nep-ban New Economics Papers
on Banking
Issue of 2022‒05‒30
twenty-six papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. What drives the risk of European banks during crises? New evidence and insights By Ion Lapteacru
  2. Interest rate shocks, competition and bank liquidity creation By Kick, Thomas
  3. Addressing systemic risk in Europe during Covid-19: The role of regulation and the policy mix By Dotta, Vitor
  4. Resilience of bank liquidity ratios in the presence of a central bank digital currency By Alissa Gorelova; Bena Lands; Maria teNyenhuis
  5. India’s Banks: Lending to Productive Firms? By Mr. Divya Kirti; Soledad Martinez Peria; Siddharth George; Rajesh Vijayaraghavan
  6. Transmission of Cyber Risk Through the Canadian Wholesale Payment System By Anneke Kosse; Zhentong Lu
  7. Sovereign Cocos By Mr. Leonardo Martinez; Juan Carlos Hatchondo; Mr. Francisco Roch; Kursat Onder
  8. Debt-Financed Collateral and Stability Risks in the DeFi Ecosystem By Michael Darlin; Leandros Tassiulas
  9. Assessment of Support Vector Machine performance for default prediction and credit rating By Karim Amzile; Mohamed Habachi
  10. Sovereign Debt Repatriation During Crises By Mr. Serkan Arslanalp; Laura Sunder-Plassmann
  11. Climate change and credit risk: the effect of carbon taxes on Italian banks’ business loan default rates By Maria Alessia Aiello; Cristina Angelico
  12. The occurrence of potential complementarity and the Behavior of Bank-Coordinator and See Off Behavior By Hobara, Nobuhiro
  13. Концентрация и конкуренция в современном банковском секторе Сербии: перемены и декомпозиция индекса Херфиндаля – Хиршмана By Bukvić, Rajko
  14. Big data analytics application in multi-criteria decision making: the case of eWallet adoption By Babak Naysary; Mehdi Malekzadeh; Ruth Tacneng; Amine Tarazi
  15. Stacking machine-learning models for anomaly detection: comparing AnaCredit to other banking datasets By Pasquale Maddaloni; Davide Nicola Continanza; Andrea del Monaco; Daniele Figoli; Marco di Lucido; Filippo Quarta; Giuseppe Turturiello
  16. A model of system-wide stress simulation: market-based finance and the Covid-19 event By Giovanni di Iasio; Spyridon Alogoskoufis; Simon Kordel; Dominika Kryczka; Giulio Nicoletti; Nicholas Vause
  17. The Determinants of Risk Weighted Asset in Europe By Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio; Matarrese, Marco Maria
  18. An empirical equilibrium model of formal and informal credit markets in developing countries By Fan Wang
  19. Monetary Policy Transmission and Policy Coordination in China By Miss Sonali Das; Wenting Song
  20. Mobile Payments and Interoperability: Insights from the Academic Literature By Milo Bianchi; Matthieu Bouvard; Renato Gomes; Andrew Rhodes; Vatsala Shreeti
  21. Institutional protection schemes: What are their differences, strengths, weaknesses, and track records? By Haselmann, Rainer; Krahnen, Jan Pieter; Tröger, Tobias; Wahrenburg, Mark
  22. Shocks to Inflation Expectations By Jonathan J. Adams; Mr. Philip Barrett
  23. The Term Structure of Inflation at Risk: A Panel Quantile Regression Approach By Yoshibumi Makabe; Yoshihiko Norimasa
  24. Instinctive versus reflective trust in the European Central Bank By Angino, Siria; Secola, Stefania
  25. Money, Exchange Rate and Export Quality By Ganguly, Shrimoyee; Acharyya, Rajat
  26. Trust and monetary policy By Paul De Grauwe; Yuemei Ji

  1. By: Ion Lapteacru (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Based on an extensive dataset of 1,156 European banks over the 1995-2015 period, we aim to provide new insights on the determinants of European banks' risk-taking during crisis events, employing a novel asymmetric Z-score. Our results suggest that more capital, lower ratios of loans to deposits and of liquid assets to total assets and lower share of non-deposit and short-term funding in total funding are associated with lower bank risk and this relationship is stronger during the crises. Moreover, having low costs compared to their revenues reduces the risk of European banks in normal times and has the same impact during the crises. Being involved in non-interest-generating activities makes banks riskier. Finally, being large and having higher net interest margin make banks more stable, but this positive effect is diminished for the size and vanished for the profitability during crisis times. And some differences are observed between Western and Eastern European countries.
