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on Banking |
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Issue of 2022‒03‒28
34 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Julian A. Parra-Polania; Andrés Sánchez-Jabba; Miguel Sarmiento |
| Abstract: | Do oral FX interventions (i.e. announcements made by central bank officials and economic authorities) influence the exchange rate behavior in emerging economies? Following an event study approach, we evaluate whether this type of interventions in the Colombian FX market have an impact on the level or volatility of the exchange rate (U.S Dollar / Colombian peso). We find there is no conclusive evidence of a statistically significant impact. This finding consistently arises across different subsamples and parameters. Robustness tests based on the exchange rate authority that makes the announcement or the mechanism used for actual interventions yield the same conclusion. We interpret these findings as possible evidence of the fact that higher levels of uncertainty (and hence lower credibility levels) or the predominance of global over domestic factors may reduce the effectiveness of oral interventions in emerging economies. **** RESUMEN: ¿Tienen las intervenciones cambiarias orales (i. e. anuncios cambiarios hechos por autoridades del banco central u otras autoridades económicas) influencia sobre el comportamiento de la tasa de cambio en las economías emergentes? Aplicando métodos de estudio de eventos, examinamos si este tipo de intervenciones, en el mercado cambiario colombiano, tienen algún impacto sobre el nivel o la volatilidad de la tasa de cambio (dólar de EEUU versus peso colombiano). Encontramos que no hay evidencia robusta de que exista un impacto estadísticamente significativo. Este resultado surge de forma consistente en todas las sub-muestras y parámetros analizados. Adicionalmente, llevamos a cabo pruebas de robustez diferenciando las autoridades que hacen los anuncios o los mecanismos usados para las intervenciones materiales y encontramos que la conclusión se mantiene. Interpretamos estos resultados como posible evidencia de que mayores niveles de incertidumbre (y los consecuentes menores niveles de credibilidad) o la predominancia de los factores globales sobre los domésticos puedan reducir la efectividad de las intervenciones orales en las economías emergentes. |
| Keywords: | Oral intervention, exchange rate, communication, event study, Emerging Economies, intervención oral, tasa de cambio, comunicación, estudio de eventos, economías emergentes |
| JEL: | F31 E58 G14 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1194&r= |
| By: | John Landon-Lane (Rutgers University) |
| Abstract: | This paper investigates sentiment in the US economy from 1920 to 1934 using digitized articles from the Wall St Journal. We derive a monthly sentiment index and use a ten variable vector error correction model to identify sentiment shocks that are orthogonal to fundamentals. We show the timing and strength of these shocks and their resultant effects on the economy using historical decompositions. Intermittent impacts of up to fifteen percent on Industrial Production, ten percent on the S&P 500 and Bank loans and, thirty-seven basis points for the Credit risk spread, suggest a large role for sentiment. Select number of author(s): : 1 |
| Keywords: | Great Depression, General Theory, Behavioural Economics |
| JEL: | D89 E32 E70 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:202201&r= |
| By: | George-Marian Aevoae (Alexandru Ioan Cuza University - Faculty of Economics and Business Administration); Alin Marius Andries (Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Nicu Sprincean (Alexandru Ioan Cuza University of Iasi) |
| Abstract: | How do changes in Environmental, Social and Governance (ESG) scores influence banks’ systemic risk contribution? We document a beneficial impact of the ESG Combined Score and Governance pillar on banks’ contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007-2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. A similar relationship for banks’ exposure to systemic risk is also found. Our findings stress the importance of integrating banks’ ESG disclosure into regulatory authorities’ supervisory mechanisms as qualitative information. |
| Keywords: | Systemic Risk; Financial Stability, Corporate Social Responsibility (CSR), Environmental, Social and Governance (ESG) Scores |
| JEL: | G01 G21 M14 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2225&r= |
| By: | Alfarano, Simone; Blanco-Arroyo, Omar |
| Abstract: | This paper studies whether the raise in concentration experienced by the Spanish banking sector has lead to the increase of bank-specific credit supply shocks contribution to aggregate credit supply. We decompose aggregate credit volatility and find that (i) the Spanish banking sector is granular, (ii) the direct effect of bank-specific shocks accounts for the overwhelming majority of the variation in aggregate volatility, contrary to the manufacturing sector, and (iii) the raise in concentration translated into an increase of bank-specific shocks contribution to aggregate volatility. |
| Keywords: | Granular Residual, Idiosyncratic Shocks, Banking Sector, Manufacturing Sec- tor, Concentration, Aggregate Fluctuations |
| JEL: | E44 G21 |
| Date: | 2022–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111972&r= |
| By: | Kozo Ueda |
| Abstract: | This study considers the retrogression event of convenience for bank users as a natural experiment and analyzes the effect of this event on cash demand. Using bank account transaction data, we find that branch/ATM consolidations reduce not only the amount of cash withdrawals by past users but also the total expenditure and inflows that include non cash transactions by the same amount. This implies that the retrogression in convenience possibly caused users to shift to other banks for their daily payments. We also document facts about cash withdrawals from ATMs using bank account transaction data. JEL Classification Number : D14, E41 Keywords: money demand, ATM, natural experiment |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:22-003e&r= |
