nep-ban New Economics Papers
on Banking
Issue of 2021‒09‒20
34 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Asset encumbrance and bank risk: theory and first evidence from public disclosures in Europe By Albert Banal-Estañol; Enrique Benito; Dmitry Khametshin; Jianxing Wei
  2. Optimal capital ratios for banks in the euro area By Beau Soederhuizen; Bert Kramer; Harro van Heuvelen; Rob Luginbuhl
  3. Sectorial holdings and stock prices: the household-bank nexus By Matías Lamas; David Martínez-Miera
  4. Shadow Banks and the Collateral Multiplier By Thomas R. Michl; Hyun Woong Park
  5. How Collateral Affects Small Business Lending: The Role of Lender Specialization By Manasa Gopal
  6. Monetary and macroprudential policy: The multiplier effects of cooperation. By Federico Bassi; Andrea Boitani
  7. The Impact of Monetary Conditions on Bank Lending to Households By Gyozo Gyongyosi; Steven Ongena; Ibolya Schindele
  8. Business complexity and geographic expansion in banking By Isabel Argimón; María Rodríguez-Moreno
  9. Lessons from estimating the average option-implied volatility term structure for the Spanish banking sector By María T. González-Pérez
  10. ECB euro liquidity lines By Silvia Albrizio; Iván Kataryniuk; Luis Molina; Jan Schäfer
  11. Adoption of fintech services: role of saving and borrowing mechanisms By Babak Naysary; Ruth Tacneng; Amine Tarazi
  12. Systemic implications of the bail-in design By Farmer, J. Doyne; Goodhart, C. A. E.; Kleinnijenhuis, Alissa M.
  13. Payment Habits During COVID-19: Evidence from High-Frequency Transaction Data By Tatjana Dahlhaus; Angelika Welte
  14. Monetary and fiscal complementarity in the Covid-19 pandemic By Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
  15. The Mortgage Cash Flow Channel of Monetary Policy Transmission: A Tale of Two Countries By Daniel H. Cooper; Vaishali Garga; Maria Jose Luengo-Prado
  16. Effect of Equipment Credit on the Agricultural Income of Cotton Producers in Mali By Lassana Toure
  17. A time-varying network for cryptocurrencies By Guo, Li; Härdle, Wolfgang; Tao, Yubo
  18. Effect of mobile financial services on financial behavior in developing economies-Evidence from India By Shreya Biswas
  19. The impact of heterogeneous unconventional monetary policies on the expectations of market crashes By Irma Alonso; Pedro Serrano; Antoni Vaello-Sebastià
  20. Predictive Factors of Withdrawal Behavior among Profit-Sharing Investment Depositors in Morocco: A Qualitative Study from the Perspective of Push-Pull-Mooring Framework By Sana Rhoudri; Lotfi Benazzou
  21. Structural Change Ramifications of Consumer Credit Expansion in a Two Sector Growth Model By Esra Nur Ugurlu
  22. Accelerating the Speed and Scale of Climate Finance in the Post-Pandemic Context By Jean-Charles Hourcade; Dipak Dasgupta; F. Ghersi
  23. The Effects of Money-financed Fiscal Stimulus in a Small Open Economy By Okano, Eiji; Eguchi, Masataka
  24. The entrepreneurial finance markets of the future : a comparison of crowdfunding and initial coin offerings By Jörn H. Block; Alexander Groh; Lars Hornuf; Tom Vanacker; Silvio Vismara
  25. The IMF’s role in sovereign debt restructurings By global financial governance issues, IRC Task Force on IMF
  26. The cost channel of monetary policy: the case of the United States in the period 1959-2018 By Maria Chiara Cucciniello; Matteo Deleidi; Enrico Sergio Levrero
  27. Monetary Policy in in Russia in 2020 By Bozhechkova Alexandra; Trunin Pavel
  28. Demographic Change and Private Savings in India By Jain, Neha; Goli, Srinivas
  29. Central Banks' Intervention in Exchange Rate Markets During the "Classical" Gold Standard: Italy 1880-1913 By Paolo Di Martino
  30. A critical perspective on the conceptualization of risk in behavioral and experimental finance By Felix Holzmeister; Christoph Huber; Stefan Palan
  31. Помогают ли высокочастотные данные в прогнозировании российской инфляции? By Tretyakov, Dmitriy; Fokin, Nikita
  32. LOOKING FOR TRUST: The weak accumulation in Greece during the 19th century By Nicos Christodoulakis
  33. The role of intermediaries to facilitate water-related investment By Anne Lardoux de Pazzis; Amandine Muret
  34. The Federal Reserve’s Revised Monetary Policy Strategy and Its First Year of Practice By Loretta J. Mester

  1. By: Albert Banal-Estañol (Universitat Pompeu Fabra and Barcelona GSE); Enrique Benito (City, University of London); Dmitry Khametshin (Banco de España); Jianxing Wei (University of International Business and Economics)
    Abstract: We document that overcollateralisation of banks’ secured liabilities is positively associated with the risk premium on their unsecured funding. We rationalize this finding in a theoretical model in which costs of asset encumbrance increase collateral haircuts and the endogenous risk of a liquidity-driven bank run. We then test the model’s predictions using a novel dataset on asset encumbrance of the European banks. Our empirical analysis demonstrates that banks with more costly asset encumbrance have higher rates of overcollateralisation and rely less on secured debt. Consistent with theory, the effects are stronger for banks that are likely to face higher fire-sales discounts. This evidence acts in favour of the hypothesis that asset encumbrance increases bank risk, although this relationship is rather heterogeneous.