    Keywords: European banking,bank risk,financial crisis,Z-score
    Date: 2022–03–30
  2. By: Kick, Thomas
    Abstract: We study the effects of interest rate shocks (IRS) on banks' liquidity creation. A unique supervisory data set from the Deutsche Bundesbank allows identifying banks' liquidity creation for the real economy and the effects of banking market competition. Here, we employ a novel approach to account for IRS that are both unexpected and effective for a bank's business model. We find that higher individual pricing power in the market lowers banks' liquidity creation, which is in line with theory that monopolistic firms undersupply the market when utilizing their high pricing power in the bank competition-liquidity creation nexus. While positive IRS per se lead to an increase in bank liquidity creation, we find that a high bank-individual pricing power curbs this impact on liquidity creation significantly. Moreover, we show that monetary policy was most effective during the global financial crisis and for well-capitalized banks, whereas periods of low interest rates are characterized by the persistent increase in liability-side liquidity creation.
    Keywords: bank liquidity creation,unexpected monetary policy,low interest rate environment,financial crisis,financial markets regulation,banking market competition,dynamic GMM
    JEL: G21 G28 G30 C23
    Date: 2022
  3. By: Dotta, Vitor
    Abstract: This work examines the impacts which the Covid-19 pandemic brought to the stability of the European financial sector. Lockdowns, businesses unable to operate and uncertainty about how the pandemic would evolve fueled a sharp recession. From the lessons learned in the global financial crises and the Eurozone debt crises, there's an increasing role of macroprudential policies, especially the regiments of the Basel III framework and the monetary policy toolkit. Alongside macroprudential regulation, the European Central Bank provided substantial monetary policy easing, for instance the release of capital buffers and other capital requirements, expanding the TLTRO III and Pandemic Emergency Program which facilitated monetary policy transmission. Authorities also deployed strong fiscal policies which encompassed from tax holidays to direct transfers to households and firms. The combination of fiscal, monetary, and regulatory policy was unprecedented and helped the economy during the shutdown moments. As a result, indicators of systemic risks in the banking sector during the pandemic remained relatively stable.
    Keywords: Systemic Risk,Covid-19 pandemic,banks,banking sector,Europe,Policy Mix,Monetary and Fiscal policy
    JEL: G21 G28 G38 E58 E62 E63
    Date: 2022
  4. By: Alissa Gorelova; Bena Lands; Maria teNyenhuis
    Abstract: Could Canadian banks continue to meet their regulatory liquidity requirements after the introduction of a cash-like retail central bank digital currency (CBDC)? We conduct a hypothetical exercise to estimate how a CBDC could affect bank liquidity by increasing the run-off rates of transactional retail deposits under four increasingly severe scenarios.
    Keywords: Central bank research; Digital currencies and fintech; Econometric and statistical methods; Financial institutions; Financial stability
    JEL: E4 G2 G21 O3 O33
    Date: 2022–05
  5. By: Mr. Divya Kirti; Soledad Martinez Peria; Siddharth George; Rajesh Vijayaraghavan
    Abstract: Capital misallocation is widely thought to be an important factor underpinning productivity and income gaps between advanced and emerging economies. This paper studies how well Indian banks allocate capital across firms with varying levels of productivity. The analysis reveals that the link between productivity and bank credit growth is weaker for firms with significant ties to public sector banks, especially in years when public sector banks represent a large share of new credit. Large flows of credit to unproductive firms represent important missed growth opportunities for more productive firms. These results suggest that measures to improve governance of public sector banks, potentially including privatization, would help reduce capital misallocation.