| By: | Albuquerque, Bruno (International Monetary Fund); Varadi, Alexandra (Bank of England) |
| Abstract: | We use UK transaction-level data during the Covid-19 pandemic to study whether mortgage payment holidays (PH) can act as a mechanism for smoothing household consumption following negative aggregate shocks. Our results suggest that mortgage PH were accessed by both households with pre-existing financial vulnerabilities and by those with stronger balance sheets, including buy-to-let investors. We also find that the temporary liquidity relief provided by PH allowed liquidity-constrained households to maintain higher annual consumption growth compared to those non-eligible for the policy. Finally, we find that mortgage PH led to higher saving rates for more financially-stable households. |
| Keywords: | Mortgage payment holidays; household behaviour; consumption; high-frequency data; difference-in-differences; panel data |
| JEL: | D14 E21 G51 |
| Date: | 2022–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0963&r= |
| By: | Simon Cornée (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France ; Center for European Research in Microfinance (CERMi), France); Anastasia Cozarenco (Montpellier Business School and CERMi, France); Ariane Szafarz (Université Libre de Bruxelles (ULB), SBS-EM, CEBRIG and CERMi, Belgium) |
| Abstract: | Social banks have emerged as a new group of banks that call themselves as “alternative”, “ethical”, “sustainable”, and “value-based”. Their small market share increases at a rapid pace and is still expected to grow in the future. Social banks are institutions with both (at least some) activities of financial intermediation and one or several non-financial missions, typically based on environmental and social values. By unpacking the observable, real-life differences between social banks and conventional banks, this chapter paves the way to theorizing the multidimensional characteristics of social banks within the global banking industry. Business models, governance issues, lending technologies; and social outcomes appear to be key aspects to understand how innovative, value-based, social banks work and how they might one day substantively affect mainstream banking business. |
| Keywords: | Social banks, ethical banks, social mission, financial cooperatives, microcredit |
| JEL: | G21 B55 H23 G32 G28 H81 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2022-02&r= |
| By: | Thanasis Stengos (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Theodore Panagiotidis (University of Macedonia); Georgios Papapanagiotou (University of Macedonia) |
| Abstract: | We perform a large-scale analysis to evaluate the performance of traditional and Markov-switching GARCH models for the volatility of 292 cryptocurrencies. For each cryptocurrency, we estimate a total of 27 alternative GARCH specifications. We consider models that allow up to three different regimes. First, the models are compared in terms of goodness-of-fit using the Deviance Information Criterion and the Bayesian Predictive Information Criterion. Next, we evaluate the ability of the models in forecasting one-day ahead conditional volatility and Value-at-Risk. The results indicate that for a wide range of cryptocurrencies, time-varying models outperform traditional ones. |
| Keywords: | Bitcoin, Cryptocurrency, Volatility, GARCH, Markov-switching, Information criteria |
| JEL: | C12 C13 C15 C22 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2022-02&r= |
| By: | Mihai Copaciu (National Bank of Romania); Joana Madjoska; Mite Miteski (National Bank of the Republic of North Macedonia) |
| Abstract: | This paper describes the theoretical structure and estimation results for a DSGE model for the Macedonian economy. Having as benchmark the model of Copaciu et al. (2015), modified to allow for a fixed exchange rate, we are able to match relatively well the volatility observed in the data. Given the monetary policy regime in place, the debt deflation channel is more important relative to the financial accelerator one when compared to the flexible exchange rate case. The lack of balance sheet effects results in no significant differences in terms of net worth evolution across the two types of entrepreneurs when impulse response functions are evaluated. However, the shocks related to the financial sector appear to be especially important for investment, for the domestic interest rate and interest rate spreads, illustrating the relevance of including financial frictions in the model. With the exchange rate not acting as a shock absorber, the external shocks are more relevant for the CPI inflation and the domestic interest rate. The drop in GDP associated with the pandemic mainly reflects the negative innovations to the consumption preference shock and to the permanent technology shock. |
| Keywords: | DSGE model, Financial frictions, Partial euroization, Small open economy, Bayesian estimation |
| JEL: | E0 E3 F0 F4 G0 G1 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:mae:wpaper:2022-01&r= |
| By: | Supriya Kapoor (Technological University Dublin); Adnan Velic (Technological University Dublin) |
