We investigate the effects of bank financing on regional entrepreneurial activities in China. We present contrasting findings on the role of quantity vs. quality of bank financing on small business formation in China: while we document a consistent, significantly positive relationship between the quality of bank financing and new venture formation, we find that the quantity of supplied credit is insignificant. We report that formal institutions are positively correlated to regional entrepreneurial activities, and informal institutions substitute formal institutions. Our findings also reveal that the institutional environment tends to supplement bank financing in promoting regional entrepreneurial activities.

This paper examines whether intra-group dynamics matter for the transmission of macroprudential policy. Using novel bank-level data on the Brazilian banking system, we investigate the effect of reserve requirements targeting headquarter banks’ deposit share on credit supply by their municipal bank branches. For identification purposes, we exploit that reserve requirements are adjusted following global economic cycles. Our results reveal a lending channel of reserve requirements for branches whose parent banks are more exposed to targeted deposits. Branch ownership and exposure to internal liquidity are central in explaining the results. Our findings reveal limitations in current macroprudential policy frameworks.

Globalisation has greatly increased the degree of interdependence across countries. Macroeconomic policy must therefore take a global perspective, particularly in the case of small open economies such as Singapore. From a modeller’s point of view, this requires considering many countries, regions and markets, as well as multiple channels of transmission, including trade and financial linkages. Cross-country interdependencies are increasingly reflected in the effects of global shocks, to oil or food prices for example, as well as technology and policy uncertainty spillovers.

In 2017 the world economy is in an upswing, but consumer price inflation is still surprisingly low in advanced economies, and central banks will therefore keep key interest rates very low and financial conditions favorable for the rest of the year and, probably, for 2018. Global growth, though, will moderate a bit, since expansive policy measures in China have been reduced. As an early consequence, imports of emerging Asia were no more than stagnant during summer. The upswing in the euro area is broad based, both regionally and with respect to the different components of aggregate demand, as investment has recently picked up markedly, partly due to construction of dwellings. From the production side, the level of capacity utilization in the manufacturing sector is clearly above its long-term average and rising further. Inflation will not have reached the ECB’s target rate of below but close to 2% at the end of 2018. The trend of a growing participation rate in labour markets and the amount of part-time and low quality jobs are some reasons why overall wage and price dynamics are still very moderate; the appreciation of the euro, the incorporation of technical innovations and a possible change in the consumer preferences for low-cost products could be other reasons. We forecast a GDP growth rate of 2.3% for 2017 and 1.9% for 2018. This year’s strong pickup of world trade means that net exports will, in spite of rather strong domestic demand, contribute positively to GDP growth in 2017, while the opposite holds for 2018, due to the significant appreciation of the Euro.

Im Sommer 2017 befindet sich die Weltwirtschaft im Aufschwung. Das deutsche Bruttoinlandsprodukt dürfte nach vorliegender Prognose im Jahr 2017 wie schon im Vorjahr mit 1,9% und im Jahr 2018 mit 2,0% expandieren. Die öffentlichen Haushalte erzielen dabei weiter zunehmende Überschüsse. Der Zuwachs der Produktion in Ostdeutschland dürfte im Prognosezeitraum (wie schon in den vergangenen drei Jahren) etwas über dem in Westdeutschland liegen.

This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.

This paper investigates the finance-growth nexus where bank credit is decomposed into investment, consumption, and working capital credit. From a panel dataset of provinces in Indonesia, it documents that higher financial development measured by financial deepening and financial intermediation exhibits an inverted U-shaped relationship with economic growth. This non-linear effect of financial deepening is driven by both investment credit and consumption credit. These results suggest that too much investment credit and, to a lesser extent, consumption credit are detrimental to economic growth. Ultimately, only financial intermediation associated with working capital credit has a positive and monotonic impact on economic growth.

A distinctive aspect of the recent financial crises is that they emerged primarily in the industrial world. Since the 2008-2009 global financial crisis emerging countries have been therefore confronted with financial shocks triggered at the core of the international financial system, affecting the volatility of capital flows worldwide. Emerging countries’ dependence on capital and trade flows, combined with a large presence of foreign-owned banks, has been identified as a central driver of the cross-border transmission of these crises (see IMF, 2009). While historical events such as the Latin American debt crisis or the 1997 Asian financial crisis highlighted the importance of sound balance of payments and inflation targeting policies at the macroeconomic level, the global financial crisis has revealed the importance of weighing the costs and benefits of banking globalization. This is foremost important from a policy perspective, since emerging countries faced for the first time in decades an external shock in a context free of large local macroeconomic imbalances, having to adapt their traditional policy framework to new challenges. This has been emphasized, among others, by the former Chairman of the U.S. Federal Reserve Ben Bernanke. In particular, this changing scenario implied that microeconomic aspects involved in the cross-border transmission of shocks gained increasing momentum in the international policy debate (see for instance Freixas et al., 2015).

• Worldwide economic activity is vivid in summer 2017. Data on production for the first quarter of the year were only mixed: in the euro area quarterly growth was accelerating, but it went down in the US, Japan, and China. Other basic indicators, however, suggest that these economies continue expanding healthily. • Risks concerning the international economic policy framework remain, in particular since the economic agenda of the US government is still unclear, and no one knows whether the Brexit negotiations will lead the way to an orderly separation of Britain from the EU. • Production in the euro area has been expanding by more that 1 ½ % per year for almost three years now; since summer 2016, this expansion has even gained a bit of pace, mainly due to a expansion in France and, to a lesser extent, in Italy. • The ECB’s cautious hints at a coming normalization of monetary policy were enough to have a discernible effect on financial conditions at the end of June: yields for long term bonds rose, and the euro appreciated. That said, the common currency is still relatively cheap, and borrowing costs for non-financial firms and private households are still low. • Overall, we raise our GDP forecast for 2017 from 1.7% (spring report) to 2.1% and for 2018 to 1.8% (spring: 1.7%). We expect HICP inflation to remain well below the ECB target both in 2017 and 2018. • A major risk for the continuation of the current upswing in 2018 comes from the normalization of monetary policy: it is not clear by how much long term interests will rise and whether higher borrowing costs will jeopardize the confidence of financial markets in the solvency of some public debtors in the euro area.

We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.