    Keywords: Productivity, bank lending, allocation of credit; capital misallocation; public sector bank; PSB dependence; PSB share; credit growth; Bank credit; Credit; Productivity; State-owned banks; Commercial banks; Global
    Date: 2022–04–29
  6. By: Anneke Kosse; Zhentong Lu
    Abstract: In this paper, we study how the impact of a cyber-attack that paralyzes one or multiple banks’ ability to send payments would transmit to other banks through the Canadian wholesale payments system. Based on historical payment data, we simulate a wide range of scenarios and evaluate the total payment disruption in the system. We find that depending on the type and number of banks under attack, the time of the attack and the design of the payments system, the attack can quickly become systemic and result in a significant loss of liquidity in the system. For instance, a three-hour attack on one bank can in the worst case impair the payments capacity of seven other banks within less than an hour and eventually disrupt 25% of the daily payments value. We also demonstrate that the system-wide impact of an attack can be significantly reduced by contingency plans that enable attacked banks to still send high-value payments. Given the interconnectedness of banks, we conclude that the cyber-resilience of a wholesale payment system strongly depends on the cyber-resilience of its participants and underline the importance of strong sectoral collaboration and coordination.
    Keywords: Payment clearing and settlement systems; Financial institutions; Financial stability
    JEL: C49 E47 G21
    Date: 2022–05
  7. By: Mr. Leonardo Martinez; Juan Carlos Hatchondo; Mr. Francisco Roch; Kursat Onder
    Abstract: We study a model of equilibrium sovereign default in which the government issues cocos (contingent convertible bonds) that stipulate a suspension of debt payments when the government faces liquidity shocks in the form of an increase of the bondholders' risk aversion. We find that in spite of reducing the frequency of defaults triggered by liquidity shocks, introducing cocos increases the overall default frequency. By mitigating concerns about liquidity, cocos make indebtedness and default risk more attractive for the government. In contrast, cocos that stipulate debt forgiveness when the government faces the shock, achieve larger welfare gains by reducing default risk.
    Keywords: Sovereign Cocos, default risk, maturity extensions, reprofiling, haircuts.; liquidity shock; default frequency; government issues coco; risk-premium shock; debt payment; Contingent convertible capital; Debt default; Debt relief; Consumption; Return on investment; Global
    Date: 2022–04–29
  8. By: Michael Darlin; Leandros Tassiulas
    Abstract: The rise of Decentralized Finance ("DeFi") on the Ethereum blockchain has enabled the creation of lending platforms, which serve as marketplaces to lend and borrow digital currencies. We first categorize the activity of lending platforms within a standard regulatory framework. We then employ a novel grouping and classification algorithm to calculate the percentage of fund flows into DeFi lending platforms that can be attributed to debt created elsewhere in the system ("debt-financed collateral"). Based on our results, we conclude that the wide-spread use of stablecoins as debt-financed collateral increases financial stability risks in the DeFi ecosystem.
    Date: 2022–04
  9. By: Karim Amzile (Université Mohammed V); Mohamed Habachi (Université Mohammed V)
    Abstract: Predicting the creditworthiness of bank customers is a major concern for banking institutions, as modeling the probability of default is a key focus of the Basel regulations. Practitioners propose different default modeling techniques such as linear discriminant analysis, logistic regression, Bayesian approach, and artificial intelligence techniques. The performance of the default prediction is evaluated by the Receiver Operating Characteristic (ROC) curve using three types of kernels, namely, the polynomial kernel, the linear kernel and the Gaussian kernel. To justify the performance of the model, the study compares the prediction of default by the support vector with the logistic regression using data from a portfolio of particular bank customers. The results of this study showed that the model based on the Support Vector Machine approach with the Radial Basis Function kernel, performs better in prediction, compared to the logistic regression model, with a value of the ROC curve equal to 98%, against 71.7% for the logistic regression model. Also, this paper presents the conception of a support vector machine-based rating tool designed to classify bank customers and determine their probability of default. This probability has been computed empirically and represents the proportion of defaulting customers in each class.
