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on Banking |
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Issue of 2021‒12‒13
29 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | David Chen; Christian Friedrich |
| Abstract: | We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. Using panel data for the six largest Canadian banks and their foreign activities in up to 94 countries, we explore the variation in CCyB rates across countries to overcome the identification challenge associated with limited time-series evidence on the use of the CCyB in individual jurisdictions. Our main sample focuses on the period from 2013Q2 to 2019Q3, when CCyB rates experienced a prolonged tightening cycle. We show that in response to a 1-percentage-point tightening announcement in a foreign CCyB, the growth rate of cross-border lending between Canadian banks’ head offices and borrowers in CCyB-implementing countries decreases by between 12 and 17 percentage points. Most importantly, due to the CCyB’s unique reciprocity rule, which also subjects foreign banks to domestic regulation, the direction of this effect differs from that of other forms of foreign capital regulation that have been previously examined in the literature. When investigating the underlying transmission channels of a CCyB change, we find that, in particular, large banks are more able than small banks to shield their cross-border lending against the impact of foreign CCyB changes. Finally, when focusing on the loosening cycle in CCyB rates that emerged in early 2020, we show that our findings on the differential effects for large and small banks also carry over to the COVID-19 episode—a time when various jurisdictions rapidly released their CCyBs to stabilize their banks’ lending activities. |
| Keywords: | Credit risk management; Financial institutions; Financial stability; Financial system regulation and policies; International topics |
| JEL: | E32 F21 F32 G28 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-61&r= |
| By: | J. Michael Collins; Jeff Larrimore; Carly Urban |
| Abstract: | Banking the unbanked is a common policy goal, but should this include access to bank accounts for minors? This study estimates how teenagers' access to bank accounts affects their financial development. Using variation in state laws, we show policies that permit access to independently-owned accounts increase account ownership at age 16 through age 19, although by age 24 those young adults are banked at similar rates to teens who grew up in states that do not allow minors to own accounts independently. Teens who had access to independently-owned accounts use fewer high-cost alternative financial services (like payday loans) through age 20—but are then more likely to use AFS, particularly check-cashing services, from age 21 through 24. Using credit records, we show that access to non-custodial accounts has no effects on credit scores in the short-run, but lower credit scores and more loan delinquencies at ages 21 through 24. While these state laws promote financial inclusion for teenagers, the young people who take on accounts may experience negative consequences in the longer run. |
| Keywords: | Unbanked; Financial Inclusion; Bank Regulation; Financial Capability |
| JEL: | D14 D18 G18 G21 G28 |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-75&r= |
| By: | Vats, Nishant; Kundu, Shohini |
| Abstract: | This paper explores the transmission of non-capital shocks through banking networks. We develop a methodology to construct non-capital (idiosyncratic) shocks, using labor productivity shocks to large firms. We document a change in the relationship between foreign idiosyncratic shocks and domestic economic growth between 1978 and 2000. Contemporaneous changes in banking integration drive this phenomenon as geographically diversified banks divert funds away from economies experiencing negative shocks towards other unaffected economies. Our GIV estimates suggest that a 1% increase in bank loan supply is associated with a 0.05-0.26 pp increase in economic growth. Lastly, this can potentially explain the Great Moderation. JEL Classification: E32, E44, F36, G21, G28, O47, R11, R12 |
| Keywords: | credit, cross-border spillovers, deregulation, financial intermediation, growth, idiosyncratic shocks, the Great Moderation |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021128&r= |
| By: | Nicolas Soenen; Rudi Vander Vennet (-) |
| Abstract: | Using bank CDS spreads, we examine three types of determinants of Euro Area bank default risk in the period 2008-2019: bank characteristics related to new regulation, the bank-sovereign nexus and the monetary policy stance. We find that Basel 3 regulation improves the banks’ risk profile since higher capital ratios and more stable deposit funding contribute significantly to lower CDS spreads. We confirm the persistence of the bank-sovereign interconnectedness and find that sovereign default risk is transmitted to bank risk with an amplification factor. The ECB monetary policy stance is neutral with respect to bank risk, hence we find no evidence of perceived excessive risk-taking behavior. |