| Abstract: | In the aftermath of the sub-prime mortgage bubble, the Federal Reserve implemented large scale asset purchase (LSAP) programmes that aimed to increase bank liquidity and lending. The excess liquidity created by quantitative easing (QE) in turn may have stimulated bank risk-taking in search of higher profits. Using comprehensive data on balance sheets, risk measures, and daily market returns in the U.S., we investigate the link between QE, bank risk-taking, profitability, and systemic risk. We find that, particularly during the third round of QE, banks that were more exposed to the unconventional monetary policy increased their risk-taking behavior and profitability. However, these banks also reduced their contribution to systemic risk indicating that the implementation of QE had an overall stabilizing effect on the banking sector. These results highlight the different distributional effects of QE. |
| Keywords: | large-scale asset purchases, quantitative easing, bank risk-taking, systemic risk, expected shortfall |
| JEL: | E52 E58 G21 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0122&r= |
| By: | Gabrielle Demange; Thibaut Piquard |
| Abstract: | New regulations promote the role of Central Counter-Parties (CCPs) as insurers of counterparty risk to stabilize derivative markets. Focusing on the demand side, we investigate how pairs of dealers choose the CCP on which they clear a given transaction. We use transaction data on three main CDS indices and focus on major dealers who are members of the two EU CCPs. Descriptive analysis shows that dealers do not optimize their positions across CCPs. Then, we build and test a reduced form model of CCP's choice. Differences in transaction size, two indicators of CCP's robustness and activities, squared positions to account for dealers' risk aversion, and market volatility affect this choice, but not the collateral costs, proxied by the dealers' positions. |
| Keywords: | Central Counter-Party, Central Clearing, Dealers, Collateral |
| JEL: | G20 G23 G18 G33 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:868&r= |
| By: | Domenico Di Gangi; Giacomo Bormetti; Fabrizio Lillo |
| Abstract: | While the vast majority of the literature on models for temporal networks focuses on binary graphs, often one can associate a weight to each link. In such cases the data are better described by a weighted, or valued, network. An important well known fact is that real world weighted networks are typically sparse. We propose a novel time varying parameter model for sparse and weighted temporal networks as a combination of the fitness model, appropriately extended, and the score driven framework. We consider a zero augmented generalized linear model to handle the weights and an observation driven approach to describe time varying parameters. The result is a flexible approach where the probability of a link to exist is independent from its expected weight. This represents a crucial difference with alternative specifications proposed in the recent literature, with relevant implications for the flexibility of the model. Our approach also accommodates for the dependence of the network dynamics on external variables. We present a link forecasting analysis to data describing the overnight exposures in the Euro interbank market and investigate whether the influence of EONIA rates on the interbank network dynamics has changed over time. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.09854&r= |
| By: | Хакимжанов Сабит// Khakimzhanov Sabit; Миллер Алия // Miller Aliya (National Bank of Kazakhstan); Джусангалиева Камилла // Jussangaliyeva Kamilla (National Bank of Kazakhstan); Тазетдинова Динара // Tazetdinova Dinara |
| Abstract: | В этой статье мы описываем историю развития и регулирования казахстанского рынка розничных депозитов в традициях эмпирической экономики. Мы представляем историю рынка депозитов как состояние и поведение банков и вкладчиков в зависимости от взаимодействия регуляторной среды, правовых традиций, регуляторных требований, механизмов финансовой стабильности, регулирования ставок по депозитам, надзора и урегулирования несостоятельности. Анализ информирован теоретической и эмпирической литературой. Критерии оценки и фокус анализа менялись в зависимости от описываемой проблематики и включали способность рынка направить сбережения населения в банки, которые найдут им наиболее продуктивное применение, способность банков привлечь устойчивое фондирование, сформировать продуктовое пространство и правильно оценить его атрибуты, включая срочность и срок. Мы рассматриваем решения проблем и оцениваем их с позиции влияния на долгосрочное развитие рынка; способности устранять причину проблемы, а не её внешние проявления. // In this paper we describe the history of the development and regulation of Kazakhstan’s retail deposit market in line with the empirical economics traditions. We present the history of the deposit market as the condition and behavior of banks and depositors depending on the interaction of the regulatory environment, legal traditions, regulatory requirements, financial stability mechanisms, regulation of deposit rates, supervision and insolvency resolution. The analysis is informed by theoretical and empirical literature. The evaluation criteria and the focus of the analysis varied depending on the described issues and included the ability of the market to transfer population savings to banks capable to use them most productively, the ability of banks to attract sustainable funding, develop a product space and correctly assess its attributes, including maturity and term. We consider solution of the problems and evaluate them based on impact on the long-term market development; the ability to eliminate the cause of the problem, not its external manifestations. |
| Keywords: | рынок депозитов, система гарантирования вкладов, механизм предельных ставок, агентство по гарантированию депозитов, Казахстанский фонд гарантирования депозитов, deposit market, deposit guarantee system, marginal rates, deposit guarantee agency, Kazakhstan Deposit Guarantee Fund |
| JEL: | E43 G21 G28 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:aob:wpaper:26&r= |
| By: | Jacob Goss; Daniel Mangrum; Joelle Scally |
