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on Banking |
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Issue of 2022‒07‒18
37 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Ricardo J. Caballero; Alp Simsek |
| Abstract: | We propose a model where monetary policy is the key determinant of aggregate asset prices (financial conditions). Spending decisions are made by a group of agents ("households") that respond to aggregate asset prices, but with noise, delays, and inertia. Asset pricing is determined by a different group of forward-looking agents ("the market"). The central bank ("the Fed") targets asset prices to close the output gap. Our model explains several facts, including why the Fed stabilizes asset price fluctuations driven by financial market shocks ("the Fed put/call"), but destabilizes asset prices in response to aggregate demand or supply shocks that induce macroeconomic imbalances (as in the late stages of the Covid-19 recovery). Although the Fed targets asset prices, it "cooperates" with the market to achieve its desired asset price. When the market and the Fed have different beliefs, the market perceives monetary policy "mistakes" that influence the policy rate the Fed needs to set. These perceived "mistakes" induce a policy risk premium and may generate a "behind the curve" phenomenon. |
| JEL: | E32 E43 E44 E52 G12 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30132&r= |
| By: | Luciano Somoza (University of Lausanne, HEC; Swiss Finance Institute); Antoine Didisheim (Swiss Finance Institute, UNIL) |
| Abstract: | We propose a mechanism explaining the recent high positive correlation between cryptocurrencies and the stock market. With a unique dataset of investor-level holdings from a bank offering trading accounts and cryptocurrency wallets, we show that retail investors’ net trading volumes of stocks and cryptocurrencies are positively correlated. Theoretically, this micro-level pattern translates into a cross-asset class correlation as long as the two markets are not fully integrated. We provide suggestive evidence showing that this micro-level pattern emerged in March 2020 and that stocks preferred by crypto-traders exhibit a stronger correlation with Bitcoin, especially when the cross asset retail volume is high. |
| Keywords: | cryptocurrencies, Bitcoin, retail investors, correlation |
| JEL: | G11 G12 G29 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2253&r= |
| By: | Cornand Camille; Hubert Paul |
| Abstract: | Understanding how the degree of information frictions varies among economic agents is of utmost importance for macroeconomic dynamics. We document and compare the frequency of forecast revisions and cross-sectional disagreement in inflation expectations among five categories of agents: households, firms, professional forecasters, policymakers and participants to laboratory experiments. First, we provide evidence of a heterogeneous frequency of forecast revisions across categories of agents, with policymakers revising more frequently their forecasts than firms and professional forecasters. Households revise less frequently. Second, all categories exhibit cross-sectional disagreement. There is however a strong heterogeneity: while policymakers and professional forecasters exhibit low disagreement, firms and households show strong disagreement. Our analysis suggests that the nature of information frictions is closer to noisy information model features. We also explore the external validity of experimental expectations. |
| Keywords: | Disagreement, Forecast Revisions, Experimental Forecasts, Survey Forecasts, Central Bank Forecasts |
| JEL: | E3 E5 E7 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:873&r= |
| By: | Pejman Abedifar (University of St Andrews - School of Management; Khatam University - Tehran Institute for Advanced Studies); Seyed Javad Kashizadeh (Khatam University); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Using a rare flood in April 2019 in Iran as a natural experiment, we study the role of local banks in mitigating the financial consequence of natural disasters to smallholder farmers. We find that local branches immediately react to the disaster by increasing their lending for two months following the flood. Analyzing proprietary information on more than 70,000 farmers, we find that farmers with a stronger relationship with their bank - in particular when they are young and female - have a higher chance of access to new credit. Our findings underscore the importance of the presence of local banks in agricultural areas which are exposed to climate risk. |
| Keywords: | Local banks, Relationship lending, Climate Change, Farmers |
| JEL: | G21 G28 O13 Q14 Q54 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2252&r= |
| By: | Sandra Aguilar-Gomez (University of California, San Diego); Emilio Gutierrez (Department of Economics, ITAM); David Heres (Banco de México, Financial Stability Department); David Jaume (Banco de México, Financial Stability Department); Martin Tobal (Banco de México, Financial Stability Department) |
| Abstract: | The frequency and intensity of extreme weather events are likely to increase with climate change. Although a growing body of literature shows that extreme weather has a negative impact on economic outcomes, there is lack of evidence about how it affects firm’s credit delinquency and credit use. This question is relevant for Low and Middle Income Economies, where institutions are frequently less prepared to deal with informational asymmetries and credit market are frequently shallow. We fill this gap by exploiting an extraordinarily detailed data set with loan-level information for the universe of loans extended by commercial banks to private firms in Mexico. Exploiting differences across Mexican counties over time, we find that anomalous days of extreme temperature increase the rate of non-performing loans and that this result is mainly driven by extreme heat. The effect is concentrated in the agricultural sector but there is also a nonnegligible impact on the non-agriculture industries that are more dependent on local demand. Our results are consistent with general equilibrium effects originated in agriculture that expand to non-agriculture sectors in agricultural regions. |
