nep-ban New Economics Papers
on Banking
Issue of 2022‒08‒08
27 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Unregulated Lending, Mortgage Regulations and Monetary Policy By Ugochi Emenogu; Brian Peterson
  2. Interlocking Directorates and Competition in Banking By Guglielmo Barone; Fabiano Schivardi; Enrico Sette
  3. Real Effects of Financial Market Integration: Evidence from an ECB Collateral Framework Change By Pia Hüttl; Matthias Kaldorf
  4. Making Sense of Negative Nominal Interest Rates By Cynthia Balloch; Yann Koby; Mauricio Ulate
  5. The impact of credit supply shocks in the euro area: market-based financing versus loans By Barauskaitė, Kristina; Nguyen, Anh D.M.; Rousová, Linda; Cappiello, Lorenzo
  6. A note on the use of syndicated loan data By Müller, Isabella; Noth, Felix; Tonzer, Lena
  7. Housing and credit misalignments in a two-market disequilibrium framework By Karmelavičius, Jaunius; Mikaliūnaitė-Jouvanceau, Ieva; Petrokaitė, Austėja Petrokaitė
  8. Scrambling for Dollars: International Liquidity, Banks and Exchange Rates By Javier Bianchi; Saki Bigio; Charles Engel
  9. Japan's Low Inflation Conundrum By Thomas Mayer; Gunther Schnabl
  10. Financial access of midstream agricultural firms in Africa: Evidence from the LSMS-ISA and World Bank enterprise surveys By Ambler, Kate; de Brauw, Alan; Herskowitz, Sylvan; Pulido, Cristhian
  11. COVID-19 and Deposit Insurer Fund Sizes By Bert, Van Roosebeke; Ryan, Defina
  12. The causal effects of the darker side of financial development By Rachel Cho; Rodolphe Desbordes; Markus Eberhardt
  13. Chinese-backed FinTech Lending Boom: How did Indonesia Respond? By Angela Tritto; Yujia He; Victoria Amanda Junaedi
  14. Shaky foundations Central bank independence in the 21st century By Laurence Scialom; Gaëtan Le Quang; Jérôme Deyris
  15. Communication, monetary policy, and financial markets in Mexico By Ana Aguilar; Fernando Pérez-Cervantes
  16. Uvođenje kompozitnog indikatora cikličkog sistemskog rizika u Hrvatskoj: mogućnosti i ograničenja By Tihana Škrinjarić
  17. Monetary policy press releases: an international comparison By Mario Gonzalez and Raul Cruz Tadle; Raul Cruz Tadle
  18. Navigating the well-being eects of monetary policy: Evidence from the European Central Bank By Mehdi EL HERRADI; Aurélien LEROY
  19. Déterminants des ménages et accès au crédit dans les tontines au Cameroun By Atangana Ondoa, Henri; Tomo, Christian Parfait
  20. Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media By Macaulay, Alistair; Song, Wenting
  21. Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies By Rishabh Aggarwal; Adrien Auclert; Matthew Rognlie; Ludwig Straub
  22. Monetary policy announcements and expectations: the case of Mexico By Ana Aguilar; Carlo Alcaraz Pribaz; Victoria Nuguer; Jessica Roldán-Peña
  23. Quantum Monte Carlo for Economics: Stress Testing and Macroeconomic Deep Learning By Vladimir Skavysh; Sofia Priazhkina; Diego Guala; Thomas Bromley
  24. The effects of Federal Reserve’s quantitative easing and balance sheet normalization policies on long-term interest rates By Sophocles N. Brissimis; Evangelia A. Georgiou
  25. "Monitoring daily unemployment at risk". By Helena Chuliá; Ignacio Garrón; Jorge M. Uribe
  26. Debt Dynamic, Debt Dispersion and Corporate Governance By Tut, Daniel
  27. Estimating the Currency Composition of Foreign Exchange Reserves By Matthew Ferranti

  1. By: Ugochi Emenogu; Brian Peterson
    Abstract: Macroprudential policies are often aimed at the traditional banking sector while non-depository financial institutions or shadow banks have limited or no prudential regulations. This paper studies the macroeconomic impact of household-side macroprudential tightening in the presence of unregulated lenders. Our result shows that the presence of unregulated lenders dampens the impact of the policies on house prices and household debt. We also find that leakage to the unregulated sector increases when monetary policy is tightened.