| Abstract: | The onset of the COVID-19 pandemic brought substantial financial uncertainty for many Americans. In response, executive and legislative actions in March and April 2020 provided unprecedented debt relief by temporarily lowering interest rates on Direct federal student loans to 0 percent and automatically placing these loans into administrative forbearance. As a result, nearly 37 million borrowers have not been required to make payments on their student loans since March 2020, resulting in an estimated $195 billion worth of waived payments through April 2022. However, 10 million borrowers with private loans or Family Federal Education Loan (FFEL) loans owned by commercial banks were not granted the same relief and continued to make payments during the pandemic. Data show that Direct federal borrowers slowed their paydown, with very few making voluntary payments on their loans. FFEL borrowers, who were not covered by the automatic forbearance, struggled with their debt payments during this time. The difficulties faced by these borrowers in managing their student loans and other debts suggest that Direct borrowers will face rising delinquencies once forbearance ends and payments resume. |
| Keywords: | student loans; pandemic; COVID-19; household finance |
| JEL: | H81 |
| Date: | 2022–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93860&r= |
| By: | Levy, Daniel; Mayer, Tamir; Raviv, Alon |
| Abstract: | We study the economics and finance scholars’ reaction to the 2008 financial crisis using machine learning language analyses methods of Latent Dirichlet Allocation and dynamic topic modelling algorithms, to analyze the texts of 14,270 NBER working papers covering the 1999–2016 period. We find that academic scholars as a group were insufficiently engaged in crises’ studies before 2008. As the crisis unraveled, however, they switched their focus to studying the crisis, its causes, and consequences. Thus, the scholars were “slow-to-see,” but they were “fast-to-act.” Their initial response to the ongoing Covid-19 crisis is consistent with these conclusions. |
| Keywords: | 2008 Financial Crisis; Financial Crises; Economic Crisis; Great Recession; Textual Analysis; LDA Topic Modeling; Dynamic Topic Modeling; Machine Learning; Securitization; Repo; Sudden Stop |
| JEL: | A11 C38 C55 E32 E44 E52 E58 F30 G01 G20 G21 G28 |
| Date: | 2022–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112008&r= |
| By: | Giuliano Toshiro Yajima; Lorenzo Nalin |
| Abstract: | Liabilities denominated in foreign currency have established a permanent role on emerging market firms' balance sheets, which implies that changes in both global liquidity conditions and in the value of the currency may have a long-lasting effect for them. In order to consider the financial conditions that may encourage (discourage) structural change in a small, open economy, we adopt the framework put forward by the "monetary theory of distribution" (MTD). More specifically, we follow the formulation adopted by Dvoskin and Feldman (2019), whereby the financial system is intended as a basic sector that promotes innovation (Schumpeter 1911). In accordance with this, financial conditions are binding only for the innovative entrepreneurs, whose methods of production are not dominant and hence they need to borrow from banks to kickstart their production. Through this device, our model offers an explanation of the technological lock-in experienced by a small, open economy that takes international prices as given. |
| Keywords: | Foreign Exchange Policy; Currency Mismatches; Structural Change |
| JEL: | F37 F31 E7 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1004&r= |
| By: | Lena Lee Andresen |
| Abstract: | The global financial crisis of 2007-2008 might constitute another structural change in IMF lending after the Latin American debt crisis and the end of the Cold War. Using a panel dataset of 120 countries with IMF programmes from 1993 to 2016, I find that with the crisis, the importance of financial corporations in IMF lending decisions has risen as major IMF shareholders seek to protect the exposure of their banks, which increased strongly in the years before the crisis. To impress global financial markets, they influence programme design towards more money and more conditions, specifically prior actions. This serves to keep the programme country's market access and avoid default. While financial corporate interests are also associated with a larger programme size for all countries, a positive link with more conditions is only found for countries for which market access matters. For countries with limited market access, IMF staff's technocratic interest in limited conditionality dominates. |
| Keywords: | Conditionality, global finance, IMF, political economy |
| JEL: | F33 F34 F53 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2022-04&r= |
| By: | Oľga Jakubíková |
| Abstract: | The aim of this paper is to examine whether banks engage in profit smoothing using loan loss provisions under the new provisioning rules according to IFRS 9. Due to relatively loose definitions of provisioning principles and use of macroeconomic predictions under IFRS 9, there is certain managerial discretion expected allowing banks to reduce the variability of profits over time using loan loss provisions. The hypothesis that banks use loan loss provisions to smooth their profits under IFRS 9 was tested with panel regression analysis on the panel of 27 EU member countries for period 1Q2015 - 2Q2021. The evidence of profit smoothing was not confirmed neither in IFRS 9, nor in IAS 39 period, therefore, the hypothesis was rejected on 1% significance level. |
| Keywords: | IFRS 9, loan loss provisions, profit smoothing |
| JEL: | G12 G21 G32 |
| Date: | 2022–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:prg:jnlwps:v:4:y:2022:id:4.003&r= |
| By: | Lahcen Bounader (International Monetary Fund); Guido Traficante (European University of Rome) |
