nep-ban New Economics Papers
on Banking
Issue of 2021‒09‒27
35 papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. The countercyclical capital buffer and the composition of bank lending By Raphael Auer; Alexandra Matyunina; Steven Ongena
  2. Misdiagnosing Bank Capital Programs By Jeremy I. Bulow; Paul D. Klemperer
  3. Credit demand versus supply channels: Experimental- and administrative-based evidence By Michelangeli, Valentina; Peydró, José-Luis; Sette, Enrico
  4. Determinants of the credit cycle: a flow analysis of the extensive margin By Cuciniello, Vincenzo; di Iasio, Nicola
  5. Risk-to-Buffer: Setting Cyclical and Structural Capital Buffers through Banks Stress Tests By Cyril Couaillier; Valerio Scalone
  6. Target capital ratio and optimal channel(s) of adjustment: A simple model with empirical applications to European banks By Yann Braouezec; Keyvan Kiani
  7. Bank balance sheet constraints and bond liquidity By Breckenfelder, Johannes; Ivashina, Victoria
  8. How to Measure Securitization: A Structural Equation Approach By van der Plaat, Mark T.
  9. Signaling in Online Credit Markets By Kei Kawai; Ken Onishi; Kosuke Uetake
  10. Russian banking sector in 2020 By Zubov Sergey
  11. Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem By Aberg, Pontus; Corsi, Marco; Grossmann-Wirth, Vincent; Hudepohl, Tom; Mudde, Yvo; Rosolin, Tiziana; Schobert, Franziska
  12. Downward Interest Rate Rigidity By Grégory Levieuge; Jean-Guillaume Sahuc
  13. Measuring the Welfare Cost of Asymmetric Information in Consumer Credit Markets By Anthony A. DeFusco; Huan Tang; Constantine Yannelis
  14. Financial Stability Governance and Central Bank Communications By Stijn Claessens; Ricardo Correa; Juan M. Londono
  15. The Future of Cash By Solomon H. Tarlin
  16. RoSCAs in Egypt: A Banking Institution or a Commitment Device? By Rabie, Dina
  17. Geographical-Proximity Bias in P2B Crowdlending Strategies By Carole Gresse; Hugo Marin
  18. Forward Guidance Effectiveness in a New Keynesian Model with Housing Frictions By Cole, Stephen J.; Huh, Sungjun
  19. The role of finance in inclusive human development in Africa revisited By Asongu, Simplice; Nting, Rexon
  20. ¿Es posible explicar la crisis colombiana de 1998-2003 a partir de la teoría austríaca del ciclo económico? By Rosero Sánchez, Andrés Mauricio
  21. Media Treatment of Monetary Policy Surprises and Their Impact on Firms' and Consumers' Expectations By Julien Pinter; Evzen Kocenda
  22. More than ten years of Blockchain creation: How did we use the technology and which direction is the research heading? By Al-Ansari, Khalid Ahmed; Aysan, Ahmet Faruk
  23. The Fed takes on corporate credit risk: an analysis of the efficacy of the SMCCF By Simon Gilchrist; Bin Wei; Vivian Z Yue; Egon Zakrajšek
  24. Reputational risks in banks: A review of research themes, frameworks, methods, and future research directions By David Adeabah; Charles Andoh; Simplice A. Asongu; Albert Gemegah
  25. Distrust or Speculation? The Socioeconomic Drivers of U.S. Cryptocurrency Investments By Raphael A. Auer; David Tercero-Lucas
  26. Measuring monetary policy shocks in India By Aeimit Lakdawala; Rajeswari Sengupta
  27. Evolution of topics in central bank speech communication By Magnus Hansson
  28. How Risk Aversion and Financial Literacy Shape Young Adults’ Investment Preferences By Stoian, Andreea; Vintila, Nicoleta; Iorgulescu, Filip; Cepoi, Cosmin Octavian; Dina Manolache, Aurora
  29. Unconventional Monetary Policy in the Euro Area: A Tale of Three Shocks By Luca Fanelli; Antonio Marsi
  30. Assessing the efficacy, efficiency and potential side effects of the ECB’s monetary policy instruments since 2014 By Altavilla, Carlo; Lemke, Wolfgang; Linzert, Tobias; Tapking, Jens; von Landesberger, Julian
  31. The Ascent of Islamic Social Finance Reserach By Ahmet Faruk Aysan; Jamila Abubakar; Ahmet Aysan
  32. Cryptocurrencies and the Future of Money By Matheus R. Grasselli; Alexander Lipton
  33. Impact of the policy mix on the stability of the general price level in the Democratic Republic of Congo (DRC) By Allegra Kabamba Mbuyi; Kondolo Kojack
  34. Society, Politicians, Climate Change and Central Banks: An Index of Green Activism By Donato Masciandaro; Romano Vincenzo Tarsia
  35. Money Demand and Inflation in a Highly Dollarized Economy: Fighting Inflation in Cambodia By Chanthol, Hay

  1. By: Raphael Auer (Swiss National Bank; Bank for International Settlements (BIS)); Alexandra Matyunina (University of Zurich; Swiss Finance Institute); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Do targeted macroprudential measures impact non-targeted sectors too? We answer this question by investigating the compositional changes in the supply of credit by Swiss banks, exploiting their differential exposure to the activation in 2013 of the countercyclical capital buffer (CCyB) which targeted banks’ exposure to residential mortgages. We find that the additional capital requirements stemming from the activation of the CCyB causes higher growth in banks’ commercial lending. While banks lend more to all categories of firms, including larger corporate borrowers in the syndicated loan market, smaller and riskier firms are the primary beneficiaries of the new macroprudential measure. However, the interest rates and other costs of obtaining credit for these firms increase as well.