| Keywords: | bank default risk, CDS spreads, monetary policy, sovereign risk |
| JEL: | G21 G32 E52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:21/1033&r= |
| By: | Agustín Bénétrix (IMTCD, Department of Economics, Trinity College Dublin); Lorenz Emter (IMTCD, Department of Economics, Trinity College Dublin and Central Bank of Ireland); Martin Schmitz (European Central Bank) |
| Abstract: | This paper examines the impact of international automatic exchange of information (AEOI) treaties on cross-border investments in tax havens. Using a restricted version of the BIS Locational Banking Statistics we find that AEOIs significantly reduced cross-border deposits. A sectoral breakdown assessment reveals that households were the key driving force behind this contraction. Analysing other forms of cross-border investment, we observe that tax havens' portfolio and direct investment assets in non-haven countries fell significantly after AEOI introduction, indicating a reduction of round-tripping investments. However, we also document evidence of households' deposits shifting to non-AEOI haven countries. Moreover, we observe larger FDI positions and deposits by non-bank financial institutions between tax haven countries, suggesting an increased use of shell corporation networks since AEOI introduction. |
| Keywords: | cross-border banking, tax havens, international tax treaties, tax evasion |
| JEL: | G21 G28 H26 H87 K34 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep1321&r= |
| By: | Thibaud Cargoet (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Simon Cornée (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Franck Martin (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Tovonony Razafindrabe (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Fabien Rondeau (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Christophe Tavéra (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France) |
| Abstract: | Cet article ́etudie les implications macro ́economiques associées à la présence d’un secteur bancaire dual au sein d’une ́economie. Ce secteur regroupe à parts égales des banques mutualistes et coopératives (credit unions) et des banques de type capitaliste (cette situation s’observe notamment pour la France). Nous adoptons un modélisation macroéconomique de type DSGE idans laquelle les banques mutualistes et coopératives sont différenciées des banques traditionnelles de la manière suivante : elles pratiquent une interm ́ediation financière traditionnelle centrée sur le couple crédits/dépôts avec un recours plus faible aux activités de portefeuilles ; elles se concentrent principalement sur le financement des ménages et des petites et moyennes entreprises ; elles ont enfin un pass-through de taux d’int érêt plus faible que les banques traditionnelles. Les simulations du modèle montrent que cette configuration du secteur bancaire diminue le caractère contra-cyclique de la politique mon ́etaire mais elle constitue en revanche un facteur stabilisant pour l’économie. This article studies the macroeconomic implications generated by a dual banking sector. By dual sector, we refer to a banking sector including mutual and cooperative banks (credit unions) and traditional banks operate in substantially equal parts (as the case of France for example). We propose a DSGE macroeconomic model integrating a dual banking sector. Mutual and cooperative banks are differentiated from capitalist banks in the following way: they practice traditional financial intermediation centered on the loan - deposit pair with less recourse to portfolio activities; they mainly focus on financing households and small and medium-sized enterprises; Finally, they have a lower interest rate pass-through than traditional banks. Model simulations show that this configuration of the banking sector reduces the counter-cyclical property of monetary policy, but on the other hand it constitutes a stabilizing factor for the economy. |
| Keywords: | Banking sector, Credit Unions, DSGE Model, Monetary Policy |
| JEL: | E47 E52 G2 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2021-03&r= |
| By: | Laura Auria (Bundesbank); Markus Bingmer (Bundesbank); Carlos Mateo Caicedo Graciano (Banque de France); Clémence Charavel (Banque de France); Sergio Gavilá (Banco de España); Alessandra Iannamorelli (Banca d'Italia); Aviram Levy (Banca d'Italia); Alfredo Maldonado (Banco de España); Florian Resch (Oesterreichische Nationalbank); Anna Maria Rossi (Banca d'Italia); Stephan Sauer (European Central Bank) |
| Abstract: | The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. |
| Keywords: | credit assessments, credit risk models, credit claims, ratings, ICAS |
