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on Financial Development and Growth |
| By: | Miroslav Gabrovski (University of Hawaii at Manoa); Athanasios Geromichalos (University of California Davis); Lucas Herrenbrueck (Simon Fraser University); Ioannis Kospentaris (Athens University of Economics and Business); Sukjoon Lee (New York University Shanghai) |
| Abstract: | The corporate bond market provides a vital avenue for firms to cover their borrowing needs. Moreover, the ease with which corporate bonds can be (re)traded in secondary markets affects their liquidity and, effectively, the rate at which corporations can borrow. However, the literature has also pointed out that a well-functioning secondary market can depress money demand and hurt economic activity. We perform a careful quantitative analysis of the channels through which secondary market liquidity affects the real economy in the context of a New Monetarist model. We find that a deterioration in secondary market liquidity has a negative but modest impact on output and unemployment. This small net effect, however, conceals much larger underlying forces that operate in opposite directions and largely offset each other. We also show that the results of our decomposition exercise depend on the inflation rate. Our findings highlight the importance of studying investor portfolios together with asset prices to fully capture the interaction between financial markets and the real economy. |
| Keywords: | Search frictions, Unemployment, Corporate bonds, Money, Liquidity, Inflation 6. E24, E31, E41, E44. |
| JEL: | E24 E31 E41 E44 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202501 |
| By: | Moawad, Jad (Department of Social Policy and Intervention, University of Oxford) |
| Abstract: | Previous research has focused primarily on income and wealth inequalities, with less emphasis on saving behavior which is one of the key mechanisms linking these components. This study examines the extent of disparities in household saving behavior across Western countries and how these disparities have evolved over the past two decades. Using data from the Luxembourg Wealth Study (LWS), the most comprehensive dataset on saving behavior to date, this analysis covers 10 countries between 1995 and 2018. The analysis yields three key findings. First, saving inequalities are most pronounced in Spain, Finland, Italy, and the United States. However, the baseline of likelihood of saving among low-income earners vary significantly. Bottom quartile earners in the United States and Finland report saving behavior eight times higher than their counterparts in Italy, and twice that of Spain. Second, saving behavior correlates more strongly with a country's economic performance than with its welfare state or social expenditure levels. Third, the financial crisis impacted saving behavior differently across countries. It reduced saving for all economic strata in Italy and Slovakia, while increasing saving inequalities in Austria, Spain, and the United States. |
| Keywords: | Saving Behavior, Welfare States, Financial crisis, Cumulative advantage |
| JEL: | D14 E21 H55 I38 P52 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:amz:wpaper:2024-08 |
| By: | Cowell, Frank; Van de Gaer, Dirk |
| Abstract: | Using a simple model of family decision making we examine the processes by which the wealth distribution changes over the generations, focusing in particular on the division of fortunes through inheritance and the union of fortunes through marriage. We show that the equilibrium wealth distribution exists under standard assumptions and has a Pareto tail that can be characterized in a simple way for a variety of inheritance rules and marriage patterns. The shape of the distribution is principally determined by the size distribution of families. We show how changes in fertility, inheritance rules and inheritance taxation affect long-run inequality. |
| Keywords: | inheritance; inheritance taxation; wealth distribution |
| JEL: | J1 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127769 |
| By: | Yan Shen; Mr. Fei Han; Yanlong Li |
| Abstract: | This paper uses both macro and household-level data to examine the relationship between digital financial inclusion, measured by the Peking University digital financial inclusion index, and income inequality in China. We find that a higher level of digital financial inclusion is associated with significantly lower income inequality within provinces, including through having larger positive effects on lower-income households’ incomes from salaries and public and private transfers. However, we do not find a significant impact of digital financial inclusion on income inequality across provinces, as households in the relatively more developed southern region benefitted more from digital financial inclusion than those in the northern region. We also find that digital financial inclusion has larger effects on the incomes of rural, female-headed, and less educated households, which have likely contributed to the narrowing of the overall income inequality, but a smaller effect on the income of elderly households—pointing to the “digital divide” problem among the elderly in China. |
