Archive for February 10th, 2022

To manage creative destruction, we should build bridges and not walls

February 10, 2022

J Bradford Delong in this Project Syndicate article argues that we should build bridges and not walls to manage competition and creative destruction.

Technology and globalization offer far-reaching benefits, …., but they also increase the risk of some people being left behind. Accordingly, we should build bridges to help people move to the sectors that will define the new economy. What we should not do is build walls to protect the industries that will be rendered unproductive by the forces of creative destruction.

 

Posted in Discussion, Economics - macro, micro etc | Leave a Comment »

Discovering the ‘true’ Schumpeter: New insights on the finance and growth nexus

February 10, 2022

Peter Bofinger, Lisa Geißendörfer, Thomas Haas and Fabian Mayer in voxeu say we misinterpret Schumpeter’s work on finance and growth nexus.

The research portrays Schumpeter as someone who thought finance follows real economy by just intermediating funds from savers to investors. However, this is not correct. The ‘true’ Schumepeter thought finance leads real economy by creating credit:

Joseph Schumpeter made pioneering contributions to economic theory on the relationship between the financial system and economic growth. However, the economic literature has often misinterpreted his work, particularly on the importance of banks and liquidity creation for development. This column argues that a correct interpretation of Schumpeter helps resolve many empirical puzzles which have emerged in the last decades. Using a panel of 43 countries, it finds strong positive effects of credit growth on GDP growth and little effect of saving on GDP and credit growth. 

Further:

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Posted in Academic research & research papers, Central Banks / Monetary Policy, Economics - macro, micro etc, Financial Markets/ Finance | Leave a Comment »

Shadow loans and regulatory arbitrage: evidence from China

February 10, 2022

Amanda Liu, Jing Liu and Ilhyock Shim in this BIS paper point how Chinese banks hide shadow loans from regulators:

This paper examines how Chinese banks used on-balance sheet shadow loans for regulatory arbitrage and whether the financial market priced in the banks’ use of shadow loans and the resulting vulnerabilities in 2016–2020. It finds that banks chose to window-dress their regulatory capital ratio by using shadow loans. It also shows that banks with a higher shadow loan ratio or a lower break-even non-performing loan ratio obtained from reverse stress testing faced higher wholesale funding costs. Finally, after the announcement of a rare bank failure event, more vulnerable banks witnessed lower cumulative stock and bond returns.

Posted in Academic research & research papers, Central Banks / Monetary Policy, Economics - macro, micro etc, Financial Markets/ Finance | Leave a Comment »

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