| JEL: | E58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_013_21&r= |
| By: | Yasin KürÅŸat Önder; Maria Alejandra Ruiz-Sanchez; Sara Restrepo-Tamayo; Mauricio Villamizar-Villegas |
| Abstract: | We investigate the impact of fiscal expansions on firm investment by exploiting firms that have multiple banking relationships. Further, we conduct a localized RDD approach and compare the lending behavior of banks that barely met and missed the criteria of being a primary dealer, as well as barely winners and losers at government auctions. Our results indicate that a 1 percentage point increase in banks’ bonds-to-assets ratio decreases loans by up to 0.4%, which leads to significant declines in firm investment, profits and wages. Our findings are grounded in a quantitative model with financial and real sectors with which we undertake a welfare analysis and compute the cost of government borrowing on the overall economy. **** RESUMEN: Es este estudio investigamos el impacto que tiene el gasto fiscal sobre la inversión, enfocándonos en firmas colombianas que han tenido múltiples relaciones bancarias. Además, realizamos un enfoque localizado de regresión discontinua en el cual comparamos el comportamiento crediticio de bancos que apenas cumplieron y no cumplieron con los criterios para ser un creador de mercado, así como bancos que apenas ganaron y perdieron en las subastas de TES en el mercado primario. Nuestros resultados indican que un aumento de 1 punto porcentual en la razón de bonos sobre activos de los bancos reduce los créditos hasta en un 0,4%, lo que conduce a caídas significativas en la inversión de las empresas, las ganancias y los salarios. Racionalizamos nuestros hallazgos en un modelo cuantitativo con sectores financieros y reales, y con el que realizamos un análisis de bienestar y también calculamos el costo del endeudamiento público en la economía. |
| Keywords: | fiscal multipliers, regression discontinuity design, crowding-out channel, Regresión Discontinua, multiplicador fiscal, crowding-out |
| JEL: | E44 F34 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1182&r= |
| By: | Andrew Hawley; Ke Wang |
| Abstract: | The COVID-19 pandemic has materially affected U.S. consumer behavior and business operations in many important aspects. This note focuses on the changes in banks’ balance sheets and demonstrates how we could apply a novel measure of portfolio similarity to balance sheet data and assess the drivers of similarity change along the path of the pandemic. |
| Date: | 2021–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-11-26-1&r= |
| By: | Jin Cao; Valeriya Dinger; Tomás Gómez; Zuzana Gric; Martin Hodula; Alejandro Jara; Ragnar Juelsrud; Karolis Liaudinskas; Simona Malovaná; Yaz Terajima |
| Abstract: | We explore the impact of low and negative monetary policy rates in core world economies on bank lending in four small open economies—Canada, Chile, the Czech Republic and Norway—using confidential bank-level data. Our results show that the impact on lending in these small open economies depends on the interest rate level in the core. When interest rates are high, monetary policy cuts in core economies can reduce credit supply in small open economies. In contrast, when interest rates in core economies are low, further expansionary monetary policy increases lending in small open economies, consistent with an international bank lending channel. These results have important policy implications, suggesting that central banks in small open economies should watch for the impact of potential regime switches in core economies’ monetary policy when rates shift to and from the very low end of the distribution. |
| Keywords: | Financial institutions; Monetary policy transmission; International topics |
| JEL: | E43 E58 F34 F42 G28 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-62&r= |
| By: | Nathan Blascak; Anna Tranfaglia |
| Abstract: | In this paper, we examine if there are gender differences in total bankcard limits by utilizing a data set that links mortgage applicant information with individual-level credit bureau data from 2006 - 2016. We document that after controlling for credit score, income, and demographic characteristics, male borrowers on average have higher total bankcard limits than female borrowers. Using a standard Kitagawa-Oaxaca-Blinder decomposition, we find that 87 percent of the gap is explained by differences in the effect of observed characteristics between male and female borrowers, while approximately 10 percent of the difference can be explained by differences in the levels of observed characteristics. Using a quantile decomposition strategy to analyze the gender gap along the entire bankcard credit limit distribution, we show that gender differences in bankcard limits favor female borrowers at smaller limits and favor male borrowers at larger limits. The primary factors that drive this gap have changed over time and vary across the distribution of credit limits. |