| Keywords: | Digital financial inclusion; income inequality; micro mechanism |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/071 |
| By: | Giovanni Favara; Francesca Loria; Greg Marchal; Egon Zakrajšek |
| Abstract: | The steady rise in income inequality and the broad range of actions undertaken by central banks in recent years – first to stabilize the global economy during the 2008-09 financial crisis and second to stave off the pandemic-induced economic collapse – have brought the distributional footprint of monetary policy to the forefront of the economic policymaking discussion (Bernanke, 2015; Draghi, 2016; BIS, 2021). |
| Date: | 2025–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2025-03-31-2 |
| By: | Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Sewon Hur (Federal Reserve Bank of Dallas); Zeynep Yom (Department of Economics, Villanova School of Business, Villanova University) |
| Abstract: | We build and embed an endogenous growth mechanism into an otherwise standard New Keynesian DSGE model to investigate the transmission of monetary policy. Endogenous growth is determined by the R&D expenditures of monopolistically competitive firms and monetary policy, through its effects on these expenditures, can have supply-side effects in addition to its usual demand-side effects. After solving the model and estimating it with a Bayesian methodology, we find that R&D activity amplifies the responses to monetary policy shocks. An empirical investigation that uses firm-level COMPUSTAT data supports this result. Specifically, we find that monetary policy transmission operates more strongly through R&D intensive firms. |
| Keywords: | R&D, endogenous growth, DSGE, monetary policy, COMPUSTAT |
| JEL: | E24 E32 O30 O33 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:vil:papers:61 |
| By: | Domenica Di Virgilio; Duarte Maia |
| Abstract: | In this paper, the authors introduce a dividend prudential target rule (DPT) à la Muñoz (2021) in a DSGE model, by Clerc et al. (2015), where banks can default, and extend the model by introducing bankers’ preference for dividend smoothing. Both versions of the model - the original by Clerc et al. (2015) and the extension to banker dividend smoothing – shed light on the same transmission channels of the DPT. However, the results are quantitatively more pronounced in the extended version. The results show the beneficial impact of the DPT on bank resilience and in mitigating the credit downturn and supporting the economic recovery in response to shocks, originating either from the financial system or from the real economy. Moreover, the paper shows the existence of complementarities between the DPT and the countercyclical capital buffer (CCyB) in smoothing the credit cycle and in improving the social welfare. Compared to the original version of the model, in presence of the more realistic assumption of bankers’ preference for dividend smoothing the benefits of the synergy between the CCyB and the DPT rule appear to be bigger. |
| JEL: | C53 G21 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ptu:wpaper:w202504 |
| By: | Hess, Simon |
| Abstract: | This paper studies the effects of introducing a Central Bank Digital Currency (CBDC) on economic output, bank intermediation and financial stability in a closed economy using an Agent-based Stock Flow Consistent (AB-SFC) Model. Thereby a digital bank run is simulated across various economic environments with different monetary policy and bank bankruptcy regimes. According to the model, non-remunerated CBDC issued in a positive-interest environment with a corridor system may increase GDP through increased seigniorage income and government spending. Also bank funding becomes more expensive since bank deposit stickiness is prevented. Non-remunerated CBDC issued in a zero-interest environment has no impact since there is no distributional effect of the interest payments. In a floor-system where the interest rate on CBDC matches the policy rate, CBDC also counteracts deposit stickiness and redistributes bank profits from shareholders to depositors. Thereby CBDC improves the transmission of the policy rate to households and firms. The bank bankruptcy regime also affects the outcome. While CBDC makes no difference in a bailout regime it does in a bail-in regime where it decreases inequality and distributes bank rescue costs evenly among households and firms, potentially enhancing financial stability. Introducing CBDC within a deposit insurance system postpones bank rescue payments, which creates an additional dynamic in GDP. |
| Keywords: | central bank digital currency, agent-based model, bank run, bailout, bail-in, financial stability |
| JEL: | E42 E58 G21 G23 G28 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:roswps:171 |
| By: | International Monetary Fund |
| Abstract: | Selected Issues |
| Keywords: | copyright page; No. 25/68; legal tender status; valuation profits; dollar-Bitcoin conversion; Financial inclusion; Currencies; Digital financial services; Central America; Global; Sub-Saharan Africa |