    Keywords: bank,credit risk,data mining,probability of default,scoring,artificial intelligence
    Date: 2022
  10. By: Mr. Serkan Arslanalp; Laura Sunder-Plassmann
    Abstract: We use a new, comprehensive data set on the sovereign debt investor base to document three novel empirical facts: (i) sovereign debt is repatriated - that is, shifted from external private to domestic investors - prior to sovereign defaults; (ii) not all crises are equal: evidence for repatriation during banking and currency crises is more limited; and (iii) the nature of defaults matters: external investors do not leave during preemptive debt restructurings. We further show that repatriation appears to be prevalent when defaults happen in large markets with low capital controls. The data set we use is uniquely suited to analyzing investor base dynamics during rare crises due to its large cross-section and time series, covering 180 countries from 1989 to 2020.
    Keywords: Sovereign debt, External debt, Capital flows, Sovereign default, Financial crisis, Banking crisis, Currency crisis
    Date: 2022–04–29
  11. By: Maria Alessia Aiello (Bank of Italy); Cristina Angelico (Bank of Italy)
    Abstract: Climate change poses severe systemic risks to the financial sector through multiple transmission channels. In this paper, we estimate the potential impact of different carbon taxes (€50, €100, €200 and €800 per ton of CO2) on the Italian banks’ default rates at the sector level in the short term using a counterfactual analysis. We build on the micro-founded climate stress test approach proposed by Faiella et al. (2021), which estimates the energy demand of Italian firms using granular data and simulates the effects of the alternative taxes on the share of financially vulnerable agents (and their debt). Credit risks stemming from introducing a carbon tax – during periods of low default rates – are modest on banks: on average, in a one-year horizon, the default rates of firms increase but remain below their historical averages. The effect is heterogeneous across different sectors and rises with the tax value; however, even assuming a tax of €800 per ton of CO2, the default rates are lower than the historical peaks.
    Keywords: climate change, carbon tax, climate stress test, banks’ credit risk
    JEL: Q43 Q48 Q58 G21
    Date: 2022–04
  12. By: Hobara, Nobuhiro
    Abstract: The effect of investment is often depends on the degree of the potential complementarity among industries. But we often find that the enterprise who are concerned with the investment can not find such a situation and the chance for the occurrence of the potential complementarity is not realized in vain. While, if bank behaves as coordinator among enterprises or the complementarity in industries, such a complementarity occurs and the social welfare could be improved. First, The present article studies the behavior of the bank as the coordinator and the occurrence of complementarity in economy with recognizing the rise of productivity as curatorial in two periods model. But, as the assets of enterprise also accumulate, enterprises get credit and get the needed fund only from market. Then, bank loses chance to get profit from cordination. So, in order not to lose the chance to get profit through their own operation, bank has incentive to see off the chance of profit on purpose. Next, we expand the two period model to many periods model and describe such a see off behavior of bank and argue the relationships among such a behavior, entrance of other banks and induce or deduce policy by tax or subsidies.