| Keywords: | Extreme temperatures, Default, Firm credit, Agriculture. |
| JEL: | D25 Q54 Q14 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:148&r= |
| By: | Nazrul Islam |
| Abstract: | The objective of this paper is to assess the impact of micro credit on the livelihoods of the clients in the haor area of Sunamganj district, Sylhet, Bangladesh. The major findings of the study are that 66.2 percent respondents of borrowers and 98.7 non-borrowers are head of the family and an average 76.6 percent and among the borrowers 32 percent is husband/wife while 1.3 percent of non-borrowers and on average 22.2. In terms of sex 64.7 percent of borrowers and 92.5 percent of non-borrowers are male while 35.3 percent of borrowers and 7.5 percent of non-borrowers are female. The impact of micro-credit in terms of formal and informal credit receiving households based on DID method showed that total income, total expenditure and investment have been increased 13.57 percent, 10.39 percent and 26.17 percent. All the elements of total income have been increased except debt which has been decreased by 2.39 percent. But the decrease in debt is the good sign of positive impact of debt. Consumption of food has been increased but non-food has been decreased. All the elements of investment have been increased except some factors. The savings has been decreased due excess increase in investment. The study suggested that for breaking vicious cycle of poverty by micro-credit the duration of loans should be at least five year and the volume of loans must be minimum 500,000 and repayment should at not be less than monthly. The rate of interest should not be more than 5 percent. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.02798&r= |
| By: | Federico Bennett (Duke University); Giselle Montamat (Uber); Francisco Roch (IMF) |
| Abstract: | We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). In this setup, the decentralized equilibrium may differ from the social planner’s equilibrium both because of the pecuniary externalities associated with the collateral constraint and because of the paternalistic imposition of the planner’s beliefs when designing policy. When robust agents have doubts about the model, they create endogenous worst-case beliefs by assigning a high probability to low-utility events. The ratio of worst-case beliefs of the planner over the household’s captures the degree of paternalism. We show that this novel channel could render the directions of welfare gains from a policy intervention ambiguous. However, our quantitative results suggest that doubts about the model need to be large in order to make a “laissez-faire regime” better than an intervention regime. |
| Keywords: | Robust Control, Model Uncertainty, Optimal Taxation, Sudden Stops, Financial Crises |
| JEL: | D62 E32 E44 E62 F32 F41 G01 H21 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:141&r= |
| By: | Pablo Cotler (Department of Economics - Universidad Iberoamericana Ciudad de Mexico); Rodrigo Carrillo (Department of Economics, Universidad Iberoamericana Ciudad de Mexico) |
| Abstract: | Whenever the Central Bank modifies its interest rate, it is generally thought that all lending interest rates for new loans will follow. Perhaps for this reason, it is seldom analyzed whether changes in the monetary stance have a similar effect on borrowers’ expenditure across the entire income distribution. In this paper we examine this hypothesis by looking at what happened in the personal and payroll loan markets when the Central Bank of Mexico varied its reference rate during the period 2011-2019. Since it is possible that banks may have pricing policies that may differ according to the loan size, our pass-through estimations are done at an aggregate and disaggregate level. Using an autoregressive model with distributed lags that incorporates asymmetric effects, we find two major results. First, changes in the reference rate do not imply that lending rates will move in the same direction. Typically, the pass-through is either zero or negative. Thus, the interest rate channel arising from the markets for personal and payroll loans may not be helpful to reduce the inflation rate. Second, estimations using aggregate data may be misleading since they do not necessarily reflect what happens within loans of different sizes. Finally, the exclusion of control variables may bias the results. However, it also has consequences, one of them being that asymmetric pricing may no longer detected. |
| JEL: | E43 E52 G21 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:smx:wpaper:2022003&r= |
| By: | Guilherme Spinato Morlin |
| Abstract: | We assess the connection between global and domestic inflation in Brazil during the period from 1999 to 2020. Input-output linkages have been shown to be an important cause of inflation synchronization of inflation for advanced and emerging economies. International cost shocks are less studied in the case of Brazil. We therefore estimate a Structural VAR model with an index for producer prices (PPI) of Brazilian trade partners, in addition to the other relevant determinants of inflation. Estimates show a positive effect of the Foreign PPI on Brazilian Consumer Price Index, constituting a relevant explanation for domestic inflation in Brazil during the period 1999-2020. Impulse Response functions show that the Exchange Rate is the main determinant of domestic CPI in Brazil. The results are in line with the literature’s empirical findings showing the overall relevance of international variables in the explanation of inflation. Overall, our results reveal the dominance of shocks related to the external sector (Exchange Rate, Foreign PPI, and Commodity Prices) over domestic shocks (GDP and Interest Rate) to explain inflation in Brazil. The importance of international shocks and of Foreign PPI in particular has important implications for monetary policy. International shocks are not affected by the policy rate pegged by the Central Bank of Brazil. However, the impact of these shocks on Brazilian prices also depend on the exchange rate. Therefore, our results seem to confirm that the inflation targeting regime relied mainly on the exchange rate effect of interest rate increases. Finally, this paper provides an additional variable explaining the effect of external shocks on domestic inflation in Brazil. |