| Date: | 2025–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/068 |
| By: | Marjan Petreski; Magdalena Olczyk |
| Abstract: | This study examines the impact of foreign direct investment (FDI) on job creation across 109 regions in the old EU member states from 2012 to 2023. Using dynamic and spatial econometric models combined with a unique dataset of FDI projects, we find that increased FDI inflows significantly enhance regional job creation, but the relationship is nonlinear. Sectoral specialization plays a crucial role, as more concentrated FDI inflows lead to higher employment growth. Furthermore, FDI-driven job creation exhibits significant spatial spillover effects. However, regions attracting high-value FDI jobs, such as those in R&D and management, tend to experience slower overall employment growth. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23999 |
| By: | Michele Ruta; Monika Sztajerowska |
| Abstract: | Industrial policies have been on the rise with subsidies provided to firms accounting for the lion’s share of interventions. The effects of these measures on productivity, trade, investment and other economic and non-economic variables are largely an open question. This paper examines empirically the link between subsidies and inward cross-border investment using data on greenfield investments across a large sample of advanced and emerging economies between 2010 and 2020. Employing a difference-in-difference approach, we find that—while the average effect of all subsidies is zero—financial subsidies, such as loans and loan guarantees, increase new cross-border investment projects by an average of 7%. These effects are primarily driven by capital-intensive sectors in capital-abundant countries, suggesting that subsidies can affect foreign direct investment—but they reinforce (rather than reshape) countries’ comparative advantage. |
| Keywords: | Foreign Direct Investment; Industrial Policy; Subsidies |
| Date: | 2025–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/080 |
| By: | Adriano Fernandes; Rodolfo Rigato |
| Abstract: | Physical capital takes time to build. Yet, the measurement of time to build and of its response to firm behavior remain scant. We fill this gap using project-level data from India. We document new facts on cross-sectional heterogeneity in time to build; and exploit quasi-experimental variation in credit supply to establish that firms accelerate ongoing projects and start fewer new projects when credit dries up. We rationalize our findings with a novel model of endogenous time to build. A credit crunch increases firm appetite for immediate relative to delayed cash flows. Firms then accelerate projects closer to completion and postpone unbegun projects. Such a mechanism is borne out in the data: projects proxied to be more mature are sped up the most. We quantify our model to match our causal estimates, and the joint distribution of project costs and gestation lags. Endogenous time to build generates endogenous amplification and state-dependence of investment on the distribution of projects along completion stages. Endogenous time to build is policy relevant. Contractionary monetary policy faces headwinds when the distribution of projects skews towards mature projects. Tax policy, in turn, can flexibly reshuffle investment expenditures over time with tax credits. |
| Keywords: | Investment; Business Fluctuations; Corporate Finance; Time to Build |
| Date: | 2025–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/078 |
| By: | International Monetary Fund |
| Abstract: | India’s financial system has withstood the pandemic well and has become more resilient since the 2017 FSAP. Nonbank financial institutions (NBFIs)—especially nonbank financial companies (NBFCs) providing credit with wholesale financing—and market financing have grown, making the financial system more diverse and interconnected. The role of the state has diminished, yet it remains significant, including in using the financial system to pursue social and public finance goals. |
| Date: | 2025–02–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/055 |
| By: | Mihai Precup (AMEPIP - Agence de Suivi et d'Evaluation des Performances des Entreprises Publiques) |
| Abstract: | Cet ouvrage est un recueil de notes de cours, d'articles scientifiques publiés par l'auteur au cours des dernières années et de recherches complémentaires au cours desquelles Mihai Precup a travaillé dans le domaine des investissements dans différentes institutions financières internationales. Ce livre est une étude exhaustive et précise du capital-investissement et de son contexte. Il consacre une analyse particulière à l'évolution du capital-investissement en Europe de l'Est durant la période qui a suivi la crise mondiale qui a éclaté en 2020 avec la crise sanitaire due au coronavirus. L'ouvrage est une référence pratique pour les dirigeants d'entreprises souhaitant attirer de nouvelles sources de financement pour développer leur activité. Le financement par capital-investissement peut constituer une alternative aux modes traditionnels de financement des investissements des entreprises. De plus, les conclusions données ici peuvent constituer une ligne directrice pour les décideurs institutionnels qui souhaitent promouvoir le secteur des fonds d'investissement. |
