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on Financial Development and Growth |
| By: | Aubhik Khan; Soyoung Lee |
| Abstract: | We study an economy with a time-varying distribution of production to examine the role of debt in amplifying and propagating recessions. In our model, entrepreneurs use risky, long-term debt to finance capital. Liquid assets serve as collateral and transaction costs make debt illiquid. Debt payments increase the volatility of earnings relative to output, deterring entrepreneurs with insufficient collateral from financing efficient levels of capital. This results in a misallocation of resources. In a large recession, productive entrepreneurs with high levels of debt deleverage, amplifying the downturn. The model economy exhibits asymmetries over the business cycle. Recessions involve a rapid deterioration of economic activity, while expansions are more gradual. When a recession coincides with a rise in leverage resulting from a fall in assets, fewer producers operate at efficient levels. When the aggregate business leverage is ten percentage points above average, the half-life of the recovery doubles. |
| Keywords: | Business fluctuations and cycles; Firm dynamics, Productivity |
| JEL: | E23 E32 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-17&r=fdg |
| By: | Martin G\"achter; Elias Hasler; Florian Huber |
| Abstract: | We extend the existing growth-at-risk (GaR) literature by examining a long time period of 130 years in a time-varying parameter regression model. We identify several important insights for policymakers. First, both the level as well as the determinants of GaR vary significantly over time. Second, the stability of upside risks to GDP growth reported in earlier research is specific to the period known as the Great Moderation, with the distribution of risks being more balanced before the 1970s. Third, the distribution of GDP growth has significantly narrowed since the end of the Bretton Woods system. Fourth, financial stress is always linked to higher downside risks, but it does not affect upside risks. Finally, other risk indicators, such as credit growth and house prices, not only drive downside risks, but also contribute to increased upside risks during boom periods. In this context, the paper also adds to the financial cycle literature by completing the picture of drivers (and risks) for both booms and recessions over time. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.08920&r=fdg |
| By: | Musakwa, Mercy T; Odhiambo, Nicholas M |
| Abstract: | The study examined the causal flow between economic growth, poverty, and remittances in Tanzania, using annual data from 1990 to 2020. Tanzania is working to achieve the policy targets set in its Vision 2025, and the findings of this study will add value to policy effectiveness and timing. The study uses household consumption expenditure per capita (HCE) as a measure of poverty, the rate of change in GDP as a measure of economic growth, and remittance inflows as a percentage of GDP as a measure of remittances. Using the autoregressive distributed lag (ARDL) approach to cointegration and ECM-based Granger causality, the study found a bidirectional causality between remittances and poverty in the short run and a unidirectional causal flow from remittances to poverty in the long run. No causality was found between remittances and economic growth and between economic growth and household consumption expenditure per capita. The findings of this study point to the importance of remittances in poverty reduction and sustainable development in Tanzania. Policy implications are also discussed. |
| Keywords: | autoregressive distributed lag (ARDL); economic growth; poverty; remittances; Tanzania |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29825&r=fdg |
| By: | Musakwa, Mercy T; Odhiambo, Nicholas M |
| Abstract: | This study investigates the causal relationship between remittances (remittance inflows) and poverty in Botswana. Time series data is utilised from 1980-2017. To improve the robustness of the results, two poverty proxies are used, namely: household consumption expenditure and infant mortality rate. The study employs autoregressive distributed lag approach (ARDL) to cointegration and the error correction model (ECM)-based causality test, the findings of the study reveal a short-run and long-run bidirectional causal relationship between poverty and remittances when household consumption expenditure is used as a proxy for poverty. However, when poverty is measured by infant mortality rate, a unidirectional causal relationship from poverty to remittances is confirmed both in the long run and the short run. Using the same poverty proxy, remittances were found to have an indirect causal effect on poverty through real gross domestic product per capita. The study concludes that remittances play an important role in driving poverty reduction in Botswana, irrespective of whether the level of poverty is measured by household consumption expenditure or by infant mortality rate. |
