Portuguese Economic Journal, 2019, Volume 18, Nº 1
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- Do bad borrowers hurt good borrowers? A model of biased banking competitionPublication . Peón, David; Antelo, ManelThis paper explores a two-bank model in which, first, one bank correctly estimates the probability of low-quality loan repayment while the other overestimates it, and second, both banks have identical convex costs when granting loans. In this context of optimistically biased banking competition, we show how the unbiased bank follows the biased competitor as long as the bias of the latter is not too large. This would favour bad borrowers, who get better credit conditions at the expense of good borrowers. As a consequence, the presence of a biased bank increases welfare as long as the expected default rate is sufficiently high. Contrariwise, in subprime markets, biased banking competition would be socially harmful.
- Weakness of investment in Portugal : what role do credit supply and fiscal consolidation shocks play?Publication . Maurin, LaurentIn order to illustrate how tightened financial conditions have hampered investment in Portugal, we estimate a Factor Augmented Vector AutoRegressive model (FAVAR) with Bayesian techniques. We extract a financial conditions indicator and identify credit supply, demand and fiscal consolidation shocks with sign restrictions. We show that changes in financial conditions, which result from both credit supply shocks and fiscal shocks, have a protracted impact, especially on bank loans and bank lending spreads. We then develop a scenario in which we the tightening in financial condi- tions in the wake of the sovereign crisis is attributed to credit supply shocks. The analysis suggests that, due to the crisis, by the end of 2017, Portuguese GDP, corpo- rate investment and corporate loans were reduced by respectively 6, 22 and 20 p.p., public investment by 1 p.p. of GDP and bank lending spreads widened by 80 b.p.
- Economic growth, public, and private investment returns in 17 OECD economiesPublication . Afonso, António; St. Aubyn, MiguelWe study the macroeconomic effects of public and private investment in 17 OECD economies through a VAR analysis with annual data from 1960 to 2014. From impulse response functions we find that public investment had a positive growth effect in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and Canada. Public investment led to private investment crowding o ut in Belgium, Ireland, Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries. Private investment has a positive growth effect in all countries; crowds-out (crowds-in) public investment in Belgium and Sweden (in the rest of the countries). The partial rates of return of public and private investment are mostly positive. Our results are robust to the ordering of private and public investment in the VAR.