    Keywords: asset encumbrance, collateral, bank risk, credit default swaps
    JEL: G01 G21 G28
    Date: 2021–08
  2. By: Beau Soederhuizen (CPB Netherlands Bureau for Economic Policy Analysis); Bert Kramer (CPB Netherlands Bureau for Economic Policy Analysis); Harro van Heuvelen (CPB Netherlands Bureau for Economic Policy Analysis); Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Capital buffers help banks to absorb financial shocks. This reduces the risk of a banking crisis. However, on the other hand capital requirements for banks can also lead to social costs, as rising financing costs can lead to higher interest rates for customers. In this research we make an exploratory analysis of the costs and benefits of capital buffers for groups of European countries. In this study, we estimate the optimal level of capital for banks in the euro area. As far as we know, we are the first to investigate this for the euro area. The optimal level results from a trade-off between the social costs and benefits of capital requirements. Depending on technical assumptions, we find an optimal capital buffer between 15 and 30 percent. Despite this considerable spread, the estimated optimum is in all cases higher than the current minimum requirements of Basel III. We also find significant heterogeneity in the optimum between euro area Member States. For Member States with a more stable economy and a banking sector that can easily attract funding we find lower optimal capital ratios.
    JEL: C33 C54 E44 G15 G21
    Date: 2021–09
  3. By: Matías Lamas (Banco de España); David Martínez-Miera (UC3M and CEPR)
    Abstract: We analyze the evolution and price implications of aggregate sectorial holdings of stocks, using detailed information on the universe of publicly traded stocks in the euro area. We document that: i) households’ (HH) direct holdings represent a higher fraction of total ownership in domestic bank stocks than in non-financial corporation (NFC) stocks; ii) HH holdings of stocks increase (decrease) following a decline (increase) in the stock price, especially for domestic bank stocks; and iii) an increase in domestic HH holdings is followed by future (persistent) increases in the price of NFC stocks, but not for bank stocks. Moreover, during equity issuances, an increase in the share of domestic HH holdings is followed by a future (persistent) decrease in the stock price of bank stocks, but not for NFC stocks. Our results are consistent with HH being liquidity providers in the stock market, and at the same time subject to negative information asymmetries. We argue that this latter effect is more prevalent in domestic bank stocks than in NFC given the close relationships between HH and banks.
    Keywords: household ownership, stock prices, equity issuance, banks, non-financial corporations, liquidity provision, informational asymmetries
    JEL: G11 G14 G21 G50
    Date: 2021–08
  4. By: Thomas R. Michl (Colgate University, Department of Economics); Hyun Woong Park (Denison University, Department of Economics)
    Abstract: With an emphasis on contributing to macroeconomic pedagogy we examine the collateral multiplier by comparing it to the traditional money multiplier in a simplified framework of traditional banking and shadow banking in which government bonds are the core assets. While the money multiplier is a measure of the ability of the banking system to intermediate sovereign debt by creating deposits, the collateral multiplier is a measure of the shadow banking system’s ability to inter- mediate sovereign debt by creating shadow money. It also measures the degree of re-use of sovereign debt as collateral. In this setup, the collateral multiplier is defined as the ratio between dealer banks’ matched book repo activity relative to their trading book. Using the New York Fed’s Primary Dealer Statistics data, we empirically estimate the collateral multiplier for U.S. Treasury repo collateral. Our model and empirical results shed light on the transmission mechanisms of monetary policy channeled through shadow banks and on the U.S. Treasuries market turmoil induced by COVID-19 in March 2020.
    Keywords: shadow banks, collateral multiplier, rehypothecation, Treasury bond, repo.
    JEL: A2 E51
    Date: 2021
  5. By: Manasa Gopal
    Abstract: I study the role of collateral on small business credit access in the aftermath of the 2008 financial crisis. I construct a novel, loan-level dataset covering all collateralized small business lending in Texas from 2002-2016 and link it to the U.S. Census of Establishments. Using textual analysis, I show that post-2008, lenders reduced credit supply to borrowers outside of the lender's collateral specialization. This result holds when comparing lending to the same borrower from different lenders, and when comparing lending by the same lender to different borrowers. A one standard deviation higher specialization in collateral increases lending to the same firm by 3.7%. Abstracting from general equilibrium effects, if firms switched to lenders with the highest specialization in their collateral, aggregate lending would increase by 14.8%. Furthermore, firms borrowing from lenders with greater specialization in the borrower's collateral see a larger growth in employment after 2008. Finally, I show that firms with collateral more frequently accepted by lenders in the economy find it easier to switch lenders. In sum, my paper shows that borrowing from specialized lenders increases access to credit and employment during a financial crisis.
    Date: 2021–08
  6. By: Federico Bassi; Andrea Boitani (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: A BMW model is augmented with a credit market affected by banks’ balance sheet and used to assess the dynamic performance of an economy in the face of demand and financial shocks under different assumptions about the interactions between monetary and macroprudential policy. We show that the regulatory bank’s capital requirement has a multiplier effect that interferes with monetary policy, thus influencing the credit market and the output gap, and this multiplier effect varies according to the institutional arrangements in which macroprudential and monetary policies are embedded. In particular, we find that cooperation between monetary policy and macroprudential policy delivers the best overall stabilization outcomes in the face of both negative demand and bank equity shocks, if such shocks are not highly persistent. As shock persistence increases, non-cooperation or a simple leaning against the wind monetary policy outperform cooperation. However, adding countercyclical capital buffers in the macroprudential toolkit reinstates the original ranking of institutional arrangements with cooperation dominating overall.