    Keywords: macroprudential policy, spillovers, credit, bank capital, systemic risk, syndicated loan market
    JEL: E51 E58 E60 G01 G21 G28
    Date: 2021–09
  2. By: Jeremy I. Bulow; Paul D. Klemperer
    Abstract: Banks’ reluctance to repair their balance sheets, combined with deposit insurance and regulatory forbearance in recognizing greater risks and losses, can lead to solvency problems that look like liquidity (bank-run) crises. Regulatory forbearance incentivizes banks to both retain risky loans and reject new good opportunities. With sufficient regulatory forbearance, partially-insured banks act exactly as if they are fully insured. Stress tests certify that uninsured creditors will be paid, not that banks are solvent, and have ambiguous effects on the efficiency of investment.
    JEL: G10 G21 G28 G32
    Date: 2021–09
  3. By: Michelangeli, Valentina; Peydró, José-Luis; Sette, Enrico
    Abstract: We identify the relative importance for lending of borrower (demand) versus bank (supply) factors. We submit thousands of fictitious mortgage applications, changing one borrower-level factor at time, to the major Italian online mortgage platform. Each application goes to all banks. We find that borrower and bank factors are equally strong in causing and explaining loan acceptance. For pricing, borrower factors are instead stronger. Moreover, banks supplying less credit accept riskier borrowers. Exploiting the administrative credit register, we show borrower-lender assortative matching, and that the bank-level strength measure, estimated on the experimental data, determines credit supply and risk-taking to real firms.
    Keywords: credit,banks,mortgages,SMEs,risk-taking
    JEL: G21 G51 E51
    Date: 2021
  4. By: Cuciniello, Vincenzo; di Iasio, Nicola
    Abstract: Using loan-level data covering almost all loans to households and businesses from banks in Italy over the past 20 years, we offer new empirical evidence that credit declines during a recession primarily because of the reduction in the net creation of borrowers. We then build on a flow approach to decompose the net creation of borrowers into gross flows across three statuses: (i) borrower, (ii) applicant and (iii) neither borrower nor applicant (i.e. inactive firms or households in the bank credit market). Along the macroeconomic dimension of these gross flows, we document four cyclical facts. First, fluctuations in the number of new borrowers (inflows) account for the bulk of volatility in the net creation of borrowers. Second, the volatility of borrower inflows is two times as large as the volatility of obligors exiting from the credit market (outflows). Third, borrower inflows are highly procyclical and tend to lead the business cycle. Fourth, decreases in the probability of a match between borrower and lender during recessions are a leading explanation for the role of borrower inflows. JEL Classification: E51, E32, E44
    Keywords: Borrower flows, business cycles, credit cycles, credit market participation
    Date: 2021–09
  5. By: Cyril Couaillier; Valerio Scalone
    Abstract: In this work we present the Risk-to-Buffer: a new framework to jointly calibrate cyclical and structural capital buffers, based on the integration of a non-linear macroeconomic model with a Stress test model. The macroeconomic model generates scenarios whose severity depends on the level of cyclical risk. Risk-related scenarios feed into a banks' Stress test model. Banks' capital losses deriving from the reference-risk scenario are used to calibrate the structural buffer. Additional losses associated to the current-risk scenario are used to calibrate the cyclical buffer.
    Keywords: Financial Vulnerability, Macroprudential Policy, Non-linear Models, Macroprudential Space, Deb
    JEL: C32 E51 E58 G51
    Date: 2021
  6. By: Yann Braouezec (IÉSEG School Of Management [Puteaux]); Keyvan Kiani (IÉSEG School Of Management [Puteaux])
    Abstract: Why do banks decide to reach their target capital ratio by selling assets and/or issuing new shares? To answer this question, we offer a simple framework in which each channel of adjustment is costly; underwriting and dilution costs for equity issuance, profit reduction and price impact for asset sale. We make the assumption that the aim of the bank is to minimize the total adjustment cost subject to the target's constraint and we derive its optimal strategy. The solution is formulated in terms of two critical thresholds for which we give an explicit formula. We then compare our model's predictions to the decisions taken by two European systemic banks (Deutsche Bank and UniCredit) to issue new shares in 2017 and for which the target ratio was publicly disclosed. We show that the predictions of the model are consistent with the observed decisions.
