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on Financial Development and Growth |
| By: | Ana Aguilar; Jon Frost; Rafael Guerra; Steven Kamin; Alexandre Tombini |
| Abstract: | We examine the relationship between digital payment innovation, economic growth and informal activities in 101 economies over 2014–19. Following the economic growth literature, panel regressions relate growth rates of GDP per capita, total factor productivity (TFP) and the share of informal sector employment to lagged levels of these variables, the extent of digital payments use and various controls for endogeneity. We find that a one-percentage point increase in digital payments use is associated with increases in the growth of GDP per capita of 0.10 percentage points over a two-year period, and a decline in the share of informal sector employment of 0.06 percentage points over a two-year period. Insofar as the reported share of the population making digital payments ranges nearly from 0 to 100 percent, this is substantial. Digital payments do not appear to be significantly associated with rises in TFP, once controlling for general measures of digitalisation and government effectiveness, but they are linked to greater financial inclusion and credit access. Our results reinforce the case for government policies to encourage digital payments and, as complementary factors, access to the financial sector and information technology. |
| Keywords: | digital innovation, informal economy, productivity, economic growth |
| JEL: | G21 G23 O32 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1196 |
| By: | Enes Sunel; Robert Grundke |
| Abstract: | Weak investment has weighed on the convergence process of Latvia towards higher living standards. Limited access to finance coupled with high informality, costly insolvency procedures, skilled labour shortages and weak competition have hampered business dynamism and innovation, weighing on productivity growth. To reduce high credit costs, it is key to foster competition in financial markets by reducing information asymmetries and switching costs for bank customers and strengthening competition enforcement. As capital markets are shallow compared to other euro area countries, listing of large state-owned enterprises and facilitating greater exposure of pension funds to domestic securities could help attract investors and raise access to finance. Improving contract enforcement and fostering the reallocation of resources to more productive firms will require reducing the cost of filing insolvency, expanding the remit of the Economic Court and continuing to fight corruption. This will also help raise the low level of trust in institutions, which is key to reducing high informality. As training provided by firms is among the lowest across EU countries, better cooperation among firms and with training providers in the design and delivery of training is needed. Further strengthening the resources and investigative powers of the Competition Council would help improve the enforcement of competitive neutrality, reduce the high barriers to entry and competition, and foster business dynamism and innovation. |
| Keywords: | allocative efficiency, bank credit, capital markets, competition, digital adoption, institutional investors, Lerner index, pricing power, reputational risk |
| JEL: | E22 E26 G21 G24 J32 O16 O32 |
| Date: | 2024–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:oec:ecoaaa:1809-en |
| By: | Abrams M.E. Tagem; Desiree Sama-Lang |
| Abstract: | Domestic resource mobilization has rightly been placed at the centre of the 'financing for development' agenda across developing countries. While much is known about the importance of domestic taxes in contributing to this agenda, little is known about the potential importance of domestic savings, for which understanding its determinants is crucial. This paper fills that gap by identifying the robust determinants of domestic savings in Cameroon. |
| Keywords: | domestic resource mobilization, Domestic savings, Institutions, Saving |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-42 |
| By: | Mitsuru Katagiri (Hosei University); Takemasa Oda (Bank of Japan); Yasutaka Ogawa (Bank of Japan); Takeshi Shinohara (Bank of Japan); Nao Sudo (Bank of Japan) |
| Abstract: | It is generally believed that the demographic landscape affects the natural rate of interest and aggregate asset composition, such as money vs. real assets, by influencing household savings-investment behaviors. This article provides an overview of the insights of prior studies regarding the macroeconomic consequences of population aging and describes some of the quantitative implications derived from overlapping generations models. |
| Keywords: | Wage; Demographics; Household asset portfolio; Natural rate of interest; Deflation; Current account |
| JEL: | E21 E31 J11 |
| Date: | 2024–07–26 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojlab:lab24e01 |