    Keywords: Financial Frictions, Monetary Policy, Macroprudential Policy, Policy Coordination.
    JEL: E44 E52 E58 E61 G21 G28
    Date: 2021–09
  7. By: Gyozo Gyongyosi (Leibniz Institute for Financial Research SAFE; Kiel Institute for the World Economy); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Ibolya Schindele (BI Norwegian Business School; Central Bank of Hungary)
    Abstract: We study how monetary conditions change the supply by banks of mortgage credit to households. We exploit the widespread presence of foreign currency mortgages in Hungary and study this country`s comprehensive credit registry. Changes in monetary conditions not only affect the supply of credit in volume, but also in its currency and risk composition. Hence, we establish a “bank‐lending‐to‐households” channel of monetary policy that is heterogeneous. While the availability of foreign currency mortgages weakens the domestic bank‐lending channel overall, weakly capitalized domestic banks relying on swap transactions for their foreign currency lending are more sensitive to changes in monetary conditions.
    Keywords: Bank balance‐sheet channel, household lending, monetary policy, foreign currency lending.
    JEL: E51 F3 G21
    Date: 2021–09
  8. By: Isabel Argimón (Banco de España); María Rodríguez-Moreno (Banco de España)
    Abstract: Using Spanish confidential supervisory data, this paper examines the effect of geographic and business complexity, their interaction and relative importance for banks’ risk, where the degree of complexity stems from the corporate structure of banking groups affiliates. The results show that while business complexity results in higher risk, geographic complexity gives rise to diversification benefits, thus lowering risk. However, geographic complexity alone is not enough, as its effect depends on how it interacts with business complexity. Higher business complexity abroad in relation to that at home may counterbalance the benefits of diversification. In the same vein, focusing abroad on areas in which the group does not have expertise at home also results in higher risk.
    Keywords: risk, global banking, bank complexity, diversification benefits
    JEL: F21 F23 G21 G32
    Date: 2021–08
  9. By: María T. González-Pérez (Banco de España)
    Abstract: This paper estimates the volatility index term structure for the Spanish bank industry (SBVX) using the implied volatility of individual banks and assuming market correlation risk premium. This methodology enables calculating a volatility index for arbitrary (non-traded) portfolios. Using data from 2015 to 2021, we find that SBVX informs about the dynamics of bank returns beyond the standard market volatility index VIBEX, especially when bank returns are negative; and that one-year SBVX beats shorter maturities in explaining bank returns. On the other hand, positive bank returns relate to the dynamics of VIBEX just as much as SBVX, which aligns with the belief that a drop in global volatility (uncertainty) positively affects firm performance and, therefore, bank value projections. We find one-month SBVX better than VIBEX to forecast monthly bank returns volatility, regardless of the tenor we use to compute VIBEX. This paper provides empirical evidence that idiosyncratic implied volatility is just as significant, or even more than global volatility, to monitor current and future banks’ share price performance. We advise using SBVX term structure, short-term VIBEX, and market correlation risk premium to monitor uncertainty and returns in the banking sector and foresee periods of stress in this industry. Our results may be of great interest to those seeking to estimate the banking sector’s sensitivity to uncertainty, volatility, and risk.
    Keywords: volatility term-structure, implied volatility, risk
    JEL: G53 G1
    Date: 2021–08
  10. By: Silvia Albrizio (Banco de España); Iván Kataryniuk (Banco de España); Luis Molina (Banco de España); Jan Schäfer (CEMFI)
    Abstract: The use of central bank liquidity lines has gained momentum since the global financial crisis in order to provide liquidity in foreign exchange markets, while at the same time preventing threats to financial stability and negative spillbacks. US dollar swap lines are well studied, but much less is known about the effects of liquidity lines in euros. We use a difference-in-differences strategy to show that the announcement of ECB euro liquidity lines has a direct positive signalling effect since the premium paid by foreign agents to borrow euros in FX markets decreases up to 76 basis points relative to currencies not covered by these facilities. Additionally, the paper provides suggestive evidence that these facilities generate positive spillbacks to the euro area since domestic bank equity prices increase by 6.7% in euro area countries highly exposed via banking linkages to countries whose currencies are targeted by liquidity lines.
    Keywords: liquidity facilities, central banks swap and repo lines, spillbacks
    JEL: E44 E58 F33 G15
    Date: 2021–08
  11. By: Babak Naysary (INTI International University, Faculty of Business, Nilai, Malaysia); Ruth Tacneng (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: This paper investigates the relationship between an individual's saving and borrowing practices and his/her propensity to use fintech services. More particularly, we examine whether having multiple saving and borrowing channels increases a person's likelihood to participate in online funding platforms, and use robo-advisors. Using a sample of over 2000 respondents to a survey we conducted in Malaysia, our main results indicate that individuals who save and borrow via multiple channels, and through external conduits, are more likely to use fintech services than their counterparts. This is consistent with the view that individuals who use multiple saving and borrowing conduits are more likely to perform mental accounting, a concept which is commonly used by fintech companies to facilitate personal wealth management. Further, our findings reveal that among respondents with multiple saving channels, those who put less importance on trust in financial products, and consider financial returns essential, are the most likely users of fintech services. Overall, our findings offer new insights by providing a better understanding of the factors that foster the use of fintech services.
