Thierry Tressel

International Monetary Fund · European Department

This paper studies the evolution of non-financial corporate debt among publicly listed companies in major advanced economies between 2010 and 2017. Since 2010, firms have started to rely more on corporate bond markets and have used part of their debt to increase their holdings of cash. In our sample of some 5,000 firms, we find substantial differen...

Using a dataset covering about 276,998 firms across 75 countries over the period 2004–2011, this paper examines the short-run evolution of firms' capital structures following the start of the global financial crisis and its immediate aftermath, comparing the experience of already levered SMEs, large non-listed firms, and listed companies. We find t...

This paper empirically examines the determinants of credit at different maturities across countries of the European Union during the last decade. We document the lengthening of maturities since the early 2000s and whether these patterns were driven by similar factors in advanced and emerging market economies. Before the 2008 crisis, long-term credi...

Purpose The design of a macro-prudential framework and its interaction with monetary policy has been at the forefront of the policy agenda since the global financial crisis. However, most advanced economies (AEs) have little experience using macroprudential policies. As a result, relatively little is known empirically about macroprudential instrum...

The crisis has highlighted the importance of setting up macro-prudential oversight frameworks, having effective macro-prudential instruments in place to be called upon to mitigate growing financial imbalances as needed. We develop a new approach using the euro area Bank Lending Survey to assess the effectiveness of macro-prudential policies in cont...

This eBook collects some of the best Vox columns on financial regulations, starting with the fundamentals of financial regulations, moving on to bank capital and the Basel regulations, and finishing with the wider considerations of the regulatory agenda and the political dimension. Collecting columns from over the past six years, this eBook maps th...

Should the political influence of large financial institutions take some blame for the financial crisis? This chapter presents evidence that financial institutions lobbying on mortgage lending and securitisation issues were adopting riskier lending strategies. This contributed to the deterioration in credit quality and to the build-up of risks prio...

Staff Discussion Notes showcase the latest policy-related analysis and research being developed by individual IMF staff members and are published to elicit comment and to encourage debate. These papers are generally brief and written in nontechnical language, and so are aimed at a broad audience interested in economic policy issues. This Web-only s...

Policy recommendations to strengthen the financial resilience of the EU

We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that t...

The paper examines progress with the external rebalancing of euro area deficit countries. Relative prices are adjusting at different pace across countries and with different compositions of wage cuts and labor shedding. There is so far limited evidence of resource re-allocation from non-tradable to tradable sectors, while improved export performanc...

The SDN elaborates the case for, and the design of, a banking union for the euro area. It discusses the benefits and costs of a banking union, presents a steady state view of the banking union, elaborates difficult transition issues, and briefly discusses broader EU issues. As such, it assesses current plans and provides advice. It is accompanied b...

The paper examines the extent to which current account imbalances of euro area countries are related to intra-euro area factors and to external trade shocks. We argue that the traditional explanations for the rising imbalances are correct, but are incomplete. We uncover a large impact of declines in export competitiveness and asymmetric trade devel...

Estimates of the relationship between the real effective exchange rate, the current account, and the net external assets position and a set of fundamentals in the medium to long term, with particular emphasis on low-income countries (LICs) are reviewed. The review finds that the same broad set of economic fundamentals coherently explains the three...

We consider a moral hazard economy with the potential for collusion between bankers and borrowers to study how incentives for risk taking are a¤ected by the quality of supervision. We show that a low cost of capital or low return on investment may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium is ine¢ cie...

The financial crisis has highlighted the importance of various channels of financial contagion across countries. This paper first presents stylized facts of international banking activities during the crisis. It then describes a simple model of financial contagion based on bank balance sheet identities and behavioral assumptions of deleveraging. Ca...

Does capital flow from rich to poor countries? We revisit the Lucas paradox and explore the role of capital account restrictions in shaping capital flows at various stages of economic development. We find that, when accounting for the degree of capital account openness, the prediction of the neoclassical theory is confirmed: less developed countrie...

Using detailed information on lobbying and mortgage lending activities, we find that lenders lobbying more on issues related to mortgage lending (i) had higher loan-to-income ratios, (ii) securitized more intensively, and (iii) had faster growing portfolios. Ex-post, delinquency rates are higher in areas where lobbyist' lending grew faster and they...

