Abstract
Over the last decades, both advanced and emerging economies have experienced the emergence of the phenomenon known as financialization, that, until some time ago, was generally considered beneficial for the economy. The 2007-2008 crisis and the severe post-crisis recession called into question the assumptions underlying the positive perception of the role played by financialization in the economy. In particular, the effects of financialization on financial stability and inequality are now widely recognized. A recent debate focused on the effectiveness of unconventional monetary policy tools in transferring their effects on the financial sphere to the economic sphere (e.g., via stimulating the transmission of resources from the banking system to the real economy). Among these unconventional policy measures, Quantitative Easing (QE) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent QE may generate net flows of additional resources to the real economy. Second, to what extent QE may also alter the pattern of intra-financial exposures among financial actors and what are the implications in terms of financialization. Here, we address these two questions by mapping and analyzing the euro area multilayer macro-network of financial exposures among institutional sectors across financial instruments (i.e., loans, bonds, equity, and insurance and pension schemes) and we illustrate our approach on recently available data. We then test the effect of the implementation of ECB’s QE on some novel measures of financialization that we derive from the time evolution of the financial linkages in the multilayer macro-network of the euro area.
Highlights
Over the last decades, both advanced and emerging economies have experienced the emergence of the phenomenon known as financialization of the economy, meaning, broadly speaking, “more finance, better paid, playing a more pervasive role in economic life” (Turner 2017).1 From the 1970s on, finance grew far faster than the real economy (Haldane et al 2010), private credit increased more rapidly than the Gross Domestic Product (GDP) (Reinhart and Rogoff 2013), financial trading grew dramatically relative to the underlying real economy flows (Bank for International Settlements (BIS) 2008; 2013), and the financial system became far more complex (Akerlof and Shiller 2015)
In order to investigate i) to what extent Quantitative Easing (QE) may generate net flows of additional resources to the real economy and ii) to what extent QE may alter the pattern of intrafinancial exposures among financial actors, first of all, we examine the euro area multilayer macro-network of financial exposures
The empirical evidence based on our financialization measures, and in particular on the general situation in terms of fraction of intra-financial assets versus financialreal assets, captured by Fig. 17, allows us to state that, since QE, there has been an increase in financial system activities, but mostly addressed to the financial system itself
Summary
Both advanced and emerging economies have experienced the emergence of the phenomenon known as financialization of the economy, meaning, broadly speaking, “more finance, better paid, playing a more pervasive role in economic life” (Turner 2017). From the 1970s on, finance grew far faster than the real economy (Haldane et al 2010), private credit increased more rapidly than the Gross Domestic Product (GDP) (Reinhart and Rogoff 2013), financial trading grew dramatically relative to the underlying real economy flows (Bank for International Settlements (BIS) 2008; 2013), and the financial system became far more complex (Akerlof and Shiller 2015). Fifth, building on the multilayer macro-network analysis of the euro area, we propose some novel indicators able to capture i) the transmission of resources to the real economy through the increase of the interactions between the financial sector and the real sector, and ii) the level of financialization of the euro area through the increase of the intra-financial interactions, via loans and deposits, securities, and equity, since the implementation of QE This approach represents a tangible step ahead in the comprehensive analysis of the effects of unconventional monetary policy, which until now mainly involved macroeconomic implications or the impact on financial markets, neglecting network effects and their interplay with financialization.
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