nep-ban New Economics Papers
on Banking
Issue of 2021‒09‒06
29 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States? By Judit Temesvary; Andrew Wei
  2. Scale effects on efficiency and profitability in the Swiss banking sector By Marc Blatter; Andreas Fuster
  3. BRRD credibility and the bank-sovereign nexus By Martien Lamers; Thomas Present; Rudi Vander Vennet; Nicolas Soenen
  4. A Model-Based Comparison of Macroprudential Tools By Eyno Rots; Barnabas Szekely
  5. How useful is market information for the identification of G-SIBs? By Busch, Pascal; Cappelletti, Giuseppe; Marincas, Vlad; Meller, Barbara; Wildmann, Nadya
  6. Spillover Effects in Firms' Bank Choice By Palma Filep-Mosberger; Attila Lindner; Judit Rariga
  7. Banks’ internalization effect and equilibrium By Chrysanthopoulou, Xakousti
  8. Lending Standards and the Business Cycle: Evidence from Loan Survey Releases By Lucas Hafemann; Peter Tillmann
  9. Decentralized Payment Clearing using Blockchain and Optimal Bidding By Hamed Amini; Maxim Bichuch; Zachary Feinstein
  10. How does standardization affect OTC markets? Evidence from the Small Bang reform in the CDS market By Manac, Radu-Dragomir; Banti, Chiara; Kellard, Neil
  11. Monetary policy financial transmission and treasury liquidity premia By Maxime Phillot; Samuel Reynard
  12. ESG issues in emerging markets and the role of banks By Arun, Thankom; Girardone, Claudia; Piserà, Stefano
  13. The existential trilemma of EMU in a model of fiscal target zone By Pompeo Della Posta,; Roberto Tamborini
  14. Does Public Debt Ownership Structure Matter for a Borrowing Country? By Carlos Alberto Piscarreta Pinto Ferreira
  15. The Industrial Organization of Financial Markets By Robert Clark; Jean-François Houde; Jakub Kastl
  16. Monetary policy and COVID-19 By Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  18. Do Central Banks Rebalance Their Currency Shares? By Menzie D. Chinn; Hiro Ito; Robert N. McCauley
  19. The role of disclosure in green finance By Steuer, Sebastian; Tröger, Tobias
  20. Monetary Policy over the Lifecycle By R. Anton Braun; Daisuke Ikeda
  21. Intergenerational redistributive effects of monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  22. The Power of Central Bank Balance Sheets By Athanasios Orphanides
  23. Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  24. Does financial development influence renewable energy consumption to achieve carbon neutrality in the USA? By Lahiani, Amine; Mefteh-Wali, Salma; Shahbaz, Muhammad; Vo, Xuan Vinh
  25. Welfare Implications of Asset Pricing Facts: Should Central Banks Fill Gaps or Remove Volatility? By Pierlauro Lopez
  26. Inflation risk? By De Grauwe, Paul
  27. Questions raised by the SDR channeling By Bruno Cabrillac
  28. Fintechs: Chancen für die KMU-Finanzierung? By Korus, Arthur; Löher, Jonas; Nielen, Sebastian; Pasing, Philipp
  29. Interest Rate Rules, Rigidities and Inflation Risks in a Macro-Finance Model By Roman Horvath; Lorant Kaszab; Ales Marsal

  1. By: Judit Temesvary; Andrew Wei
    Abstract: We study how U.S. banks' exposure to the economic fallout due to governments' response to Covid-19 in foreign countries has affected their credit provision to borrowers in the United States. We combine a rarely accessed dataset on U.S. banks' cross-border exposure to borrowers in foreign countries with the most detailed regulatory ("credit registry") data that is available on their U.S.-based lending. We compare the change in the U.S. lending of banks that are more vs. less exposed to the pandemic abroad, during and after the onset of Covid-19 in 2020. We document strong spillover effects: U.S. banks with higher foreign exposures in badly "Covid-19-hit" regions cut their lending in the United States substantially more. This effect is particularly strong for longer-maturity loans and term loans and is robust to controlling for firms’ pandemic exposure.