    Date: 2022–05
  13. By: Bukvić, Rajko
    Abstract: Russian. В статье рассматриваются степень и перемены в концентрации в банковском секторе Сербии (без Косова и Метохии) во второй половине второго и начале третьего десятилетия. В первой части обсуждаются основные теоретические и методологические вопросы исследования концентрации и конкуренции, и специфичности конкуренции в банковском секторе. Указывается на значение выбора переменных для вычисления показателей концентрации и выбирает в этом качестве следующие: активы, депозиты, капитал, доход и кредиты. В последующей части на основе индекса Херфиндаля – Хиршмана показано, что степень концентрации низкая, хотя и близкая умеренной. Наконец, проведена декомпозиция изменений индекса концентрации на две части: неравенство в распределении рыночных долей и число банков. Вклады двух факторов неравномерные и варьируют по годам. Среди выделенных типов перемен преобладает тип VI (уменьшение неравенства рыночных долей и уменьшение числа банков, причём первое по абсолютном значении больше). Но, в 2021 г. (I–VI) для всех переменных произошло изменение типа I (рост компоненты неравенства и уменьшение числа банков). Оказалось, что индекс концентрации не рос, хотя число банков постоянно уменьшалось и компонент числа банков имел в большинстве случаев даже больший вклад в перемены индекса концентрации. English. Paper considers the degree and changes in concentration in banking sector of Serbia (without Kosovo and Metohia) in the second half of 2010s and beginning of 2020s. In the first part the main theoretical and methodological questions of the research of concentration and competition were presented, and the characteristics of competition in banking sector. Author emphasizes the importance of the choice of variables for the calculation of concentration indices and chooses next variables: assets, deposits, capital, operating income, and loans. In the next part using the Herfindahl – Hirschman index it was shown that the degree of concentration is low, although close to moderate. At the end, it were decomposed the changes of concentration into two factors: inequality in market shares distribution and number of banks. Impacts of two factors are not equal and vary through the years. Among the six types of changes the type VI prevails in many cases (decrease of inequality of market shares and decrease of number of banks). But, in 2021 (I–VI) for all variables type of changes I happens (increase of inequality and decrease of number of banks). It was shown that in general concentration index was not increased, although the number of banks constantly decreased and component of inequality in many cases had greater impact on the changes of concentration index than the component of inequality.
    Keywords: конкуренция, концентрация, банковский сектор, Сербия, индекс Херфиндаля – Хиршмана, декомпозиция индекса, неравенство рыночных долей, число банков, competition, concentration, banking sector, Serbia, Herfindahl – Hirschman index, index decomposition, inequality of market shares, number of banks
    JEL: C38 G21 L10 L19
    Date: 2022
  14. By: Babak Naysary (Monash University, School of Business, Selangor, Malaysia); Mehdi Malekzadeh (Service Rocket Inc., Kuala Lumpur, Malaysia); Ruth Tacneng (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges); Amine Tarazi (LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)
    Abstract: This multidisciplinary study aims to overcome the shortcomings of traditional data collection methods used in the literature to investigate drivers of e-wallet adoption. We apply big data analytics to gather and analyze real-world data from users' sentiments and opinions available on online platforms. We use a text analytics approach to identify and categorize principal themes of concern affecting user adoption. After, we use the Analytical Hierarchy Process (AHP) technique to weigh and rank these themes and subsequently construct a structural framework for choosing the optimal e-wallet alternative in the market. Our results identify 10 clusters of e-wallet adoption drivers that can be categorized into three groups. The first group includes factors such as usefulness, ease of use, trust, risk security, and associated costs, confirming existing findings in the literature. The second group reinforces the importance of more implicit factors which existing theories fail to integrate, such as customer service, user interface, and promotional rewards. And finally, the last group comprises interoperability, highlighting the importance of e-wallet connectivity and how conveniently it performs transactions with other platforms, systems, and applications. Based on the results of clustering and the AHP model, we provide several managerial recommendations that can guide decision-making and eventually optimize the performance of e-wallets. Our study makes significant contribution by adopting a holistic, multi-criteria framework to evaluate ewallet adoption comprehensively.
    Keywords: E-wallet adoption,big data analytics,AHP,mobile payment,text mining
    Date: 2022–04–06
  15. By: Pasquale Maddaloni (Bank of Italy); Davide Nicola Continanza (Bank of Italy); Andrea del Monaco (Bank of Italy); Daniele Figoli (Bank of Italy); Marco di Lucido (Bank of Italy); Filippo Quarta (Bank of Italy); Giuseppe Turturiello (Bank of Italy)
    Abstract: This paper addresses the issue of assessing the quality of granular datasets reported by banks via machine learning models. In particular, it investigates how supervised and unsupervised learning algorithms can exploit patterns that can be recognized in other data sources dealing with similar phenomena (although these phenomena are available at a different level of aggregation), in order to detect potential outliers to be submitted to banks for their own checks. The above machine learning algorithms are finally stacked in a semi-supervised fashion in order to enhance their individual outlier detection ability. The described methodology is applied to compare the granular AnaCredit dataset, firstly with the Balance Sheet Items statistics (BSI), and secondly with the harmonised supervisory statistics of the Financial Reporting (FinRep), which are compiled for the Eurosystem and the Single Supervisory Mechanism, respectively. In both cases, we show that the performance of the stacking technique, in terms of F1-score, is higher than in each algorithm alone.