| Keywords: | inflation, monetary policy, global inflation, exchange rate. |
| JEL: | E31 E52 F41 O54 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2022_16.rdf&r= |
| By: | Shahriyar Aliev; Evžen Kočenda |
| Abstract: | We assess the impact of ECB monetary policy on global aggregate and sectoral commodity prices over 2001-2019. We employ a SVAR model and separately assess periods before and after the global financial crisis. Our key results indicate that contractionary monetary policy shocks have positive effects on commodity prices during both conventional and unconventional monetary policy periods, indicating the effectiveness of unconventional monetary policy tools. The largest impact is documented on fuel and food commodities. Our results also suggest that the effect of ECB monetary policy on commodity prices transmits through the exchange rate channel, which influences European market demand. |
| Keywords: | European Central Bank, commodity prices, short-term interest rates, M2 stock, monetary aggregate, unconventional monetary policy, Structural Vector Autoregressive model, exchange rates |
| JEL: | C54 E43 E58 F31 G15 Q02 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:prg:jnlwps:v:4:y:2022:id:4.008&r= |
| By: | Faty Dembele; Timothy Randall; David Vilalta; Vanessa Bangun |
| Abstract: | Initially launched in 2017, the OECD annual Blended finance Funds and Facilities Survey compiles and analyses information on collective investment vehicles, one of the primary channels for blended finance. In 2020, the third annual edition captured 198 vehicles, representing USD 75 billion assets under management. The survey helps policy makers and private sector actors better grasp the size and shape of a segment of the blended finance market. By bringing together data of different development actors that, collectively, are a significant contributor to sustainable finance, this survey makes an important contribution to enhancing understanding and transparency. Transparency is increased through the data collection and analysis, and understanding is increased through the aggregation of the data that highlight the main investments trends. The quantitative analysis is complemented by OECD statistics on private finance mobilised by official development interventions, as well as by information provided by other specialised institutions. This new evidence confirms trends observed on the broader blended finance market in terms of priority sectors, geographical coverage and the Sustainable Development Goals targeted. This year’s edition also explores additional aspects such as investors, clients and investment instruments, and has a particular focus on gender. |
| Keywords: | blended finance, development finance, dfis, funds and facilities, private sector mobilization, sdgs |
| JEL: | E44 F35 F63 F65 F68 O16 O2 F3 |
| Date: | 2022–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:107-en&r= |
| By: | Kazandziska, Milka |
| Abstract: | This paper contributes to the financialization literature exploring the dynamics of financialization in eight emerging European economies (EEEs) compared to the Anglo-Saxon countries. Our analysis encompasses the decade before and the years following the financial crisis in 2008, including the latest developments in conjunction with the Covid-pandemic. Hungary, Bulgaria, Croatia, Turkey, and to a lesser extent, Czech Republic and Poland experienced strong financial inflows, and an accumulation of foreign liabilities. Foreign financial flows in Russia were not as significant for the process of financialization, but rather the state itself. In this paper we identify two types of financialization: 'foreign-finance-led' and 'state-led' financialization, where 'foreign-finance-led' financialization is characterized by increase in net capital inflows and subsequently, foreign indebtedness, whereas the government (the state) in the 'state-led' financialization has a predominant role in the financialization process. Most of the EEEs fit the 'foreign-finance-led' financialization, but with a tendency of a significant state involvement in the financial systems during the Covid-pandemic. Based on the analysis of financialization in EEEs, our findings show that EEEs had variegated financialization dynamics. Financialization in the EEEs was less pronounced compared to United States and United Kingdom. Despite this fact, the dynamics of financialization took a significant pace in the EEEs in the years following the financial crisis of 2008, with rising debt levels during the Covid-pandemic. |
| Keywords: | financialization,financial crises,emerging countries,Central Eastern Europe |
| JEL: | E44 F34 F36 F65 G01 G20 P51 P52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1832022&r= |
| By: | Davies, Martin (Washington and Lee University); Schröder, Marcel (Asian Development Bank) |