    Keywords: Cross-border exposure; Bank lending; Bank capital; Bank balance sheet liquidity
    JEL: F34 F65 G15 G21
    Date: 2021–08–24
  2. By: Marc Blatter; Andreas Fuster
    Abstract: This paper analyzes efficiency and profitability in the Swiss banking sector over the period 1997-2019. We find strong evidence for scale economies: for most banks in the sample, efficiency and profitability increase with bank size. Using an instrumental variables strategy for a subset of geographically restrained banks, we find that the effect of size on efficiency and profitability is likely causal. Scale economies have been more pronounced since 2010 than in the years prior to the global financial crisis. There is little evidence for scale economies for the largest (systemically important) banks; their relatively lower efficiency and lower profitability appear driven by certain aspects of their business model. Our results further indicate that good capitalization and high efficiency and profitability are compatible.
    Keywords: Bank efficiency, profitability, economies of scale, financial regulation
    JEL: G21 G28
    Date: 2021
  3. By: Martien Lamers; Thomas Present; Rudi Vander Vennet; Nicolas Soenen (-)
    Abstract: We investigate the effectiveness of the Bank Recovery and Resolution Directive (BRRD) in mitigating the bank-sovereign nexus in the Euro Area. Using CDS spreads to measure bank and sovereign credit risk and a DCC-MIDAS model capturing the long-term component of bank-sovereign interconnectedness, we document that the dynamic correlation between banks and sovereigns has decreased in Euro Area countries since the introduction of the BRRD. Panel data analysis reveals that the decline in interconnectedness is not driven by the banks’ capital adequacy, size or holdings of domestic sovereign securities.
    Keywords: BRRD; Bank-sovereign nexus, CDS spread, Dynamic correlation, DCC-MIDAS
    JEL: C58 G28 G32
    Date: 2021–08
  4. By: Eyno Rots (Magyar Nemzeti Bank (Central Bank of Hungary)); Barnabas Szekely (Goethe University)
    Abstract: We develop a DSGE model to analyze a macroprudential policy framework. We use it to describe the Hungarian economy and the key regulatory constraints implemented there: the loan-to-value and the debt-service-to-income caps imposed on mortgage borrowers and the minimum capital requirement imposed on banks. Our model is novel in the way it treats the borrowing caps as soft constraints, which makes it easy to analyze multiple non-redundant borrowing constraints. We also show an estimation strategy that involves a variation of impulse-response matching and accounts for the lack of historical data concerning the conduct of macroprudential policy, a common problem.
    Keywords: DSGE, macroprudential, DSTI, LTV, capital requirement, Covid†19.
    JEL: E37 E44
    Date: 2021
  5. By: Busch, Pascal; Cappelletti, Giuseppe; Marincas, Vlad; Meller, Barbara; Wildmann, Nadya
    Abstract: The Basel Committee on Banking Supervision (BCBS) framework used to identify global systemically important banks (G-SIBs) is based on banks’ balance sheet information, leaving information derived from market data untapped. Among the most widely used market-based systemic risk measures, Adrian and Brunnermeier’s (2016) Delta-Conditional Value at Risk (ΔCoVaR) best captures the system-wide loss-given-default (sLGD) and conditional impact concepts underlying the BCBS GSIB methodology. In this paper we investigate, using a global sample of the largest banks, whether a score based on ΔCoVaR could be useful for ranking G-SIBs or for calibrating an alternative G-SIB indicator weighting scheme. In our first analysis we find that the ΔCoVaR score is positively correlated with all five of the systemic importance categories of the BCBS framework. However, considerable information/noise with regard to the ΔCoVaR score remains unexplained. Before more is known about this residual, a score based on ΔCoVaR is difficult to interpret and is inappropriate for identifying G-SIBs in a policy context. Besides, we find that a ranking based on ΔCoVaR is subject to substantial variability over time and across empirical specifications. In our second analysis we use ΔCoVaR to place the current static weighting scheme for G-SIB indicators on an empirical footing. To do this we regress ΔCoVaR on factors derived from the G-SIB indicators. This approach allows us to focus on the part of ΔCoVaR which can be explained by balance sheet information which alleviates the identified issues of interpretability and variability. The derived weights are highest for the cross-jurisdictional activity (43%) and size (27%) categories. We conclude that ΔCoVaR is not suitable for use as an alternative G-SIB score but could be useful for policymakers to pursue an empirically grounded weighting scheme for the existing G-SIB indicators. JEL Classification: G20, G21, G28
    Keywords: bank regulation, global systemically important banks, systemic risk measures
    Date: 2021–08
  6. By: Palma Filep-Mosberger (Magyar Nemzeti Bank (Central Bank of Hungary)); Attila Lindner (University College London, MTA KTI); Judit Rariga (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper, we study firm-bank relationship formation. Combining domestic inter-firm network data from value-added tax declarations and credit registry for Hungary, we estimate the spillover effects in bank choice, identifying from variation on the bank level. Having at least one peer in the network who has an existing loan with a bank increases the probability that the firm will borrow a new loan from the same bank. We provide suggestive evidence that the estimated spillover effect is due to firm-to-firm information transmission about banks. According to our results, firms can learn about banking practices from their peers but they also point to financial stability concerns in the event of shocks to domestic supply chains.