    Keywords: banking data, data quality management, outlier and anomaly detection, machine learning, auto-encoder, robust regression, pseudo labelling
    JEL: C18 C81 G21
    Date: 2022–04
  16. By: Giovanni di Iasio (Bank of Italy); Spyridon Alogoskoufis (European Central Bank); Simon Kordel (European Central Bank); Dominika Kryczka (European Central Bank); Giulio Nicoletti (European Central Bank); Nicholas Vause (Bank of England)
    Abstract: We build a model to simulate how the euro-area market-based financial system may function under stressed conditions, such as the COVID-19 turmoil. The core of the model is a set of representative agents reflecting key economic sectors, which interact in asset, funding and derivatives markets and face solvency and liquidity constraints on their behaviour. We illustrate the model’s behaviour with a two-layer approach. In Layer 1, we consider the deterioration in the outlook for the nonfinancial corporate sector. Agents reallocate their portfolios and risky asset prices fall. Layer 2 adds a rating downgrade shock to Layer 1, where a fraction of investment grade nonfinancial corporate bonds is downgraded to high yield. The additional shock creates further rebalancing pressure and price movements. For both layers we present asset flows (i.e. buying and selling marketable securities) across agents and balance sheet losses. The model provides quantitative support to the equilibrium effects of the macroprudential regulation of investment funds, which we illustrate by varying their liquidity buffers.
    Keywords: Systemic risk, market-based finance, stress testing, COVID-19
    JEL: G17 G21 G22 G23
    Date: 2022–04
  17. By: Leogrande, Angelo; Costantiello, Alberto; Laureti, Lucio; Matarrese, Marco Maria
    Abstract: We have estimated the level of Risk Weighted Assets among 30 countries in Europe, in 30 trimesters, using data of the European Banking Authority-EBA of 139 variables. We perform an econometric model using Pooled OLS, Panel Data with Fixed Effects, Panel Data with Random Effects, Weighted Least Squares. We found that Risk Weighted Assets is negatively associated, among others, to the level of NFC loans in mining and quarrying, in public administration and defence, and in financial and insurance activities and positively associated, among others to distribution of NFC loans in human health services and social work activities, in education and the level of net fee and commission income. Furthermore, we apply a cluster analysis with the k-Means algorithm, and we find the presence of two clusters. A comparison was then made between eight different machine learning algorithms for predicting the value of the RWAs and we found that the best predictor is the linear regression. The RWA value is predicted to increase by 1.5%.
    Keywords: Financial Institutions and Services; General; Banks, Depository Institutions, Micro Finance Institutions, Mortgages; Investment Banking, Government Policy, and Regulation
    JEL: G0 G20 G21 G24 G28
    Date: 2022–05–01
  18. By: Fan Wang
    Abstract: I develop and estimate a dynamic equilibrium model of risky entrepreneurs' borrowing and savings decisions incorporating both formal and local-informal credit markets. Households have access to an exogenous formal credit market and to an informal credit market in which the interest rate is endogenously determined by the local demand and supply of credit. I estimate the model via Simulated Maximum Likelihood using Thai village data during an episode of formal credit market expansion. My estimates suggest that a 49 percent reduction in fixed costs increased the proportion of households borrowing formally by 36 percent, and that a doubling of the collateralized borrowing limits lowered informal interest rates by 24 percent. I find that more productive households benefited from the policies that expanded borrowing access, but less productive households lost in terms of welfare due to diminished savings opportunities. Gains are overall smaller than would be predicted by models that do not consider the informal credit market.