| By: | Abdellatif Zriouli (LAREM - Laboratoire de Recherches en Management - ISCAE - Institut Supérieur de Commerce et d'Administration des Entreprises); Salma Echcharqy (ISCAE - Institut Supérieur de Commerce et d’Administration des Entreprises) |
| Abstract: | Microfinance emerges as a special tool for Bottom of the Pyramid (BoP) strategies developed by Prahalad (2005). It has an interesting history in Morocco since 1993 with a non-profit organization granting small loans to rural women (Diani, 2019). The initiative has aroused the interest of public authorities and international institutions, allowing a considerable growth of microfinance (Duval, 2001). Using a systematic review of empirical articles, this paper aims to explore how BoP strategies function as a development tool in Moroccan microfinance. We'll consider financial outcomes as income, saving, expenditure, accumulation of assets, and expanding current activities; as well as non-financial outcomes including health, food security and nutrition, education, child labor, and women's empowerment. We'll examine the regulatory environment, key players, and trends in the sector, assessing the impact of microcredit on low-income populations. We'll also identify challenges and opportunities to enhance financial inclusion and economic development in Morocco. The mixed outcomes of microcredit on poor populations all over the world led us to investigate the case of Morocco, answering the question: Does microcredit combine social development with profitability? We find positive impact for borrowers, although some cases reveal non-significant or even negative outcomes whose causes must be sought elsewhere, such as in the transformative effect (Banerjee et al., 2015) or in loan delinquency (Chong, 2021). |
| Abstract: | La microfinance apparaît comme un outil spécial pour les stratégies du bas de la pyramide (BdP) développées par Prahalad (2005). Elle a une histoire intéressante au Maroc depuis1993 avec une organisation à but non lucratif accordant de petits prêts aux femmes rurales (Diani, 2019). L'initiative a suscité l'intérêt des pouvoirs publics et des institutions internationales, permettant une croissance considérable de la microfinance (Duval, 2001). En utilisant une revue systématique d'articles empiriques, cet article vise à explorer comment les stratégies de la BdP fonctionnent comme un outil de développement dans la microfinance marocaine. Nous examinerons les résultats financiers comme les revenus, l'épargne, les dépenses, l'accumulation d'actifs et l'expansion des activités courantes, ainsi que les résultats non financiers, y compris la santé, la sécurité alimentaire et la nutrition, l'éducation, le travail des enfants et l'autonomisation des femmes. Nous examinerons l'environnement réglementaire, les principaux acteurs et les tendances du secteur. Nous identifierons également les défis et les opportunités pour améliorer l'inclusion financière et le développement économique au Maroc. Les résultats mitigés du microcrédit sur la population pauvre mondiale nous ont conduit à investiguer le cas du Maroc, répondant à la question : Le microcrédit combine-t-il le développement social avec la rentabilité ? Nous constatons un impact positif pour les emprunteurs, bien que certains cas révèlent des résultats non significatifs, voire négatifs, dont les causes sont à rechercher ailleurs, comme dans l'effet transformateur (Banerjee et al., 2015) ou dans la délinquance du prêt (Chong, 2021). |
| Keywords: | Stratégies BdP, microcrédit, impact, Maroc. |
| Date: | 2024–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04629415 |
| By: | Tryfonas Christou (European Commission - JRC); Abian Garcia Rodriguez (European Commission - JRC); Nicholas Lazarou (European Commission - JRC); Simone Salotti (European Commission - JRC); Georg Weiers |
| Abstract: | The European Investment Bank (EIB) is the lending arm of the European Union (EU). It finances investment contributing to EU policy goals. In 2023, the EIB Group signed new financing contracts for close to €88 billion, supporting over €280 billion of total investment in support of EU policy priorities in the EU27 economies. Every year, policy simulations are carried out using the RHOMOLO-EIB Computable General Equilibrium (CGE) model in order to assess the macroeconomic effects of the EIB Group operations. Starting from January 2024, the model has been updated to a new base year (García Rodríguez et al., 2023). This Policy Insight contains the result of the January 2024 simulations quantifying the estimated macroeconomic impact on EU GDP and employment of the EIB Group- supported operations approved in 2023. The EIB Group is contributing significantly to job creation and growth. The EIB-JRC estimates suggest that, by 2027, it will create almost 1.5 million jobs (780, 000 by 2042), with a positive contribution to GDP of +1.03% (+0.74% by 2042) over the baseline. The impact stems from the demand-side effects of the investment, as well as from the associated structural effects on GDP growth. |
| Keywords: | rhomolo, region, growth, eib |
| JEL: | C68 R13 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc138096 |