This paper presents a simultaneous assessment of the relationship between economic performance and three groups of economic reforms: domestic finance, trade, and the capital account. Among these, domestic financial reforms, and trade reforms, are robustly associated with economic growth, but only in middle-income countries. In contrast, we do not f...

This paper offers a coherent empirical analysis of the determinants of the real exchange rate, the current account, and the net foreign assets position in low income countries. The paper focuses on indicators specific to low income countries, such as the quality of policies and institutions, the special access to official external financing, and th...

This paper studies whether the policies that, over the past decades, liberalized bankingsystems around the world have resulted in deeper credit markets. To measure banking sectorreforms we use a new index that tracks policy changes in five separate areas for 91 countriesover 1973-2005. We find that reforms have led to financial deepening, but only...

This paper addresses the question of whether and how easy monetary policy may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates were persistently and significantly below what Taylor rules would prescribe are correlated with...

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be l...

This study finds that banks receive more favorable Moody's financial strength ratings in countries with better compliance with Basel Core Principles related to information provision. The results are robust to controlling for broad indexes of institutional quality, macroeconomic variables, sovereign ratings, and reverse causality. Compliance with ot...

This paper investigates the effects of financial and trade reforms on manufacturing output performance in a large sample of developed and developing countries. To identify the channels through which reforms affect economic performance and to address endogeneity concerns, we estimate differential effects of reforms across various industries. We find...

This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is co...

This paper studies the effect of financial globalization on the allocation of capital within countries. We show that, in countries with weak governance, politically connected firms benefit relatively more of financial integration than other firms. They experience a positive differential effect on investment financed by external debt, even though th...

We model an economy in which domestic banks and firms face incentive constraints, as in Holmstrom and Tirole (1997). Firms borrow from banks and uninformed investors, and can collude with banks to reduce the intensity of monitoring. We study the general equilibrium effects of capital flows (portfolio investments and loans, FDI) on the governance of...

This paper studies whether compliance with the Basel Core Principles for Effective Banking Supervision (BCPs) improves bank soundness. The authors find a significant and positive relationship between bank soundness (measured with Moody's financial strength ratings) and compliance with principles related to information provision2. Specifically, coun...

This paper studies how macroeconomic policies can help offset two unintended and undesirable features of foreign aid: its volatility and Dutch disease. We present evidence that aid volatility augments trade balance volatility and that foreign aid, with the important exception of years of adverse shocks, depresses exports. We also find that these ef...

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when foreign banks are better at monitoring highend customers than domestic banks, their entry benefits those customers but may hurt other customers and worsen welfare. The model also predicts that credit to the private secto...

This paper analyses how monetary policy can enhance the effectiveness of volatile aid fl ows. We find that monetary policy is effective in reducing trade balance volatility. We propose the following taxonomy, excluding the case of emergency assistance. Monetary policy should slow down consumption growth and build up international reserves when aid...

This paper considers how a comprehensive set of factors relates to financial sector performance in low-income countries (LICs). It finds that corruption and inflation are associated with a shallower and less efficient financial system, while legal origin and characteristics of the supervisory and regulatory framework have no significant relationshi...

The authors present empirical evidence on the determinants of industry-level multifactor productivity growth. They focus on"traditional factors,"including the process of technological catch up, human capital, and research and development (R&D), as well as institutional factors affecting labor adjustment costs. Their analysis is based on harmonized...

The paper describes the main featues of the labor market and the social safety net in Korea, analyzes the causes and macroeconomic consequences of the dual labor market, and discusses the government's reform proposals.

This paper presents evidence that aid inflows can cause a significant but small real exchange rate appreciation and develops a theoretical model to identify the conditions under which a policy that prevents the real appreciation by sterilizing the base money effect of aid improves welfare. The empirical results are based on a real exchange rate mea...

This paper analyzes the emergence and the evolution of a modern banking system, in a developing economy where banks coexist with informal credit institutions. Banks have a superior ability in mobilizing savings while informal lenders enjoy a superior information on borrowers. More specifically, banks cannot observe perfectly the behavior of borrowe...