    Keywords: alternative lending,trust,fintech,P2P lending platforms,crowdfunding,robo-advisors
    Date: 2021–09–06
  12. By: Farmer, J. Doyne; Goodhart, C. A. E.; Kleinnijenhuis, Alissa M.
    Abstract: The 2007-2008 financial crisis forced governments to choose between the unattractive alternatives of either bailing out a systemically important bank (SIB) or allowing it to fail disruptively. Bail-in has been put forward as an alternative that potentially addresses the too-big-to-fail and contagion risk problems simultaneously. Though its efficacy has been demonstrated for smaller idiosyncratic SIB failures, its ability to maintain stability in cases of large SIB failures and system-wide crises remains untested. This paper’s novelty is to assess the financial-stability implications of bail-in design, explicitly accounting for the multilayered networked nature of the financial system. We present a model of the European financial system that captures all five of the prevailing contagion channels. We demonstrate that it is essential to understand the interaction of multiple contagion mechanisms and that financial institutions other than banks play an important role. Our results indicate that stability hinges on the bank-specific and structural bail-in design. On one hand, a welldesigned bail-in buttresses financial resilience, but on the other hand, an ill-designed bail-in tends to exacerbate financial distress, especially in system-wide crises and when there are large SIB failures. Our analysis suggests that the current bail-in design may be in the region of instability. While policy makers can fix this, the political economy incentives make this unlikely.
    Keywords: bail-in; bail-in deisgn; contagion; default; financial crisis; financial networks; political economy; resolution; systemically important banks; too big to fail
    JEL: F3 G3
    Date: 2021–09–03
  13. By: Tatjana Dahlhaus; Angelika Welte
    Abstract: We investigate how the COVID-19 pandemic has changed consumers’ payments habits in Canada. We rely on high-frequency data on cash withdrawals and debit card transactions from Interac Corp. and Canada’s Automated Clearing Settlement System. We construct daily measures of payment habits reflecting cash usage, average transaction values, and the share of transactions in which the customer or card holder and the acquiring machine (ATM or POS) are of the same bank. Using simple dummy regressions and local projection models, we assess how these indicators of payment habits have changed with the evolution of the COVID-19 pandemic. We find evidence that during the pandemic consumers adjusted their behaviour by avoiding frequent trips for cash withdrawals and point-of-sale purchases and making fewer transactions for higher amounts. They also made smaller-value cash withdrawals compared with the value of card payments, which could reflect a reduced use of cash for point-of-sale transactions. Consumers also made relatively more withdrawals from ATMs that are linked to their financial institution (on-us transactions). Finally, we highlight that estimates of economic activity based on card data alone could be biased if shifts in payment habits are not taken into account. We estimate that debit card payments might have overstated consumer expenditure growth by up to 7 percentage points over the course of the pandemic.
    Keywords: Coronavirus disease (COVID-19); Domestic demand and components; Payment clearing and settlement systems; Recent economic and financial developments
    JEL: C22 C55 D12 E21 E42 E52
    Date: 2021–09
  14. By: Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
    Abstract: In response to the coronavirus (Covid-19) pandemic, there has been a complementary approach to monetary and fiscal policy in the United States with the Federal Reserve System purchasing extraordinary quantities of securities and the government running a deficit of some 17% of projected GDP. The Federal Reserve pushed the discount rate close to zero and stabilised financial markets with emergency liquidity provided through a new open-ended long-term asset purchase programme. To capture the interventions, we develop a model in which the central bank uses reserves to buy much of the huge issuance of government bonds and this offsets the impact of shutdowns and lockdowns in the real economy. We show that these actions reduced lending costs and amplified the impact of supportive fiscal policies. We then run a counterfactual analysis which suggests that if the Federal Reserve had not intervened to such a degree, the economy may have experienced a significantly deeper contraction as a result from the Covid-19 pandemic. JEL Classification: E31, E40, E51
    Keywords: Covid-19, monetary-fiscal interaction, non-conventional monetary policy, quantitative easing
    Date: 2021–09
  15. By: Daniel H. Cooper; Vaishali Garga; Maria Jose Luengo-Prado
    Abstract: We study the mortgage cash flow channel of monetary policy transmission under fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) regimes by comparing the United States with primarily long-term FRMs and Spain with primarily ARMs that automatically reset annually. We find a robust transmission of mortgage rate changes to spending in both countries but surprisingly a larger effect in the United States—and provide two explanations for this finding. First, there are channels of transmission other than the mortgage cash flow effect since other interest rates co-move with the mortgage rate. Second, while mortgage resets in Spain are automatic and typically small, mortgagors in the United States must actively refinance to lock in lower rates. As a result, the mortgage cash flow effect in Spain is homogeneous across mortgagors and symmetric for rate increases and decreases, whereas in the United States the effect is largest when rates decline, especially for households identified as likely refinancers.
