Scott Baker, Lorenz Kueng, Leslie McGranahan, Brian T. Melzer, 30 January 2019

During and after the Global Crisis, economists and policymakers proposed a commitment to increase consumption taxes in the future as a way to shift consumption to the present. This column tests the impact of this unconventional fiscal policy using data on car sales. It finds that households respond dramatically to planned tax increases, but this depends on them having access to credit so they can bring forward their spending.

Marianna Battaglia, Selim Gulesci, Andreas Madestam, 06 January 2019

Small firms in developing countries are commonly thought to be prevented from making profitable investments by lack of access to credit and insurance markets. This column uses evidence from an experiment in Bangladesh to show that repayment flexibility leads to substantial improvements in business outcomes and socioeconomic status, as well as lower default rates. The results are driven by an increase in entrepreneurial risk taking, suggesting that lack of insurance is an important constraint for small firms but that a simple financial product that increases repayment flexibility can be an effective tool for enabling growth.

João Granja, Christian Leuz, Raghuram Rajan, 04 December 2018

Risk taking was pervasive during the Global Crisis even in the most unlikely areas, such as stretching to lend at a distance. Using US data, this column examines the degree to which competition amongst lenders interacts with the cyclicality in lending standards using a simple and policy-relevant measure, the average physical distance of borrowers from banks’ branches. It finds that distances widen considerably when credit conditions are lax and shorten considerably when credit conditions become tighter. A sharp departure from the trend in distance between banks and borrowers is indicative of increased risk taking. 

Atif Mian, Amir Sufi, 19 August 2018

Charles P. Kindleberger wrote that “asset price bubbles depend on the growth in credit”. This column looks at the acceleration of the US private label mortgage securitisation market in the US in the late summer of 2003, which disproportionately reduced the cost of financing by lenders that did not traditionally rely on deposit financing for mortgage lending. The sharp rise in lending in zip codes with greater exposure to such lenders generated a boom and bust in house prices. Easier credit also appears to have been a crucial ingredient in explaining bubble cities that experienced both house price and construction booms.

Michalis Haliassos, 08 November 2017

The 2017 CEPR European Conference on Household Finance, held with the support of the Think Forward Initiative, took place on 6-7 October 2017 in Alghero, Sardinia. This column describes the papers that were presented at the workshop.

Alan Taylor, 16 August 2017

Asli Demirgüç-Kunt, Bálint Horváth, Harry Huizinga, 06 July 2017

Monetary policies pursued by lending countries may have negative spillovers for financial stability in emerging markets, because monetary policy is transmitted through its effect on the aggregate supply of cross-border loans. This column uses data on the international syndicated loan market to argue that foreign bank ownership in a borrower country reduces the negative impact of lender-country monetary policy on cross-border syndicated loan supply. This suggests that countries could stabilise their cross-border credit supply by reducing restrictions on foreign bank entry into local markets.

Michalis Haliassos, 19 May 2017

The 2017 CEPR European Workshop on Household Finance took place on 28-29 April 2017 at the Copenhagen Business School. This column introduces the CEPR Network on Household Finance and its goals, and also describes the papers that were presented at the workshop.

Franziska Ohnsorge, Shu Yu, 16 May 2017

Since the Global Crisis, private credit has risen sharply in several emerging market and developing economies as well as advanced economies. This column examines the role of investment alongside these credit booms, and how output growth has been affected. These booms have been unusually ‘investment-less’ in comparison to previous episodes, which were accompanied by investment surges. The absence of investment surges during credit booms is accompanied by lower growth, especially once the credit boom unwinds.

Manthos Delis, Iftekhar Hasan, Steven Ongena, 22 February 2017

The positive relationship between democratic development and economic outcomes is well established. Using three decades of international data, this column identifies a new channel for this effect – the cost of credit to corporations. It also analyses loan pricing in Turkey to reveal a substantial rise in the average cost of lending after the attempted coup d’etat in July 2016. Together, these results highlight how efficiency in loan pricing results in a comparative advantage for firms in democratic countries over those in less democratic or authoritarian countries.