| Keywords: | Remittances; poverty; household consumption expenditure; infant mortality rate; Botswana; ECM-based causality testing |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29824&r=fdg |
| By: | Tefera, Mamo G; Odhiambo, Nicholas M |
| Abstract: | This paper aims to shed some insights on the ongoing debate on the aid-growth nexus by examining whether sources of aid matters for explaining aid effectiveness. In doing so, we consider three main proxies for bilateral aid based on the three sources of aid such as total aid (TA); Traditional Donors aid (TDA) and Non-Traditional Donors aid (NTDA) as independent variables in a dynamic panel growth model within a system GMM framework. It uses a panel dataset from 25 Low-Income Countries (LICs) in Africa over the period 2000-2017. The main findings show that the impact of aid on growth appears to be negative and significant for TA and TDA proxies while it is positive but insignificant when the aid proxy is NTDA. A relatively larger share of TA and TDA disbursement away from the direct growth-enhancing productive sectors towards the unproductive sectors seem to have contributed to their strong negative impact on growth. The key policy implication is that governments in LICs in Africa and donors should work in collaboration to design effective ways for ensuring that TDA should target the direct growth-enhancing sectors. |
| Keywords: | Foreign aid; growth; LICs; system GMM; aid sources; Africa |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29830&r=fdg |
| By: | Batchimeg Dashtseren (AFD - Agence française de développement) |
| Date: | 2021–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03897553&r=fdg |
| By: | Marouane Daoui |
| Abstract: | This article conducts a literature review on the topic of monetary policy in developing countries and focuses on the effectiveness of monetary policy in promoting economic growth and the relationship between monetary policy and economic growth. The literature review finds that the activities of central banks in developing countries are often overlooked by economic models, but recent studies have shown that there are many factors that can affect the effectiveness of monetary policy in these countries. These factors include the profitability of central banks and monetary unions, the independence of central banks in their operations, and lags, rigidities, and disequilibrium analysis. The literature review also finds that studies on the topic have produced mixed results, with some studies finding that monetary policy has a limited or non-existent impact on economic growth and others finding that it plays a crucial role. The article aims to provide a comprehensive understanding of the current state of research in this field and to identify areas for future study. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.03162&r=fdg |
| By: | Bordin Bordeerath |
| Abstract: | Measuring inequality by comparing growth of billionaires’ wealth with that of equity markets, I find that inequality grows more rapidly by 23.6 ppt during the COVID crisis and even more in low-income countries where heir billionaires’ wealth surges faster than founder billionaires’ wealth by 18.0 ppt. However, such increase in inequality from heir billionaires can be reduced by strong financial institutions. Overall, this paper provides causal evidence that crises increase inequality and that they give rise particularly to inequality arising from heir billionaires in countries with weak financial institutions. If the rise of heir billionaires implies the increasing value of political connections, this evidence raises the plausibility that crises put low-income countries deeper in the middle-income trap. |
| Keywords: | Billionaire, Inequality; Middle-Income Trap; COVID Crisis |
| JEL: | G20 G30 O10 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:201&r=fdg |
| By: | Simona Malovana; Jan Janku; Martin Hodula |
| Abstract: | We estimate the impact of macroprudential policy on income inequality for a panel of 105 countries over the 1990-2019 period. We document that macroprudential tightening can have both upward and downward effects on income distribution, with the direction of the effect depending on the type of instrument used and a broader set of macro-financial conditions. We identify and empirically verify two channels - the crisis mitigation and prevention channel and the credit redistribution channel. Through the first one, tighter regulation ahead of the crisis reduces income inequality and mitigates the redistributive effects of financial crises, reflecting the increased resilience of the financial sector. Through the second one, it contributes to greater inequality due to its negative effect on credit and house price growth. This has an important policy implication: the timely implementation of macroprudential regulation has preventive effects and can contribute to a more equal distribution of society's income. |
| Keywords: | Credit redistribution, crisis prevention, income inequality, local projections, macroprudential policy |
| JEL: | G01 G28 O15 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2023/3&r=fdg |
| By: | Federico Esposito; Fadi Hassan |