| Abstract: | Papua New Guinea (PNG) has faced a foreign exchange (forex) shortage since 2015. To protect reserves, the Bank of PNG has resorted to forex rationing that led to a large backlog of orders and import compression. This paper surveys the structure of PNG’s forex market and analyzes recent market conditions. We argue that the various policy proposals being discussed currently in PNG are inadequate to restore currency convertibility. For this, a real exchange rate depreciation is required instead. We develop a forex market model that features a backlog of unmet orders, which suggests that a frontloaded depreciation is preferred to an often-favored gradual adjustment. Empirical results indicate that the government’s large budget deficits have contributed to the forex shortage, which highlight the need for greater fiscal restraint. In the longer term, we argue for more exchange rate flexibility and forex allocation through competitive auction. |
| Keywords: | foreign exchange shortage; foreign exchange rationing; currency convertibility; Papua New Guinea |
| JEL: | F31 O23 Q32 |
| Date: | 2022–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0663&r= |
| By: | Antonia Gipp |
| Abstract: | Credit decisions play an important role for the economic wellbeing of households. However, the complexity of products and varying price information display makes it hard for consumers to navigate this field. Empirical evidence has important implications for consumer protection policies, as many people fail to make optimal choices for themselves and struggle to understand credit cost information. Presenting additional information on absolute fees can help consumers to make more informed choices. This article reviews the literature on the impact of price display on financial decisions. Research from marketing and other fields provides related evidence. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwrup:140en&r= |
| By: | Justine Pedrono |
| Abstract: | The amplitude of leverage procyclicality is heterogeneous across banks and across countries. This paper introduces international diversification of bank balance sheet as a factor of this observed heterogeneity, with a special emphasis on currency diversification. Based on a new theoretical framework, it shows that the impact of international diversification on leverage procyclicality depends on the relative performance of economies, the global business cycle and the exchange rate regime. By altering the distribution of global bank portfolio, international diversification adds a currency channel to the risk channel of the global leverage cycle. Using granular data on banks located in France, the paper shows that the pre-crisis international diversification of banks increased leverage procyclicality during the 2008-2009 crisis. Focusing on the currency channel, namely the valuation effect of currency diversification, results show that it had a negative effect on leverage procyclicality during this period, hence decreasing procyclicality. The currency channel contributed to offset part of the increased risk due to the crisis and the risk channel. These findings draw attention to the specific role of balance sheet currency diversification in financial stability risk. |
| Keywords: | Bank, Financial Cycles, Leverage, Internationalization, International Portfolio, Currency |
| JEL: | E32 F34 F36 F44 G15 G20 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:870&r= |
| By: | Gocheva, Viktoriya; Mudde, Yvo; Tapking, Jens |
| Abstract: | When a bank receives credit from the central bank, its Liquidity Coverage Ratio (LCR) changes. In most cases, the LCR increases. We investigate how this LCR boost from central bank credit affects banks’ behaviour, looking at the euro area during the Corona year 2020. Our theoretical and empirical analyses suggest that banks that get strong LCR boosts from central bank credit tend to take actions that reduce their LCRs. In this sense, banks consume their LCR boosts. In terms of policy conclusions, our analysis suggests that central bank credit operations can provide strong incentives for banks to take actions that reduce their LCRs. Such actions, which could include the provision of additional credit and a shortening of the maturity structure of the liabilities of the banks, plausibly have an impact on the real economy. As such, our analysis reveals what may be called a “LCR channel” of monetary policy transmission. JEL Classification: E52, E58, G28 |
| Keywords: | central bank credit operations, Corona pandemic, Liquidity Coverage Ratio, monetary policy transmission |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222668&r= |
| By: | W. Scott Frame; Ruidi Huang; Erik J. Mayer; Adi Sunderam |
| Abstract: | We study links between the labor market for loan officers and access to mortgage credit. Using novel data matching the (near) universe of mortgage applications to loan officers, we find that minorities are significantly underrepresented among loan officers. Minority borrowers are less likely to complete mortgage applications, have completed applications approved, and to ultimately take-up a loan. These disparities are significantly reduced when minority borrowers work with minority loan officers. Minority borrowers working with minority loan officers also have lower default rates. Our results suggest that minority underrepresentation among loan officers has adverse effects on minority borrowers’ access to credit. |
| JEL: | G21 G51 J15 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30125&r= |
| By: | Nazrul Islam |
| Abstract: | This research attempts to explore the key research questions about what are the different microcredit programs in Haor area in Bangladesh? And do microcredit programs have a positive impact on livelihoods of the clients in terms of selected social indicators viz. income, consumption, assets, net worth, education, access to finance, social capacity, food security and handling socks etc. in Haor area in Bangladesh? Utilizing difference-in-difference and factor analysis, we explore the nature and terms of conditions of available formal and informal micro-creditss in Haor region of Bangladesh; and investigate the impact of micro-creditss on the poverty condition of Haor people in Bangladesh. The findings showed that total income of borrowers has been increased over non-borrowers (z=6.75) significantly. Among the components of income, non-agricultural income has been increased significantly on the other hand income from labor sale has been decreased significantly. Total consumption expenditure with its heads of food and non-food consumption of both formal borrowers and informal borrowers have been increased over the period 2016-2019 significantly. Most of the key informants agreed that the findings are very much consistent with prevailing condition of micro-credits in Haor region. However, some of them raised question about the impacts of micro-credits. They argued that there is no straightforward positive impact of micro-credits on poverty condition of the households. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.02722&r= |
