iiinova — where your digital self keeps evolving

VoxEU @ CEPR @voxeu.org · 12/08/2026

1/ Last week I attended the 2026 GRN Dev. Banking Research Conference, organized by @afd-france.bsky.social & Finance in Common with FERDI and CERDI. A recurring theme, implicit rather than explicit, was the knowledge role of national development banks. Why this matters. @gvagrad.bsky.social

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Reposted by Ugo Panizza

@upanizza.bsky.social, Francesco Tripoli, & @wederdim.bsky.social conduct an autopsy of the voluntary carbon market and reinforce the case for reforming carbon accounting to stop credits from standing in for cuts the firm could make itself. cepr.org/voxeu/column... #EconSky

Figure shows that avoidance projects dominate the carbon market. These projects do not take carbon out of the air. They claim credit for emissions that never happened, measured against a hypothetical world in which the project never existed. A credit avoids a tonne only if that hypothetical holds and the project would not have gone ahead anyway. Much of the integrity evidence finds that this condition often fails.

The voluntary carbon market was built on a single promise: that one credit cancels one tonne. Most scrutiny has asked whether that promise holds on the supply side – whether the credits are real. This column asks a different question: what did the mere availability of offsets do to the firms that bought them? Using a buyer-linked dataset spanning the near-universe of offset retirements, and the 2023 integrity scandals as a natural experiment, the authors find that firms which walked away from offsetting cut their own operational emissions sharply more than firms that stayed. Even a market of flawless credits could still slow real decarbonisation.

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9/ The conversations at this conference suggest the topic is as relevant as ever. It would be great to update that survey and see where things stand today.

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8/ We also surveyed managers at 8 national development banks. Almost all saw this role as valuable and feasible. Almost none had the mandate, resources, or formal channels to pursue it systematically. That gap is the problem.

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7/ We called this the "intelligence role" of development banks. Smart development banks should not merely implement policy. They should actively contribute to its design. (AI-generated painting in the style of Leonardo)

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6/ Through loan screening & engagement with firms, development banks can learn: what bottlenecks are holding back new activities, what public inputs are missing, where coordination failures exist, & where govt failures are getting in the way. (AI-painting in the style Renoir)

5/ The core idea: just as commercial banks have a comparative advantage in producing information about private returns, development banks can develop a comparative advantage in producing information about social returns. (AI-generated painting in the style of Roy Lichtenstein)

4/ A few years ago, Ricardo Hausmann, Eduardo Fernández-Arias, and I argued that development banks are uniquely positioned to solve this problem. Our paper: "Smart Development Banks." ideas.repec.org/p/gii/giihei...

The conventional paradigm about development banks is that these institutions exist to target well-identified market failures. However, market failures are not directly observable and can only be ascer

Smart Development Banks

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3/ Market failures are not directly observable. And when it comes to structural transformation, the problem is even harder: the activities that need to be created do not yet exist. They are, by definition, below the radar. (AI generate painting in the style of Escher)

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𝙐𝙜𝙤 𝙋𝙖𝙣𝙞𝙯𝙯𝙖 @upanizza 2/ The conventional view is that development banks exist to target market failures. Sound in theory. But it rests on the assumption that governments already know what those market failures are. In practice, they do not (AI-generate painting in the style of Diego Rivera).

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VoxEU @ CEPR @voxeu.org · 29/04/2026

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Reposted by Ugo Panizza

@upanizza.bsky.social provides operational guidance on the use of blended finance. The policy recommendations depend on the nature of the market failure & the instrument. He argues that practitioners should resist the instinct to eliminate all risk from a project. cepr.org/voxeu/column... #EconSky

Achieving sustainable development goals needs blended finance, where public money is used to crowd in larger private capital flows. The catalytic multiplier is a central metric, which is the increase in total project size per dollar of public expenditure. This column uses a model to provide operational guidance on the use of blended finance. The policy recommendations depend on the nature of the market failure (production externality, financial frictions, or credit rationing) and the instrument (subsidised loans or credit guarantees). Furthermore, it argues that practitioners should resist the instinct to eliminate all risk from a project.