| Abstract: | We analyze the role of trade credit and financial frictions in the propagation of international trade shocks along the supply chain. First, we show empirically that exposure to import competition from China increased the use of trade credit in the U.S. Then, we use a multi-country input-output trade model with borrowing constraints, trade credit, and endogenous employment to quantify the general equilibrium effects of such increase, characterizing the different channels at work. Borrowing constraints amplify the negative consequences of the China shock on employment, but introducing trade credit reduces these losses by 8%-27%, depending on the tightness of the constraints. |
| Keywords: | trade credit, trade shocks, financial frictions, borrowing constraints, employment |
| Date: | 2023–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1901&r=fdg |
| By: | Ms. Margaux MacDonald; Antonis Kotidis; Dimitris Malliaropulos |
| Abstract: | Banks guarantee international trade through letters of credit. This paper analyzes what happens to trade when the critical role of banks as trade guarantors is compromised. Using the case of the Greek capital controls in 2015, the events around which led to a massive loss of confidence in the domestic banking system, we show that firms whose operations were more dependent on domestic banks suffered a steep decline in imports and, subsequently, exports. This operated through letters of credit, which during the capital controls period had to be backed by firms’ own cash collateral rather than the bank guarantee. As a result, cash-poor firms imported relatively less. Public intervention to guarantee transactions is shown to help mitigate some of the decline in imports. |
| Keywords: | Bank guarantee; letters of credit; imports; exports; capital control; trade guarantor; cash-poor firm; outflow control; log letters of credit; bank intermediation channel; Capital controls; Credit; Commercial banks; Capital outflows; Asia and Pacific |
| Date: | 2023–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/038&r=fdg |
| By: | Accominotti, Olivier; Lucena-Piquero, Delio; Ugolini, Stefano |
| Abstract: | This article presents a detailed analysis of how liquid money market instruments—sterling bills of exchange—were produced during the first globalization. We rely on a unique dataset that reports systematic information on all 23, 493 bills re‐discounted by the Bank of England in the year 1906. Using descriptive statistics and network analysis, we reconstruct the complete network of linkages between agents involved in the origination and distribution of these bills. Our analysis reveals the truly global nature of the London bill market before the First World War and underscores the crucial role played by London intermediaries (acceptors and discounters) in overcoming information asymmetries between borrowers and lenders on this market. The complex industrial organization of the London money market ensured that risky private debts could be transformed into extremely liquid and safe monetary instruments traded throughout the global financial system. |
| Keywords: | money market; industrial organisation; information asymmetry; bill of exchange |
| JEL: | E42 G23 L14 N20 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107104&r=fdg |
| By: | Iman Cheratian (Tarbiat Modares University); Saleh Goltabar (Tarbiat Modares University); Hassan Gholipour Fereidouni (Western Sydney University); Mohammad Reza Farzanegan (Marburg University) |
| Abstract: | This study examines the relationship between access to finance and growth in sales for Micro, Small, and Medium Enterprises (MSMEs) in Iran. Using data from 486 firms in five provinces, our findings indicate that external financing positively impacts sales growth for MSMEs. The results suggest that financing for research and development expenditures, production diversification, new employment and advertising can significantly contribute to increased sales growth. We also find that spending on intellectual property, labor training and land and building acquisition have a negative moderating effect on the relationship between finance and sales growth. |
| Keywords: | Finance-sale growth nexus; Micro, Small, and Medium Enterprises (MSMEs); Iranian economy; External financing |
| JEL: | G21 G32 G38 O16 O53 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202308&r=fdg |
| By: | Musakwa, Mercy T; Odhiambo, Nicholas M |
| Abstract: | In this study, we examine the causal relationship between tourism and financial development in South Africa using data from 1995 to 2017. The study attempts to establish if financial development Granger-cause tourism in South Africa? Autoregressive distributed lag (ARDL) bounds testing approach and ECM-based Granger causality test were used to examine the link. When broad money was used as a proxy for financial development, a unidirectional causality from tourism to financial development was found in the short and the long run. However, when domestic credit provided by financial sector and market capitalisation of domestic listed companies were used as proxies, a bidirectional causal effect was confirmed in the short run and a unidirectional causal relationship from financial development to tourism in the long run. The results confirm the reinforcing effect between tourism and financial development in the short run with financial development taking the centre stage in the long run. |