| By: | Leong, Kaiwen (Nanyang Technological University, Singapore); Li, Huailu (Fudan University, China); Pavanini, Nicola (Tilburg University); Walsh, Christoph (Tilburg University) |
| Abstract: | We estimate a structural model of borrowing and lending in the illegal money lending market using a unique panel survey of 1,090 borrowers taking out 11,032 loans from loan sharks. We use the model to evaluate the welfare effects of alternative law enforcement strategies. We find that a large enforcement crackdown that occurred during our sample period raised interest rates, lowered the volume of loans, increased the lenders' unit cost of harassment, decreased lender profits, and decreased borrower welfare. We compare this strategy to targeting borrowers and find that targeting medium-performing borrowers is the most effective at lowering lender profits. |
| Keywords: | illegal money lending, loan sharks, law enforcement, crime |
| JEL: | K42 G51 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15359&r= |
| By: | Ganderson, Joseph |
| Abstract: | This article charts surprising departures in how the two major British parties have cultivated and regulated financial services since the 1990s. During this time, Labour leaderships have consistently sought to accommodate the City, while the Conservatives have defied it at important junctures. This pattern of behaviour challenges the assumption in classical business power theory that Conservatives should be more attuned to finance's preferences than Labour. The article attributes this to the parties’ distinct understandings of the interplay between the sector's business power and their own statecraft, which derive from substantially varying political links with the City. Labour's repeated charm offensives are prompted by a sensitivity to disinvestment and perpetually weak political ties. The Conservatives’ approach is less sensitive to the sector's economic weight and is underwritten by enduring political ties. The article examines these differences over time and with special reference to two episodes: post-financial crisis banking reforms and Brexit. |
| Keywords: | City of London; banking and finance; party politics; Conservatives; Labour; business power; Wiley deal |
| JEL: | F3 G3 |
| Date: | 2022–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115129&r= |
| By: | Bert Van Roosebeke (International Association of Deposit Insurers); Ryan Defina (International Association of Deposit Insurers) |
| Abstract: | Using IADI Annual Survey data, we find some evidence that deposit insurers with particularly high deposit inflow during the pandemic tend to see their relative fund size decrease. As this refers to annual data, lags in premium collection are unlikely to explain this in full. At a quarterly level, and using weighted average relative fund sizes, we find that – globally – fund sizes have expanded throughout the pandemic, interrupted by a small decrease during 2021Q1 only. Given the overall growth of deposits during the pandemic, this is noteworthy. Over the 12-month period 2020Q2-2021Q2, we find an accumulated relative fund size increase of 2.6%. Europe and Asia witness high growth of about 10%, whereas the Americas see fund size decrease by 2%. Interpretation of quarterly data suggest that relative fund sizes in advanced economies have grown proportionately slower than in emerging economies. Whether this can be attributed to a larger and more sudden inflow in covered deposits in the economies (as annual data suggests) and/or to accommodative policies, remains to be investigated. Looking at future trends in deposits, 40% of survey respondents expect covered deposits to grow at approximately the same rate same as in the last five years. Of the 60% expecting an adjustment in growth into 2022, roughly half expected growth to exceed average historical levels. |
| Keywords: | deposit insurance, bank resolution |
| JEL: | G21 G33 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:awl:surbri:3&r= |
| By: | Avril Pauline; Levieuge Grégory; Turcu Camelia |
| Abstract: | We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the stringency of macroprudential regulation. The intensity of natural disasters is measured through an original set of geophysical indicators for a sample of 88 countries over the period 1996-2016. Using local projections, we show that, following storms, the EFP significantly rises (drops) when macroprudential regulation is lax (stringent). This suggests that regulated financial systems could foster favorable financing conditions to replace destroyed capital with more productive capital. Macroprudential stringency seems less crucial in the case of floods, which are more predictable and thus may prompt self-discipline. |
| Keywords: | Financial Stress, External Finance Premium, Macroprudential Policy, Natural Disasters, Local Projections |
| JEL: | E43 E5 Q54 C23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:874&r= |
| By: | Carlos Goncalves; Mauro Rodrigues, Fernando Genta |