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Reposted by Ugo Panizza

1/ Why economists like models (with an homage to Jorge Luis Borges) After I posted a paper on the catalytic effect of blended finance, I got some pushback on the idea that a unified analytical framework is useful at all. 🧵

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Jorge Luis Borges: Textos en su voz - Del Rigor de la Ciencia

9/ A formal model is not a one-size-fits-all prescription. It is a map. And you need a map most when the terrain is complicated — but a 1:1 map is useless. Here is the great Jorge Luis Borges reading his own Del Rigor de la Ciencia www.youtube.com/watch?v=zwDA...

youtube.com

YouTube video by criaturasdeceniza

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8/ Same logic for blended finance. My paper starts from a clean benchmark — a world where blended instruments add no value — then asks: under what market failures can they outperform it, and by how much?

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7/ By specifying the exact conditions under which financing form is irrelevant, MM tells you where to look for the conditions under which it is relevant. It is a diagnostic framework: which market failure are we dealing with? Which assumption is violated?

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6/ We all know MM's assumptions do not hold. Markets are incomplete. Taxes distort. Adverse selection and moral hazard are everywhere. So the form of financing clearly does matter. Does that make MM useless? Exactly the contrary.

Modigliani–Miller theorem - Wikipedia

5/ Consider Modigliani-Miller, probably the most important result in all of corporate finance. MM: under perfect capital markets, no distortionary taxes, no incentive problems — the form of financing does not matter for firm value. en.wikipedia.org/wiki/Modigli...

en.wikipedia.org

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4/ When a model's predictions do not match what you observe on the ground, the mismatch is informative. It tells you which assumption is failing and which feature of the local context you need to incorporate. The model does not ignore context. It helps you locate it.

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3/ Without a framework, it is hard to know which differences matter and why. Formal models force you to state your assumptions explicitly. No hiding behind vague qualifications. No hand-waving. Every assumption is visible, every logical step is checkable

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2/ The criticism is that every case is different. Context matters. Sector, geography, regulation, culture — all of it. This is right. And that is exactly why models are useful The blended finance paper is here ideas.repec.org/p/gii/giihei...

The Catalytic Effect of Blended Finance

Development finance institutions mobilize over $250 billion annually through blended finance operations, yet practitioners lack a unified framework to evaluate its catalytic effect and for choosing am

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8/ Blended finance can help but does not always work. When default risk is high, multipliers are often below one. Smart instrument choice matters.

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7/ A practical rule of thumb: production externalities → subsidized loans. Financial frictions → guarantees. And unless credit rationing is the dominant friction AND default risk is high, avoid full de-risking.

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6/ Result 3: Full de-risking is rarely optimal. For subsidized loans, a non-de-risking intervention always achieves a higher multiplier. For guarantees, full de-risking is only warranted under credit rationing and high default risk.

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5/ Result 2: Guarantees and subsidized loans yield equal multipliers for pure de-risking and production externalities. But guarantees outperform subsidized loans when the market failure is a financial friction. Instrument choice is not neutral.

4/ Result 1: The multiplier is DECREASING in the severity of production externalities. Interventions that are most needed achieve the lowest leverage. Large reported multipliers may simply reflect interventions in nearly efficient markets, not targeting of serious distortions

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3/ I focus on the catalytic multiplier: the increase in total project size per dollar of expected fiscal cost. I compare two instruments — subsidized loans and credit guarantees — under two canonical market failures: production externalities and credit market imperfections.

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2/ Development finance institutions now mobilize over $250 billion annually through blended finance. Yet practitioners still lack a unified framework to evaluate its catalytic effect and choose among instruments. That is the gap I try to fill. Paper's here ideas.repec.org/p/gii/giihei...