    Keywords: bank choice, firm network, spillover effects.
    JEL: G30 L14 D22
    Date: 2021
  7. By: Chrysanthopoulou, Xakousti
    Abstract: This paper extends the standard New Keynesian model to allow for the presence of large banks, when the cost channel of monetary policy matters. It is shown that once the presence of large banks is taken into account the severity of the firms’ credit constraints, the aggressiveness of the central bank in stabilizing inflation and the degree of loan setting centralization jointly affect the steady state output. Moreover, it turns out that the indeterminacy region is not only shrunk due to the presence of a finite number of large banks but also dependent – among others - on the way in which the central bank and the macroprudential authority systematically behave.
    Keywords: Large banks; Cost channel; Indeterminacy; Countercyclical capital buffer
    JEL: E32 E44 E52
    Date: 2021–08–20
  8. By: Lucas Hafemann (Justus-Liebig-University Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: The Fed's Senior Loan Officer Opinion Survey (SLOOS) is widely considered a good indicator of banks' lending conditions. We use the change in corporate bond spreads on SLOOS release days to instrument changes in lending standards. A series of estimated IV local projections shows that lending standards have highly significant effects on macroeconomic and financial variables. A relaxation of standards expands economic activity and eases financial conditions. We then use the change in spreads and the change in the VIX index on release days to identify a pure credit supply shock and a risk-taking shock using sign restrictions in a Bayesian VAR model. We find that an easing in lending has different consequences for both types of shocks. While the VIX, the excess bond premium and stock prices decrease after a pure credit supply shock, they increase after a risk-taking shock.
    Keywords: loan survey, credit supply, risk-taking, instrumental variable local projections, shock identification
    JEL: E32 E44 G14
    Date: 2021
  9. By: Hamed Amini; Maxim Bichuch; Zachary Feinstein
    Abstract: In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we investigate default contagion in a network of smart contracts cleared through blockchain. In so doing, we provide an algorithm which constructs the blockchain so as to guarantee the payments can be verified and the miners earn a fee. We, additionally, consider the special case in which the blocks have unbounded capacity to provide a simple equilibrium clearing condition for the terminal net worths; existence and uniqueness are proven for this system. Finally, we consider the optimal bidding strategies for each firm in the network so that all firms are utility maximizers with respect to their terminal wealths. We first look for a mixed Nash equilibrium bidding strategies, and then also consider Pareto optimal bidding strategies. The implications of these strategies, and more broadly blockchain, on systemic risk are considered.
    Date: 2021–09
  10. By: Manac, Radu-Dragomir; Banti, Chiara; Kellard, Neil
    Abstract: Focusing on the most liquid segment of the European CDS market, this paper studies the impact of key standardization reforms. We document that the introduction of an upfront fee to standardize the cash flow of CDS contracts created an initial capital cost for traders, leading to higher CDS prices. This relation holds after accounting for well-known determinants of spreads, suggesting a separate funding channel driven by the greater capital intensity of trading. This effect is stronger when dealers are likely to bear the initial capital cost and is present across all industries, except for swaps written on financials.
    Date: 2021–08–23
  11. By: Maxime Phillot; Samuel Reynard
    Abstract: We quantify the effects of monetary policy shocks on the yield curve through their impact on Treasury liquidity premia. When the Fed raises interest rates, the spread between less-liquid assets and Treasuries of the same maturity and risk increases, as the liquidity value of holding Treasuries increases when the aggregate volume of banks’ customer deposits decreases. The longer the maturity is, the smaller - but still significant - the increase in the liquidity premium is, as longer-term Treasuries are less liquid. Due to this change in liquidity premia, the spread between a 10-year Treasury bond and a 3-month T-bill yield increases by approximately 5 basis points for a one-percentage-point increase in the policy rate, i.e., the Treasury yield curve steepens, ceteris paribus.