| Keywords: | Financial development; tourism; South Africa; real effective exchange rate; ECM-based causality testing |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29826&r=fdg |
| By: | Adrián Martínez-Osorio; Enrique Montes-Uribe; Iader Giraldo-Salazar; Juan Camilo Santos-Peña |
| Abstract: | La inversión extranjera directa (IED) ha sido la mayor fuente de financiamiento externo de las empresas en Colombia. El objetivo de este trabajo es realizar una caracterización de la IED en los sectores diferentes a minas y petróleo, así como de las empresas receptoras de este tipo de inversión en Colombia para el periodo comprendido entre los años 2000 y 2020, cuandoel 59% del flujo acumulado de IED arribó a estos sectores. Los resultados muestran que la frecuencia con la que estas firmas reciben recursos a través IED se encuentra entre 1 y 3 años. Su participación en el comercio exterior está más vinculada a las importaciones que a las exportaciones, con lo que se podría inferir que el objetivo de estas inversiones es más proveer bienes y servicios al mercado local que escalar la producción para cooptar mercados regionales o globales. Un gran porcentaje del valor de la IED en estos sectores es canalizado fundamentalmente por empresas grandes. Así mismo, son las empresas más grandes las que determinan los resultados financieros de cada subsector, lo que revela una la alta concentración de la producción en estas actividades específicas. **** ABSTRACT: Foreign direct investment (FDI) has been Colombia's largest external financing source for companies. This paper aims to characterize FDI in sectors other than mining and oil and the companies receiving this type of investment in Colombia between 2000 and 2020, when 59% of the accumulated flow of FDI arrived in these sectors. The results show that the frequency with which these firms receive resources through FDI is between 1 and 3 yea rs. Their participation in foreign trade is more linked to imports than exports. The last could be inferred that the objective of these investments is more to supply goods and services to the local market than to scale production to co-opt regional or global markets. A large percentage of the value of FDI in these sectors is channeled primarily by large companies. Likewise, the largest firms determine each subsector's financial performance, revealing a high concentration of production in these specific activities. |
| Keywords: | Inversión extranjera directa en Colombia, balanza de pagos, cuenta corriente, cuenta financiera, economía internacional, Foreign direct investment in Colombia, Balance of Payments, current account, financial account, international economics |
| JEL: | F21 F23 F41 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1227&r=fdg |
| By: | Chen, Chien-Hsun |
| Abstract: | In China, mergers and acquisitions (M&As) have had a long-run impact on companies’ operational and financial rearrangements in the process of the country’s economic restructuring and rebalancing. The vibrancy of China’s M&A market is reflected in the gradual maturity of Chinese companies and the massive commercial opportunities that arose following the phenomenal growth of China’s economy. The initial motives behind Chinese domestic M&As were to save poorly governed state-owned enterprises in what may be termed the “rescue mission”. Most M&As involve state-owned enterprises that play a dominant role in China’s capital markets. The success of Japanese keiretsu and South Korean chaebols has prompted China to develop business groups in its economy to enhance the competitive advantage of Chinese companies through economies of scale and improved company performance. Foreign inbound M&As can monopolize positions in certain industries and destroy a fair competitive environment. This in turn has seriously threatened the existence and growth of Chinese companies. |
| Keywords: | China; mergers and acquisitions; business strategies; state-owned enterprises |
| JEL: | M10 M31 M38 |
| Date: | 2023–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116615&r=fdg |
| By: | Braiton, Nombulelo; Odhiambo, Nicholas M |