The authors assess empirically the impact of contractual savings institutions portfolios (pension funds and life insurance companies) on securities markets, for example, depth and liquidity in the domestic stock market, and depth in the domestic bond market. They discuss how the institutionalization of savings can modify financial markets through t...

Contractual savings (the assets of pension funds and life insurance companies) have been growing at much faster rates than gross domestic product (GDP) in many developed countries (for example, the Netherlands, the United Kingdom, the United States, and Switzerland) and developing countries (for example, Chile, Malaysia, Singapore, and South Africa...

In this paper we analyse the impact of product market competition and ownership structure on firm performance. Our results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, we find a U–shaped relationship with performance. Firms with relatively dispersed and...

From an accounting point of view, two main factors seem to have played an important role in explaining the growing disparities in growth paths across the OECD countries over the past decade: differences in productivity patterns of certain high-tech industries; and differences in the pace of adoption of the new information and communication technolo...

This paper argues that contractual savings (assets of pension funds and life insurance companies) contribute to the improvement of banks' efficiency, credit, and liquidity risk. The authors use bank level panel data across countries to assess the impact of contractual savings on bank efficiency and lending behavior. They concentrate on profitabilit...

This special issue of the European Journal of Population focuses on possible economic consequences of low fertility in Europe. This introduction reviews the history of falling fertility in Europe and the literature that explores its causes, its potential implications, and possible policy responses. It also summarizes the evolution of thinking about...

The authors analyze the relationship between the development and asset allocation of contractual savings and firms'capital structures. The authors develop a simple model of firms'leverage and debt maturity decisions. They illustrate the mechanisms through which contractual savings development may affect corporate financing patterns. In the empirica...

We analyze the relationship between the development, and asset allocation, of contractual savings and firms' capital structures. We develop a simple model of firms' leverage and debt maturity decision. We illustrate the mechanisms through which contractual savings development may affect corporate financing patterns. In the empirical section, we sho...

In this paper we analyze the impact of product market competition and ownership structure on corporate performance. We focus on the firms listed on the Warsaw Stock Exchange, which are either privatised or newly created firms. First, we study the separate effects of competition and ownership concentration on firm level productivity growth. Next, we...

This paper analyzes the relationship between the development of contractual savings (pension funds and life insurance) and stock and asset markets. We sketch a three-asset model explaining how the contractual savings sector promotes financial development and what is the impact on asset markets equilibrium. We use panel data for some OECD and develo...

We analyze the relationship between the development, and asset allocation, of contractual savings and firms' capital structures. We develop a simple model of firms' leverage and debt maturity decision. We illustrate the mechanisms through which contractual savings development may affect corporate financing patterns. In the empirical secti...

We describe the emergence of a banking sector in a developing economy. Banks, contrary to traditional moneylenders, cannot obtain perfect information on borrowers' choices : they ask for collateral. However, banks have the (endogenous) capacity to aggregate information, infer the state of nature, and therefore affect the allocation of capital. We a...

Nous nous intéressons à l'émergence de banques commerciales modernes dans une économie en développement. Les prêteurs dans le secteur informel disposent d'un avantage informationnel par rapport aux banques qui prêtent contre garanties. Néanmoins, les banques agrègent l'information et ainsi sont en mesure d'inférer, de façon endogène, l'état de la n...

The model describes an economy in which banks develop in order to meet the entrepreneurs' demand of capital. Domestic savers can lend in the informal credit market where they have to bear some risk; they can also save in a safe bank account. Banks cannot perfectly check the choices of borrowers, hence they ask for a collateral. Therefore, small fir...

The model analyses the joint process of growth and financial institutions development. There are two markets for credit: the informal credit market, and banks. The informal credit market has an advantage in temr of monitoring capacity but becomes extremely costly for large scale projects. Banks cannot monitor entrepreneurs perfectly, hence the ;att...

In this paper, we develop a theoretical framework for, and conduct empirical tests of how, production structures are jointly determined by factor endowments and financial development. On the theoretical side, we introduce an external finance constraint into the GDP function and derive an estimable equation for how sectoral shares are influenced by...

This paper develops a two-period model to analyze the welfare effects of monetary policy in a typical aid-receiving country. We consider a small open economy with a closed capital account where the tradable sector raises overall productivity through learning-by-doing (LBD) externalities. Front-loading consumption aid increases current consumption b...