    Keywords: Treasury liquidity premia, monetary policy, yield curve, deposit channel
    JEL: E52 E43 E41
    Date: 2021
  12. By: Arun, Thankom; Girardone, Claudia; Piserà, Stefano
    Abstract: We explore the most relevant forces impacting the shift towards more ESG-related strategies in emerging markets. These include the challenges of climate change, social inequalities, and stakeholder-oriented corporate governance. We focus on banks’ role in BRICS countries that are the biggest and fastest growing emerging markets economies over 2009-2020. We also discuss how the ESG agenda has been pushed by the United Nations (UN) and by regulators. Our evidence shows that banks’ specific adoption of international sustainability frameworks and agreements such as the Global Reporting Initiative (GRI) are significant drivers of ESG engagement. Moreover, we find that a stronger ESG regulatory approach enhances banks’ sustainability practices in BRICS countries, especially for those that have lower average ESG scores. Two main implications can be drawn from our study: (i) banks should be encouraged to adopt international frameworks which provide universal minimum standards for corporate responsibility; and (ii) to improve the overall ESG information environment, mandatory disclosure rules should be introduced at country level.
    Keywords: ESG Ratings; Environmental, Social and Governance Performance; Emerging Markets; BRICS Countries; Sustainable Practices Regulation
    Date: 2021–08–23
  13. By: Pompeo Della Posta,; Roberto Tamborini
    Abstract: The lesson of the sovereign debt crises of the 2010s, and of the outbreak of the COVID- 19 pandemic is that EMU irreversibility, if not to remain a wishful statement in the founding treaties, necessitates to be completed by carefully designed ramparts for extraordinary times beside regulations for ordinary times. In this paper we wish to contribute to this line of thought in two points. First, we highlight that when exposed to large, systemic shocks the EMU faces a trilemma: its integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both. We elaborate this concept by means of a fiscal target-zone model, where EMU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper bound of their feasible fiscal effort. Second, we show that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. Drawing on the target-zone literature, we show how these devices can be designed in a consistent manner hat minimises their extension and mitigates the moral hazard concerns. The alternative to these devices is not retaining both the EMU irreversibility and the twin orthodoxies, but reformulating the treaties with explicit and regulated exit procedures.
    Keywords: COVID-19 pandemic, Fiscal Target Zone, Public Debt, Speculative Attacks, Fiscal Orthodoxy, Monetary Orthodoxy
    JEL: E65 F34 F36
    Date: 2021
  14. By: Carlos Alberto Piscarreta Pinto Ferreira
    Abstract: We assess the investor base impact on government borrowing costs and examine how investors react to shocks in sovereign bond yields, across 24 countries and 3 maturities between 2004Q1-2019Q2. Our VAR approach has the advantage of modelling bidirectional causality between yields and investor base. We find that higher foreign holdings are associated with lower yields but link these effects exclusively to foreign banks and mainly to 10-years maturity. Yields in GIIPS and EA core countries react in opposite directions to foreign holdings shocks. Foreign investment is procyclical, namely at the long end and where fundamentals are weaker. Thus, an EA sovereign debt crisis re-run cannot be dismissed requiring readiness to use supporting mechanisms to prevent contagion and an escalation that may jeopardize the monetary union itself. Yields’ response to domestic investment shocks is heterogeneous and seems to bear no significant relation with home bias. No cyclical trading pattern can be clearly associated to each type of domestic investor.
    Keywords: Public Debt, Government Bonds, Debt Structure, Investor Base, Sovereign Risk, VAR
    JEL: C32 C33 E43 G12 F34 G11 G12 H63
    Date: 2021–08
  15. By: Robert Clark; Jean-François Houde; Jakub Kastl
    Abstract: This chapter discusses recent developments in the literature involving applications of industrial organization methods to finance. We structure our discussion around a simple model of a financial intermediary that concentrates its attention either on (i) the retail market and hence engages in a traditional maturity transformation business by accepting funds that can be used to invest in risky projects (loans), or (ii) the investment business, financing its operations on the “wholesale” market and making markets or investing in higher return riskier projects. Our discussion is centered around the analysis of market structure and competition in each of these markets, focusing in turn on (i) primary and secondary markets for government and corporate debt, (ii) interbank loans, (iii) markets for retail funding, and (iv) credit markets, including mortgages.
