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on Financial Development and Growth |
| By: | Mehdi Mahmoudi (University of Orleans); Nicolae-Bogdan Ianc (University of Orleans & West University of Timisoara) |
| Abstract: | This paper explores the relationship between microfinance and economic development using a cross-country dataset of 60 developing countries from 2000-2018. We employ the Panel VAR model, estimated by the generalised method of moments (GMM). Microfinance institutions (MFIs) indicators are categorised into social and financial performance variables. Social performance variables include the number of clients served (NOB) and the percentage of women borrowers (PFB), while financial performance indicators consist of the portfolio at risk (PAR), operational self-sufficiency (OSS), and operating expenses (OPX). Economic development is assessed using the Human Development Index (HDI), which integrates economic indicators like Gross National Income per capita (GNI) with social indicators such as educational attainment (EDI) and life expectancy at birth (LE). We perform a Granger causality test confirming a Granger causal relationship between microfinance and economic development. Our findings indicate that shocks to social performance variables positively influence economic development, and shocks to financial performance variables significantly impact the human development index. |
| Keywords: | Microfinance, economic development, Granger causality, panel VAR, HDI |
| JEL: | F |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.1 |
| By: | Vivek Sharma |
| Abstract: | What are the effects of a bank shock – or a decline in bank loan repayments – in an economy featuring bank-firm lending relationships and what is the propagation mechanism? I answer these questions in this paper and build a dynamic general equilibrium model in which collateral-constrained entrepreneurs have endogenously-persistent credit relationships with banks. Credit relationships play a dual role of shock amplifier and stabilizer in this environment. In presence of credit relationships, a bank shock in this model drives up credit spread at impact, causing bank credit to fall and paving the way for a downturn in macroeconomic activity. Economic activity recovers later on as spread falls, resulting in a rebound in bank loans and investment. When credit relationships are turned off, the model shows prolonged fall in bank loans and a persistent slowdown in investment, consumption and output as spread remains continually elevated, making bank credit expensive. A more persistent bank shock leads to a sustained decline in output even in the presence of lending relationships while a more volatile shock causes protracted slump in output in absence of credit relationships but not when they are present. |
| Keywords: | bank shocks, lending relationships, economic activity |
| JEL: | E32 E44 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-76 |
| By: | Victor Orestes; Thiago Silva; Henry Zhang |
| Abstract: | We show firms experience large contemporaneous increases in sales and purchases after receiving cheaper liquidity. We focus on factoring, defined as the supplier-initiated sale of receivables. In Brazil, receivables funds (FIDCs) securitize receivables for institutional investors. By assembling a novel transaction-level dataset of factoring with other credit operations for all registered firms and FIDCs, we construct a shift-share instrument for the supply of factoring financing based on FIDC flows. We then use a novel combination of electronic payments, trade credit, and employer-employee matched data to estimate the impacts. A flow-induced increase in receivables demand reduces firms’ factoring interest rate. In response, firms demand more permanent labor and less temporary labor. In our model, these effects arise from factoring’s purpose of reducing cash inflow volatility, helping firms match inflows to outflows, which firms otherwise achieve at an efficiency cost through substitution across labor types. Using our model, we estimate an aggregate decrease in the economy-wide factoring spread of 1 percentage point leads to 0.3 to 0.5 percentage point increases in aggregate output and wages. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:611 |
| By: | Yoshibumi Makabe (Bank of Japan); Tomoyuki Yagi (Bank of Japan) |
| Abstract: | For a long period, a low interest rate environment has continued on in Japan. While this environment puts upward pressure on the real economy through a decline in real interest rates, it also hinders the business dynamics of firms and induces inefficient resource allocation. Taking this into account, in this paper, we first try to extract a group of firms that continue to survive with support from banks or other entities despite performing poorly and having no prospect of recovery. We refer to these firms as "financially-supported firms." We find that the share of financially-supported firms in Japan has remained at a low level in recent years. The productivity of financially-supported firms is lower than that of other firms and despite their limited number, they put downward pressure on aggregate productivity. We then analyze the spillover effects of financially-supported firms on the macroeconomy, i.e., through distortion in resource allocation. The analysis of large firms in recent years does not suggest that the presence of financially-supported firms has suppressed the productivity of other firms. Next, we conduct an empirical analysis on the relationship between a low interest rate environment and financially-supported firms. No direct relationship is confirmed between the two, partly due to the fact that the emergence of financially-supported firms was prevented under a stable financial system. However, in recent years, while the share of firms facing a significant deterioration in business conditions, such as financially-supported firms, has been at a low level after having declined from the mid-1990s through the mid-2000s, the share of firms remaining at relatively low productivity has been flat; this suggests the possibility that the low interest rate environment might be one of the attributable factors. |