    Keywords: consumption; intertemporal household choice; monetary policy transmission; adjustable-rate mortgages; fixed-rate mortgages
    JEL: D15 E21 E52
    Date: 2021–08–01
  16. By: Lassana Toure (University of Segou)
    Abstract: In Mali, lack of access to agricultural credit becomes a factor behind low farmer income and even rural poverty. However, agricultural credit is seen as a tool to increase production as well as farm income. The objective of this research is to evaluate the effect of equipment credit on the income of cotton producers in Mali. To this end, a survey was carried out among 400 producers in 2019, 127 of whom had had their equipment credit applications accepted, compared to 273 who had not had their equipment credit applications accepted. The survey was carried out in the areas of the Compagnie Malienne de Développement de Textiles (CMDT) of Fana and Koutiala in Mali. The method of analysis is the estimation of the instrumental variables multiple regression model of credit, implementing the estimation method of Heckman (1979) to account for the zero profit for 16% of the producers. The results of the econometric model estimates show that the variables that lead to an increase in income at the 5% threshold are: access to credit, quantity sold of cotton, costs of material goods used on the farm, total area sown, quantity sold of other crops, selling price of other crops. In other words, access to equipment credit could enable cotton producers to improve their income by 35%. Equipment credit entitles farmers to use more capital goods on the farm. This use of equipment increases agricultural productivity and yields, and in turn increases farm income.Based on these results, we can make some policy recommendations to boost cotton production, make other crops more beneficial to producers andgrant more equipment credit.
    Keywords: Equipment credit,heckman,instrumental variable,cotton producer,agricultural income,CMDT,Mali
    Date: 2021
  17. By: Guo, Li; Härdle, Wolfgang; Tao, Yubo
    Abstract: Cryptocurrencies return cross-predictability and technological similarity yield information on risk propagation and market segmentation. To investigate these effects, we build a timevarying network for cryptocurrencies, based on the evolution of return cross-predictability and technological similarities. We develop a dynamic covariate-assisted spectral clustering method to consistently estimate the latent community structure of cryptocurrencies network that accounts for both sets of information. We demonstrate that investors can achieve better risk diversification by investing in cryptocurrencies from different communities. A cross-sectional portfolio that implements an inter-crypto momentum trading strategy earns a 1.08% daily return. By dissecting the portfolio returns on behavioral factors, we confirm that our results are not driven by behavioral mechanisms.
    Keywords: Community detection,Dynamic stochastic blockmodel,Covariates,Co-clustering,Network risk,Momentum
    Date: 2021
  18. By: Shreya Biswas
    Abstract: The study examines the relationship between mobile financial services and individual financial behavior in India wherein a sizeable population is yet to be financially included. Addressing the endogeneity associated with the use of mobile financial services using an instrumental variable method, the study finds that the use of mobile financial services increases the likelihood of investment, having insurance and borrowing from formal financial institutions. Further, the analysis highlights that access to mobile financial services have the potential to bridge the gender divide in financial inclusion. Fastening the pace of access to mobile financial services may partially alter pandemic induced poverty.
    Date: 2021–09
  19. By: Irma Alonso (Banco de España); Pedro Serrano (Universidad Carlos III de Madrid); Antoni Vaello-Sebastià (Universitat des Illes Balears)
    Abstract: This article analyzes the impact of the unconventional monetary policies (UMPs) of four major central banks (the Fed, ECB, BoE and BOJ) on the probability of future market crashes. We exploit the heterogeneity of different UMP actions to disentangle their influence on reducing the ex ante perception of extreme events (tail risks) using the information contained in risk-neutral densities from the most liquid stock index options. The empirical findings show that the announcement of UMPs reduces the risk-neutral probability of extreme events across various horizons and thresholds, supporting the hypothesis of the risk-taking channel. Interestingly, foreign UMP actions also prove to be significant variables affecting domestic tail risks, mainly at longer horizons. These results reveal a cross-border effect of foreign UMPs on domestic tail risks. Finally, the dynamics of the UMPs are captured by a structural model that confirms a transitory impact of UMPs on market tail risk perceptions.
    Keywords: unconventional monetary policy, risk-neutral density, tail risk, event study, SVAR
    JEL: E44 E58 G01 G10 G14
    Date: 2021–08
  20. By: Sana Rhoudri (UIT - Université Ibn Tofaïl); Lotfi Benazzou (UIT - Université Ibn Tofaïl)
    Abstract: The main purpose of this study is to examine the determinants of deposit withdrawal behavior amongst profit-sharing deposit account holders. Based on the Push-Pull-Mooring theory, a qualitative study was conducted, with fifteen personal interviews undertaken with profit-sharing investment depositors selected from three participatory banks using a purposive sampling technique. Assessment of the predictive factors determining deposit withdrawal behavior resulted in three categories. The push factors were found to be, in order of decreasing frequency: (1) Sharia non-compliance risk, (2) lower rate of return, (3) deposit guarantee scheme and (4) customer relationship quality failure. The push factors were labeled as (a) conventional term deposit attractiveness, (b) conventional banks history and (c) number of branches. The mooring factors were found to be: (i) religiosity, (ii) switching costs, (iii) third party influence and (iv) involuntary switching factors. This study has limitations that should be considered for future research. First and foremost, all interviewees were selected by the banks' managers. Moreover, they were identified as individual depositors; thus, they displayed opinions, which may differ from those of corporate depositors. Despite the discussed limitations, the findings generated from this study have important implications for researchers, financial marketing managers as well as the policy makers and regulators. In terms of contribution to the body of knowledge, the study aimed to investigate the predictive factors of deposit withdrawal behavior in another context, that of Morocco, which has not yet been explored in the literature. In addition, the findings of this study are critical to financial marketing managers for strategic marketing programs as it stresses the importance of satisfaction dimensions within a dual banking system, as is the case in Morocco. Furthermore, this study provides great indications to the policy makers and regulators on the perception of the Moroccan investment account depositors, in order to develop policies that could improve the participatory banking system in Morocco.