Federico Cingano, Francesco Manaresi, Enrico Sette, 24 June 2016

Negative shocks to bank balance sheets are problematic not just for financial markets, but for employment and economic growth more widely. This column uses evidence on a bank liquidity shock in Italy in 2007-10 to show the impact on firms’ production, investment, and employment. Firms borrowing from banks with a high exposure to the shock experienced a more intense fall both in credit flows and in investment expenditure. While the credit cut has been homogeneous across borrowers, firms with easier access to external finance were able to contain the negative consequences of the drop in credit for investment.

Jaap Bos, Ralph De Haas, Matteo Millone, 22 March 2016

Screening loan applicants is a key principle of sound banking, but it can be challenging when trustworthy information about applicants is not available. Many countries have therefore introduced credit registries that require banks to share borrower information. This column examines how the introduction of a new registry affected the functioning of the credit market in Bosnia and Herzegovina. Mandatory information sharing allowed loan officers to lend more conservatively at both the extensive and intensive margins. The improved credit allocation improved loan quality and lender profitability.

Adair Turner, 19 March 2016

Prior to the Global Crisis, modern macroeconomics largely ignored the details of the financial system, and favoured mathematical precision and elegance at the expense of realism. So argues Adair Turner in this Vox Talk. He also explains the key arguments in his book, ‘Between Debt and the Devil: Money, Credit and Fixing Global Finance’: that most credit is not needed for economic growth but rather drives real estate booms and busts; and that sometimes it’s better to print your way out of financial crises.    

Jean-Marie Baland, Rohini Somanathan, Lore Vandewalle, 07 February 2016

The benefits of microfinance are in the details. This column takes a look at commercial bank lending to Indian self-help groups – smaller, informal community-based groups – as a new and successful microfinance initiative. Different ways of thinking about getting credit to the poorest and most marginalised in society can work, but only if the institutions are properly geared up for their customers.

Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015

China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.

Philippe Karam, Ouarda Merrouche, Moez Souissi, Rima Turk, 02 February 2015

In the wake of the Crisis, policymakers have introduced liquidity regulation to promote the resilience of banks and lower the social cost of crisis management. This column shows that a funding liquidity shock, manifested as lower access to wholesale sources of funding following a credit rating downgrade, translates into a significant decline in both domestic and foreign lending. Liquidity self-insurance by banks mitigates the impact of a credit rating downgrade on lending.

James Wang, 30 December 2014

Many lenders hire loan officers to screen soft information that may otherwise be ignored by credit scoring. However, in addition to their compensation costs, loan officers may have characteristics, such as being overly cautious, that could distort their decisions. This column documents the performance of loan officers using data from a Chinese lender. Despite the distortions, the loan officers contribute three times their pay in annual profits above what the lender could have earned by itself, even with the benefit of hindsight.

Kuniyoshi Saito, Daisuke Tsuruta, 14 November 2014

In Japan, loans with 100% guarantees account for more than half of all loans covered by public credit guarantee schemes, but banks claim that they do not offer loans without sufficient screening and monitoring even if the loans are guaranteed. This column presents evidence of adverse selection and moral hazard in Japanese credit guarantee schemes. The problem is less severe for loans with 80% guarantees.

Pierluigi Bologna, Arianna Miglietta, Marianna Caccavaio, 14 October 2014

Following the financial crisis, European banks have taken steps to revise unsustainable business models by deleveraging. By this metric they have made substantial progress – but this column argues that improper management of the deleveraging process may threaten the recovery. The authors find that equity increases played a much larger role than asset decreases, and recommend increasing the disposal of bad assets.

Fergal McCann, Tara McIndoe-Calder, 23 September 2014

The role of credit-fuelled property booms in the Global Crisis has received much high-profile attention in recent years. Using data on Irish small and medium enterprises, this column highlights an additional channel through which such booms can impact post-crisis growth. Firms having difficulty repaying their property-related debts divert resources away from hiring and investment. Property booms thereby induce misallocation of resources in both the boom and the bust.

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