| By: | Carlos de Resende; Alexandra Solovyeva; Moez Souissi |
| Abstract: | The paper explores the nexus between the financial and business cycles in a semi-structural New Keynesian model with a financial accelerator, an active banking sector, and an endogenous macroprudential policy reaction function. We parametrize the model for Luxembourg through a mix of calibration and Bayesian estimation techniques. The model features dynamic properties that align with theoretical priors and empirical evidence and displays sensible data-matching and forecasting capabilities, especially for credit indicators. We find that the credit gap, which remained positive during COVID-19 amid continued favorable financial conditions and policy support, had been closing by mid-2022. Model-based forecasts using data up to 2022Q2 and conditional on the October 2022 WEO projections for the Euro area suggest that Luxembourg's business and credit cycles would deteriorate until late 2024. Based on these insights about the current and projected positions in the credit cycle, the model can guide policymakers on how to adjust the macroprudential policy stance. Policy simulations suggest that the weights given to measures of credit-to-GDP and asset price gaps in the macroprudential policy rule should be well-calibrated to avoid unwarranted volatility in the policy response. |
| Keywords: | Macroprudential policy; credit cycle; banks; forecasting and simulation; Luxembourg |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/140 |
| By: | Bo Li |
| Abstract: | This paper provides the first causal evidence that credit supply expansion caused the 1999-2010 U.S. business cycle mainly through the channel of household leverage (debt-to-income ratio). Specifically, induced by net export growth, credit expansion in private-label mortgages, rather than government-sponsored enterprise mortgages, causes a much stronger boom and bust cycle in household leverage in the high net-export-growth areas. In addition, such a stronger household leverage cycle creates a stronger boom and bust cycle in the local economy, including housing prices, residential construction investment, and house-related employment. Thus, our results are consistent with the credit-driven household demand channel (Mian and Sufi, 2018). Further, we show multiple pieces of evidence against the corporate channel, which is emphasized by other business cycle theories (hypotheses). |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.01539 |
| By: | Caio Machado (Pontificia Universidad Catolica de Chile) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:red:append:23-96 |
| By: | William Ginn (Labcorp and Coburg University of Applied Sciences); Jamel Saadaoui (University of Paris 8) |
| Abstract: | This study investigates the impact of supply disruptions on financial leverage (debt-equity ratio) in the U.S. economy from 1998:Q1 to 2024:Q1. The study employs a linear and non-linear Local Projections (LP) and Bayesian Vector Autoregression (BVAR) models to explore dynamic relationships. While the LP models reveal that a supply chain shock negatively affects leverage with statistically significant results, there is no evidence of state dependence. The BVAR model suggest that a supply chain shock is disruptive via reduction (an increase) in output (inflation), accompanied by lower leverage. |
| Keywords: | Supply chain, leverage, local projections, economic conditions, Bayesian VAR |
| JEL: | F |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2024.11 |
| By: | Hu, Chenyue |
| Keywords: | Economics, Applied Economics, Home bias in open economy macro models, Portfolio choice in DSGE frameworks, Macro aspects of finance and trade, Applied economics, Econometrics, Economic theory |
| Date: | 2023–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:cdl:ucscec:qt8nh9t5zs |
| By: | Naohisa Hirakata (General Manager, Niigata Branch, Bank of Japan (E-mail: naohisa.hirakata@boj.or.jp)); Mitsuru Katagiri (Associate Professor, Faculty of Business Administration, Hosei University (E-mail: mitsuru.katagiri@hosei.ac.jp)) |
| Abstract: | This paper investigates the role of foreign direct investment (FDI) in accounting for the long-term trend of capital flows under demographic changes. For this purpose, we incorporate horizontal FDI under the proximity-concentration trade-off into a two-country DSGE model and conduct a quantitative analysis using long-term Japanese data for capital flows since the 1960s. The quantitative analysis finds that the transition dynamics solely driven by demographic changes well account for the long-term trend of capital flows and that multinational firms' endogenous decision on FDI in response to population aging is key to explaining the long-term trend. |
| Keywords: | Capital flows, Demographic changes, Foreign direct investment (FDI) |
| JEL: | F12 F23 F32 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:24-e-05 |
| By: | Mr. JaeBin Ahn; Chan Kim; Ms. Nan Li; Andrea Manera |