    Keywords: Equity issuance,asset sale,price impact,target capital ratio,systemic banks
    Date: 2021–01–17
  7. By: Breckenfelder, Johannes; Ivashina, Victoria
    Abstract: We explore the ties between bonds and individual dealers formed through home advantage and the persistence of previous underwriting relationships. Building on these connections, we show that the introduction of the leverage ratio for the European banks had a large impact on exposed bonds’ liquidity. Moreover, based on these ties, we show that bond mutual fund panic following the 2020 pandemic outbreak affected substantially more mutual funds with the larger exposures to dealer banks’ balance sheet constraints. JEL Classification: G12, G18, G21
    Keywords: Bond liquidity, capital requirements, COVID-19, leverage ratio, market-making, mutual funds
    Date: 2021–09
  8. By: van der Plaat, Mark T.
    Abstract: Securitization is a popular concept in banking and finance. Empirical literature measures securitization with a wide range of variables, which raises the question how to measure securitization. Using a structural equation modeling approach, we examine whether proxy variables used in the literature have a common securitization factor. We find that there are two common factors for ABS-CDO securitization, and ABCP securitization. These factors correlate strongly with factors for loan sales and credit derivatives, indicating that these four factors together are used by banks to hedge credit risk. We present some recommendations to improve the measurement of securitization.
    Keywords: Securitization; Asset-Backed Securities; Collateralized Debt Obligations; Asset-Backed Commercial Papers; Loan Sales; Credit Derivatives; Credit Default Swaps; Latent Variables; Proxy Variables; Latent Variable Analysis; Structural Equation Modeling; Exploratory Factor Analysis; Confirmatory Factor Analysis
    JEL: C38 G21 G23
    Date: 2021–09–15
  9. By: Kei Kawai; Ken Onishi; Kosuke Uetake
    Abstract: We study how signaling affects equilibrium outcomes and welfare in an online credit market using detailed data on loan characteristics and borrower repayment. We build and estimate an equilibrium model in which a borrower may signal her default risk through the reserve interest rate. Comparing a market with and without signaling relative to the benchmark with no asymmetric information, we find that adverse selection destroys as much as 34% of total surplus, up to 78% of which can be restored with signaling. We also estimate backward-bending supply curves for some markets, consistent with the prediction of Stiglitz & Weiss (1981).
    JEL: D82 G21 L15
    Date: 2021–09
  10. By: Zubov Sergey (Gaidar Institute for Economic Policy)
    Abstract: As of end 2020, there were 406 credit institutions in Russia against 442 a year earlier. Over the year, the number of operating credit institutions decreased by 36 (in 2019 – by 42). At the end of the year, he number of banks with a universal license came to 248 (at the beginning of the year – 266), with a basic one - 118 (at the beginning of the year – 136). In 2020, the number of non-bank credit institutions did not change and amounted to 40 (Fig. 65). At the end of the year, there were 379 credit institutions subject to liquidation procedures.
    Keywords: Russian economy, banking sector, profit, capital, corporate loans, retail lending
    JEL: E41 E51 G28 G21 G24
    Date: 2021
  11. By: Aberg, Pontus; Corsi, Marco; Grossmann-Wirth, Vincent; Hudepohl, Tom; Mudde, Yvo; Rosolin, Tiziana; Schobert, Franziska
    Abstract: This paper discusses commercial banks’ demand for central bank reserves under two alternative monetary policy framework configurations, namely: (i) an interest rate corridor system with scarce liquidity, and (ii) a floor system with ample liquidity. It outlines the interaction between the monetary implementation framework used to steer short-term market interest rates and banks’ demand for reserves. We find that by implementing a floor system, the Eurosystem has eliminated the opportunity costs of holding reserves and enabled banks to hold relatively large buffers of reserves compared with the corridor system. Additionally, the demand for reserves may have increased endogenously, as the environment of ample liquidity conditions has incentivised many banks to adapt their business models. In parallel, the demand for reserves has also increased for more exogenous reasons such as post-global financial crisis liquidity regulation and increased liquidity concentration. Our estimates indicate an increase, over recent years, in the level of excess liquidity required in the euro area to avoid a rise in short-term market rates. Moreover, the dependency on the adopted monetary policy instruments and the external environment highlights the increased uncertainty in estimating future levels of required reserves JEL Classification: E41, E44, E50, E51, E58
    Keywords: central bank reserves, ECB, Eurosystem, liquidity management, monetary policy implementation
    Date: 2021–09
  12. By: Grégory Levieuge; Jean-Guillaume Sahuc
    Abstract: Empirical evidence suggests that bank lending rates are downward rigid: banks tend to adjust their rates more slowly and less completely to short-term market rates decreases than to increases. We investigate the macroeconomic consequences of this downward interest rate rigidity by introducing asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. Calibrating the model to the euro area economy, we find that the difference in the initial response of GDP to positive and negative economic shocks of similar amplitude can reach up to 25%. This means that a central bank would have to cut its policy rate much more to obtain a symmetric medium-run impact on GDP. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions.