| Keywords: | Financement |
| Date: | 2024–09–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04988696 |
| By: | Niklas Kroner |
| Abstract: | I provide evidence that investors' attention allocation plays a critical role in how financial markets incorporate macroeconomic news. Using intraday data, I document a sharp increase in the market reaction to Consumer Price Index (CPI) releases during the 2021-2023 inflation surge. Bond yields, market-implied inflation expectations, and other asset prices exhibit significantly stronger responses to CPI surprises, while reactions to other macroeconomic announcements remain largely unchanged. The joint reactions of these asset prices point to an attention-based explanation–an interpretation I corroborate throughout the rest of the paper. Specifically, I construct a measure of CPI investor attention and find that: (1) attention was exceptionally elevated around CPI announcements during the inflation surge, and (2) higher pre-announcement attention robustly leads to stronger market reactions. Studying investor attention in the context of Employment Report releases and Federal Reserve announcements, I document a similar importance of attention allocation for market reactions. Lastly, I find that markets tend to overreact to announcements that attract high levels of attention. |
| Keywords: | Macroeconomic News Announcements; Investor Attention; Financial Markets; Inflation; Federal Reserve; High-frequency event study |
| JEL: | E44 E71 G12 G14 G41 |
| Date: | 2025–03–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-22 |
| By: | Dzemski, Andreas (Department of Economics, School of Business, Economics and Law, Göteborg University); Farago, Adam (Department of Economics, School of Business, Economics and Law, Göteborg University); Hjalmarsson, Erik (Department of Economics, School of Business, Economics and Law, Göteborg University); Kiss, Tamas (The School of Business, Örebro University, Sweden) |
| Abstract: | We analyze empirical estimation of the distribution of total payoffs for stock investments over very long horizons, such as 30 years. Formal results for recently proposed bootstrap estimators are derived and alternative parametric methods are proposed. All estimators should be viewed as inconsistent for longer investment horizons. Valid confidence bands are derived and should be the focus when performing inference. Empirically, confidence bands around long-run distributions are very wide and point estimates must be interpreted with great caution. Consequently, it is difficult to distinguish long-run aggregate return distributions across countries; long-run U.S. returns are not significantly different from global returns. |
| Keywords: | Estimation uncertainty; Long-run stock returns; Quantile estimation |
| JEL: | C58 G10 |
| Date: | 2025–04–28 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:gunwpe:0853 |
| By: | Eiji Fujii; Xingwang Qian |
| Abstract: | This paper investigates the cyclicality of international reserves and their role in macroeconomic stabilization. We challenge two widely held assumptions: (1) central banks typically manage IR counter-cyclically—accumulating reserves during booms and drawing them down during downturns; and (2) such interventionist management is primarily associated with rigid exchange rate regimes. Analyzing data from 179 countries (1972-2022), we find that counter-cyclical IR management is less common than often assumed. However, as a macroprudential policy, counter-cyclical international reserves significantly reduce output volatility, particularly when interacting with de facto flexible exchange rate regimes. This stabilizing effect is especially pronounced in emerging markets between the 1997 Asian financial crisis and the 2008 global financial crisis. |
| Keywords: | international reserves, cyclicality, exchange rate regime, macroprudential policy, output volatility. |
| JEL: | F34 F31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11800 |
| By: | Mr. Cian Allen; Mr. Rudolfs Bems; Lukas Boer; Racha Moussa |
| Abstract: | US dollar appreciations can inflict sizable negative cross-border spillovers. We investigate such spillovers from flight-to-safety shocks and the accompanying “global dollar cycle”. Results show that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets. In contrast, effects on advanced economies are small and short-lived. Emerging market commodity exporters historically experienced larger negative spillovers than commodity importers, reflecting a strong negative link between the US dollar and commodity prices. In terms of policies, more anchored inflation expectations can mitigate the initial negative spillovers while more flexible exchange rates can speed up the subsequent economic recovery. |
| Keywords: | Uncovered Interest Parity; International Spillovers; Global Financial Cycle; Commodity Prices |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/065 |