| Abstract: | This paper examines the impact of Foreign Direct Investment (FDI) on knowledge diffusion by analyzing the effect of firm-level FDI activities on cross-border patent citations. We construct a novel firm-level panel dataset that combines worldwide utility patent and citations data with project-level greenfield FDI and crossborder mergers and acquisitions (M&A) data over the past two decades, covering firms across 60 countries. Applying a new local projection difference-indifferences methodology, our analysis reveals that FDI significantly enhances knowledge flows both from and to the investing firms. Citation flows between investing firms and host countries increase by up to around 10.6% to 13% in five years after the initial investment. These effects are stronger when host countries have higher innovation capacities or are technologically more similar to the investing firm. We also uncover knowledge spillovers beyond targeted firms and industries in host countries, which are particularly more pronounced for sectors closely connected in the technology space. |
| Keywords: | Greenfield FDI; Brownfield FDI; cross-border M&A; Inward FDI; Outward FDI; Knowledge spillover; Patent citation; LP-DiD |
| Date: | 2024–07–12 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/152 |
| By: | Stefan Avdjiev; John Burger; Bryan Hardy |
| Abstract: | It is well-known that dollar credit to emerging market (EM) corporates has expanded dramatically in the past two decades. However, the concurrent expansion of local currency credit, facilitated by more developed domestic financial systems, has been less recognized. This paper first uses data on EM corporates' borrowing through bonds and syndicated loans to show the considerable rise of their local currency debt. It then utilizes comprehensive firm-level data to document that EM corporates' local currency borrowing can offset shocks to their dollar debt, and how this varies across firms and countries. A broad dollar appreciation is associated with a decline in credit to ''local'' firms (smaller, non-exporting, with low profitability) but has no significant impact on ''global'' firms (larger, exporting, highly profitable). Firms in the mid-range (of these dimensions) see lower dollar debt in response to a stronger dollar, but replace it with local currency debt, thus offsetting the shock. |
| Keywords: | emerging markets, local currency debt, foreign currency debt, global factors, dollar debt |
| JEL: | F30 G30 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1199 |
| By: | Hua Chai; Jason Harris; Alexander F. Tieman |
| Abstract: | This paper proposes anchoring medium- to long-term fiscal policy in a Public Sector Net Worth (PSNW) target. Such a target widens the scope of fiscal policy to include public sector assets, in addition to liabilities—the focus of debt-based rules. A PSNW target is directly relevant to ongoing policy debates on green fiscal rules and more generally, the reform of fiscal frameworks (such as the Euro Area’s) to allow for public investment in a high debt environment. Modeling a small open economy with public investment and endogenous growth, we show that, compared to debt-based anchors, a PSNW anchor is more conducive to public investment and economic growth, while providing for sensible policy reactions to changes in long-term interest rates. The net worth anchor also precludes unsustainable debt dynamics. Simulated transition dynamics show that replacing a debt anchor with a net worth anchor does not necessarily lead to higher debt-to-GDP ratios. In addition to the merits of a net worth anchor, the paper also discusses some operational challenges. |
| Keywords: | Fiscal policy; fiscal anchor; public investment; public sector balance sheet; public sector net worth |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/137 |
| By: | António Afonso; José Alves; Sofia Monteiro |
| Abstract: | Recognizing the profound influence of geopolitical risks and world uncertainty on financial investment behaviour, this study uses a comprehensive approach to assess the impact of rising geopolitical risk on sovereign debt holdings for a panel of 24 OECD economies from Q1 2004 to Q4 2023. To do so, we employ Ordinary Least Squares (OLS) fixed effects and Quantile Regression techniques within a panel data framework to capture the nuanced effects on both domestic and foreign entities. We find that escalating geopolitical tension decreases government debt holdings among domestic entities, notably domestic Banks, while foreign investors increase their ownership. This phenomenon is more pronounced for high proportion levels of debt in investor’s portfolios. Our results allow us to conclude that while domestic economic agents display clearer risk aversion, foreign economic agents have a more risk-taking behaviour in what concerns the financial investment on government debt. |
| Keywords: | Sovereign Debt; Geopolitical Risk; World Uncertainty; OLS; Quantile Regression. |
| JEL: | C23 E44 G32 H63 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03332024 |