| Abstract: | This paper studies robustly optimal monetary policy in a behavioral New Keynesian model, where the private sector has myopia, while the central bank has Knightian uncertainty about the degree of myopia of the private sector and the degree of price stickiness. In such a setup the central bank solves an optimal robust monetary policy problem. We show that under uncertainty in myopia the Brainard’s attenuation principle holds, while under uncertainty on price stickiness, alone or in addition to myopia, monetary policy becomes more aggressive. |
| Keywords: | Optimal monetary policy, bounded rationality, min- max, parameter uncertainty |
| JEL: | E |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2022.01&r= |
| By: | Bulent Guler (Indiana University Bloomington); Yasin Kursat Onder (Ghent University); Temel Taskin (Bank of Canada) |
| Abstract: | This paper studies sovereign debt and default dynamics under alternative disclosure arrangements in a sovereign default model incorporated with asymmetric information and long-term debt. Government is assumed to have access to both international bond financing and non-Paris club lending (a hidden and collateralized debt). Our results show that with a shift from partial disclosure to full disclosure regime governments can borrow at more favorable terms conditional on the same levels of debt and income. However, due to lack of commitment, favorable bond prices encourage governments to borrow more and experience higher default rates in the long-run equilibrium of the full disclosure regime. As a result, the switch from partial disclosure to full disclosure generates small welfare losses contrary to conventional wisdom. |
| Keywords: | Hidden debt, Sovereign debt, Sovereign default, Collateralized debt, Asymmetric information, Debt disclosure |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2022004&r= |
| By: | Archawa Paweenawat |
| Abstract: | This paper studies the effects of hidden savings on the relative benefits of two optimal incentive contracts, namely, relative performance contracts and group contracts. As an analysis framework, this paper develops a dynamic moral hazard model in which agents can secretly save. The results from the model suggest that hidden savings affect relative performance contracts more than they affect group contracts. In addition, under group contracts, agents rely more on risk-sharing networks and less on own savings than they do under relative performance contracts. To test the model’s predictions, this paper uses a unique data set with detailed information on households’ characteristics, their choices of loans, and their responses to liquidity shocks. The empirical results confirm that, in the areas where hidden savings problem is likely to be more severe, households are more likely to choose group loans. In addition, the results also show that households with group loans rely more on networks to prevent themselves from future liquidity shocks. |
| Keywords: | Incentive contracts; Unobserved savings; Relative performance; Group lending; Microfinance |
| JEL: | D86 G21 G51 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:pui:dpaper:176&r= |
| By: | Antoine Bouveret (European Securities and Markets Authority); Martin Haferkorn (European Securities and Markets Authority); Gaetano Marseglia (Bank of Italy); Onofrio Panzarino (Bank of Italy) |
| Abstract: | The development of electronic and automated trading in sovereign bond markets has been accompanied by a more frequent occurrence of flash crashes, i.e. episodes of sudden and abrupt price changes that are to a large extent reversed shortly afterwards. We focus our analysis on two flash events in the German and Italian bond markets and show how liquidity vanished ahead of the crashes, resulting in trades having a large price impact on prices. We document that, during the flash event of 29 May 2018, activity on Italian bonds futures and cash markets diverged: trading activity in futures surged, while it plummeted on the cash market. In addition, we show that the effects of flash events on the liquidity in the affected markets can last up to several weeks. Our findings call for increased monitoring of electronic trading markets, taking into account the pace of financial innovation, and for pursuing more integrated approaches in the presence of highly interlinked markets. |
| Keywords: | Market liquidity, flash crash, sovereign bonds. |
| JEL: | G01 G10 G12 G18 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_020_22&r= |
| By: | Massimiliano Renzetti (Banca d'Italia); Andrea Dimartina (Banca d'Italia); Riccardo Mancini (Banca d'Italia); Giovanni Maria Sabelli (Banca d'Italia); Francesco Di Stasio (Banca d'Italia); Carlo Palmers (SWIFT); Faisal Alhijawi (Buna Payment Platform); Erol Kaya (Buna Payment Platform); Christophe Piccarelle (DXC Technology); Stuart Butler (DXC Technology); Jwallant Vasani (Jordan Ahli Bank); Giancarlo Esposito (Intesa Sanpaolo); Alberto Tiberino (Intesa Sanpaolo); Manfredi Caracausi (Intesa Sanpaolo) |
| Abstract: | This paper presents the results of a joint experiment involving Banca d’Italia and the Arab Regional Payments Clearing and Settlement Organization (ARPSCO), focusing on the settlement of cross‑currency instant payments across different technical platforms. TIPS and Buna are the instant payment settlement platforms with multi-currency features operated by the two organizations respectively. Both platforms started with an initial investigative phase, in order to assess operational policies and the legal and technical implications of implementing a cross‑currency instant payment settlement service, i.e. one in which the debtor and creditor accounts are denominated in two different currencies both eligible for settlement on the platform. For the purpose of the Proof of Concept (PoC), two representatives of the abovementioned market communities, namely Intesa Sanpaolo and Jordan Ahli Bank, participated in their respective capacities of Originator PSP and ultimate Beneficiary PSP for the corresponding currencies, i.e. the euro and the Jordanian dinar. In line with building blocks 13 and 17 of the G20 global roadmap for enhancing cross-border payments (concerning the interlinking of payment systems), the natural evolution of these investigations was to explore possible options for providing the same type of cross-currency service in a cross-platform scenario, i.e. through the interoperability of different instant payment platforms. The PoC described in this paper relates to the implementation of a cross-platform scenario involving TIPS and Buna. |