    Keywords: Downward Interest Rate Rigidity, Asymmetric Adjustment Costs, Banking Sector, DSGE Model, Euro Area
    JEL: E32 E44 E5
    Date: 2021
  13. By: Anthony A. DeFusco; Huan Tang; Constantine Yannelis
    Abstract: Information asymmetries are known in theory to lead to inefficiently low credit provision, yet empirical estimates of the resulting welfare losses are scarce. This paper leverages a randomized experiment conducted by a large fintech lender to estimate welfare losses arising from asymmetric information in the market for online consumer credit. Building on methods from the insurance literature, we show how exogenous variation in interest rates can be used to estimate borrower demand and lender cost curves and recover implied welfare losses. While asymmetric information generates large equilibrium price distortions, we find only small overall welfare losses, particularly for high-credit-score borrowers.
    JEL: D14 D82 G10 G23 G5
    Date: 2021–09
  14. By: Stijn Claessens; Ricardo Correa; Juan M. Londono
    Abstract: We investigate how central banks' governance frameworks influence their financial stability communication strategies and assess the effectiveness of these strategies in preventing a worsening of financial cycle conditions. We develop a simple conceptual framework of how central banks communicate about financial stability and how communication shapes the evolution of the financial cycle. We apply our framework using data on the governance characteristics of 24 central banks and the sentiment conveyed in their financial stability reports. We find robust evidence that communications by central banks participating in interagency financial stability committees more effectively mitigate a deterioration in financial conditions and advert a potential financial crisis. After observing a deterioration in conditions, such central banks also transmit a calmer message, suggesting that the ability to use policy tools other than communications strengthens incentives not to just "cry wolf".
    Keywords: Financial Stability Governance; Natural Language Processing; Central Bank Communications; Financial Cycle
    JEL: G15 G28
    Date: 2021–09–10
  15. By: Solomon H. Tarlin
    Abstract: In many advanced economies around the world, the share of transactions conducted using cash payments has been falling over the past several years. This change has likely been because of a combination of shifting consumer tastes, improvements in payment technology (specifically credit and debit cards), and the rapid growth of online transactions. As the decline in the cash share has led to some businesses choosing not to accept cash payments, many policymakers have discussed interventions to ensure access to the modern economy for consumers who prefer to pay in cash. Despite the reduced use of cash as a means of payment, currency in circulation has continued to increase in many countries, including the United States. This increase suggests that cash is still providing utility as a store of value. This paper surveys literature and data on the use of cash as a means of payment and discusses how and why the cash share is falling in the United States and around the world. Furthermore, it also discusses the opportunities and challenges of a transition away from cash for consumers, businesses, and society.
    Keywords: cashless society; cash payments; electronic payments
    JEL: E42 G20 G21
    Date: 2021–09–13
  16. By: Rabie, Dina
    Abstract: Rotating Savings and Credit Associations (RoSCAs) is a widely spread informal financial institution in developing countries. This paper examines how access to formal banking (or lack thereof), impatience and self-control are correlated with individuals' decisions to join RoSCAs. The paper employs an incentivized experiment to elicit impatience and a questionnaire to measure bank access, self-control and RoSCA participation among university employees in Cairo (Egypt). Findings indicate that access to formal banking significantly decreases the likelihood of RoSCA participation. In addition, behavioural attitudes partially (self-control but not impatience) correlates with the RoSCA participation decision. Conditional on RoSCA participation, behavioural attitudes towards self-control and impatience are significant correlates of whether an individual is a saver or a borrow in the informal institution.
    Keywords: RoSCAs,RoSCA rank,informal banking,impatience,self-control
    JEL: C91 D14 O17
    Date: 2021
  17. By: Carole Gresse (DRM - Dauphine Recherches en Management - CNRS - Centre National de la Recherche Scientifique - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres); Hugo Marin (DRM - Dauphine Recherches en Management - CNRS - Centre National de la Recherche Scientifique - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)
    Abstract: Using data from a peer-to-business crowdlending platform that exploits an auction-driven system to fund corporate loans, we show that non-professional investors are subject to a geographical-proximity bias. They are more likely to win the auctions of borrowers located close to their place of residence notwithstanding that they are not better informed about their creditworthiness. Unexpectedly, this behavioral bias distorts the loan rate discovery processby increasing the cost of funding for borrowers. This adverse effect results from the greaterability of local investors to submit winning bids at an early stage. This ability is gained from their experience in previous auctions of geographically close borrowers. This suggests that the familiarity feeling stemming from geographical closeness strengthens investor attention,and thereby improves lenders' knowledge about the dynamics of the order flow in local borrowers' auctions.