| Keywords: | Resource allocation, Low interest rate, Financially-supported firms |
| JEL: | D22 D24 D30 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e20 |
| By: | Jaime Leyva |
| Abstract: | This article investigates the importance of firms’ characteristics in determining loan pricing by banks, both in the cross-section and over time in Portugal. A particular emphasis is placed on three financial aspects of firms: indebtedness, liquidity, and profitability. On average, the interest rate charged on new loans tends to increase with the level of firm indebtedness and decrease as liquidity and profitability rise. For micro and small firms, banks are more reactive to their leverage and less reactive to their measures of liquidity and profitability compared to medium-sized firms. For big firms, banks’ loan pricing does not react to changes in their leverage or liquidity. however changes in their profitability have a stronger impact. Regarding firms’ age, it is observed that throughout a firm’s life cycle, banks’ loan pricing places greater emphasis on the level of debt for younger firms, shifting focus to profitability as firms mature. Additionally, the study demonstrates that the sensitivity of banks’ pricing to firms’ financial conditions changes over time and depends on the macroeconomic and financial environment. During periods of high uncertainty or tight financial conditions, banks tend to be stricter in pricing firm leverage, resulting in higher interest rates compared to more stable periods. Banks become more attentive to firms’ liquidity in times of tight financial conditions. Furthermore, during periods of lower economic growth, banks show increased sensitivity to firm profitability, whereas in environments of high interest rates, this sensitivity is reduced. |
| JEL: | E43 E44 G21 G32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202410 |
| By: | Xing Guo; Alistair Macaulay; Wenting Song |
| Abstract: | This paper studies how the distribution of information supply by the news media affects the macroeconomy. We document three connected facts about the media’s reporting of firm news. First, media coverage is highly concentrated, focusing particularly on the largest firms in the economy. Second, firms’ equity financing and investment increase after media coverage. Third, these equity and investment responses are largest among small, rarely covered firms. We then develop a heterogeneous-firm model with a media sector that matches these facts. Asymmetric information between firms and investors leads to financial frictions that constrain firms’ financing and investment. The media’s role in alleviating information frictions is limited by their focus on large and financially unconstrained firms. Reallocating news coverage, or allowing firms to buy coverage from outlets in a competitive market, leads to substantial increases in aggregate investment and output. The aggregate effects of media coverage therefore depend crucially on how that coverage is allocated. |
| Keywords: | Firm dynamics; Financial markets |
| JEL: | D22 D61 L11 L20 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-47 |
| By: | Elhan-Kayalar, Yesim (Asian Development Bank); Kucheryavyy, Konstantin (CUNY Baruch College); Nose, Manabu (International Monetary Fund); Sawada, Yasuyuki (University of Tokyo); Shangguan, Ruo (Jinan University); Thanh Tung, Nguyen (National Economics University) |
| Abstract: | In developing economies, foreign direct investment (FDI) plays a crucial role by providing resources that facilitate participation in international trade and support economic development. Focusing on Viet Nam as a case study, this research aims to quantify the distributional effects of the United States–People’s Republic of China trade dispute across different regions in Viet Nam. By utilizing detailed firm-level and customs data, we demonstrate that FDI in Viet Nam is geographically concentrated in the northern, central, and southern regions. Access to road and port networks significantly influences the choice of FDI locations. Furthermore, we highlight the important role that the foreign affiliates of multinational firms from East Asia and the United States have played in reshaping Viet Nam’s trade flows in the aftermath of the trade dispute between the United States and the People’s Republic of China. This study sheds light on the interplay between transport infrastructure, FDI, and international trade. |
| Keywords: | trade; ports; roads; US–PRC trade dispute; Viet Nam; PRC |
| JEL: | F10 F13 F14 R40 R41 |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0761 |
| By: | Patrick A. Imam; Mr. Kangni R Kpodar; Djoulassi K. Oloufade; Vigninou Gammadigbe |