| Keywords: | Payment Systems, Instant Payments, Market Infrastructures, Cross-Border Payments. |
| JEL: | E42 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_019_22&r= |
| By: | Bruno Cabrillac (Banque de France - Banque de France - Banque de France); Luc Jacolin (Banque de France - Banque de France - Banque de France) |
| Abstract: | Le Conseil d'administration du FMI a approuvé le 22 juillet 2021, une réforme de ses modalités de soutien aux pays pauvres. Cette réforme a notamment consisté à relever, voire en cas exceptionnel à supprimer les limites d'accès aux financements offerts par le FMI aux pays pauvres. Elle constitue une étape supplémentaire dans l'évolution de l'action du FMI dans ces pays, caractérisée par deux objectifs principaux. Le premier objectif a été d'adapter les objectifs et les conditionnalités des programmes du FMI aux vulnérabilités propres de ces pays, dans le respect des limites de son mandat, ce qui s'est notamment traduit, en 1999, par la transformation de la facilité d'ajustement structurel renforcée en facilité pour la croissance et la réduction de la pauvreté. Le second objectif, qui est central dans les périodes de crise comme celle de la crise Covid, est d'apporter une réponse plus flexible, plus rapide et mieux calibrée aux défis du financement des PFR face aux déséquilibres budgétaires et extérieurs engendrés par des chocs exogènes, mais qui ont souvent aussi une dimension structurelle1. En effet, si le FMI a pu en 2020, multiplier par plus de 10 ses concours aux pays pauvres, devenant ainsi leur premier bailleur de fond, nombre de pays avaient atteint ou étaient proches de leurs limites. Pour autant, cette réforme ne permet pas d'atteindre le bout du chemin : l'accès des PFR aux ressources du FMI est encore trop limité et la conditionnalité attachée à ces financements n'est pas assez liée au développement à long terme. |
| Date: | 2022–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03545102&r= |
| By: | Gajendran Raveendranathan; Georgios Stefanidis |
| Abstract: | We show how a rate cap can be designed to improve both consumer and lender welfare in the credit card market. We analyze transition paths resulting from different rate caps in a model with revolving credit lines, search frictions, and lender market power. Our analysis shows that if a rate cap only applies to new credit card issuance and not existing accounts, it can improve lender welfare. Incumbent lenders benefit because they can retain their customers for a longer time. New issuers are not affected as long as the posting of credit offers is competitive (zero expected profits in equilibrium). Consumers benefit because of lower interest rates. The rate cap that maximizes consumer welfare leads to gains to consumers and lenders that are equivalent to a onetime transfer worth 0.44 percent of disposable income. The gains to consumers amount to 73 percent of the value of credit access. |
| Keywords: | revolving credit; credit search; rate cap; welfare |
| JEL: | E21 E44 E65 G28 G50 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2022-03&r= |
| By: | Jhorland Ayala-García; Clark Granger-Castaño; Ligia Alba Melo-Becerra |
| Abstract: | Durante el período 1997-2003, posterior al fortalecimiento de la descentralización, se implementaron un conjunto de reglas fiscales subnacionales y en los años 2011 y 2021 se establecieron reglas fiscales nacionales en Colombia. Este documento evalúa el cumplimiento de dichas reglas en los distintos niveles de gobierno en Colombia, así como el papel que han jugado las transferencias en el cumplimiento de los indicadores establecidos en las mismas. Se evidencia que las reglas fiscales contribuyeron a una mayor estabilidad de las finanzas públicas tanto de los gobiernos subnacionales como del Gobierno Nacional Central. Los cambios en el sistema de transferencias contribuyeron al cumplimiento de las reglas fiscales, al garantizar un crecimiento real de las mismas brindando estabilidad a los ingresos de los gobiernos subnacionales. Las simulaciones muestran que el cumplimiento de las reglas fiscales depende en gran medida del tipo de regla que se adopte, pues mientras los gobiernos subnacionales cumplen con la regla fiscal nacional, el Gobierno Nacional Central no cumple con las reglas fiscales subnacionales. Estos resultados contribuyen al debate sobre la necesidad de mantener reglas fiscales con cláusulas de escape y que consideren las condiciones fiscales y los niveles de gobiernos donde se adopten para lograr la estabilidad de las finanzas públicas. **** ABSTRACT: During 1997-2003, after the strengthening of decentralization, a set of subnational fiscal rules were implemented and in the years 2011 and 2021 national fiscal rules were established in Colombia. This document evaluates compliance with these rules at the different levels of government in Colombia, as well as the role that transfers have played in complying with the indicators established therein. The fiscal rules contributed to a greater stability of the public finances of both the subnational governments and the Central National Government. Changes in the transfer system contributed to compliance with fiscal rules by guaranteeing transfers to grow in real terms and providing stability to subnational government revenues. The simulations show that compliance with the fiscal rules depends to a great extent on the type of rule that is adopted, since while the subnational governments comply with the national fiscal rule, the Central National Government does not comply with the subnational fiscal rules. These results contribute to the debate on the need to maintain fiscal rules with escape clauses and on the need to consider the fiscal conditions and the levels of government where they are adopted to achieve the stability of public finances. |