| Abstract: | As first argued in Sargent and Wallace (1981), under certain conditions a tighter monetary policy today might give rise to higher expected inflation if the public perceives that the worsened debt dynamics could end up in debt monetization. This channel is arguably stronger in countries featuring high debt and interest rates, along with weaker economic institutions. Brazil is a large emerging economy that fits the profile. Yet, using a high-frequency identification strategy, we show that higher interest rates lead to unequivocally lower inflation expectations (and local currency appreciation) around Brazil’s Central Bank monetary policy meetings. |
| Keywords: | monetary policy; inflation expectations; Brazil |
| JEL: | E52 E31 E43 |
| Date: | 2022–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2022wpecon16&r= |
| By: | Petre Caraiani (Institute for Economic Forecasting, Romanian Academy, Romania); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Jacobus Nel (Department of Statistics, University of Florida, 230 Newell Drive, Gainesville, FL, 32601, USA); Joshua Nielsen (Boulder Investment Technologies, LLC, 1942 Broadway Suite 314C, Boulder, CO, 80302, USA) |
| Abstract: | We use the LPPLS Multi-Scale Confidence Indicator approach to detect both positive and negative bubbles at short-, medium- and long-run for the stock markets of the G7 countries. We were able to detect major crashes and rallies in the seven stock markets over the monthly period of 1973:02 to 2020:09. We also observed similar timing of strong (positive and negative) LPPLS indicator values across the G7 countries, suggesting synchronized extreme movements in these stock markets. Given this, to obtain an overall picture of the G7, we used a panel VAR model to analyze the impact of monetary policy shocks on the six indicators of bubbles. We found that monetary policy not only impact the bubble indicators, but also responds to them, with the nature of the underlying responses contingent on whether bubbles are positive or negative in nature, as well as the time-scale we are analyzing. In light of these findings, our results have serious implications for monetary authorities of these developed markets. But in general, we can conclude that central banks of the G7 can indeed ``lean against the wind", and they have also been doing so under both conventional and unconventional monetary policy periods. |
| Keywords: | Multi-Scale Bubbles, Panel VAR, Monetary Policy, G7 Countries |
| JEL: | C22 C32 E52 G15 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202230&r= |
| By: | Daniela Balutel; Christopher Henry; Kim Huynh; Marcel Voia |
| Abstract: | We estimate the effect of Bitcoin ownership on the level of cash holdings of Canadian consumers. Bitcoin ownership positively correlates with cash holdings even after accounting for selection into ownership via a control function approach. On average, Bitcoin owners hold 83 percent (in 2018) to 95 percent (in 2017) more cash than non-owners. Focusing on the quantiles of cash holdings, we find that Bitcoin ownership has a highly nonlinear effect. For example, the difference in cash holdings between Bitcoin owners and non-owners in 2017 varies from 63 percent at the 25th quantile of cash to 176 percent at the 95th quantile of cash. Our results provide some evidence to reject the hypothesis that new digital currencies or technologies, such as Bitcoin, will lead to a decline in cash holdings. |
| Keywords: | Bank notes; Digital currencies and fintech; Econometric and statistical methods |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-26&r= |
| By: | Léonore Raguideau-Hannotin (Université Paris Nanterre) |
| Abstract: | The motivation of this article is to better understand the determinants of international banking integration of non-Euro CESEE EU Members. One stylized fact for these economies is the building up of external financial vulnerabilities since the beginning of the Transition period, with a large weight of cross-border banking,particularly with the European Union. In relation with the literature on the impact of gross financial flows on financial stability, we therefore estimate the long-term historical, geographical and cultural determinants of cross-border banking claims with a bilateral financial gravity model. We then analyze the impact of domestic(pull), foreign (push) and global factors using the gravity framework. Our results first show that cross-border banking in these economies is significantly driven by geographical proximity and common historical links, particularly with EU Member States. Second, we find that banking sector health variables are more significant as push factors, while structural banking system variables are more significant as pull factors. These results provide evidence in favor of an impact of European banking systems on financial liabilities in this region, in relation with the very high level of EU ownership of banking assets. Finally, US global liquidity factor matters more than exchange rate stability, which points towards policy dilemma effect in the region. |
| Keywords: | Gravity model, cross-border banking, Central Eastern and South EasternEuropean countries, European Union, push factors |
| JEL: | F |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2022.05&r= |
| By: | Antoine Lepetit; Cristina Fuentes-Albero |
| Abstract: | We embed an extension of the canonical epidemiology model in a New Keynesian model and analyze the role of monetary policy as a virus spreads and triggers a sizable recession. In our framework, consumption is less sensitive to real interest changes in a pandemic than in normal times because individuals have to balance the benefits of taking advantage of intertemporal substitution opportunities with the risk of becoming sick. Accommodative monetary policies such as forward guidance result in large increases in inflation but have only limited effects on real economic activity as long as the risk of infection is large. The optimal design of monetary policy hinges on how other tools used to limit virus spread, such as lockdowns, are deployed. If the lockdown policy is conducted optimally, monetary policy should focus on keeping inflation on target. However, if the lockdown policy is not optimal, the central bank faces a trade-off between its objective of stabilizing inflation and the necessity to minimize the inefficiencies associated with virus spread. |