| By: | Yang Jiao (School of Economics, Singapore Management University); Ohyun Kwon (School of Economics, Drexel University); Saiah Lee (Ulsan National Institute of Science and Technology (UNIST)) |
| Abstract: | We investigate the internationalization of Renminbi (IoR) since 2006 by examining its increased utilization among Korean exporters to China. Employing proprietary data from Korean customs, which includes detailed invoicing information, our analysis reveals that products invoiced, either fully or partially, in RMB have experienced more rapid export growth. Furthermore, firms adopting RMB invoicing also exhibit faster export growth to China after controlling for relevant observables. Our findings remain robust when employing an instrumental variable approach to address potential endogeneity concerns. With the help of a currency invoicing model that demonstrates different impact channels, we show that the increased trade volume is due to Chinese importers facing lower currency costs when purchasing RMB-invoiced products compared to USD-invoiced products. |
| Keywords: | RMB internalization, invoicing currency, international trade |
| JEL: | F14 F31 D22 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202521 |
| By: | Sosso Feindouno (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Patrick Guillaumont (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | The aim of this note is to provide an analytical framework for a bilateral donor, in this case France, wishing to draw up a list of priority countries for its aid in a rational way, based on transparent political choices. Drawing up a list of priority countries for French aid, intended to complement in a coherent way the 44 least developed countries (LDCs) which have already been officially selected, is based on choices that are both technical and political. The principle is to add a certain number of vulnerable countries, with the aim of eventually obtaining a round number such as 16 or 26, among the small and medium-sized countries that are particularly vulnerable. It is proposed that the simulations be carried out using the structural vulnerability index (FSVI) developed by FERDI's Observatory of Vulnerability and Resilience. |
| Keywords: | Aid allocation, Least development countries LDCs, Multidimensional vulnerability index |
| Date: | 2025–03–28 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05010235 |
| By: | Patrick Guillaumont (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Laurent Wagner (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | Present Context of a Long-Standing Issue The issue of introducing a vulnerability indicator in an aid allocation formula such as the Performance Based Allocation (PBA) used by several Multilateral Development Banks (MDBs) has been discussed for a long time. Three reasons make it particularly desirable to now reconsider the issue. [...] |
| Keywords: | Multidimensional vulnerability index, Aid allocation, Multilateral development banks |
| Date: | 2025–03–28 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05010308 |
| By: | Mr. Aleš Bulíř; Khyati Chauhan |
| Abstract: | No large European countries and only few small ones have met the so-called Bohn rule during the past 40 years or so. The Bohn rule specifies that past increases of public debt need to be systematically compensated with current and future fiscal surpluses to stabilize debt at some steady-state level. We find that post-1980 European fiscal primary balances have been driven by spending growth and consumption smoothing. The results change little between periods before and after the global financial crisis. |
| Keywords: | Fiscal sustainability; public debt; the Bohn rule |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/070 |
| By: | Carmen L Avila-Yiptong; Mahamoud Islam; Ayah Said; Chima Simpson-Bell |
| Abstract: | This paper aims to investigate the determinants of sovereign spreads for a panel of 79 emerging markets and development economies (EMDEs) over the period 2001-2021, with a particular focus on the role of Environmental, Social, and Governance (ESG) factors. Using panel fixed-effect regressions, our results show that improvements in ESG factors tend to reduce sovereign spreads, alongside domestic variables capturing growth, fiscal and external balances, and global factors such as U.S. interest rates and changes in global risk sentiment. In particular, we find that governance is a key factor in explaining movements in sovereign spreads, including perceptions of government effectiveness, regulatory quality, and the control of corruption. Social and environmental aspects, proxied by population purchasing power and greenhouse gas emissions, respectively, also play significant roles. Our contribution to the literature is threefold: first, we confirm the results of previous papers on the relevance of ESG in explaining emerging market spread movements; second, we delve deeper by unpacking the elements that matter most within ESG factors; and third, we construct an aggregate ESG indicator using principal components analysis to summarize its overall impact. |
| Keywords: | Sovereign spreads; emerging markets; ESG |
| Date: | 2025–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/073 |