    Keywords: Withdrawal Behavior,Switching Behavior,Profit-Sharing Investment Deposits,Participatory Banks,Push-Pull-Mooring Theory
    Date: 2021–07–30
  21. By: Esra Nur Ugurlu (Department of Economics, University of Massachusetts Amherst)
    Abstract: This paper analyzes the structural change implications of consumer credit expansions in a dual-sector open economy growth model. Policy-induced increases in banks’ willingness and ability to lend result in new consumer lending, boosting consumption demand and average wages in the nontradable sector. Under the assumptions of fixed relative wages and mark-up pricing, wage pressures translate into inflationary pressures. The central bank, acting under the sole target of controlling inflation, raises the interest rate to contain inflationary pressures. This intervention causes a real exchange rate appreciation, followed by a loss of international competitiveness in the tradable sector. This way, the model illustrates that consumer credit expansions can trigger premature deindustrialization, shifting sectoral structure in favor of the nontradable sector. The formal model is inspired by the Turkish economy that experienced a notable expansion of consumer credit between 2002-2013.
    Keywords: Consumer credit, structural change, economic growth, inflation targeting, real exchange rate
    JEL: E58 F43 L16 O11 O41
    Date: 2021
  22. By: Jean-Charles Hourcade; Dipak Dasgupta; F. Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we examine how to trigger a wave of low-carbon investments compatible with the wellbelow 2°C target of the Paris Agreement in the current post-pandemic context of increasing private and public debt. We argue that one major obstacle to catalyzing global excess savings at sufficient scale and speed on climate mitigation, and to 'greening' economic recovery packages, lies in the upfront risks of low-carbon investment. We then explain why public guarantees should be the preferred risk-sharing instrument to overcome that obstacle. We outline the basic principles of a multilateral sovereign guarantee mechanism able to maximize the leverage effect of public funds and massively redirect global savings towards low-carbon investments, with the double benefit of bridging the infrastructure investment gap in developing countries and reducing tension between developed and developing countries around accelerated funding for low-carbon transitions. We carry out numerical simulations demonstrating how the use of guarantees from AAA-rated sovereigns, calibrated on an agreed-upon 'social value of carbon', is compatible with public-budget constraints of developed countries. In summary, the use of such guarantee mechanisms provides a new form of 'where flexibility', which could turn real-world heterogeneity into a source of reciprocal gains for both developed and developing countries, and contribute to meeting the USD 100 billion + pledge of the Paris Agreement. Key policy insights Catalyzing excess world savings through low-carbon investments (LCIs) would secure a safer and fairer economic recovery from the COVID-19 crisis and avoid locking developing countries into carbon-intensive pathways. Public policy instruments focused on creation of public guarantees can reduce the up-front financial risks associated with LCIs, mobilize private money and increase the leverage of public finance. A multi-sovereign guarantee mechanism would yield financial support from developed to developing countries in cash grant equivalent and equity inflows two to four times higher than the 'USD 100 billion and more' commitment of the Paris Agreement, and provide greater confidence in meeting this commitment equitably and effectively with benefits for all.
    Keywords: Climate finance,Public guarantees,De-risking,Low-carbon investment,Post-COVID recovery,100 billion + pledge
    Date: 2021
  23. By: Okano, Eiji; Eguchi, Masataka
    Abstract: In this paper, we analyze the effects of money-financed (MF) fiscal stimulus and compare them with those resulting from a conventional debt-financed (DF) fiscal stimulus in a small open economy. We find that in normal times which is a period when a zero lower bound (ZLB) on the nominal interest rate is not applicable, MF fiscal stimulus is effective in increasing output. In a liquidity trap where the ZLB is applicable, even though the decrease in both consumer price index (CPI) inflation and output is more severe than in a closed economy when there is no fiscal response, MF fiscal stimulus is effective in stabilizing both. Accordingly, we show that even in an imperfect pass-through environment including a liquidity trap, an increase in government expenditure under MF fiscal stimulus is effective. In contrast, our policy implications concerning an increase in government expenditure under DF fiscal stimulus lie opposite to Gali, Jordi (2020), “The Effects of a Money-financed Fiscal Stimulus,” Journal of Monetary Economics, 115, 1-19, assuming a closed economy. In normal times, an increase in government expenditure under the DF scheme in a small open economy is more effective than in a closed economy, although Gali (2020) argues that it is much less effective. In a liquidity trap, an increase in government expenditure under the DF scheme is less effective, also in contrast to Gali (2020). We find that even in an imperfect pass-through environment, an increase in government expenditure under DF fiscal stimulus is not effective. Thus, in a small open economy, MF fiscal stimulus is not always essential in normal times, and in a liquidity trap, MF fiscal stimulus is more important than what Gali (2020) suggests because DF fiscal stimulus is not effective, irrespective of nominal exchange rate pass-through.