| Abstract: | This paper delves into the intricate relationship between uncertainty and remittance flows. The prevailing focus has been on tangible risk factors like exchange rate volatility and economic downturn, overshadowing the potential impact of uncertainty on remittance dynamics. Leveraging a new dataset of quarterly remittances combined with uncertainty indicators across 77 developing countries from 1999Q1 to 2019Q4, the analysis highlights that uncertainty in remittance-sending countries negatively affects remittance flows. In contrast, uncertainty in remittance receiving-countries has a more complex, dual effect. In countries with high private investment ratios, rising domestic uncertainty leads to a decline in remittances. Conversely, in countries with low public spending on education and health, remittances increase in response to uncertainy, serving as a social safety net. The paper underscores the heterogeneous and non-linear effects of domestic uncertainty on remittance flows. |
| Keywords: | Remittances; Uncertainty; Shocks; remittance flow; remittance dynamics; IRF of remittance; remittances in times; uncertainty indicator; Migration; Private investment; Health care spending; Global |
| Date: | 2024–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/244 |
| By: | Balana, Bedru; Olanrewaju, Opeyemi |
| Abstract: | This paper examines the effects of financial inclusion on adoption and intensity of use of agricultural inputs and household welfare indicators using data from the nationally representative Nigerian LSMS wave-3 (2015/2016) survey. For this, we constructed a financial inclusion index from four formal financial services access indicators (bank account, access to credit, insurance coverage, and digital transaction) using multiple correspondence analysis (MCA). We used Cragg’s two-step hurdle, instrumental variables for binary response variables, and a Generalized Method of Moments (GMM) models in the econometric analysis. Results show that households with access to formal financial services are more likely to adopt agricultural inputs and to apply these more intensively. These same households are less likely to experience severe food insecurity and are more likely to consume diverse food items. We also find that these effects are less for female farmers regardless of formal financial inclusion, suggesting that they may bear more non-financial constraints than their male counterparts. The results suggest a need for targeted interventions to increase access to formal financial services of farm households and gender-responsive interventions to address the differential constraints women farmers face. |
| Keywords: | farm inputs; financial inclusion; food security; households; inorganic fertilizers; seeds; Africa; Western Africa; Nigeria |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:ifprid:2293 |
| By: | Mr. Kalin I Tintchev; Kady Keita |
| Abstract: | We document novel evidence that confidence in macrofinancial stability has a positive impact on financial inclusion in CCA countries and more broadly. This channel is particularly important for CCA countries, with confidence gains of 1 unit leading to 0.7 unit improvement in financial inclusion. Institutional factors such as level of governance and reliance on transparent policy rules and robust financial safety nets explain a large fraction of the variability in confidence in the region. We find that governance reforms are critical for deepening financial inclusion while the impact of inflation targeting, fiscal rules and deposit insurance schemes is positive and material only when governance levels exceed certain thresholds. |
| Keywords: | Financial inclusion; confidence; governance; inflation targeting; fiscal rules; deposit insurance |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/257 |
| By: | Ms. Nan Li; Mr. Chris Papageorgiou; Tong Xu; Tao Zha |
| Abstract: | We construct an extensive database of domestic financial reforms spanning 90 countries from 1973 to 2014. Utilizing this dataset, we estimate a structural model that incorporates various factors identified in the existing literature to explain the global contagion of financial reforms. Our findings reveal that (1) geopolitical influence and cross-country learning were the primary drivers behind the marked increase in financial reforms globally during the 1990s, and (2) the observed reversals of financial reforms in developing countries after the global financial crisis were driven by shifts in beliefs about the impact of these reforms on growth. |
| Keywords: | Financial reforms; global contagion; geopolitical influence; cross- country learning; belief updating; reform reversal; reform intensity; political costs; economic growth; financial crisis; IMF working paper 24/243; reform contagion; financial liberalization; liberalization level; Financial contagion; Global financial crisis of 2008-2009; Financial sector; Global |
| Date: | 2024–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/243 |
| By: | Marco Cipriani; Thomas M. Eisenbach; Anna Kovner |
| Abstract: | Runs have plagued the banking system for centuries and returned to prominence with the bank failures in early 2023. In a traditional run—such as depicted in classic photos from the Great Depression—depositors line up in front of a bank to withdraw their cash. This is not how modern bank runs occur: today, depositors move money from a risky to a safe bank through electronic payment systems. In a recently published staff report, we use data on wholesale and retail payments to understand the bank run of March 2023. Which banks were run on? How were they different from other banks? And how did they respond to the run? |
| Keywords: | bank runs; Sunspots; payment; data |