| Abstract: | Purpose ? The purpose of the paper is to examine macroeconomic and institutional factors that influence capital flows to low-income sub-Saharan African (SSAn) countries. It analyzes capital flows in a disaggregated manner: foreign divert investment, portfolio equity and portfolio debt. There is a gap in the empirical literature in examining the factors that are important for various types of capital flows to low-income SSAn countries. Low-income SSAn countries attract very low levels of foreign investment compared to other developing economies in the SSAn region and other developing economies and this paper attempts to make a contribution in this area.Design/methodology/approach ? This paper examines data on capital flows and that of various push and pull factors. Trends and dynamics of capital inflows and their macroeconomic and institutional drivers are analyzed for low-income sub-Saharan African countries. Such an analysis has not been fully explored for low-income SSAn countries.Findings ? Capital inflows to low-income sub-Saharan Africa (SSA) have increased sevenfold since the 1990s, dominated by foreign direct investment (FDI). They overtook official development assistance and aid in the 2010s. Mozambique and Ethiopia attract the largest size of FDI compared to other low-income SSAn economies, with natural resources as key factors in the former. The largest share of FDI to low-income SSAn countries comes from other SSAn countries, mostly South Africa and Mauritius. Among macroeconomic push factors, capital inflows are more closely related to commodity prices, while the volatility index and global liquidity are also important. Among macroeconomic pull factors, trade openness and economic growth appear more closely related to capital inflows. The surge in capital inflows in the 2000s also followed the implementation of several regional trade and investment agreements in the region. The improvement in internal conflict in the 1990s and mid-2000s seems to have helped support the increase in capital inflows during that period. This institutional quality variable appears to more closely track capital inflows compared to other institutional quality indicators.There were also improvements in the investment profile, law and order, and government stability in the 1990s to early 2000s when capital inflows picked up.Research limitations/implications ? This study focuses on low-income SSAn countries, which are less studied in the empirical literature and that face immense developmental needs that require foreign and domestic capital.Practical implications ? Findings of this paper can shed light to policy makers on the factors that are most important to help the region attract capital inflows and areas where further improvement is needed in the macroeconomic and institutional environment.Originality/value ? There is a gap in the empirical literature in examining the factors that are important for attracting capital flows to low-income SSAn countries. To our knowledge, this study may be the first to explore dynamics of capital flows against institutional quality for low-income SSAn countries at a disaggregated level. |
| Keywords: | Capital inflows, Foreign direct investment, Portfolio equity, Portfolio debt, Low-income sub-Saharan Africa |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29831&r=fdg |
| By: | Jad Bazih (ESC [Rennes] - ESC Rennes School of Business); Dieter Vanwalleghem (ESC [Rennes] - ESC Rennes School of Business) |
| Abstract: | This paper examines the determinants of the emerging market banks' derivative usage and the impact of derivative usage on bank value, total risk and bank stability. Our empirical evidence first suggests that derivative usage is driven primarily by net interest margin, bank concentration and institutional strength. In addition, although derivative usage appears to reduce emerging market bank value, it does not affect total risk. Moreover, emerging market banks can reduce bank instability using derivatives. Our findings have important implications for investors and policy makers focusing on emerging derivatives markets. |
| Keywords: | Banks, Derivatives, Emerging markets |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03329217&r=fdg |
| By: | Thamae, Retselisitsoe I; Odhiambo, Nicholas M |
| Abstract: | This paper reviews the theoretical and empirical literature on the impact of bank regulation on bank lending. It also structures the empirical evidence according to the impact of various bank regulatory measures on bank lending. The surveyed theoretical literature generally indicates that the impact of bank regulation on lending could be asymmetric, depending on the trade-off between the costs and benefits of bank regulation. The evidence from the empirical studies also shows that the impact of bank regulatory measures on lending is ambiguous. Although many studies found the impact to be negative, some established that it was positive while others found it to be insignificant or inconclusive. However, most empirical studies only assumed first-round effects using static and/or dynamic models, whereas the ones incorporating second-round effects using general equilibrium models were limited. Therefore, this systematic review of the literature indicates that policy recommendations regarding the appropriateness and efficacy of bank regulatory measures in influencing bank lending cannot be implemented uniformly across different regions or countries. |
| Keywords: | Bank regulation, bank lending, bank regulatory measures, bank credit |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29837&r=fdg |
| By: | Thamae, Retselisitsoe I; Odhiambo, Nicholas M |