    JEL: G2 L1 L51
    Date: 2021–08
  16. By: Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
    Abstract: We study the macroeconomic effects of the COVID-19 epidemic in a quantitative dynamic general equilibrium setup with nominal rigidities. We evaluate various containment policies and show that they allow to dramatically reduce the welfare cost of the disease. Then we investigate the role that monetary policy, in its capacity to manage aggregate demand, should play during the epidemic. We show that treating the observed output contraction as a standard recession leads to a bad policy, irrespective of the underlying containment measures. Then we check how monetary policy should solve the trade-off between stabilizing the economy and containing the epidemic. If no administrative restrictions are in place, the second motive prevails and, in spite of the deep recession, optimal monetary policy is in fact contractionary. Only if sufficient containment measures are being introduced should central bank interventions be expansionary and help stabilize economic activity.
    Keywords: COVID-19; Epidemics; Containment measures; Monetary policy
    JEL: E1 E5 E6 H5 I1 I3
    Date: 2021–07
  17. By: Solikin M. Juhro (Bank Indonesia); Reza Anglingkusumo (Bank Indonesia)
    Abstract: This paper empirical shows that unconventional monetary policy (UMP) in the US after the global financial crisis (GFC) affects capital inflows to SEACEN economies. For open middle income SEACEN economies, such as Indonesia, capital flows volatility induced by the UMP in the US adds to the complexity of managing monetary policy trilemma (MPT). A recent hypothesis states that in post GFC, it is possible for monetary authority in an open emerging market economy to retain monetary policy sovereignty (MPS) if and only if capital flows is managed, directly or indirectly, regardless the degree of exchange rate flexibility. This paper contends that for the case of Indonesia, MPS remains feasible even without a direct capital control. This supports the argument that MPS depends more on the strength of the policy framework to address domestic policy objectives. We argue that the implementation of central bank policy mix by Bank Indonesia provides such strength.
    Keywords: capital inflows, unconventional monetary policy, monetary policy trilemma
    JEL: E22 F32 F36 F41
    Date: 2020
  18. By: Menzie D. Chinn; Hiro Ito; Robert N. McCauley
    Abstract: Do central banks rebalance their currency shares? The answer matters because the dollar’s predominant role in large official reserve holdings means that widespread rebalancing requires central banks to buy (sell) a depreciating (appreciating) dollar, stabilising its value against other major currencies. We hypothesise that larger reserve holdings have led central banks to approach their investment more systematically and to make rebalancing in the face of exchange rate changes the norm. We illustrate the choice with two polar case studies: the US clearly does not rebalance its small FX reserves; Switzerland does rebalance its very large reserves, so that changes in exchange rates do not move its currency allocation. Our hypothesis finds partial support in global aggregated data. They reject both no rebalancing and full rebalancing and point to emerging market economies as the source of the aggregate result. We also test for rebalancing with panel data and find that our sample economies on average again behave in intermediate fashion, partially but not fully rebalancing. However, when observations are weighted by the size of reserves, the panel analysis finds full rebalancing. A variety of control variables and splits of the panel sample do not alter the thrust of these findings. Central banks rebalance their FX reserves extensively but not uniformly.
    JEL: F31 F42
    Date: 2021–08
  19. By: Steuer, Sebastian; Tröger, Tobias
    Abstract: We study the design features of disclosure regulations that seek to trigger the green transition of the global economy and ask whether such regulatory interventions are likely to bring about sufficient market discipline to achieve socially optimal climate targets. We categorize the transparency obligations stipulated in green finance regulation as either compelling the standardized disclosure of raw data, or providing quality labels that signal desirable green characteristics of investment products based on a uniform methodology. Both categories of transparency requirements canbe imposed at activity, issuer, and portfolio level. Finance theory and empirical evidence suggest that investors may prefer "green" over "dirty" assets for both financial and non-financial reasons and may thus demand higher returns from environmentally-harmful investment opportunities. However, the market discipline that this negative cost of capital effect exerts on "dirty" issuers is potentially attenuated by countervailing investor interests and does not automatically lead to socially optimal outcomes. Mandatory disclosure obligations and their (public) enforcement can play an important role in green finance strategies. They prevent an underproduction of the standardized high-quality information that investors need in order to allocate capital according to their preferences. However, the rationale behind regulatory intervention is not equally strong for all categories and all levels of "green" disclosure obligations. Corporate governance problems and other agency conflicts in intermediated investment chains do not represent a categorical impediment for green finance strategies. However, the many forces that may prevent markets from achieving socially optimal equilibria render disclosure-centered green finance legislation a second best to more direct forms of regulatory intervention like global carbon taxation and emissions trading schemes. Inherently transnational market-based green finance concepts can play a supporting role in sustainable transition, which is particularly important as long as first-best solutions remain politically unavailable.
