nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2024‒04‒22
three papers chosen by

  1. Encumbered Security? Conceptualising Vertical and Horizontal Repos in the Euro Area By Steffen Murau; Alexandru-Stefan Goghie; Matteo Giordano
  2. The macroprudential role of central bank balance sheets By Egemen Eren; Timothy Jackson; Giovanni Lombardo
  3. Asset price changes, external wealth and global welfare By Meyer, Timothy Andreas

  1. By: Steffen Murau (Global Climate Forum, Berlin; Freie Universität Berlin; Global Development Policy Center, Boston University); Alexandru-Stefan Goghie (Freie Universität Berlin); Matteo Giordano (Department of Economics, SOAS University of London)
    Abstract: Despite the paramount centrality of repurchase agreements (repos) in today’s market-based finance regime, both conceptual and empirical questions about European repo markets are insufficiently explored as contradictory legal and accounting treatments make their on-balance-sheet representation intricate. Drawing on the literature on monetary hierarchy, we make three connected conceptual arguments: First, we argue that the balance sheet mechanics of repos vary if the counterparties involved are on hierarchically different levels (“vertical repos†) or on the same hierarchical level (“horizontal repos†). While the vertical repo mechanism implies money creation, the horizontal repo mechanism only lends on pre-existing money. Second, we coherently represent the whereabouts of the security posted as repo collateral, which is held as an off-balance-sheet position of the repo lender, combined with a liability to repay it. Basel III regulations interpret this ambiguous status of the collateral as being “encumbered†and not leaving the repo borrower’s balance sheet. Third, we introduce an on-balance-sheet notation of the collateral framework as a means of the repo lender to alter the elasticity of the funding provided. Applying our methodology on two cases—vertical repos created by the Eurosystem for monetary policy implementation and horizontal repos used in the European interbank market—offers an innovative and consistent way to represent changes in the collateral frameworks that affect the elasticity space in the Euro area’s monetary architecture. Our analysis yields two main contributions: We offer a novel understanding of different mechanisms for repo creation based on monetary hierarchy, and we put forth a data-driven empirical analysis of repos in Europe aimed at supporting our conceptual elaborations.
    Keywords: repurchase agreements; collateral; market-based finance; Eurosystem; European Central Bank; Eurex clearing.
    JEL: G21 G23 E58
    Date: 2024–04
  2. By: Egemen Eren; Timothy Jackson; Giovanni Lombardo
    Abstract: Is there a role for central bank balance sheet policies away from the effective lower bound on interest rates? We extend the canonical DSGE model with financial frictions to include a fully specified central bank balance sheet. We find that the balance sheet size and composition can play a macroprudential role in improving the efficacy of monetary policy. The optimal balance-sheet policy aims at affecting duration risk held by banks in order to increase their resilience to shocks. Optimal short-run balance sheet policies bring no additional advantage to using the policy rate alone provided the optimal long-run balance sheet is already in place. Our results also highlight a key role for government debt maturity and bank regulation in determining optimal central bank balance sheets.
    Keywords: optimal monetary policy, central bank balance sheet, government debt, reserves, financial frictions, macroprudential
    JEL: E42 E44 E51 E52 G2
    Date: 2024–03
  3. By: Meyer, Timothy Andreas
    Abstract: U.S. equity outperformance and sustained dollar appreciation have led to large valuation gains for the rest of the world on the U.S. external position. The author constructs their global distribution, carefully accounting for the role of tax havens. Valuation gains are concentrated and large in developed countries, while developing countries have been mostly bypassed. To assess the welfare implications of these capital gains, the author adopts a sufficient statistics approach. In contrast to the large wealth changes, most countries so far did not benefit much in welfare terms. This is because they did not rebalance their portfolios and realize their gains, while they were further hurt by rising import prices from the strong dollar.
    Keywords: Foreign Assets, Global Imbalances, Valuation Effects
    JEL: F21 F32 F40 G15
    Date: 2024

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