    Keywords: peer-to-business crowdlending,crowdfunding,behavioral finance,loan performance,price discovery process
    Date: 2021–09–08
  18. By: Cole, Stephen J. (Department of Economics Marquette University); Huh, Sungjun (Department of Economics Marquette University)
    Abstract: Housing markets are closely related to monetary policy. This paper studies the link between housing frictions and the effectiveness of forward guidance. A housing collateral constraint and forward guidance shocks are incorporated into a standard medium-scale New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model. Our main results produce a number of important implications. First, financial frictions emanating from the housing market dampen the effectiveness of forward guidance on the economy. Second, forward guidance has asymmetric effects on the welfare of lenders and borrowers when housing frictions increase. Housing frictions also attenuate the effect of forward guidance at the zero lower bound. Finally, this article provides a solution to "forward guidance puzzle" of Del Negro et al. (2012). Thus, policymakers should consider housing frictions when examining the effects of forward guidance on the economy.
    Keywords: forward guidance, financial frictions, housing collateral, zero lower ground
    JEL: E32 E44 E52 R21
    Date: 2021–09
  19. By: Asongu, Simplice; Nting, Rexon
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries. It employs a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers. This study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.
    Keywords: Banking; human development; Africa
    JEL: E0 G20 I00 O10
    Date: 2021–01
  20. By: Rosero Sánchez, Andrés Mauricio
    Abstract: RESUMEN: El objeto de este estudio es contrastar la teoría austriaca del ciclo económico con la crisis económica colombiana de 1998-2003. Para ello, se recurre a la obra de Huerta de Soto (“Dinero, Crédito Bancario y Ciclos Económicos†, 2012), quien desglosa el ciclo económico en una secuencia de seis efectos macroeconómicos fácilmente contrastables con la evidencia empírica y que suelen ponerse en marcha tras una política monetaria expansiva. A lo largo del estudio, se cotejan cada uno de dichos efectos con la información estadística disponible y, mediante la revisión de las opiniones de expertos y análisis de estadística descriptiva, se muestra cómo cuatro de los seis efectos macroeconómicos que según Huerta de Soto (2012) componen el típico ciclo económico se hicieron patentes en la economía colombiana a fines del siglo XX. Adicionalmente, se encuentra verosimilitud entre la causa teórica del ciclo económico desde la perspectiva austriaca y las severas expansiones monetarias y crediticias efectuadas en Colombia entre 1992 y 1993. A grandes rasgos, la teoría austriaca del ciclo económico permite explicar la crisis colombiana de 1998-2003. Abstract: The purpose of this study is to make a contrast between the Austrian business cycle theory (ABCT) and the Colombian economic crisis of 1998-2003. For that, we resort to the work of Huerta de Soto (“Money, bank credit and economic cycle†, 2012), who breaks down the cycle in a sequence of six macroeconomic effects that are easily verifiable and set off after an expansionary monetary policy. Throughout the study, each effect is compared with the available statistical information and with the opinion of experts. We are able to demonstrate how four of the six macroeconomic effects described by Huerta de Soto (2012) are eventually present in the Colombian economy of the last decade of the twentieth century. In addition, we find that the Austrian theoretical cause of the cycle is consistent with the severe monetary and credit expansions observed in Colombia between 1992 and 1993. To sum up, the Colombian crisis of 1998-2003 can be roughly explained using the ABCT.
    Keywords: teoría austriaca del ciclo económico, crisis económica colombiana de 1999, burbuja inmobiliaria, efectos de la política monetaria, crisis financieras
    JEL: B53 E44 E58 G28 N26
    Date: 2021–05–07
  21. By: Julien Pinter (University of Minho, NIPE, Braga); Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & Institute of Information Theory and Automation, Prague & CESifo, Munich & IOS, Regensburg)
    Abstract: We empirically investigate whether monetary policy announcements affect firms' and consumers' expectations by taking into account media treatments of monetary policy announcements. To identify exogenous changes in monetary policy stances, we use the standard financial monetary policy surprise measures in the euro area. We then analyze how a general newspaper and a financial newspaper (Le Monde and The Financial Times) report on announcements. We find that 87 % of monetary policy surprises are either not associated with the general newspaper reporting a change in the monetary policy stance to their readers or have a sign that is inconsistent with the media report of the announcement. When we use the raw monetary policy surprises variable as an independent variable in the link between monetary policy announcements and firms'/consumers' expectations, we mostly do not find, in line with several previous studies, any statistically significant association. When we take only monetary policy surprises that are consistent with the general newspaper report, in almost all cases we find that monetary policy surprises on the immediate monetary policy stance do affect expectations. Surprises related to future policy inclination and information shocks usually do not appear to matter. The results appear to be in line with rational inattention theories and highlight the need for caution in the use of monetary policy surprise measures for macroeconomic investigations.
