Financial Intermediation in International Macroeconomics

Financial Intermediation in International Macroeconomics

by | Jul 1, 2018 | by Emily Eisner, Fellowship, Financial Globalization, Research

by Emily Eisner

This project aims to understand the role of value-at-risk (VaR) constraints and bank risk-taking behavior in determining entry and exit into global asset markets. The model informs the aggregate risk of the global financial markets and informs macroeconomic dynamics that depend on financial frictions in intermediation. The project develops an open economy model of financial markets based on the closed economy model in Coimbra and Rey (2017). In the extended model, financial intermediaries, which are heterogeneous in their VaR constraint as in Coimbra and Rey (2017), have an opportunity to invest in foreign assets. The model predicts the risk-taking composition and international asset composition of financial intermediaries under different interest rate environments.

Topics

Initiatives

Firm Sorting, Endogenous Competition and Productivity in Developing Countries

Firm Sorting, Endogenous Competition and Productivity in Developing Countries

by | Jul 1, 2018 | by Roman Zarate, Fellowship, International Trade & Development, Research

by Roman Zarate

The goal of this project is to study how competition and firm market power shape the productivity distribution and the way that firms locate into space. In particular, low productive firms sort into places in which they exert more market power, while high productive firms sort into locations in which it is easier for customers (workers) to substitute among suppliers (employers) facing more competition. This mechanism is relevant in the context of developing countries in which a large number of small, unproductive firms coexist with productive firms. My primary hypothesis is that since in developing countries it is hard to commute, firms exert more labor market power generating two effects. On the one hand, low productive firms survive, and on the other, productive firms don’t expand in some locations. To test this hypothesis, I would use the economic censuses in Mexico and assess the productivity and pro-competitive effects in the labor market of transport projects designed to move people within cities.

Topics

Development

Initiatives

International Trade & Development

How Islamic are Islamic Banks

How Islamic are Islamic Banks

by | Jul 1, 2018 | by James Wilcox, Financial Globalization, Grant, Research

by James Wilcox

More than a dozen countries have both sizable conventional banks and Islamic banks. Instead of paying fixed deposit interest rates, which are prohibited by sharia law, Islamic banks offer profit and loss sharing (PLS) accounts. Payments to PLS accounts should vary with banks’ earnings. To the extent that they do, PLS accounts may be more equity-like than deposits at conventional banks. However, widespread consensus holds that Islamic banks’ payments to depositors are nearly indistinguishable from the interest rates paid by conventional banks. We estimate how much Islamic banks pass through their PLS-related earnings to PLS-related accounts and how much their responses to various factors differ from those of conventional banks. We also analyze how much Islamic banks’ profit and loss sharing has been obscured by previous data difficulties and by their smoothing over time the payments to PLS accounts. The results may shed light on the prospects for PLS loans and deposits as a source of more-equity-like financing from banks for smaller businesses, which often obtain few conventional loans from banks.

 

Topics

Capital flows

Initiatives

Financial Globalization