| Keywords: | reglas fiscales, deuda, gobiernos subnacionales, finanzas públicas, fiscal rules, debt, subnational governments, public finances |
| JEL: | H62 H72 H74 H77 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:region:305&r= |
| By: | Alban Cornier (FERDI - Fondation pour les Etudes et Recherches sur le Développement International); Laurent Wagner (FERDI - Fondation pour les Etudes et Recherches sur le Développement International) |
| Abstract: | The voluntary reallocation of a portion of Special Drawing Rights (SDRs) from advanced countries to developing countries is potentially an important transformation in the international monetary system. Attention has so far been focused on the channels of this reallocation, because of the need to preserve the reserve asset nature of SDRs. The IMF is considering three options (Pazarbasioglu and Ramakrishnan, 2021). First, it is proposed to increase the size of the Poverty Reduction and Growth Trust (PRGT). Second, the IMF could create a new IMF-administered Resilience and Sustainability Trust, or RST: The proposed RST would support policy reforms to help build economic resilience and sustainability in low-income countries and small states, as well as vulnerable middle-income countries. Third, the IMF could channel SDRs to other prescribed SDR holders, comprising 15 organizations including the World Bank, some regional central banks, and multilateral development banks. The three options are non-mutually exclusive. |
| Date: | 2022–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03552864&r= |
| By: | Maurice Obstfeld (Peterson Institute for International Economics) |
| Abstract: | In March 2020, international markets seized up with a violence unequaled since the global financial crisis nearly a dozen years before. As economies around the world locked down in the face of the potentially deadly but completely novel SARS-CoV-2 virus, stock markets fell, firms and governments scrambled for cash, liquidity strains emerged even in the market for US Treasurys, and capital flows to emerging-market and developing economies (EMDEs) reversed violently. This paper reviews the evolution of global financial markets since the global financial crisis, changes in academic thinking about these markets' domestic impacts, the strains seen during the COVID-19 crisis, and perils that may lie ahead. A key theme is that stability will be enhanced if the global community embraces reforms that elevate market resilience, rather than depending on skillful policymakers wielding aggressive but ad hoc policy interventions to ride to the rescue again. |
| Keywords: | COVID-19 crisis, emerging markets, capital flows, international finance, global financial cycle, US dollar, Korean economy |
| JEL: | E58 F32 F33 F36 F42 F44 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp22-2&r= |
| By: | Takushi Kurozumi (Bank of Japan); Ryohei Oishi (Bank of Japan) |
| Abstract: | We compare Japanese and US inflation dynamics during the post-Global Financial Crisis period by utilizing Bayesian VAR-GMM to estimate several specifications of the New Keynesian Phillips curve. With the estimation method, we derive expectations in the Phillips curve from a VAR and analyze the formation of inflation expectations explicitly. We select the specification with variable elasticity of demand for Japan and that with sticky information for the US, using quasi-marginal likelihood. The selected specifications show that the persistence of inflation expectations formation is higher and trend inflation is lower in Japan than in the US. These findings account for persistently weak inflation developments in Japan: in the presence of firms' cautious price-setting behavior that reflects the purchasing attitude of consumers who are sensitive to price increases, inflation remains low and induces, through the highly persistent formation of inflation expectations, low expected future inflation and hence low trend inflation, which in turn put downward pressure on present inflation through the Phillips curve. |
| Keywords: | New Keynesian Phillips curve; Inflation expectations formation; Variable elasticity of demand; VAR-GMM; Bayesian method |
| JEL: | E31 C11 C26 C52 |
| Date: | 2022–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp22e03&r= |
| By: | Abhirupa Das (Department of Economics, Delhi School of Economics); Uday Bhanu Sinha (Department of Economics, Delhi School of Economics) |
| Abstract: | The poor heavily rely on informal sources for their capital needs as they lack collateral required by formal institutions. Furthermore, local moneylenders operate in distinct market segments and borrowing opportunities may not be equal for every household.The role of a microfinance institution (MFI) operating in such environment becomes even more crucial. The effectiveness of MFIs in rescuing poor borrowers from ‘clutches of’ moneylenders has been a much-debated topic over the last few decades. This paper attempts to contribute to this debate by presenting a model of competition between a socially motivated MFI and profit-maximising moneylenders in the presence of marketsegmentation. We characterise equilibrium conditions in the presence of market segmentation under scenarios where only moneylenders operate, only MFI operates and finally the case where both co-exist. We find unambiguous benefits arising from the entry of a welfare maximising entity such as an MFI. We also see the values of having local agents like moneylenders on the ground who have information gathering advantages. We conclude that an effective system of both these entities working together can bring about increases in efficiency and welfare. Key Words: microfinance, market segmentation, collateral substitution, mandatory savings, information asymmetry, moral hazard, adverse selection JEL Codes: D82, O16 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:324&r= |