    Keywords: firm expectations; consumer expectations; monetary policy surprises; European Central Bank; information effect
    JEL: D84 E02 E52 E31
    Date: 2021–09
  22. By: Al-Ansari, Khalid Ahmed; Aysan, Ahmet Faruk
    Abstract: To identify how blockchain technology affects current and future research, we carried out a bibliometric overview of the journal articles written on the blockchain. We aimed to answer some of the questions to visualize the trend of the publications regarding the advancement of blockchain utilization in fields relating to finance, economics, and social science. We used the Scopus database for the literature research, which resulted in 506 papers by 1278 authors from 79 countries. Our study showed that from 2008 till 2021, publishing about blockchain was more significant in conference papers than articles by a factor of 2. Our study also showed the importance of citation regarding published academic articles, the link to the number of publications, the authors, the universities, the affiliated organizations, and the countries of the publications. The use of authoring and citation analysis give valuable insights. On the topic of blockchain, we identified Financial Innovation as the most impactful journal on the topic, the National Natural Science Foundation of China as the leading funding sponsor on blockchain research, the USA as the highest publication production country, and Hong Kong as the highest country in the average citation per document produced. We finally identified the 20 most cited articles on the blockchain topics. Unlike other brief bibliometric studies, our study's investigation and findings could become a first stage of learning for those interested in carrying out a bibliometric study. In addition, our study could become the starting point for any future research on any blockchain projects.
    Keywords: blockchain, smart contracts, crypto, bitcoin, bibliometric analysis
    JEL: C21 C22 G11 G14 G17
    Date: 2021–08–21
  23. By: Simon Gilchrist; Bin Wei; Vivian Z Yue; Egon Zakrajšek
    Abstract: We evaluate the efficacy of the Secondary Market Corporate Credit Facility (SMCCF), a program designed to stabilize the U.S. corporate bond market during the Covid-19 pandemic. The Fed announced the SMCCF on March 23, 2020, and expanded the program on April 9. Our results show that the two announcements significantly lowered credit and bid-ask spreads, the former almost entirely through a reduction in credit risk premia. The announcements had a differential effect on the program-eligible bonds relative to their ineligible counterparts, but this difference is not due to program eligibility per se, according to our results. Rather, the announcements restored the "normal" upward-sloping profile of the term structure of credit spreads by substantially reducing spreads at the short end of the maturity spectrum relative to spreads at the long end. Using an IV approach, we also document important announcement-induced spillovers across all bonds outstanding for issuers whose bonds were likely to be purchased by the facility. Finally, we show that the Fed's actual purchases had negligible effects on credit and bid ask spreads. Our results highlight the extraordinary power of modern central banks: when markets have trust in the central bank's ability to deliver on its promise, as exemplified by the iconic "whatever it takes" remark by Mario Draghi, the central bank needs to do less (if anything) to deliver on its promise.
    Keywords: covid-19, credit market support facilities, diff-in-diff, event study, purchase effects
    JEL: E44 E58 G12 G14
    Date: 2021–09
  24. By: David Adeabah (University of Ghana, Legon, Ghana); Charles Andoh (University of Ghana, Legon, Ghana); Simplice A. Asongu (Yaoundé, Cameroon); Albert Gemegah (University of Ghana, Legon, Ghana)
    Abstract: Reputation is an important factor for long-term stability, competitiveness, and success of all contemporary organizations. It is even more important for banks because of their systemic role in a modern economy. In this study, we present a review of the current body of literature regarding reputational risks in banks. Using the systematic literature review method, 35 articles published from 2010 to 2020 are reviewed and analyzed. It was found that only developed countries (i.e., the United States and Europe) have been actively contributing to research on reputational risks in banks, suggesting that reputational risks management of banks has not gained the global attention it deserves. Additionally, issues of mitigation of reputational risks are identified as the most frequently studied research theme with a paucity of research on measurement, determinants, and implications of reputational risks at both micro and macro levels. Furthermore, it was noticed that reputational risk management frameworks are still underdeveloped. In theory, this review should help with a strong conceptualization of reputational risks management in banks and guide further research.
    Keywords: reputational risks; banks; systematic literature review
    Date: 2021–01
  25. By: Raphael A. Auer; David Tercero-Lucas
    Abstract: Employing representative data from the U.S. Survey of Consumer Payment Choice, we disprove the hypothesis that cryptocurrency investors are motivated by distrust in fiat currencies or regulated finance. Compared with the general population, investors show no differences in their level of security concerns with either cash or commercial banking services. We find that cryptocurrency investors tend to be educated, young and digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged. We examine how investor characteristics vary across cryptocurrencies and show that owners of cryptocurrencies increasingly tend to hold their investment for longer periods.