| By: | Pietro Munari |
| Abstract: | This paper evaluates government bond mispricing through the creation of two indicators. Building on two different government bond fair values, by Favero et al. (2023) and Ceci and Pericoli (2022), mispricing metrics separate the share of sovereign bond yield driven by macroeconomic variables from the one influenced by market sentiment. Misvaluation is measured as the gap between market value and fair value aligned with economic fundamentals. This work examines how fundamental and sentiment indicators influence mispricing and compares these metrics. Additionally, this study elucidates the associations among sentiment factors, mispricings, and real variables by comparing the performances of both measures in describing the effects of bond misvaluation on real GDP growth. Results reveal disparities in the effect of macro variables on the ”idiomatic” and ”fitted” measures. However, during times of increased uncertainty, sentiment variables emerge as the only driver of the theoretical mispricing, meaning that the idiomatic component captures the entire variation driven by fundamentals in the observed yield. Concerning real variables, the idiomatic mispricing positively affects a country’s growth, indicating that periods of favorable rates relative to fundamentals may lead to lower future growth. Therefore, when spread is appropriately priced, it serves as a benchmark for policy decisions. However, in the occurrence of mispricing, policymakers are advised to consider additional indicators. |
| Keywords: | Government bond mispricing, macroeconomic fundamentals, market sentiment, regression analysis, credit risk migration, GDP growth |
| JEL: | E43 E44 G12 H63 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp24228 |
| By: | Qichun He (China Economics and Management Academy, Central University of Finance and Economics); Xin Yang (China Economics and Management Academy, Central University of Finance and Economics); Heng-fu Zou (China Economics and Management Academy, Central University of Finance and Economics) |
| Abstract: | This paper explores the growth and welfare ects of monetary policy in a Schumpeterian vertical innovation model with automation. Money is introduced into the model via the cash-in-advance (CIA) constraints on consumption, production, automation and vertical innovation. We find that the relative strength of the cash constraints on automation and vertical innovations is crucial. If the CIA constraint is stronger (weaker) for automation, a higher nominal interest rate will lead to an increase (a decrease) in the amount of high-skilled labor allocated to vertical innovation. As a result, the automation level will decline (rise), but the vertical innovation and thereby aggregate economic growth will be faster (slower). We calibrate the model to the US economy and find a stronger cash constraint on automation. Our quantitative analysis shows that rising nominal interest rates are detrimental to automation but favorable to growth. In addition, higher nominal interest rates improve the welfare of dierent households and the aggregate welfare. As an empirical test, we find a signifficant, negative effect of the nominal interest rate on automation using cross-country panel data, consistent with our model prediction. |
| Keywords: | Monetary policy; Automation; Cash-in-advance; Schumpeterian model |
| JEL: | O42 E42 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:640 |
| By: | Financial System and Bank Examination Department (Bank of Japan) |
| Abstract: | This paper analyzes the effects of the monetary easing measures over the past 25 years on the financial system from three perspectives: (1) financial cycles, (2) banks' lending in the low interest rate environment, and (3) potential risk factors. (Financial cycles) Banks' lending attitudes have been active except for the periods immediately after the financial crises around 2000 and in the late 2000s. The financial gap, which quantifies changes in the financial cycle, does not show that the large financial imbalances seen around the bubble period have accumulated in the low interest rate environment. A contracting phase in the financial cycle after the bursting of the bubble economy ended by the mid-2000s. The expansion of the financial cycle has been continuing since the 2010s due to the increase in private debt. That said, the effects of increasing real investment and rising asset prices have been limited so far. (Banks' lending under the low interest rate environment) Looking at financial intermediation activities, corporate loans decreased in the first half of the 2000s, mainly due to balance sheet adjustments by banks and firms and the disposal of non-performing loans. Thereafter, the balance between corporate credit and the level of economic activity has been more or less stable. That said, the amount outstanding of real estate-related loans, which are highly sensitive to interest rates, has remained at its historical peak range. With regard to the increase in loans, there were cases where