cycle than a carbon tax if financial frictions are stringent, firm leverage is high, and agents are sufficiently risk-averse. Simple macroprudential policy rules can go a long way in reining in business cycle fluctuations, aligning the performance of price and quantity pollution policies, and reducing the uncertainty inherent to the chosen climate policy tool. |
| Keywords: | Business Cycle; Cap-and-Trade; Carbon Tax; E-DSGE |
| JEL: | Q58 E32 E44 |
| Date: | 2022–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:543&r=fdg |
| By: | Yannic Rehm (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Lucas Chancel (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab) |
| Abstract: | This paper estimates the distribution of annual wealth-related greenhouse gas (GHG) emissions in France and Germany, using a novel method to combine newly released air emission accounts, national accounts, and survey data on wealth. In our proposed framework, wealth holders are responsible for the emissions that occur in production processes they implicitly control. Our findings suggest that wealth-related emissions are at least as much concentrated at the very top than wealth itself, possibly even more. In addition, wealth-related emissions appear to be more even more concentrated in Germany than in France. Large emissions inequalities persist even when individuals are attributed a combination of direct and indirect GHG emissions. Wealth-related emissions of the average top 10% wealth holder exceed total emissions (including direct and indirect emissions from consumption) of the average individual in the bottom 50% in France and Germany. All emissions considered, the life of the average top 10% wealth holder appears to be 3-5 times more carbon-intensive than the average individual in the bottom 50%. Finally, we discuss the paper's findings implications for a per-ton tax on the carbon content of wealth. |
| Keywords: | Capital,Carbon tax,Emissions,Inequality,National accounts,Survey,Taxation,Wealth |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03828939&r=fdg |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Barbara D. Mensah (University of Professional Studies, Accra, Ghana) |
| Abstract: | The study complements extant literature by assessing linkages between financial development, external flows and CO2 emissions in 27 sub-Saharan African countries for the period 2002 to 2018. The empirical evidence is based on interactive quantile regressions and external flows consist of remittances, foreign aid, trade openness and foreign investment. The findings establish minimum thresholds of external flows that are needed for the corresponding external flows to interact with financial development in view of promoting environmental sustainability by means of reducing CO2 emissions. |
| Keywords: | foreign aid, remittances, foreign direct investment, official development assistance, trade, CO2 emissions, quantile regressions |
| JEL: | C52 O38 O40 O55 P37 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/082&r=fdg |