    Keywords: digital currencies, cryptocurrencies, distributed ledger technology, blockchain, payments, digitalisation, banking, household finance, money, bitcoin, ether, xrp, bitcoin cash, litecoin, stellar, eos
    JEL: D14 D91 E42 G11 G12 G28 O33
    Date: 2021
  26. By: Aeimit Lakdawala (Wake Forest University); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: We create new measures of monetary policy shocks for India using high-frequency derivatives data and study their transmission. These shocks capture two distinct dimensions of the Reserve Bank of India's (RBI) monetary policy announcements. In addition to reacting to surprise changes (or non-changes) in the RBI's policy rate, financial markets also infer substantial information about the future path of the policy rate from RBI's communication. We analyze official statements and the corresponding media narrative on prominent RBI announcement dates to help understand how markets use RBI communication to update their expectations. Overall, bond and stock markets react strongly to these monetary shocks, but exhibit notable heterogeneity across governor regimes. Finally, we use the monetary shocks as external instruments to identify the impact on macroeconomic variables in a structural vector autoregression. We find some evidence of the conventional transmission of monetary policy to prices but not to output.
    Keywords: monetary policy, Reserve Bank of India, event study, monetary transmission
    JEL: E44 E52 E58 G10
    Date: 2021–08
  27. By: Magnus Hansson
    Abstract: This paper studies the content of central bank speech communication from 1997 through 2020 and asks the following questions: (i) What global topics do central banks talk about? (ii) How do these topics evolve over time? I turn to natural language processing, and more specifically Dynamic Topic Models, to answer these questions. The analysis consists of an aggregate study of nine major central banks and a case study of the Federal Reserve, which allows for region specific control variables. I show that: (i) Central banks address a broad range of topics. (ii) The topics are well captured by Dynamic Topic Models. (iii) The global topics exhibit strong and significant autoregressive properties not easily explained by financial control variables.
    Date: 2021–09
  28. By: Stoian, Andreea; Vintila, Nicoleta; Iorgulescu, Filip; Cepoi, Cosmin Octavian; Dina Manolache, Aurora
    Abstract: This study investigates the relationship between risk aversion, financial literacy, and investment preferences of young adults in higher education in Romania. For this purpose, we conducted a survey that measured the basic, advanced and overall financial literacy, risk aversion, and parental financial behaviours. We had 479 respondents and a similar number of useable surveys. Resorting to OLS and IV econometric methods, we show that financial literacy, regardless of its level, contributes to reducing risk aversion quantified by the risk premium. Moreover, positive financial behaviours of parents also decrease the risk aversion. This finding is invalid in the case of a self-assessed risk tolerance. We also found that young adults' investment preferences are influenced by the self-assessed risk tolerance and not by the risk aversion. However, financial literacy increases the probability of young adults to select bonds or funds as investment options, but does not have a statistically significant influence on the selection of stocks, which is mainly driven by the self-assessed risk profile as well as bank deposits.
    Keywords: financial literacy, risk aversion, risk premium, investment choices, survey methods
    JEL: C83 G11
    Date: 2021–08
  29. By: Luca Fanelli; Antonio Marsi
    Abstract: High-frequency (HF) surprises of relevant asset prices around central bank meetings are extensively employed in the literature to identify the effects of conventional/unconventional monetary policy. This identification strategy assumes that these surprises reflect either a single unconventional ‘monetary shock’ or, as recently suggested, jointly an unconventional monetary shock and a central bank ‘information shock’. In this paper we show that monetary policy in the euro area after 2008 is best characterized by three shocks, not two. Besides the unconventional monetary shock and the information shock, we consider a third shock resulting from the ECB directly managing fragmentation risk in the sovereign bond market. We call this additional shock ‘spread shock’, and show that it permits to solve a puzzle we observe in HF comovement of long term risk free rates and sovereign spreads around press conferences. We identify the dynamic causal effects produced by the three shocks through a proxy-SVAR methodology which, using HF surprises of the euro area risk-free yield curve, stock prices and sovereign spreads, combines sign-restrictions with narrative restrictions and then extracts external variables (instruments) from an admissible identification set. Empirical results, obtained through a daily proxy-SVAR and Local Projections based on monthly data, reveal that the spread shock represents an important ingredient of the transmission mechanism of the monetary policy after the Global Financial Crisis. It reflects ECB’s attempt to offset self-fulling expectations of default in the euro area sovereign debt markets and behaves as a complement, not a substitute of the information shock.