| Keywords: | Gender; Credit; Credit cards; Decomposition |
| JEL: | J16 G51 G53 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-72&r= |
| By: | Bindseil, Ulrich; Panetta, Fabio; Terol, Ignacio |
| Abstract: | Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC might crowd out private payment solutions beyond what would be desirable from the perspective of the comparative advantages of private and public sector money. This paper discusses success factors for CBDC and how to avoid the risk of crowding out. After examining ways to prevent excessive use as a store of value, the study emphasises the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users. Finding an adequate functional scope – neither too broad to crowd out private sector solutions, nor too narrow to be of limited use – is challenging in an industry with network effects, like payments. The role of the incentives offered to private sector service providers involved in distributing, using and processing CBDC (banks, wallet providers, merchants, payment processors, acquirers, etc.) is discussed, including fees and compensation. JEL Classification: E3, E5, G1 |
| Keywords: | central bank digital currency, cross-border payments, financial stability, means of payment, payment solution, store of value |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021286&r= |
| By: | Matteo Crosignani; Thomas M. Eisenbach; Fulvia Fringuellotti |
| Abstract: | More than a year into the COVID-19 pandemic, the U.S. banking system has remained stable and seems to have weathered the crisis well, in part because of effects of the policy actions undertaken during the early stages of the pandemic. In this post, we provide an update of four analytical models that aim to capture different aspects of banking system vulnerability and discuss their perspective on the COVID pandemic. The four models, introduced in a Liberty Street Economics post in November 2018 and updated annually since then, monitor vulnerabilities of U.S. banking firms and the way in which these vulnerabilities interact to amplify negative shocks. |
| Keywords: | COVID-19; banking system; vulnerability |
| JEL: | G2 |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93358&r= |
| By: | Neely, Megan Tobias; Carmichael, Donna |
| Abstract: | A once-in-a-century pandemic has sparked an unprecedented health and economic crisis. Less examined is how predatory financial investors have shaped the crisis and profited from it. We examine how U.S. shadow banks, such as private equity, venture capital, and hedge fund firms, have affected hardship and inequality during the crisis. First, we identify how these investors helped to hollow out the health care industry and disenfranchise the low-wage service sector, putting frontline workers at risk. We then outline how, as the downturn unfolds, shadow banks are shifting their investments in ways that profit on the misfortunes of frontline workers, vulnerable populations, and distressed industries. After the pandemic subsides and governments withdraw stimulus support, employment will likely remain insecure, many renters will face evictions, and entire economic sectors will need to rebuild. Shadow banks are planning accordingly to profit from the fallout of the crisis. We argue that this case reveals how financial investors accumulate capital through private and speculative investments that exploit vulnerabilities in the economic system during a time of crisis. To conclude, we consider the prospects for change and inequality over time. |
| Keywords: | Covid-19; crisis; financial services; financialization; inequality; neoliberalism; shadow banking; coronavirus |
| JEL: | F3 G3 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112697&r= |
| By: | Grytten, Ola Honningdal (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | The present paper seeks to investigate the importance of financial instability during four banking crises, with focus on the small open economy of Norway. The crises elaborated on are the Post First world war crisis of the early 1920s, the mid 1920s Monetary crisis, the Great Depression of the 1930s and the Scandinavian banking crisis of 1987-1993. <p> The paper firstly offers a brief description of the financial instability hypothesis as applied by Minsky, Kindleberger, and in a new explicit dynamic financial crisis model. Financial instability creation basically happens in times of overheating, overspending and over lending, i.e., during significant booms, and have devastating effects after markets have turned into a state of crises. <p> Thereafter, the paper tests the validity of the financial instability hypothesis by using a quantitative structural time series model. The test reveals upheaval of financial and macroeconomic indicators prior to the crises, making the economy overheat and create asset bubbles due to huge growth in debt. These conditions caused the following banking crises. <p> Finally, the four crises are discussed qualitatively. The conclusion is that significant increase in money supply and debt caused overheating, asset bubbles and finally financial and banking crises which spread to the real economy. |