| Abstract: | This paper discusses the dynamics of bank regulation in the Sub-Saharan African (SSA) region during the period before the 1990s and post 1990s and describes the trends in bank regulatory measures between 1995 and 2017 using the updated databases of the World Bank?s Bank Regulation and Supervision Surveys. Before the 1990s, bank regulation in the majority of SSA countries was inadequate and that led to multiple occurrences of banking crises. As a result, many countries introduced the financial sector reforms from the late 1980s that included major adjustments in the banking regulatory and supervisory frameworks. In both low-income and middle-income SSA economies, bank regulatory environment became more stringent over time, driven by increased restrictions on bank entry barriers and ownership structure, as well as the introduction of macroprudential policies in the case of the former, while in the case of the latter, it was influenced by more restrictions on bank ownership structure and capital regulation requirements, as well as the adoption of macroprudential policies. Overall, the bank regulatory environment was slightly more stringent in middle-income than in low-income SSA countries over the period under review. |
| Keywords: | Bank regulation; dynamics; trends; Sub-Saharan Africa |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29836&r=fdg |
| By: | Thamae, Retselisitsoe I; Odhiambo, Nicholas M |
| Abstract: | This study investigates the impact of bank regulation and supervision on bank credit in 23 sub-Saharan African (SSA) countries and their low- and middle-income groups from 1995 to 2017. The long-run results indicated that stringent entry barriers and supervisory power reduced bank lending, but supervisory power mitigated the negative effect of entry barriers. Furthermore, positive shocks to entry barriers impacted negatively on bank credit, while negative shocks to capital requirements had an adverse impact on lending. In the short run, positive shocks to entry barriers, activity restrictions and capital regulations led to increases in bank credit, particularly in low-income SSA economies. |
| Keywords: | bank regulation; bank lending; common correlated effects; linear and nonlinear panel ARDL; sub-Saharan Africa |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29839&r=fdg |
| By: | Thamae, Retselisitsoe I; Odhiambo, Nicholas M |
| Abstract: | This paper investigates the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997-2017. It employs the dynamic panel threshold regression (PTR) model, which addresses endogeneity and heterogeneity problems within a nonlinear framework. It also uses indices of entry barriers, mixing of banking and commerce restrictions, activity restrictions, and capital regulatory requirements from the updated databases of the World Bank?s Bank Regulation and Supervision Surveys as measures of bank regulation. The linearity test results support the existence of nonlinear effects in the relationship between bank lending and entry barriers or capital regulations in the selected SSA economies. The dynamic PTR estimation results reveal that bank lending responds positively when the stringency of entry barriers is below the threshold of 62.8%. However, once the stringency of entry barriers exceeds that threshold level, bank credit reacts negatively and significantly. By contrast, changes in capital regulation stringency do not affect bank lending, either below or above the obtained threshold value of 76.5%. These results can help policymakers design bank regulatory measures that will promote the resilience and safety of the banking system but at the same time not bring unintended effects to bank lending. |
| Keywords: | Bank regulation; bank lending; nonlinear effects; dynamic panel threshold regression; sub-Saharan Africa |
| Date: | 2022–12 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:29840&r=fdg |
| By: | Freddy Heylen; Marthe Mareels; Christophe Van Langenhove (-) |
| Abstract: | The difference between the implicit nominal interest rate and the growth rate of nominal GDP is a key determinant of the dynamics and the sustainability of public debt. This paper studies the determinants of r - g in a panel of 17 OECD countries since the early 1980s. Whereas the focus of existing empirical studies is mainly on fiscal, monetary and financial drivers of the interest–growth difference, our approach and contribution are to highlight in particular the impact of real long-run drivers, such as technical progress, employment growth, demographic change, and income inequality. This allows us to derive empirically based projections for r - g beyond the next five or ten years. Our projections suggest that the major shocks that hit many economies in 2022-2023 have not fundamentally changed the game. Our baseline expectation is that the structural drivers of the interest rate and growth will keep r - g below zero for the next two decades in most European countries that we study. For the US, however, our baseline projection of r - g is positive. |
| Keywords: | public debt, r - g, fiscal sustainability, demographic change, inequality |
| JEL: | E43 E62 H63 H68 J11 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:23/1065&r=fdg |