    Keywords: Financial institutions; Financial system regulation and policies; Monetary policy transmission
    Date: 2022–06
  2. By: Guglielmo Barone; Fabiano Schivardi; Enrico Sette
    Abstract: We study the effects on corporate loan rates of an unexpected change in the Italian legislation which forbade interlocking directorates between banks. Exploiting multiple firm-bank relationships to fully account for all unobserved heterogeneity, we find that prohibiting interlocks decreased the interest rates of previously interlocked banks by 16 basis points relative to other banks. The effect is stronger for high quality firms and for loans extended by interlocked banks with a large joint market share. Interest rates on loans from previously interlocked banks become more dispersed. Finally, firms borrowing more from previously interlocked banks expand investment, employment and sales.
    JEL: G21 G34
    Date: 2022–07
  3. By: Pia Hüttl (Humboldt University Berlin, DIW Berlin); Matthias Kaldorf (University of Cologne)
    Abstract: This paper studies the effects of harmonizing collateral policy in a monetary union. In 2007, the European Central Bank replaced national collateral lists with a single list specifying which assets euro area banks can pledge as collateral. Banks holding newly eligible assets experience a reduction in their cost of funding and increase loan supply compared to banks without such assets. The effect is driven by core banks increasing credit supply to riskier and less productive firms located in periphery countries. These firms in turn experience growth in employment and investment. Our results suggest that a harmonized collateral framework facilitates cross-border lending to borrowing-constrained firms and, thereby, increases financial market integration in a monetary union.
    Keywords: E44, E52, E58, G20, G21
    Date: 2022–06
  4. By: Cynthia Balloch; Yann Koby; Mauricio Ulate
    Abstract: Several advanced economies implemented negative nominal interest rates in the middle of the last decade, seeking to provide further monetary accommodation once cuts in positive territory had been exhausted. Negative rates affect banks in novel ways, mostly because during times of negative policy rates the interest rate that banks pay households on their deposits usually remains close to zero. In this review, we analyze the large literature that studies the impact of negative nominal interest rates, proceeding in four steps. First, we explain the theoretical channels through which negative rates affect banks. Second, we discuss the empirical findings about bank outcomes under negative rates. Third, we describe the aggregate transmission channels that influence the macroeconomic implications of a policy rate cut in negative territory. Finally, we compare the general-equilibrium models that have been used to quantify the effectiveness of negative rates and highlight why they have obtained mixed results. We conclude that, if properly implemented, negative rates are a valuable tool that central banks should not discard outright. However, negative rates can have quantifiable costs for the financial sector, and their effectiveness is likely to decline if implemented for long periods.
    Keywords: negative nominal interest rates; Negative Interest Rates; ZLB; ELB; Monetary Policy; Bank Profitability; Central Banking
    JEL: E32 E44 E52 E58 G21
    Date: 2022–06–23
  5. By: Barauskaitė, Kristina; Nguyen, Anh D.M.; Rousová, Linda; Cappiello, Lorenzo
    Abstract: Using a novel quarterly dataset on debt financing of non-financial corporations, this paper provides the first empirical evaluation of the relative importance of loan and market-based finance (MBF) supply shocks on business cycles in the euro area as a whole and in its five largest countries. In a Bayesian VAR framework, the two credit supply shocks are identified via sign and inequality restrictions. The results suggest that both loan supply and MBF supply play an important role for business cycles. For the euro area, the explanatory power of the two credit supply shocks for GDP growth variations is comparable. However, there is heterogeneity across countries. In particular, in Germany and France, the explanatory power of MBF supply shocks exceeds that of loan supply shocks. Since MBF is mostly provided by non-bank financial intermediaries, the findings suggest that strengthening their resilience — such as through an enhanced macroprudential framework — would support GDP growth. JEL Classification: C32, E32, E44, E51, G2
    Keywords: business cycles, credit supply, debt securities, loan, non-bank financial intermediation, VAR
    Date: 2022–06
  6. By: Müller, Isabella; Noth, Felix; Tonzer, Lena
    Abstract: Syndicated loan data provided by DealScan has become an essential input in banking research over recent years. This data is rich enough to answer urging questions on bank lending, e.g., in the presence of financial shocks or climate change. However, many data options raise the question of how to choose the estimation sample. We employ a standard regression framework analyzing bank lending during the financial crisis to study how conventional but varying usages of DealScan affect the estimates. The key finding is that the direction of coefficients remains relatively robust. However, statistical significance seems to depend on the data and sampling choice.