    Keywords: Fiscal Stimulus; Money Financing; Debt Financing; Zero Lower Bound; Imperfect Pass-through
    JEL: E31 E32 E52 E62 F41
  24. By: Jörn H. Block (emlyon business school); Alexander Groh; Lars Hornuf; Tom Vanacker; Silvio Vismara
    Abstract: Entrepreneurial finance markets are in a dynamic state. New market niches and players have developed and continue to emerge. The rules of the game and the methods for receiving financial backing have changed in many ways. This editorial and the special issue of Small Business Economics focus on crowdfunding (CF) and initial coin offerings (ICOs), which are two distinct but important entrepreneurial finance market segments of the future. Although the two market segments initially appear to be similar, we identify differences between them. Our comparison focuses on the stakeholders, microstructures, regulatory environments, and development of the markets. We conclude with suggestions for future ICO and CF research.
    Keywords: Initial Coin Offerings,Initial Token Offerings,Crowdfunding,Entrepreneurial Finance
    Date: 2021–08–01
  25. By: global financial governance issues, IRC Task Force on IMF
    Abstract: The global recession caused by the COVID-19 pandemic and the resulting deterioration in many countries’ public finances have increased the risk of sovereign debt crises. Although crisis prevention remains paramount, these developments have made it imperative to re-examine the adequacy of the current toolkit for crisis management and resolution, in a context where changes in the creditor base and in the composition of public debt instruments have brought about new challenges in terms of reduced transparency and additional barriers to achieving inter-creditor equity. This report focuses on the international architecture for sovereign debt restructurings (SODRs), as seen through the lenses of the International Monetary Fund (IMF or “the Fund”) and with a special attention to the role that the Fund can play in facilitating orderly restructuring processes. It provides a set of findings and recommendations in relation to certain key elements of the Fund’s lending framework that have important ramifications on SODR processes, namely debt sustainability assessments (DSAs), the exceptional access policy (EAP) for financing above normal access limits, and the criteria for lending to countries with payments arrears to private creditors (LIA) or official bilateral creditors (LIOA). It also considers other indirect channels through which the Fund can affect SODRs, including its support for enhancing the transparency and public disclosure of sovereign debt information, its collaboration with the Paris Club and the G20 debt-related initiatives, the promotion of contractual standards for sovereign debt, and the monitoring of relevant legislative developments. JEL Classification: F34, F55, H63
    Keywords: debt restructuring regime, International Monetary Fund, sovereign debt, sovereign default
    Date: 2021–09
  26. By: Maria Chiara Cucciniello (Roma Tre University); Matteo Deleidi (Roma Tre University); Enrico Sergio Levrero
    Abstract: In light of the literature on the ‘price puzzle’, this paper shows that a positive effect of a tightening of monetary policy on the level of prices should be considered a normal phenomenon rather than an ‘anomaly’ or a ‘specific regime phenomenon’ connected to passive behaviour of the Central Bank in response to changes in the inflation rate. In order to assess this effect of monetary policy on the level of prices, we estimate SVAR models based on US monthly data for the period 1959-2018. Alternative measures of price and inflation expectations are also taken into consideration to avoid feasible spurious correlation. Finally, all selected models are estimated along four different sub-samples to consider different monetary policy regimes. Our findings show that the ‘price puzzle’ exists irrespective of both the passive (active) behaviour of the Central Bank and the inclusion of price expectations.
    Keywords: Price Puzzle, Structural Vector Autoregressions, United States
    JEL: B22 E31 E43 E44 E52
    Date: 2021–07
  27. By: Bozhechkova Alexandra (Gaidar Institute for Economic Policy); Trunin Pavel (Gaidar Institute for Economic Policy)
    Abstract: In 2020, the world economy was faced with a large-scale crisis caused by the coronavirus pandemic, a worsening situation in the global oil market, increasing global uncertainty, and capital outflows from emerging markets. The crisis phenomena were experienced, to a varying degree, by every sector of the economy and required the implementation of a set of urgent monetary policy measures. The Bank of Russia’s switchover to monetary policy easing became its key decision aimed at sustaining aggregate demand: in 2020, the regulator cut the key rate four times, from 6.25% per annum in February to 4.25% per annum in July, thus sinking it to its historic low.
    Keywords: Russian economy, monetary policy, money market, exchange rate, inflation, balance of payments
    JEL: E31 E43 E44 E51 E52 E58
    Date: 2021
  28. By: Jain, Neha (Indian Institute of Foreign Trade); Goli, Srinivas
    Abstract: India is on the edge of a demographic revolution with a rapidly rising working-age population. For the first time in this study, we investigate the role of the rising working-age population on per capita small savings in post offices and banks net of socio-economic characteristics using state-level panel data compiled from multiple sources for the period 2001-2018. Our comprehensive econometric assessment with multiple robustness checks provide three key findings: (1) Per capita private savings is increasing because of India’s growing working-age population, thus the ‘economic life cycle hypothesis’ is supported. (2) The demographic factors contribute around one-fourth of the per capita private savings inequality across Indian states. (3) The demographic window of economic opportunity for India can yield maximum benefits in terms of private savings when accompanied by favourable socio-economic policies on education, health, gender equity, and economic growth.
    Date: 2021–09–04
  29. By: Paolo Di Martino (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This paper reconstructs the history of direct interventions to support the exchange rate performed by Italian banks of issue between 1880 and 1913. The paper, based on coeval documents, shows how in Italy "central banks" played an active role over the whole period targeting, in particular, the price of public bonds traded internationally as the difference between this price and the one in domestic markets could activate arbitrages able to influence the exchange rate. The paper shows that the end- result of these interventions depended on the interconnection between three variables: the volume of Italian bonds traded internationally, the amount of forex reserves held by "central banks", and the trust in the Italian public finances.