| Keywords: | COVID-19, SIR macro model, statedependent effects of monetary policy, forward guidance, monetary policy trade-offs, optimal monetary policy |
| JEL: | E5 E1 E11 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1018&r= |
| By: | Qiang Liu; Yingtao Luo; Shu Wu; Zhen Zhang; Xiangnan Yue; Hong Jin; Liang Wang |
| Abstract: | In financial credit scoring, loan applications may be approved or rejected. We can only observe default/non-default labels for approved samples but have no observations for rejected samples, which leads to missing-not-at-random selection bias. Machine learning models trained on such biased data are inevitably unreliable. In this work, we find that the default/non-default classification task and the rejection/approval classification task are highly correlated, according to both real-world data study and theoretical analysis. Consequently, the learning of default/non-default can benefit from rejection/approval. Accordingly, we for the first time propose to model the biased credit scoring data with Multi-Task Learning (MTL). Specifically, we propose a novel Reject-aware Multi-Task Network (RMT-Net), which learns the task weights that control the information sharing from the rejection/approval task to the default/non-default task by a gating network based on rejection probabilities. RMT-Net leverages the relation between the two tasks that the larger the rejection probability, the more the default/non-default task needs to learn from the rejection/approval task. Furthermore, we extend RMT-Net to RMT-Net++ for modeling scenarios with multiple rejection/approval strategies. Extensive experiments are conducted on several datasets, and strongly verifies the effectiveness of RMT-Net on both approved and rejected samples. In addition, RMT-Net++ further improves RMT-Net's performances. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.00568&r= |
| By: | Luba Petersen; Ryan Rholes |
| Abstract: | We design a new experimental framework to study policy interventions to combat secular stagnations and liquidity traps in an overlapping-generations environment where participants form expectations and make real economic decisions. We observe that participants can learn to coordinate on high inflation full-employment equilibria. Permanent deleveraging shocks induce pessimistic, backward-looking expectations and considerable consumption heterogeneity as the economies experience persistent deflation. We explore the ability of unconventional monetary policy to lead economies out of deflationary traps. Permanently increasing the central bank's inflation target is insufficient to generate inflationary expectations due to low central bank credibility. Negative interest rates stimulate spending and generate the necessary inflation for the economies to escape the zero lower bound. Negative interest rates are more potent than raising the inflation target at shifting consumption to the present. |
| JEL: | C92 E03 E52 E70 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30117&r= |
| By: | Georgios Magkonis (University of Portsmouth); Eun Young Oh (University of Portsmouth); Shuonan Zhang (University of Portsmouth) |
| Abstract: | We build and estimate a dynamic stochastic general equilibrium model with risky innovation and shadow credits to study the macroeconomic implications of shadow banking (SB), particularly on productivity. Our analysis is motivated by negative relationships between SB development and innovation outcome or total factor productivity (TFP) growth. In our model, information asymmetry associated with technology utilization leads to an agency problem in which shadow intermediation reduces banks’ incentives to screen project quality. An SB boom crowd-out traditional financial services, decreases inno- vation quality and technology efficiency, and thereby reduces TFP. In the light of model mechanisms, we analyse cross-country differences and deliver important implications of SB. SB development mainly driven by financial factors (e.g., the US case) leads to significant loss on TFP while that relatively prompted by real-sided factors (e.g., China and the EA cases), could be less harmful. |
| Keywords: | Shadow Banking; Total Factor Productivity; Endogenous Growth; Financial Development; Bayesian Methods |
| JEL: | C32 E32 O40 |
| Date: | 2022–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:pbs:ecofin:2022-06&r= |
| By: | Loretta J. Mester |
| Abstract: | I thank the ECB Forum on Central Banking for inviting me to participate on this panel. In my brief prepared remarks, I will discuss the role of inflation expectations from the practitioner’s perspective. The views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee (FOMC). |
| Keywords: | inflation |
| Date: | 2022–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:94404&r= |
| By: | OECD; European Commission |
| Abstract: | This policy brief on access to finance for inclusive and social entrepreneurship was produced by the OECD and the European Commission. It presents evidence on the access to finance challenges faced by entrepreneurs from under-represented and disadvantaged groups and social entrepreneurs, and discusses how public policy could harness the potential of fintech to address these challenges. This covers crowdfunding, blockchain and the application of big data to finance for inclusive and social entrepreneurship. The policy brief also discusses the growing need for governments to strengthen financial literacy among the target groups of inclusive and social entrepreneurship policy, including with respect to fintech. Different policy approaches are discussed, including embedding financial literacy training in financial intermediation. |