the borrowers' resilience to a decline in income or a rise in loan interest rates was relatively low. The counterfactual simulation on the financial system suggests that, in addition to lower interest rates and faster economic improvement, the effect of improving collateral value stemming from stable land prices has contributed to the increase in lending over the past 10 years. Competition among banks in the lending market has intensified as they faced a structural decline in loan demand and tried to increase loan volume to cover the decline in profits due to lower interest rates. These changes have contributed to the narrowing interest margins and the increase in lending. (Potential risk factors) Under the smooth functioning of financial intermediation, the borrowing term of firms has become longer, which has become a factor that increases the interest rate risk. Firms have secured stable funding at long-term fixed interest rates and contained refinancing risk. This borrowing behavior by firms has also contributed to an increase in banks' duration risk, while it has helped banks secure interest margins in a low interest rate environment. Among the firms that have increased borrowings, there are firms that have improved their profitability and financial conditions while others have not been able to improve their sluggish performance. The former firms have been proactive in investment and have contributed to economic improvement. On the other hand, there has always been a certain proportion of firms of the latter type, even during the period of low interest rates and economic improvement. They are less resilient to stress than other firms. In a future phase of rising interest rates, these borrower firms could be subject to downgrading. Banks' profitability has declined significantly over the past 25 years. Although their return on equity (ROE), based on pre-provision net revenue (PPNR) excluding trading income, has recently started to increase, it remains at a historically low level at regional and shinkin banks. Consequently, there are banks that have become less resilient to stress. If interest rates rise significantly in a short period of time, the valuation losses on securities holdings could be a constraint on banks' financial intermediation activities. In addition, if the external environment changes, credit costs could increase. |
| Date: | 2024–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojron:ron240718a |
| By: | Donggyu Lee |
| Abstract: | This paper studies how quantitative easing (QE) affects household welfare across the wealth distribution. I build a Heterogeneous Agent New Keynesian (HANK) model with household portfolio choice, wage and price rigidities, endogenous unemployment, frictional financial intermediation, an effective lower bound (ELB) on the policy rate, forward guidance, and QE. To quantify the contribution of the various channels through which monetary policy affects inequality, I estimate the model using Bayesian methods, explicitly taking into account the occasionally binding ELB constraint and the QE operations undertaken by the Federal Reserve during the 2009-15 period. I find that the QE program unambiguously benefited all households by stimulating economic activity. However, it had nonlinear distributional effects. On the one hand, it widened the income and consumption gap between the top 10 percent and the rest of the wealth distribution by boosting profits and equity prices. On the other hand, QE shrank inequality within the lower 90 percent of the wealth distribution, primarily by lowering unemployment. On net, it reduced overall wealth and income inequality, as measured by the Gini index. Surprisingly, QE has weaker distributional consequences compared with conventional monetary policy. Lastly, forward guidance and an extended period of zero policy rates amplified both the aggregate and the distributional effects of QE. |
| Keywords: | unconventional monetary policy; inequality; Heterogeneous-agent New Keynesian (HANK) model; quantitative easing; Bayesian estimation; effective lower bound |
| JEL: | E12 E30 E52 E58 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:98524 |
| By: | Saroj Bhattarai; Mohammad Davoodalhosseini; Zhenning Zhao |
| Abstract: | How does the transmission of monetary policy change when a central bank digital currency (CBDC) is introduced in the economy? Do aspects of CBDC design, such as how substitutable it is with bank deposits and whether it is interest bearing, matter? We study these questions in a general equilibrium model with nominal rigidities, liquidity frictions, and a banking sector where commercial banks face a leverage constraint. In the model, CBDC and commercial bank deposits can be used as a means of payments, and they provide liquidity services to households. Banks issue deposits and extend loans to firms, and bank deposits are backed by loans and central bank reserves. We find that the effects of a canonical monetary policy shock, a shock to the Taylor rule that governs interest on central bank reserves, is magnified with the introduction of a fixed-interest-rate CBDC. More generally, whether CBDC magnifies or abates the response of the economy depends on the type of shock (e.g., interest rate or quantity of reserves shock). We also find that the response of the economy depends on the monetary policy framework—whether the central bank implements monetary policy through reserves or through CBDC—as well as central bank balance sheet rules that govern the quantity of CBDC and reserves. |