    Date: 2021–09
  30. By: Felix Holzmeister (Department of Economics, University of Innsbruck); Christoph Huber (Institute of Markets and Strategy, Vienna University of Economics and Business); Stefan Palan (Institute of Banking and Finance, University of Graz)
    Abstract: Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term ``risk'', which researchers have addressed from numerous angles, this comment aims to offer a critical perspective on the interactions between risk preferences (a latent trait), risk perceptions (how individuals judge whether something is risky), and risk-taking behavior as distinct concepts, and hence to guide future research on (individual-level) decision-making processes in this direction.
    Date: 2021–09–15
  31. By: Tretyakov, Dmitriy; Fokin, Nikita
    Abstract: Due to the fact that at the end of 2014 the Central Bank made the transition to a new monetary policy regime for Russia - the inflation targeting regime, the problem of forecasting inflation rates became more relevant than ever. In the new monetary policy regime, it is important for the Bank of Russia to estimate the future inflation rate as quickly as possible in order to take measures to return inflation to the target level. In addition, for effective monetary policy, the households must trust the actions of monetary authorities and they must be aware of the future dynamics of inflation. Thus, to manage inflationary expectations of economic agents, the Central Bank should actively use the information channel, publish accurate forecasts of consumer price growth. The aim of this work is to build a model for nowcasting, as well as short-term forecasting of the rate of Russian inflation using high-frequency data. Using this type of data in models for forecasting is very promising, since this approach allows to use more information about the dynamics of macroeconomic indicators. The paper shows that using MIDAS model with weekly frequency series (RUB/USD exchange rate, the interbank rate MIACR, oil prices) has more accurate forecast of monthly inflation compared to several basic models, which only use low-frequency data.
    Keywords: инфляция; наукастинг; прогнозирование; высокочастотные данные; MIDAS модель
    JEL: E31 E37
    Date: 2020–08
  32. By: Nicos Christodoulakis (Athens University of Economics and Business)
    Abstract: Using long term statistical series for Greece, the study locates and discusses the adjustments that took place in Greece during the 19th century in order to stabilize the economy, accumulate foreign reserves to support the viability of the currency regime and, thus, regain access to international markets. Most of the time the effort was fruitless and, finally led to bankruptcy in 1893. Then, in 1898 the International Economic Control was imposed to redress public finances and prepare the country for a more credible and lasting participation in the Gold Standard that finally takes place in 1910. Despite the fact that the Banking system and the process of accumulating foreign exchange reserves were following sensible rules, accumulation was so weak that the inability to achieve creditworthiness and trust among the more developed economies in Europe became endemic and left Greece without the precious access to capital and bond markets in Western Europe.
    Date: 2021–08–30
  33. By: Anne Lardoux de Pazzis (Vertalix Consulting); Amandine Muret (Vertalix Consulting)
    Abstract: A wide range of organisations operate at the interface between the demand for (e.g. water agencies or service providers) and the supply of finance (e.g. financing institutions and financiers at large) with the aim of bridging the substantial financing gap for water-related investments. These entities, referred to in this analysis as “intermediaries”, include those working upstream on the enabling environment for finance facilitation; transaction advisory supporting partnership development (of which financing is one component), private sector lending windows of donors and international financial institutions, and dedicated financing facilities. These intermediaries play multiple roles along the investment value chain, in various geographies and at various scales (international, national, regional, local). However a systematic assessment of these intermediaries, their role and the key functions performed has been lacking to date along with an assessment of the gaps, overlaps and misalignments compared with the existing bottlenecks to mobilise financing. The analysis presented in this Working Paper aims to fill this gap. This paper identifies and analyses a sample of 52 diverse intermediaries active in deploying one or more key functions across the investment value chain for 3 specific sub-sectors: utilities, small scale water and sanitation service providers and nature-based solutions. The analysis assesses the extent to which the activities of these intermediaries is aligned with the critical functions needed to mobilise finance across the sub-sectors. It identifies gaps, reduncies and misalignments and calls for a shift from the current opportunistic approach to a more strategic approach in the design and activities of intermediaries, supported by governments and financial institutions. The paper contributes to a forthcoming OECD report Financing a Water Secure Future that distils key insights from the past several years of engagement via the Roundtable on Financing Water and related analytical work. It was jointly developed by the OECD and The World Bank Global Water Practice, in the context of our cooperation on the Roundtable on Financing Water.
    Keywords: flood protection, infrastructure finance, investment, irrigation, sanitation, wastewater, water security, water supply
    JEL: H41 H54 L95 L98 Q25 Q53 Q54 Q58
    Date: 2021–09–14
  34. By: Loretta J. Mester
    Abstract: The conference’s theme of new avenues for monetary policy is particularly relevant given the economic challenges presented by the global pandemic. But even before the pandemic hit, structural changes to the economy, in particular, lower estimates of the neutral real interest rate, presented challenges for monetary policymakers and suggested that new thinking was needed to ensure achievement of our monetary policy goals. Recently, both the Federal Reserve and the European Central Bank (ECB) have undertaken reviews of their monetary policy frameworks to determine whether changes were needed to increase the effectiveness of their policy strategies. The ECB released the outcome of its review in July. The Fed’s revised strategy is now about a year old. Today, I will discuss the Fed’s revised strategy, how the Federal Open Market Committee (FOMC) has put the strategy into practice, and based on that experience, what I believe are areas that would benefit from further clarification. As always, the views I will present are my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.
    Date: 2021–09–10

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