| JEL: | G0 G21 |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99352 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | This paper presents a competitive search model focusing on the impact of asymmetric information on credit markets. We show that limited entry by lenders results in endogenous credit rationing, which, in turn, plays a key role in managing adverse selection and prevents the credit market from collapsing. |
| Keywords: | Asymmetric Information, Credit Rationing, Directed Search |
| JEL: | D82 D43 G20 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/25 |
| By: | Okan Akarsu; Emrehan Aktug; Huzeyfe Torun |
| Abstract: | We explore the spillover impact of zombie firms in Türkiye by exploiting a rich administrative dataset that contains firm-level information on balance sheets, inter-firm sales, employment, and firm-bank level credit records. We document four key facts regarding zombie dynamics: (i) Leveraging matched firm-bank level credit registry data, we highlight the presence of an evergreening motive, leading to a misallocation of credit away from productive firms. At the same time, healthy firms in zombie-dense networks face reduced credit access. (ii) Zombie firms, which are on average less productive than nonzombie firms, impede investment and employment opportunities at healthier firms. Nonzombie firms operating in sectors with a high prevalence of zombie firms experience lower sales, assets, and productivity. (iii) Incorporating B2B sales data structured similarly to firm-level input-output data, our study reveals that firms with stronger upstream or downstream zombie connections tend to exhibit reduced sales, investment, and employment compared to firms without any zombie connections. (iv) A higher number of zombie connections leads to significant reductions in markups, value-added, productivity, and EBIT margins due to the cascading effects on production technology, shifting it toward lower value-added. Additionally, a higher share of zombies in the upstream sector reduces input costs for firms due to excess production. |
| Keywords: | Zombie firms, Firm dynamics, Evergreening, Credits |
| JEL: | E12 E24 E31 E52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2414 |
| By: | Tyler Smith (Reserve Bank of New Zealand) |
| Abstract: | This paper examines the relationship between non-performing loans and economic conditions. This relationship is used to forecast the possible path ofnon-performing loans and provide a useful input into the Reserve Bank of New Zealand’s assessment of financial stability risks. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nzb:nzbans:2024/06 |
| By: | Trent Lockyer (Reserve Bank of New Zealand) |
| Abstract: | Key findings: • In this Note, we construct new high-frequency indicators which measure the sentiment of New Zealand news articles over time. • We test the usefulness of these news sentiment indicators as a measure of early-stage financial stress in New Zealand, one of several possible applications for these indicators. • The news sentiment indicators provide similar information to measures of consumer and business confidence. As the sentiment measures are updated more frequently than the survey-based confidence measures they can provide more timely information and more clearly identify the effect of specific events on consumer and business sentiment. • Our results suggest the news sentiment indicators can be a useful complement to the forward-looking indicators of financial stress we monitor, and we are considering how to enhance and build these techniques into our ongoing assessment of financial stability. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nzb:nzbans:2024/07 |
| By: | Yudai Hatayama (Bank of Japan); Yuto Iwasaki (Previously Bank of Japan) |
| Abstract: | This paper introduces a novel approach for simultaneously estimating nominal and real natural yield curves in Japan. Specifically, we employ macroeconomic variables (output gap and inflation rate) as observed variables, in addition to the nominal and real yield curves, and conduct an estimation combining the representative yield curve model, the Nelson-Siegel model (Nelson and Siegel, 1987), with a VAR with common trends (Del Negro et al., 2017). The results presented in this paper indicate that since the 1990s, both nominal and real natural yield curves have exhibited downward shifts, as a consequence of a decline in the natural rate of interest. Furthermore, both curves have flattened due to a trending decline in the term premium. The results also indicate that the extent of these changes differs between the nominal and real natural yield curves. However, it should be noted that the estimation of natural yield curves is still in the process of development. Consequently, the results should be interpreted with caution. |
| Keywords: | Natural rate of interest; Natural yield curve; Term structure |
| JEL: | C32 E43 E52 |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e17 |
| By: | Ferrando, Annalisa; Pál, Rozália |