    Date: 2022–04
  19. By: Miss Sonali Das; Wenting Song
    Abstract: We study the transmission of conventional monetary policy in China, focusing on the interaction between monetary and fiscal policy given the unique institutional set-up for macroeconomic policy making. Our results suggest some progress but also continued difficulties in the transmission of monetary policy. Similar to recent studies, we find evidence of monetary policy pass-through to interest rates. However, the impact of monetary policy measures that are not coordinated with fiscal policy is significantly weaker than that of coordinated measures. This suggests the need for further improvements to the interest-rate based framework.
    Keywords: monetary policy, monetary fiscal coordination, textual analysis, China; monetary policy transmission; monetary policy measure; monetary policy pass-through; pass-through to interest rates; monetary policy shock; fiscal policy measure; Yield curve; Central bank policy rate; Monetary policy instruments; Deposit rates
    Date: 2022–04–29
  20. By: Milo Bianchi (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TSM - Toulouse School of Management Research - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées); Matthieu Bouvard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, TSM - Toulouse School of Management Research - CNRS - Centre National de la Recherche Scientifique - TSM - Toulouse School of Management - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées); Renato Gomes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique); Andrew Rhodes (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Vatsala Shreeti (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We connect various streams of academic literature to shed light on how the degree of interoperability in mobile payments affects market outcomes and welfare. We organize our discussion around four dimensions of interoperability. First, we consider mobile network interoperability (whether clients of one telecom can access another telecom's payment services) in connection with the IO literature on tying. Second, we discuss platform level interoperability (the ability to send money offnetwork) in light of the literature on compatibility. We also build on the behavioral IO literature to suggest how the effects of interoperability may be very heterogeneous across various types of firms and consumers, or even backfire. Third, we consider interoperability in the cash-in-cash-out agent network, in light of the literature on co-investment in network industries, and of more specific studies on ATMs' interoperability. Fourth, we discuss how the literature in banking and on data ownership can be used to understand interoperability of data. We conclude with some broader remarks on policy implications and on possible directions for future research.
    Keywords: Mobile Payments,Interoperability,Financial Inclusion,Competition,Policy.
    Date: 2022–04–04
  21. By: Haselmann, Rainer; Krahnen, Jan Pieter; Tröger, Tobias; Wahrenburg, Mark
    Abstract: This briefing paper describes and evaluates the law and economics of institution(al) protection schemes. Throughout our analysis, we use Europe's largest such scheme, that of German savings banks, as paradigm. We find strengths and weaknesses: Strong network-internal monitoring and early warning seems to be an important contributor to IPS network success. Similarly, the geographical quasi-cartel encourages banks to build a strong client base, including SME, in all regions. Third, the growth of the IPS member institutions may have benefitted from the strictly unlimited protection offered, in terms of euro amounts per account holder. The counterweighing weaknesses encompass the conditionality of the protection pledge and the underinvestment risk it entails, sometimes referred to as blackmailing the government, as well as the limited diversification potential of the deposit insurance within the network, and the near-incompatibility of the IPS model with the provisions of the BRRD, particularly relatingto bail-in and resolution. Consequently, we suggest, as policy guidance, to treat large IPS networks similar to large banking groups, and put them as such under the direct supervision of the ECB within the SSM. Moreover, we suggest strengthening the seriousness of a deposit insurance that offers unlimited protection. Finally, to improve financial stability, we suggest embedding the IPS model into a multi-tier deposit re-insurance scheme, with a national and a European layer. This document was provided by the Economic Governance Support Unit at the request of the ECON Committee.
    Keywords: IPS,deposit guarantee scheme,savings banks
    Date: 2022
  22. By: Jonathan J. Adams; Mr. Philip Barrett
    Abstract: The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations, estimating a semi-structural VAR where an expectation shock is identified as that which causes measured expectations to diverge from rationality. Using data for the United States, we find that a positive inflation expectations shock is deflationary and contractionary: inflation, output, and interest rates all fall. These results are inconsistent with the standard New Keynesian model, which predicts inflation and interest rate hikes. We discuss possible resolutions to this new puzzle.