| Keywords: | Financial crises; banking crises; financial stability; macroeconomic; economic history; monetary expansion |
| JEL: | E44 E51 E52 F34 G15 N24 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2021_018&r= |
| By: | amri amamou, souhir |
| Abstract: | We investigate in this paper the evolution of the dynamic relationship between Covid-19 cases and cryptocurrency markets. Furthermore, we examine their sensitivity to the second wave period. Using a DCC-garch model, our findings show different sensitivities between cryptocurrency markets to the Covid-19 pandemic. Besides, we emphasize that the sensitivity of transaction volume in the cryptocurrency markets to the number of covid-19 cases is negatively and significantly affected by the second wave of the pandemic. Then, we underline a suspicious perception of the hedging power of the cryptocurrency market in the covid-19 period. |
| Keywords: | cryptocurrency markets, Covid-19, second wave period |
| JEL: | C1 C32 G15 |
| Date: | 2021–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110843&r= |
| By: | Heng Z. Chen; Stephen R. Cosslett |
| Abstract: | Operational risk modeling using the parametric models can lead to a counter-intuitive estimate of value at risk at 99.9% as economic capital due to extreme events. To address this issue, a flexible semi-nonparametric (SNP) model is introduced using the change of variables technique to enrich the family of distributions that can be used for modeling extreme events. The SNP models are proved to have the same maximum domain of attraction (MDA) as the parametric kernels, and it follows that the SNP models are consistent with the extreme value theory - peaks over threshold method but with different shape and scale parameters. By using the simulated datasets generated from a mixture of distributions with varying body-tail thresholds, the SNP models in the Fr\'echet and Gumbel MDAs are shown to fit the datasets satisfactorily through increasing the number of model parameters, resulting in similar quantile estimates at 99.9%. When applied to an actual operational risk loss dataset from a major international bank, the SNP models yield a sensible capital estimate that is around 2 to 2.5 times as large as the single largest loss event. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.11459&r= |
| By: | Lo Prete, Anna (University of Turin) |
| Abstract: | This work documents that, across countries, the use of digital payment tools and platforms is associated to higher digital literacy, at all levels of financial literacy. More informed personal finance choices, instead, are associated to higher financial literacy, at all levels of digital literacy. The results from this preliminary analysis suggest that digital and financial literacy should be considered together when assessing the implication of digitalization for individual investors, who can access digital financial products and markets in the absence of financial literacy. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:202120&r= |
| By: | Hervé Le Bihan (Banco de España and Banque de France); Magali Marx (Banque de France); Julien Matheron (Banque de France) |
| Abstract: | A number of central banks in advanced countries use ranges, or bands, around their inflation target to formulate their monetary policy strategy. The adoption of such ranges has been proposed by some policymakers in the context of the Fed and the ECB reviews of their strategies. Using a standard New Keynesian macroeconomic model, we analyze the consequences of tolerance range policies, characterized by a stronger reaction of the central bank to inflation when inflation lies outside the range, than when it is close to the target, i.e., the central value of the band. We show that (i) a tolerance band should not be a zone of inaction: the lack of reaction within the band endangers macroeconomic stability and leads to the possibility of multiple equilibria; (ii) the trade-off between the reaction needed outside the range versus inside appears unfavorable: a very strong reaction, when inflation is far from the target, is required to compensate for a moderately lower reaction within tolerance band; (iii) these results, obtained within the framework of a stylized model, are robust to many alterations, in particular allowing for the zero lower bound. |
| Keywords: | monetary policy, inflation ranges, inflation bands, zero lower bound (ZLB), endogenous regime switching |