    Keywords: green finance,sustainable finance,ESG,mandatory disclosure,taxonomies,benchmarks,labels,asset pricing,market discipline,climate change,climate risk
    JEL: D4 D6 G1 G3 G4 K2
    Date: 2021
  20. By: R. Anton Braun (Federal Reserve Bank of Atlanta (E-mail:; Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income and consumption depend on its age.
    Keywords: Monetary policy, Lifecycle, Portfolio choice, Nominal government debt
    JEL: E52 E62 G51 D15
    Date: 2021–08
  21. By: Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
    Abstract: This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profi les of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations.
    Keywords: monetary policy, life-cycle models, wealth redistribution
    JEL: E31 E52 J11
    Date: 2021–03
  22. By: Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail:
    Abstract: When interest rate policy is hampered by the Zero Lower Bound (ZLB), quantitative easing and other balance sheet policies become essential tools for responding to a crisis or deflationary shock. By unleashing the power of their balance sheets at the onset of the pandemic, without the hesitation observed in past encounters with the ZLB, the Federal Reserve, the European Central Bank and the Bank of Japan provided monetary easing that cushioned the economic blow, served as a backstop to government securities and private assets that prevented a financial market meltdown and facilitated the financing of an essential fiscal expansion. This paper examines how this policy success materialized, drawing on lessons learned from previous encounters with the ZLB, and discusses policy challenges after the pandemic.
    Keywords: Zero lower bound, Balance sheet policies, Quantitative easing, Eligibility, Fiscal-monetary interactions
    JEL: E52 E58 E61
    Date: 2021–08
  23. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present a review of the channels through which the US fiscal and monetary post-pandemic policies may affect the euro area. US spillovers will likely be relevant and worth considering while setting the policy stance in the euro area, at a crossroad between economic global recovery and global overheating. A key role is going to be played by global financial markets, their appetite for open-ended stimulative policies and fears of hard disinflation scenarios affecting central banks' ability to keep the economies on the recovery path and inflation expectations anchored.
    Date: 2021
  24. By: Lahiani, Amine; Mefteh-Wali, Salma; Shahbaz, Muhammad; Vo, Xuan Vinh
    Abstract: In order to achieve the goal of carbon neutrality, as defined in the Paris climate agreement, the United States, the second-largest greenhouse gas emitter, must intensify its use of zero-carbon sources such as renewable energy. In this paper, we use the nonlinear autoregressive distributed lags (NARDL) model to investigate the influence of financial development on renewable energy consumption in the U.S. from 1975Q1 to 2019Q4. More precisely, three measures of financial development are considered: the overall financial development, bank-based financial development, and stock-based financial development indices. The model is augmented to control for the effects of real oil prices, real GDP, and trade openness. The empirical results show evidence of a long-run asymmetric effect of overall and stock-based financial development measures. Positive and negative changes in financial development measures dictate renewable energy consumption. In the short run, only negative changes of overall and stock-based financial development measures significantly impact renewable energy consumption. The latter impact is contemporaneously positive and negative at the one-lagged period. Renewable energy consumption does not react to a short-run change in bank-based financial development. Our empirical findings possess important policy implications.
    Keywords: Financial Development, Renewable Energy Consumption, USA
    JEL: Q4
    Date: 2021–08–06
  25. By: Pierlauro Lopez
    Abstract: More than 20 years of financial market data suggest a term structure of the welfare cost of economic uncertainty that is downward-sloping on average, especially during downturns. This evidence offers guidance in selecting a model to study the benefits of macroeconomic stabilization from a structural perspective. The addition of nonlinear external habit formation to a textbook monetary model can rationalize the evidence. The model is observationally equivalent in its quantity implications to a standard New Keynesian model with CRRA utility, but the optimal policy prescription is overturned. In the model the central bank should prioritize removing consumption volatility (a targeting of risk premia) over filling the gap between consumption and its flexible-price counterpart (inflation targeting).