| Keywords: | Digital currencies and fintech; Monetary policy; Monetary policy framework; Monetary policy transmission; Interest rates |
| JEL: | E31 E4 E50 E58 G21 G51 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-27 |
| By: | Cosimo Petracchi (DEF, University of Rome "Tor Vergata") |
| Abstract: | I characterize exchange-rate regime breaks for thirty countries between 1960 and 2019, and I establish that while they affect the volatilities of nominal and real exchange rates they do not change the volatilities of other real macroeconomic variables (output, consumption, investment, and net exports). This is true even in countries in which exports and imports represent a large component of gross domestic product. I propose a model with exporter-importer firms which matches the behavior of nominal and real exchange rates and real macroeconomic variables across exchange-rate regimes, even for economies in which the sum of exports and imports exceeds gross domestic product. |
| Date: | 2024–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:580 |
| By: | Martin Bodenstein; Pablo A. Cuba-Borda; Nils M. Gornemann; Ignacio Presno |
| Abstract: | We propose a model with costly international financial intermediation that links exchange rate movements to shifts in the demand for domestically produced goods relative to the demand for imported goods (trade rebalancing). Our model is consistent with stylized facts of exchange rate dynamics, including those related to the trade balance, which is typically overlooked in the literature on exchange rate determination. In a quantitative assessment, trade rebalancing explains nearly 50 percent of exchange rate fluctuations over the business cycle, whereas exogenous deviations from the uncovered interest rate parity—the primary source of exchange rate fluctuations in the literature—account for just above 20 percent. Using data on trade flows or the trade balance is key to properly identifying the determinants of the exchange rate. Thus, our model overcomes the sharp dichotomy between the real exchange rate and the macroeconomy embedded in other models of exchange rate determination. |
| Keywords: | Exchange Rates; Risk Sharing; Financial Intermediation; Trade Balance |
| JEL: | F31 F32 F41 |
| Date: | 2024–07–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgif:1391 |
| By: | Alfred Duncan; Charles Nolan |
| Abstract: | Adam Smith promoted free banking—private and compe ve bank notes backed by gold. He also supported restricons on banks. This paper analyses Smith’s views and the era in which they developed. We suggest his regulaons were a backstop against the risks banks posed to depositors but primarily to monetary stability. In modern parlance, Smith promoted macroprudenal regulaons to underpin monetary stability, just like Friedman and Schwartz (1963) viewed the FDIC in 1933 in the US. We discuss why Smith’s view of efficient banking was not realised. Ulmately, bank regulaon developed a microprudenal focus running aground in the 2008/9 financial crash. The rising prominence of macroprudenal regulaon may provide a chance to reorientate banking regulaon to support monetary stability. The early signs are not especially promising. |
| Keywords: | Adam Smith, banking |
| Date: | 2023–06 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2023_08 |
| By: | Cheikh, Nidhaleddine Ben (ESSCA School of Management); Rault, Christophe (University of Orléans) |
| Abstract: | While the financial inclusion would induce greater pollutant emissions through its impact of economic activity, the increased access to financial services may unleash investments in green technologies. This papier investigates whether the financial inclusion influences the dynamic of carbon dioxide (CO2) emissions in a sample of 70 countries during the last decade. We implement panel threshold techniques to explore the possible regime shifts in the environmental quality. Our results reveal that an increased financial access impacts air pollution depending on the level of economic development. While financial inclusion would increase CO2 emissions under lower-income regimes, the environment quality seems to be enhanced with more inclusiveness at later stages of development. Sounder environmental policies are needed for less developed countries to align financial inclusion initiatives with sustainable economic development. |
| Keywords: | financial inclusion, carbon emissions, panel threshold modelling |
| JEL: | C23 O16 O44 Q53 Q56 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17150 |