| JEL: | E31 E52 E58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2142&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard participated in a virtual discussion with business leaders and bankers from Seymour, Ind., and other areas of Jackson County, Ind. During the event, which was hosted by the St. Louis Fed’s Louisville Branch, he addressed questions on inflationary pressures in 2021, supply chain disruptions, labor force participation, a potential housing bubble, infrastructure spending, the national debt and other topics. Bullard meets regularly with groups in the four zones that make up the St. Louis Fed’s District to share insights on the U.S. economy, as well as to gather views from Main Street. Seymour, Ind., is in the Louisville Zone. |
| Keywords: | inflation; supply chain disruptions; labor force participation; housing; infrastructure spending; national debt |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:93417&r= |
| By: | Richard H. Clarida |
| Date: | 2021–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:93418&r= |
| By: | Raphael Auer; Jon Frost; Michael Junho Lee; Antoine Martin; Neha Narula |
| Abstract: | In the past year, a number of central banks have stepped up work on central bank digital currencies (CBDCs – see map). For central banks, are CBDCs just a defensive reaction to private-sector innovations in money, or are they an opportunity for the monetary system? In this post, we consider several long-standing goals of central banks in their support and provision of retail payments, why and how central banks tackle these issues, and where CBDCs fit into the array of potential solutions. |
| Keywords: | CBDC; digital innovation |
| JEL: | E5 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93420&r= |
| By: | Michelle W. Bowman |
| Date: | 2021–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:93410&r= |
| By: | Peter Andre (University of Bonn); Ingar Haaland (University of Bergen and CESifo); Christopher Roth (University of Cologne); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen) |
| Abstract: | We survey retail investors at an online bank to study beliefs about the autocorrelation of aggregate stock returns, and how these beliefs shape investment decisions measured in administrative account data. Individuals' beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform a random half of our respondents that historically the autocorrelation of aggregate returns was close to zero, which persistently changes their beliefs. Among those initially believing in mean reversion, treated respondents buy significantly less equity during the COVID-19 crash four months later. Our results highlight how heterogeneity in subjective models causally drives trade in asset markets. |
| Keywords: | Narratives, Inflation, Beliefs, Macroeconomics, Fiscal Policy, Monetary Policy |
| JEL: | D83 D84 E31 E52 E71 |
| Date: | 2021–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2118&r= |
| By: | Camille Cornand; Rodolphe Dos Santos Ferreira |
| Abstract: | Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, it is shown that the presence of firms' motivated beliefs has stark consequences for the conduct of optimal communication and stabilization policies. Under pure communication (resp. communication and stabilization policies), motivated beliefs about own private information (resp. own ability to process information) reverse the bang-bang solution of transparency (resp. opacity with full stabilization) found in the literature under objective beliefs and lead to intermediate levels of communication (and stabilization). |
| Keywords: | motivated beliefs, public and private information (accuracy), overconfidence, communication policy, stabilization policy. |
| JEL: | D83 D84 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-49&r= |
| By: | Setzer, Joana; Higham, Catherine; Jackson, Andrew; Solana, Javier |
| Abstract: | Given the urgent need to dramatically reduce greenhouse gas emissions, and concern regarding insufficient climate action and ambition across the globe, NGOs and individuals are increasingly turning to the courts to force States, public authorities, and private entities to increase their climate action and ambition and hold them accountable through climate-related litigation. The three contributions in this legal working paper discuss various aspects of such climate change litigation around the world. The papers examine the evolution of climate-related cases, the scope of such cases and the varying grounds on which they have been based. They also focus in some detail on certain key judgments addressing novel issues, as well as a recent climate-related case brought against a national central bank. The papers were originally presented at the Legal Colloquium on “Climate change litigation and central banks – Action for the environment”, organised by the European Central Bank on 27 May 2021. JEL Classification: K32, K33, K39, K41, Q54 |