| Date: | 2022–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:cfeaaa:2022/06-en&r= |
| By: | Alessandro Ferrari; Anna Rogantini Picco |
| Abstract: | This paper empirically evaluates whether adopting a common currency has changed the level of consumption smoothing of euro area member states. We construct a counterfactual dataset of macroeconomic variables through the synthetic control method. We then use the output variance decomposition of Asdrubali, Sorensen and Yosha (1996) on both the actual and the synthetic data to study if there has been a change in risk sharing and through which channels. We find that the euro adoption has reduced risk sharing and consumption smoothing. We further show that this reduction is mainly driven by the periphery countries of the euro area who have experienced a decrease in risk sharing through private credit. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.07009&r= |
| By: | Ziqiao Ao; Gergely Horvath; Luyao Zhang |
| Abstract: | Decentralized finance (DeFi) has the potential to disrupt centralized finance by validating peer-to-peer transactions through tamper-proof smart contracts and thus significantly lower the transaction cost charged by financial intermediaries. However, the actual realization of peer-to-peer transactions and the levels and effect of decentralization are largely unknown. Our research pioneers a blockchain network study that applies social network analysis to measure the level, dynamics, and impacts of decentralization in DeFi token transactions on Ethereum blockchain. First, we find a significant core-periphery structure in the AAVE token transaction network where the cores include the two largest centralized crypto exchanges. Second, we provide evidence that multiple network features consistently characterize decentralization dynamics. Finally, we document that a more decentralized network significantly predicts a higher return and lower volatilities of the DeFi tokens. We point out that our approach is seminal for inspiring future extensions related to the facets of application scenarios, research questions, and methodologies on the mechanics of blockchain decentralization. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.08401&r= |
| By: | Mohammad, Wily; Maulidiyah, Nabilla Ryca (PT Chishiki NoHikari Indonesia) |
| Abstract: | Sharia Commercial Banks increased in number from 12 in 2015 to 14 banks in 2020, accompanied by an increase in the number of offices from 1,990 to 2,034 offices in 2020. This achievement must continue to be improved. Therefore, the soundness of Islamic banking must also continue to be improved. The purpose of this study is to practice using the RGEC method in showing the soundness of Islamic commercial banks, as well as to compare the soundness of Islamic commercial banks which are ranked fifth based on the calculation of the final composite value. The benefit of this research is that the public can determine which Islamic commercial bank is better in terms of banking health using the RGEC method. The data analysis method uses the RGEC (Risk Profile, Good Corporate Governance, Earning, and Capital) method by taking NPF, FDR, Self-Assessment GCG, ROA, ROE, NI, BOPO, and CAR data from Islamic commercial bank reports. The results of this study are: First, the soundness of Islamic commercial banks using the RGEC method produces different categories of soundness. In the final result, there are Islamic commercial banks that have PK-1 to PK-5 results. Second, the ranking of the top five of 14 Islamic commercial banks based on the calculation of the final RGEC composite value has different results every year. Based on the average Final Composite Value, the top five ranks respectively are the National Sharia Pension Savings Bank (93.708 Category PK-1 (Very Healthy)), Aceh Syariah Bank (score 89.71 Category PK-1 (Very Healthy)), BPD Nusa Tenggara Barat Syariah (score 87.99 Category PK-1 (Very Healthy)), Bank BNI Syariah (score 86.85 Category PK-1 (Very Healthy)), and Bank Syariah Mandiri (score 81.14 Category PK- 2 (Healthy)). |
| Date: | 2022–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:rcs7m&r= |
| By: | Xiang Fang; Bryan Hardy; Karen K. Lewis |
| Abstract: | This paper studies the impact of investor composition on the sovereign debt market and the implied funding costs to borrowers. We construct an aggregate data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over twenty years. We find that private non-bank investors absorb most of the increase in sovereign debt supply. We further find that foreign non-bank investor demand is most responsive to the yield for emerging market (EM) debt, while yield elasticity for all investors is much lower for advanced economy debt. We show that EM sovereigns are highly vulnerable to losing their foreign non-bank investors. |
| JEL: | F34 F41 G11 G15 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30087&r= |
| By: | Ana Aguilar; Carlos Cantú; Claudia Ramírez |
| Abstract: | We model the interaction between fiscal and monetary policy and qualify their effects in a semi-structural small open economy model calibrated for Mexico. In our model, fiscal and monetary policy follow rules tied to specific targets. We estimate how fiscal policy, through deficits and public debt accumulation, and monetary policy, through the interest rate, directly affect the economy. We study the nature of the feedback between policy decisions and examine their indirect effects through the sovereign risk channel. We find that the response of monetary policy to stabilise the economy after a shock depends on how strict is the fiscal rule. A loose fiscal stance pushes a tighter monetary policy stance. Instead, the economy recovers faster when monetary and fiscal policy complement each other. |
| Keywords: | monetary policy, fiscal policy, sovereign risk premium, policy rules |
| JEL: | E52 E58 H5 H63 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1012&r= |