    Keywords: Welfare cost of business cycles; Macroeconomic priorities; Equity and bond yields; Optimal monetary policy; Financial Stability
    JEL: E32 E44 E61 G12
    Date: 2021–08–30
  26. By: De Grauwe, Paul
    Abstract: Inflation is on the rise again in the industrialised world. This has led to fears of a sustained surge in inflation. This article argues that while such fears may make sense in the US, they do not in the eurozone, where the monetary-fiscal policy mix has been much less expansionary than in the US. The fear expressed by some that the monetary overhang from the large injections of liquidity through quantitative easing might lead to inflation in the eurozone does not stand up to scrutiny either. The conclusion offers some observations on the monetary operating procedures in the ECB. It argues that in the future, when interest rates rise again, the ECB risks transferring all (and even more) of its profits to the banking system. This article proposes a way to avoid this unacceptable outcome.
    JEL: N0 F3 G3
    Date: 2021–08–05
  27. By: Bruno Cabrillac (Banque de France - Banque de France - Banque de France)
    Abstract: The decision to allocate SDRs up to 455 billion (i.e. approximately USD 650 billion), taken by the G20 and which should be validated by the IMF's Executive Board before the end of the summer, entails a more than threefold increase in the stock of public SDRs. Until now, a very large part of these SDRs has remained immobilized in the balance sheets of the central banks of the major economies. The new dimension that this instru-ment is taking on has initiated a reflection on how to make this injection of international liquidity more effective by redirecting it to the countries that need it. This reflection is also taking place in a context where the public finances of the main official development assistance donor countries are under pressure due to the consequences of the health crisis.
    Abstract: La décision de procéder à une allocation de DTS à hauteur de 455 milliards (soit environ 650 milliards d'USD), prise par le G20 et qui devrait être validée par la Conseil d'administration du FMI avant la fin de l'été, entraîne une multiplication par plus de 3 du stock de DTS publics. Jusqu'à maintenant une très grande partie de ces DTS reste immobilisée dans les bilans des banques centrales des grandes économies. La nouvelle dimension que prend cet instrument a initié une réflexion sur le moyen de rendre plus efficace cette injection de liquidité internationale en la redirigeant vers les pays qui en ont besoin. Cette réflexion s'inscrit également dans un contexte où les finances publiques des principaux pays donateurs d'aide publique au développement sont sous pression du fait des conséquences de la crise sanitaire.
    Date: 2021–07–28
  28. By: Korus, Arthur; Löher, Jonas; Nielen, Sebastian; Pasing, Philipp
    Abstract: Die Studie untersucht die Potenziale von Fintechs für kleine und mittlere Unternehmen (KMU). Fintechs bringen Kapitalangebot und -nachfrage oftmals effizienter zusammen als Banken. Ihre Lösungen können in Einzelfällen Finanzierungsgeschwindigkeiten beschleunigen, Kreditkonditionen verbessern und Finanzierungen ermöglichen. Darüber hinaus erhöhen Fintechs den Innovationsdruck auf etablierte Banken, ihre Prozesse und Dienstleistungen zu optimieren. Zunehmend kooperieren beide Seiten hierzu miteinander, wodurch Banken vermehrt als Plattformen agieren. Insbesondere etablierte KMU können demzufolge sowohl innerhalb als auch außerhalb der bestehenden Hausbankbeziehung von den verbesserten Angeboten profitieren.
    Keywords: Unternehmensfinanzierung,KMU-Finanzierung,Mittelstandsfinanzierung,Fintechs,digitale Finanzierung,Corporate Financing,SME Financing,Fintech,Digital Finance
    JEL: G20 G23 G30 O16
    Date: 2021
  29. By: Roman Horvath (Charles University, Prague); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (National Bank of Slovakia)
    Abstract: Long-term bond yields contain a risk-premium, an important part of which is compensation for inflation risks. The substantial increase in the Fed funds rate in the mid-2000s did not raise long-term US Treasury yields due to the reduction in the term premium (so-called Greenspan conundrum) which was typically thought to be exogenous for monetary policy. We show using a New Keynesian macro-finance model that the term premium is endogenous and is greatly influenced by the specification of the Taylor rule. Finally, we extend the model with frictions (richer fiscal setup and wage rigidity) that are known to help jointly match macro and finance data and estimate the model on US data in 1961-2007 by the generalized methods of moments and simulated methods of moments.
    Keywords: zero-coupon bond, nominal term premium, inflation risk, Taylor rule, New Keynesian, labor income taxation, wage rigidity, GMM, SMM
    JEL: E13 E31 E43 E44
    Date: 2021

This nep-ban issue is ©2021 by Christian Calmès. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.