| By: | Francesco Simone Lucidi; Willi Semmler |
| Abstract: | We build a small-scale nonlinear quadratic (NLQ) model in which credit feedback and regime switches in the output gap a ect the adjustment path of the economy towards a steady state. The central bank solves a finite-horizon decision problem where the policy rate also can be zero or negative. We estimate this model by nonlinear seemingly unrelated regression method (NLSUR) and using the parameters to explore policy scenarios. The latter projects long-run dynamics after a large demand contraction leading to scarring effects in the economy. We point out three main results. First, while scars are dominant when the central bank follows a standard Taylor rule, unconventional monetary policy (UMP) mitigates the output decline in both the short and the long run. Second, a zero natural rate of interest alone curtails the central bank's ability to adjust the economy. Third, financial constraints leave the deepest scars even if UMP is active. |
| Keywords: | credit cycles; credit spread; inflation targeting; nonlinear Phillips curve; unconventional monetary policy |
| JEL: | E42 E52 E58 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp217&r= |
| By: | Джусангалиева Камилла // Jussangaliyeva Kamilla (National Bank of Kazakhstan); Миллер Алия // Miller Aliya (National Bank of Kazakhstan); Хакимжанов Сабит // Khakimzhanov Sabit (National Bank of Kazakhstan) |
| Abstract: | В этой статье анализируется казахстанская практика внедрения пруденциальных нормативов ликвидности (LCR и NSFR), рекомендованных Базельским комитетом по банковскому надзору (БКБН). В статье проводится анализ соответствия казахстанских нормативов стандартам Базеля, оценивается эффект альтернативных интерпретаций, обсуждается информативность и эффективность нормативов для отражения рисков фондирования и улучшения рыночных практик управления ликвидностью, их взаимодействие с другими нормативами и обусловленность регуляторной и конкурентной средой. // This paper analyzes Kazakhstan's practice of implementing prudential liquidity standards (LCR and NSFR) recommended by the Basel Committee on Banking Supervision (BCBS). The paper analyzes the compliance of Kazakhstan's standards with Basel standards, evaluates the effect of alternative interpretations, discusses the informativeness and effectiveness of standards to reflect funding risks and improve market liquidity management practices, their interaction with other standards and the conditionality of the regulatory and competitive environment. |
| Keywords: | риски ликвидности и фондирования, Базель III, показатели краткосрочной ликвидности и чистого стабильного финансирования (LCR, NSFR), liquidity and funding risks, Basel III, a liquidity coverage ratio and a net stable funding ratio, LCR, NSFR |
| JEL: | G01 G21 G28 G32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:aob:wpaper:28&r= |
| By: | Christophe J. GODLEWSKI (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | We study how language affects private debt renegotiation. We predict that stronger future time reference (FTR) languages alter the importance of renegotiation risk by lowering the perceived value of loan renegotiation. We test this hypothesis on a sample of 6.500 loans issued to European firms between 1999 and 2017. We find that the use of a stronger FTR language decreases renegotiation likelihood and the number of renegotiation rounds. These findings are robust to several FTR proxies, various specifications including loan, borrower and country level variables, and potential mitigation effects from specific loan, country, or time effects. They suggest that linguistic structure influences the renegotiation process of private debt contracts. |
| Keywords: | language, future tense marking, future time reference, bank loan, renegotiation. |
| JEL: | D83 G20 G41 Z13 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2022-02&r= |
| By: | Kunzmann Vanessa |
| Abstract: | This paper analyzes the e ects of time-varying fiscal policy behavior on output and consumption multipliers within a monetary union. The framework is that of a standard New Keynesian two-country model with distortionary taxes and Calvo price rigidities. I first show that multipliers differ significantly across fiscal regime mixes that follow a two-state Markov switching process. For each country, I differentiate between active, where spending is mainly deficit-financed, and passive, when spending is mainly tax-financed, behavior. Since this analysis is based on the Euro Area, I abstract from fiscal-monetary interaction and focus on member and union fiscal interdependence, including monetary imperfections and trade e ects. My calibration results show that consumption multipliers to be small and negative. However, the output multiplier is positive and possibly larger than one, depending on the persistence and openness of a country. Moreover, the optimal fiscal regime mix is a combination of active/passive since the negative wealth effect is lowest and the terms of trade loss are the smallest. |
| Keywords: | oFiscal Policy; Fiscal Multiplier; Multiplier; European Monetary Union; Regime Switching; Fiscal Policy Rules. |
| JEL: | R0 R11 R14 R21 R31 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bav:wpaper:216_kunzmann&r= |