| Abstract: | The availability of internal and external financing sources significantly influences firms' investments and growth. Even profitable firms with ample financing in normal times can be adversely affected by demand and supply shocks such as the COVID-19 pandemic, the energy crisis, or the recent tightening of financing conditions. This paper examines the impact of funding difficulties on firms' investment, performance and growth during normal period and periods of external shocks, using a regression adjustment treatment effect approach. We distinguish between structural barriers to external financing and cyclical deteriorations in financing conditions, while controlling for other major investment barriers. The analysis uses survey data collected from the 1 st to 8 th vintage of the European Investment Survey (EIBIS). Empirical evidence shows that micro and small firms, as well as leading innovators, are particularly vulnerable to deteriorating funding conditions. Results indicate that firms lagging in digitalisation and green investments face more of a structural rather than a cyclical financing issue. Consequently, policy support should be oriented towards these structural financing impediments to ensure a fair and faster transformation. |
| Keywords: | SMEs, investment gap, external funding, internal funding, financing constraints, uncertainty, investment barriers, firm performance, growth, digital and green transition |
| JEL: | C83 D22 G32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:eibwps:308041 |
| By: | Grakolet Gourene (Economic Commission for Africa, North Africa Office, Morocco and Université Jean Lorougnon Guédé in Côte d’Ivoire); Zuzana Brixiova Schwidrowski (Economic Commission for Africa, North Africa Office, Morocco and Addis Ababa, Ethiopia); Jiri Balcar (VSB-Technical University of Ostrava, Czech Republic); Lenka Johnson Filipova (VSB-Technical University of Ostrava, Czech Republic) |
| Abstract: | Family-owned firms account for majority of small and medium-sized enterprises (SMEs) in Arab countries, but evidence on the impact of this ownership type on access to credit in the region is scarce. Yet the issue is key for understanding barriers to the emergence of dynamic private sector and growth acceleration. To reduce this knowledge gap, our paper examines links between family ownership and credit constraints faced by SMEs in Egypt, Jordan, Morocco, and Tunisia, utilizing the World Bank Enterprise Surveys. We find that while familyowned firms have a higher need for credit than nonfamily-owned firms, they are more likely to be discouraged from applying for it. Due to this self-selection out of credit markets, they are more credit constrained than nonfamily firms, even though their credit application rejection rates are lower. Stronger firm governance, including presence of formal business strategies and improved managerial practices, can encourage family-owned SMEs to apply for credit more often and ease their access to finance. |
| Keywords: | Family-owned SMEs, access to bank credit, firm governance, Arab Countries |
| JEL: | D22 G21 G32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ldr:wpaper:306 |
| By: | Coppo, Mattia; Luo, Shijia; Vazquez, Francisco |
| Abstract: | Tong and Wei (2020) study the impact of unconventional monetary interventions on credit markets during the 2008 global financial crisis. They find that stock prices increase on intervention days, particularly for firms operating in sectors perceived to be more reliant on external funding. Moreover, they report a positive effect of unconventional interventions on firms' subsequent investment, employment, and R&D expenditure, and find that bank recapitalizations are more effective than other interventions. We replicated the reported findings using the data and programs provided by the authors. However, the results did not hold when using the Rajan-Zingales (1998) metric of firms' external financing needs for capital expenditure-one of the two liquidity measures proposed by Tong and Wei (2020). Furthermore, the results do not hold for U.S. and European firms, and they appear driven by a small subset of Canadian firms operating in the extraction of gold and silver ore. These findings raise questions on the results and policy implications proposed in the original paper. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:187 |
| By: | Wildmer Daniel Gregori; Ângelo Ramos |
| Abstract: | This paper studies empirically the effects of monetary and macroprudential policy shocks on key policy-relevant macroeconomic variables, namely credit, consumer price, and economic growth. The analysis relies on a Bayesian TVP-SVAR model with monthly frequency data in the period 2010-2022 for Portugal. Macroprudential policy shocks are based on two microfounded intensity indicators, for capital and borrower-based measures. Results show that a monetary policy tightening reduces credit growth, especially in periods of high inflation, suggesting a cross-policy effect. In addition, a macroprudential policy tightening does not lower macroeconomic aggregates, highlighting that the implemented measures did not disrupt credit or economic growth. |
| JEL: | E58 E61 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202401 |
| By: | Rodrigo Barbone Gonzalez; Bernardus F. Nazar Van Doornik; João Barata R. B. Barroso |
| Abstract: | This paper estimates the impact of countercyclical reserve requirements (RRs) on credit. We explore differential bank exposure to RRs in matched bank-firm loan-level data from Brazil, where RRs have been used extensively to pursue financial stability. We find that, after tightening RRs, more exposed banks reduce credit to firms; after loosening, they expand credit supply. During booms, private domestic banks with lower capital adequacy are more responsive to a tightening of RRs and to a simultaneous tightening of the short-term policy rate. We also find that higher levels of economic policy uncertainty weaken this channel, and real effects in employment are modest |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:607 |
| By: | Mr. JaeBin Ahn; Euihyun Bae; Jing Zhou |