The Catalytic Effect of Blended Finance

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VoxEU @ CEPR @voxeu.org · 07/04/2026

1/ Bank/Fund Spring Meetings are underway. Blended finance — using concessional public funds to crowd in private capital for the SDGs — is front and centre. But do we really know which instruments work best, and when? A new paper of mine tries to answer this. 🧵

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Reposted by Ugo Panizza

Ka Lok Wong, @markya.bsky.social‬ & @upanizza.bsky.social study sovereign bond issuance events across 20 EMDEs. The majority of issuance is in local currency and has a maturity of 5 years or less. Deep domestic bond markets are key for macroeconomic resilience. cepr.org/voxeu/column... #EconSky

This figure plots the evolution of total government bond issuance (in billion US dollars) over the period 2000-2023. The orange bars show Chinese central government bond issuance and the blue bars show central government bond issuance by the other 19 countries in our dataset.

Emerging market debt has surged since the pandemic, renewing concerns about rollover risk and fiscal vulnerability. This column uses a new auction-level dataset covering sovereign bond issuance events across 20 emerging markets to study the evolution, currency composition, and maturity of emerging market bond issuance. The majority of issuance is in local currency and has a maturity of five years or less. Furthermore, local-currency borrowing is mainly driven by rollover needs, while foreign-currency issuance is timed around global financial conditions. These findings underscore the importance of developing deep domestic bond markets as core infrastructure for macroeconomic resilience.

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Ugo Panizza @upanizza.bsky.social · 28/03/2026

Over the past few weeks I have been talking with @emilypeck.bsky.social @axios.com about the US Treasury market. I love her Rom-com title. As @laynamosley.bsky.social says the perfect rom-com for debt nerds www.axios.com/2026/03/26/t...

axios.com

The U.S. Treasury market is like a rom-com

Why haven't bond investors penalized the U.S.?

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Ugo Panizza @upanizza.bsky.social · 08/03/2026

This is couple of blocks from my mother-in-law’s apartment. It is the first time thy hit so close to her

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Ugo Panizza @upanizza.bsky.social · 06/03/2026

Updates from Beirut Just spoke with my sister-in-law. They stay in the corridor, away from windows. It's cold but windows are kept open day and night so bomb vibrations don't shatter the glass. And they are among the lucky ones. We live in a horrible world.

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Reposted by Ugo Panizza

1/7🧵 New paper "Too Much Finance Redux" with Jean-Louis Arcand and Enrico Berkes — a follow-up to over a decade of work on whether financial deepening can go too far. Here's the story: @gvagrad.bsky.social

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7/7 The question of whether finance can become "too much of a good thing" for economic growth remains as relevant as ever — particularly at a moment when calls for further financial deregulation are once again growing louder. ideas.repec.org/p/gii/giihei...

This paper revisits the "too much finance" hypothesis by reassessing the relationship between financial depth and economic growth using an expanded dataset (1960â€“2019) and a systematic est

Too Much Finance Redux

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6/7 One important challenge to our findings: "The Economic Effects of 'Excessive' Financial Deepening" (2025) by Markus Eberhardt and coauthors, using a factor-augmented heterogeneous diff-in-diff estimator. We're very much looking forward to continuing the dialogue! 📊

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5/7 A big thank you to David Cobham and @alexcobham.bsky.social for organizing the conference and for inviting us to write this paper.

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4/7 Stephen Cecchetti & Enisse Kharroubi also presented at the conference — using different data and different methods — and their findings similarly corroborate the too-much-finance hypothesis.

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3/7 In January 2026, we presented "Too Much Finance Redux" at a conference at LSE. It shows that our original findings are robust across all possible estimation periods between 1960 and 2019, using transparent and simple estimation techniques. The results hold.

2/7 In 2012, Jean-Louis, Enrico Berkes & I published an IMF WP titled "Too Much Finance" (published in the Journal of Economic Growth in 2015). Together with a paper by Stephen Cecchetti & Enisse Kharroubi, it sparked a large literature. ideas.repec.org/p/gii/giihei...

This paper revisits the "too much finance" hypothesis by reassessing the relationship between financial depth and economic growth using an expanded dataset (1960â€“2019) and a systematic est

Too Much Finance Redux

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