| By: | Samuel Federico Kaplan; Arin Kerim Peren Kaplan; Polyzos Efstathios Kaplan; Spagnolo Nicola Kaplan |
| Abstract: | Using a universal firm-level data set for the U.S., we investigate the stock price responses to unanticipated and unconventional monetary policy shocks. Our results show that indebtedness/ leverage is more important than size or age in explaining the cross-firm variation in responses to monetary policy. We also show that the magnitude of the indebtedness is important while the debt structure is not, and our results are driven by the third quartile of firms in terms of their leverage. Finally, our results are robust to the use of different measures of monetary policy shocks. |
| JEL: | E5 G1 C4 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4571&r=fdg |
| By: | Julián Caballero; Christian Upper |
| Abstract: | This paper explores why some episodes of US yield increases result in investor retrenchment from emerging markets and others do not. To answer this, we identify episodes of sharp increases in US 10-year Treasury yields and explore under which conditions these are associated with negative outcomes in emerging markets. We focus on four outcome variables: local currency yields, exchange rates, equity prices, and portfolio fund flows. We find that increases in US yields are more likely to be associated with adverse outcomes in emerging markets when they reflect (i) a rise in the US term premium, (ii) coincide with dollar appreciation, and (iii) rising inflation expectations in the US and in EMEs. The effects of these variables are highly non-linear and economically significant as well as robust to a variety of sensitivity checks. |
| Keywords: | monetary policy, international spillovers, term premium, US dollar |
| JEL: | F30 F36 F42 F65 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1081&r=fdg |
| By: | Emiliano Giupponi |
| Abstract: | El objetivo de este trabajo es analizar los motivos de la demanda de bitcoin. Para ello, se construye un modelo de generaciones superpuestas que incluye actores influyentes y seguidores. La conjetura es que la demanda de bitcoin está asociada a un parámetro de influencia que responde al comportamiento de estos actores. Para la evaluación empírica, se construyen conjuntos de datos que estiman el comportamiento de los influyentes y los seguidores. Los resultados confirman la conjetura propuesta. |
| JEL: | E40 E42 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4567&r=fdg |
| By: | Chabakauri, Georgy; Rytchkov, Oleg |
| Abstract: | We theoretically analyze how index investing affects financial markets using a dynamic exchange economy with heterogeneous investors and two Lucas trees. We identify two ef- fects of indexing: lockstep trading of stocks increases market volatility and stock return correlations but reduction in risk sharing decreases them. Overall, indexing decreases market volatility but has an ambiguous effect on the correlations. Also, index invest- ing decreases an investor’s welfare, but indexing by other investors partially offsets the loss. When the introduction of index trading opens financial markets for new investors, the improved risk sharing makes market returns more volatile and stock returns more correlated. |
| Keywords: | indexing; risk sharing; Lucas trees; general equilibrium; heterogeneous investors; Paul Woolley Centre |
| JEL: | G12 D52 D53 |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105749&r=fdg |
| By: | Magin, Jana Anjali; Neyer, Ulrike; Stempel, Daniel |
| Abstract: | Many central banks discuss the introduction of a Central Bank Digital Currency (CBDC). Empirical evidence suggests that households may differ in their willingness to hold CBDC. Against this background, this paper investigates the macroeconomic effects of different CBDC regimes in a New Keynesian model with a heterogeneous household sector. We consider that a CBDC may facilitate transactions. In particular, households will face additional transaction costs if they do not hold their optimal mix of conventional forms of money and CBDC. We analyze the impact of four different CBDC regimes: (i) no CBDC, (ii) each household may hold an unlimited amount of CBDC, (iii) the central bank sets a maximum amount of CBDC each household is allowed to hold, (iv) the central bank uses the CBDC as a monetary policy instrument by adjusting the maximum amount of CBDC each household is allowed to hold. Generally, we find that the introduction of a CBDC increases economy-wide utility as it allows higher consumption. Moreover, the shock absorption capability increases in an economy with CBDC. This particularly applies to the case when the central bank uses the CBDC as a monetary policy instrument. By adjusting the maximum amount of CBDC, the central bank can stabilize prices more effectively after adverse shocks. However, this stabilization implies distributional effects between households. |
| Keywords: | Central bank digital currency, monetary policy, household heterogeneity, central banks, New Keynesian model |
| JEL: | E52 E42 E58 E41 E51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:396&r=fdg |