| Abstract: | The U.S. economy has been exceeding expectations amid one of the most aggressive monetary policy tightening cycles. This paper provides firm-level evidence showing that abundant cash holdings enable firms to benefit from higher interest rates, thereby reducing net interest payments and mitigate the adverse impact from interest rate hikes to firms' investment and employment. |
| Keywords: | Corporate cash; Monetary policy transmission; Interest income; Interest expense; Net interest payment; cash holding; tightening JaeBin Ahn; Monetary tightening; Interest payments; Income; Employment; Capital spending; North America; Global |
| Date: | 2024–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/245 |
| By: | Bauer, Michael D.; Offner, Eric A.; Rudebusch, Glenn D. |
| Abstract: | Policymakers and researchers worry that the low-carbon transition may be inadvertently delayed by higher global interest rates. To examine whether green investment is especially sensitive to interest rate increases, we consider the effect of unanticipated monetary policy changes on the equity prices of green and brown European firms. We find that brown firms, measured in terms of carbon emission levels or intensities, are more negatively affected than green firms by tighter monetary policy. This heterogeneity is robust to different monetary policy surprises, emission measures, econometric methods, and sample periods, and it is not explained by other firm characteristics. This evidence suggests that higher interest rates may not skew investment away from a sustainable transition. |
| Keywords: | monetary transmission, carbon premium, ESG, climate finance |
| JEL: | E52 G14 Q54 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:308032 |
| By: | Maybrit Wachter; Christian R. Proano; Juan Carlos Pena |
| Abstract: | This paper revisits the “one-size-fits-all†challenge posed by the European Central Bank’s (ECB) monetary policy within the heterogeneous economic landscape of the euro area. Using a dataset spanning from 1999Q1 to 2019Q4 for the ECB interest rate and from 2004Q4 onwards for the Wu-Xia shadow rate, we compute country-specific hypothetical Taylor rates across EU-11 countries and examine the dynamic effects of the difference between these rates and the actual ECB policy rate, the so-called Taylor Rate Gaps (TRGAPs), on GDP growth, inflation, unemployment, and government debt. Employing panel and country-specific local projections, our findings reveal that positive TRGAPs negatively impact economic growth, with this effect being more pronounced in periphery countries compared to core countries. The analysis highlights the limitations of a uniform monetary policy in addressing the diverse economic conditions within the euro area, suggesting the need for a more tailored approach to foster balanced and sustainable growth across the region. |
| Keywords: | monetary policy, Taylor Rule, euro area, economic growth, interest rate gap |
| JEL: | E52 E5 C23 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-77 |
| By: | J. Scott Davis; Andrei Zlate |
| Abstract: | This paper looks at the effect of fluctuations in the global financial cycle on real exchange rates (RER). We show that, on average, a downturn in the global financial cycle leads to RER depreciation relative to the U.S. dollar. However, quantitatively there is considerable heterogeneity in the RER responses among advanced, emerging and developing economies; between net creditor and net debtor countries; and also over time. Prior to 2007, the global financial cycle had less effect on advanced than on emerging market economies' RER, whereas post-2007 the effect was about the same in the two groups of countries. Finally, we decompose the RER changes into changes in the nominal exchange rate and changes in aggregate price levels. We find that in advanced economies, nearly all RER adjustment occurred through nominal exchange rates throughout the sample period. In the emerging and developing economies, the RER adjustment was mixed prior to 2007, when changes in the RER were driven by both nominal exchange rate changes and inflation differentials, whereas nominal exchange rate adjustments dominated post-2007. |
| Keywords: | global financial cycle; real exchange rates |
| JEL: | F3 F4 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99214 |
| By: | Walter Engert; Oleksandr Shcherbakov; André Stenzel |
| Abstract: | We investigate the introduction of a central bank digital currency (CBDC) into the market for payments. Focusing on the point of sale, we develop and estimate a structural model of consumer adoption, merchant acceptance and usage decisions. We counterfactually simulate the introduction of a CBDC, considering a version with debit-like characteristics and one encompassing the best of cash and debit, and characterize outcomes for a range of potential adoption frictions. We show that, in the absence of adoption frictions, CBDC has the potential for material consumer adoption and merchant acceptance, along with moderate usage at the point of sale. However, modest adoption frictions substantially reduce outcomes along all three dimensions. Incumbent responses required to restore pre-CBDC market shares are moderate to small and further reduce the market penetration of CBDC. Overall, this implies that an introduction of CBDC into the market for payments is by no means guaranteed to be successful. |
| Keywords: | Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services |
| JEL: | C51 D12 E42 L14 L52 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-52 |