Bank Lending, Financing Constraints and SME Investment

SME investment opportunities depend on the level of financing constraints that firms face. Earlier research has mainly focused on the controversial argument that cash flow-investment correlations increase with the level of these constraints. We focus on bank loans rather than cash flow. Our results show that investment is sensitive to bank loans for unconstrained firms but not for constrained firms, and trade credit predicts investment, but only for constrained firms. We also find that unconstrained firms use bank loans to finance trade credit provided to other firms. Our results illustrate alternative mechanisms that firms employ both as borrowers and lenders (100 words)

Financial Liberalization and Inflationary Dynamics: An Open Economy Analysis

This paper analyzes the effects of financial liberalization on inflation. We develop an open economy monetary endogenous growth general equilibrium model, with financial intermediaries subjected to obligatory 'high' reserve ratio, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, which typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates.Inflation financial markets and the macroeconomy,