    JEL: E43 E44 E52 E58 G10
    Date: 2021–09
  30. By: Altavilla, Carlo; Lemke, Wolfgang; Linzert, Tobias; Tapking, Jens; von Landesberger, Julian
    Abstract: This paper summarises the work done by Eurosystem staff in the context of the Strategy Review Seminar on Monetary Policy Instruments. More specifically, it focuses on the efficacy, efficiency and potential side effects of the key monetary policy instruments employed by the European Central Bank since 2014. The following main findings emerge from the analysis. First, instruments have been effective in easing financing conditions and supporting economic growth, employment and inflation. Second, considering the effective lower bound on policy rates, a combination of instruments is generally more efficient than relying on a single tool. Third, side effects have been generally contained so far, but they are found to vary over time and need to be closely monitored on an ongoing basis. Fourth, the monetary policy toolkit needs to remain innovative, diversified, and flexible, i.e. reviewed regularly to ensure that it remains fit for purpose against the backdrop of evolving financial and macroeconomic conditions. JEL Classification: E52, E58, E43, E44, E47
    Keywords: monetary policy instruments, standard and non-standard measures
    Date: 2021–09
  31. By: Ahmet Faruk Aysan (Department of Economics - Boğaziçi University [Istanbul]); Jamila Abubakar; Ahmet Aysan
    Abstract: This paper is a bibliometric study of the literature in Islamic social finance. The study analyses 595 articles, conference papers, and book chapters in Islamic social finance from 1991 to 2020 published in 262 Scopus indexed journals. The authors sourced the bibliographic data using the keywords "Islam and social finance," "waqf," "zakat," "microfinance," and variations thereof. This study is essential, especially in the wake of COVID-19 pandemic and the pandemic-induced economic disruption leading to increased global income and social inequalities, putting even more pressure on the SDGs funding gap. Novel solutions to plug the funding Gap are being sought, and recent literature has shown Islamic social finance's potential as a solution to the SDG's funding gap. The study finds that researchers in the field closely link Islamic social finance with sustainability and sustainable development concepts, as evidenced in keywords used by authors. We also find that Malaysia and Indonesia are leading the research in ISF. The study aims to map the field of Islamic social finance and provide a reference point for future researchers to identify the gaps in the literature and their role in enriching academic discourse in ISF to position Islamic finance appropriately in the sphere of development economics.
    Keywords: Islamic social finance,Zakat,Waqf,Islamic microfinance,bibliometric,trends,sustainable
    Date: 2021–09–12
  32. By: Matheus R. Grasselli; Alexander Lipton
    Abstract: We review different classes of cryptocurrencies with emphasis on their economic properties. Pure-asset coins such as Bitcoin, Ethereum and Ripple are characterized by not being a liability of any economic agent and most resemble commodities such as gold. Central bank digital currencies, at the other end of the economic spectrum, are liabilities of a Central Bank and most resemble cash. In between, there exist a range of so-called stable coins, with varying degrees of economic complexity. We use balance sheet operations to highlight the properties of each class of cryptocurrency and their potential uses. In addition, we propose the basic structure for a macroeconomic model incorporating all the different types of cryptocurrencies under consideration.
    Date: 2021–09
  33. By: Allegra Kabamba Mbuyi (UNIKIN - Université de Kinshasa); Kondolo Kojack
    Abstract: This study assesses the impact of monetary and fiscal policy coordination on the stability of the general price level in the context of the Democratic Republic of Congo from 1990 to 2019. Our empirical investigation focuses on the DRC between 1990 and 2019, and uses the VAR model. The results show the existence of this coordination for a few years. In addition, this coordination has positive effects on the stability of the general price level. This evidence suggests that the Central Bank of Congo (BCC) must work hard with the Congolese government to ensure general price level stability.
    Abstract: La présente étude évalue l'impact de la coordination des politiques monétaire et budgétaire sur la stabilité du niveau général des prix dans le contexte de la République Démocratique du Congo de 1990 à 2019. Notre investigation empirique porte sur la RDC entre 1990 et 2019, et fait appel au modèle VAR. Les résultats ont montré l'existence de cette coordination durant quelques années. Aussi, cette coordination présente des effets positifs sur la stabilité du niveau général des prix. Ces preuves suggèrent que la Banque Centrale du Congo (BCC) doit travailler d'arrache-pied avec le gouvernement congolais pour assurer la stabilité du niveau général des prix.
    Keywords: "Policy mix coordination","fiscal policy","monetary policy","VAR model","DRC","Coordination du Policy mix","Politique budgétaire","Politique monétaire","modèle VAR","RDC".
    Date: 2021–09–13
  34. By: Donato Masciandaro; Romano Vincenzo Tarsia
    Abstract: This paper proposes an index for evaluating central bank activism in addressing climate-change issues. Consistent with a principal-agent approach, this metric assumes that the central bank’s sensibility on climate change depends on both economic and political drivers. The index has been created to include not only actual policies but also participation in green networks and initiatives that signal central bank activism on climate change.
    Keywords: Climate change, central banking, principal-agent, political pressure, monetary policy, financial stability
    Date: 2021
  35. By: Chanthol, Hay
    Abstract: Money supply in a highly dollarized Cambodian economy appears to be highly unstable because the composition of domestic currency in aggregate money supply is very small. During its transition towards a market economy, Cambodia embarked upon a path of disinflation through dollarization and stable exchange rate. In this paper, the trend and behavior of money supply, money demand and inflation are examined, and a model is developed to explain the determinants of inflation under dollarization and estimate it for Cambodia in the 2000s using a two-step procedure. This paper also shows that management of rice price, gasoline price with a restrictive monetary policy based on broadly defined money or total liquidity was essential for the Cambodian authorities to succeed in fighting inflation. This paper explain the behavior of inflation and the role that a central bank may play in its determination.
    Keywords: money demand, inflation, dollarization, exchange rate
    JEL: E31 E41 E52
    Date: 2021–03–01

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