| Keywords: | Article 11 TFEU, climate-related litigation, climate change, climate risk, compilation of cases, corporate sector purchase programme, European Convention on Human Rights, financial risk, Ireland, legal standing., litigation against financial institutions, monetary policy, right to an environment, transnational legal networks |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecblwp:202121&r= |
| By: | Hinsche, Isabelle Cathérine |
| Abstract: | As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe. Thereby, the EU is not only entering the green bond market, but also set to become one of the biggest green bond issuers. Consequently, financial market participants are eager to know what to expect from the EU as a new green bond issuer and whether a negative green bond premium, a so-called Greenium, can be expected for the NGEU green bonds. This research paper formulates an expectation in regards to a potential Greenium for the NGEU green bonds, by conducting an interview with 15 sustainable finance experts and analyzing the public green bond market from September 2014 until June 2021, with respect to a potential green bond premium and its underlying drivers. The regression results confirm the existence of a significant Greenium (-0.7 bps) in the public green bond market and that the Greenium increases for supranational issuers with AAA rating, such as the EU. Moreover, the green bond premium is influenced by issuer sector and credit rating, but issue size and modified duration have no significant effect. Overall, the evaluated expert interviews and regression analysis lead to an expected Greenium for the NGEU green bonds of up to -4 bps, with the potential to further increase in the secondary market. |
| Keywords: | Sustainable Finance,Green Bonds,Greenium,Next Generation EU,EU Bonds,Environmental,Social and Governance (ESG),Sustainable Investing,Green Finance |
| JEL: | C23 G12 G14 G21 G23 G28 Q56 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:663&r= |
| By: | Saungweme, Talknice; Odhiambo, Nicholas M |
| Abstract: | The optimal balance between fiscal and monetary policy in achieving price stability has been contestedin literature. In the main, however, it is widely recognised that whether public debts are financed in amonetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy inensuring price stability. This study contributes to the debate by testing the dynamic causal relationshipbetween public debt and inflation in Tanzania covering the period 1970-2020. The study applies theautoregressive distributed lag (ARDL) bounds testing technique to cointegration and the ECM-basedGranger-causality test to explore this relationship. In order to address the omission-of-variable bias,which has been the major methodological deficiency detected in some previous studies, two monetaryvariables, namely money supply and interest rate, were added as intermittent variables alongside publicdebt and inflation. The findings from this study show that there is a consistent long-run cointegratingrelationship between public debt, inflation, money supply and interest rate in Tanzania. However, theresults fail to find evidence of causality between public debt and inflation in Tanzania, irrespective ofwhether the causality is estimated in the short run or in the long run. The findings of this study,therefore, show that Tanzania?s current debt is not inflationary; hence, policymakers may continue topursue the desirable fiscal policies necessary for the country?s long-term optimal growth path. |
| Keywords: | Public debt, inflation, ARDL, Granger-causality, Tanzania |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:28342&r= |
| By: | Chang, Yoosoon; Kwak, Boreum; Qiu, Shi |
| Abstract: | We investigate U.S. monetary and fiscal policy interactions in a regime-switching model of monetary and fiscal policy rules where policy mixes are determined by a latent bivariate autoregressive process consisting of monetary and fiscal policy regime factors, each determining a respective policy regime. Both policy regime factors receive feedback from past policy disturbances, and interact contemporaneously and dynamically to determine policy regimes. We find strong feedback and dynamic interaction between monetary and fiscal authorities. The most salient features of these interactions are that past monetary policy disturbance strongly influences both monetary and fiscal policy regimes, and that monetary authority responds to past fiscal policy regime. We also find substantial evidence that the U.S. monetary and fiscal authorities have been interacting: central bank responds less aggressively to inflation when fiscal authority puts less attention on debt stabilisation, and vice versa. |
| Keywords: | monetary and fiscal policy rules,endogenous regime switching,joint estimation,policy interactions,feedback channels |
| JEL: | C13 C32 E52 E63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:122021&r= |