    Keywords: Inflation, Sentiments, Expectations, Monetary Policy
    Date: 2022–04–29
  23. By: Yoshibumi Makabe (Bank of Japan); Yoshihiko Norimasa (Bank of Japan)
    Abstract: This paper uses panel quantile regression to analyze the factors affecting inflation risks defined as the tail of the predictive inflation distribution. We construct a panel going back to the "Great Inflation" period (from the late 1960s) and include variables that capture not only downside risks, which many recent studies have focused on, but also upside risks to examine the developments in both upside and downside risks to inflation in the United States, Germany, and the United Kingdom. Our analysis shows that unit labor costs and real government spending have a significant effect on the upward risks to inflation. We also find that the effect of import prices on inflation risks is short-lived, while the effect of real government spending and unit labor costs persists over the medium term. These results also show that the term structure of the effect on inflation risks differs depending on the factor involved.
    Keywords: Inflation risk; panel quantile regression; term structure
    JEL: C21 E27 E31
    Date: 2022–05–20
  24. By: Angino, Siria; Secola, Stefania
    Abstract: Political science research has established that trust in institutions, including central banks, is shaped by socio-economic and demographic factors, as well as by the assessment of institutional features and by slow-moving components such as culture. However, the role of cognitive processes has largely been neglected, especially in the analysis of central bank trust. In this paper we aim to address this gap focusing on the case of the European Central Bank (ECB). We introduce the concepts of “instinctive trust”, which captures an on-the-spot judgement on the institution’s trustworthiness, and of “reflective trust”, which refers to a more pondered opinion on the matter. Using a survey experiment, we find that deeper consideration about the ECB promotes less trust in the institution compared to an on-the-spot judgement. This result is mainly driven by women, and in particular by those who say they possess a low understanding of the central bank’s policies. JEL Classification: C83, D83, E58, Z13
    Keywords: central bank, Institutional trust, survey experiment
    Date: 2022–05
  25. By: Ganguly, Shrimoyee; Acharyya, Rajat
    Abstract: This paper theoretically examines the effect of an expansionary monetary policy on export quality and its ramifications on the aggregate employment of the unskilled workers in a competitive general equilibrium framework of a small open economy. This issue assumes relevance since monetary policies are often pursued by the central bank of an economy to manage exchange rate fluctuations under a managed float regime, which may have adverse consequences for export-quality choices and thereby for export growth given the growing preference of buyers in richer nations for higher qualities of goods they consume. Under optimal allocation of wealth over a portfolio of cash, domestic assets and foreign assets, we show that an increase in the domestic money supply affects the choice of export-quality primarily in two ways. One is through larger investment, capital formation and consequent endowment effect; the other is through changes in the nominal exchange rate. Under less price-elastic demand for a non-traded good, the export quality is upgraded when higher quality varieties of the export good are relatively capital intensive. On the other hand, though the expansionary monetary policy may raise the aggregate employment of unskilled workers due to its endowment effect, may lower it through changes in the quality of the export good. The overall effect is thus ambiguous. A larger initial size of bequests has a similar effect.
    Keywords: Monetary Policy, Export Quality, Exchange rate, Unemployment, Portfolio choice
    JEL: E24 E5 F11
    Date: 2022–04–29
  26. By: Paul De Grauwe; Yuemei Ji
    Abstract: We analyze how trust affects the transmission of negative demand and supply shocks. We define trust to have two dimensions: there is trust in the central bank’s inflation target and trust in the future of economic activity. We use a behavioural macroeconomic model that is characterized by the fact that individuals lack the cognitive ability to understand the underlying model and to know the distribution of the shocks that hit the economy. We find, first, that when large negative demand shocks occur the subsequent trajectories taken by output gap and inflation typically coalesce around a good and a bad trajectory. Second, these good and bad trajectories are correlated with movements in trust. In the bad trajectories trust collapses, in the good trajectories it is not affected. This feature is stronger when a negative supply shock occurs than in the case of a negative demand shock. Third, initial conditions (history) matters. Unfavorable initial conditions drive the economy into a bad trajectory, favorable initial conditions produce good trajectories.
    Date: 2022–05

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