    Keywords: DealScan,meta-analysis,scrutiny,syndicated lending
    JEL: C50 G15 G21
    Date: 2022
  7. By: Karmelavičius, Jaunius; Mikaliūnaitė-Jouvanceau, Ieva; Petrokaitė, Austėja Petrokaitė
    Abstract: During the COVID-19 pandemic, house prices and mortgage credit rose at a long unseen pace. It is unclear, however, whether such increases are warranted by the underlying market and macroeconomic fundamentals. This paper offers a new structural two-market disequilibrium model that can be estimated using full-information methods and applied to analyse housing and credit dynamics. Dealing with econometric specification uncertainty, we estimate a large ensemble o f t he two-market disequilibrium model specifications f or Lithuanian monthly data. U sing the model estimates, we identify the historical drivers of Lithuania’s housing and credit demand and supply, as well as price and market quantity variables. The paper provides a novel approach in the financial stability literature to jointly measure house price overvaluation and mortgage credit flow g aps. We find that, by mid-2021, Lithuania was experiencing a heating-up in housing and mortgage credit markets, with home prices overvalued by around 16% and the volume of mortgage credit flow being 20% above its fundamentals. JEL Classification: C34, D50, E44, E51, G21
    Keywords: disequilibrium, early warning indicators., fundamentals, house prices, misalignments, mortgage credit
    Date: 2022–07
  8. By: Javier Bianchi (Federal Reserve Bank of Minneapolis); Saki Bigio (Department of Economics, University of California, Los Angeles and NBER); Charles Engel (Department of Economics, University of Wisconsin, Madison, NBER and CEPR)
    Abstract: We develop a theory of exchange rate fluctuations arising from financial institutions’ demand for dollar liquid assets. Financial flows are unpredictable and may leave banks “scrambling for dollars.” Because of settlement frictions in interbank markets, a precautionary demand for dollar reserves emerges and gives rise to an endogenous convenience yield on the dollar. We show that an increase in the dollar funding risk leads to a rise in the convenience yield and an appreciation of the dollar, as banks scramble for dollars. We present empirical evidence on the relationship between exchange rate fluctuations for the G10 currencies and the quantity of dollar liquidity, which is consistent with the theory.
    Keywords: Exchange rates, liquidity premia, monetary policy
    Date: 2022–07
  9. By: Thomas Mayer; Gunther Schnabl
    Abstract: The paper analyses the reasons for Japan’s persistently low inflation since the bursting of the Japanese bubble economy (low inflation conundrum). It is shown that Japan experienced a structural break from a high-growth period with relatively high inflation to a low-growth period with exceptionally low inflation since the early 1990s. We show based on a stylized accounting model, how funds are created in a country open to international capital flows by domestic savings, credit creation of banks and net capital inflows, being absorbed either by rising asset prices, newly issued bonds or more money being held. Government expenditure financed by government bond purchases of commercial banks is shown to be an important channel of money creation in Japan’s post-bubble period. With the price level being assumed to be dependent on both goods with free market prices and goods with prices controlled by the government we show that inflation in Japan has been kept low by mainly three factors directly or indirectly influenced by the Bank of Japan: increased money holding of households and corporations, central bank-backed debt-financed price controls and net capital outflows.
    Keywords: Japan, inflation, monetary policy, money supply, fiscal policy, asset prices inflation, balance of payments, price controls, subsidies
    JEL: E31 E51 E58
    Date: 2022
  10. By: Ambler, Kate; de Brauw, Alan; Herskowitz, Sylvan; Pulido, Cristhian
    Abstract: The midstream of agricultural value chains are rapidly changing in response to shifting domestic and international demand. While the performance of this segment may have important implications for the entire sector, evidence on midstream actors and their financial needs remain thin. We use data from both the Living Standards Measurement Study – Integrated Surveys on Agriculture and the World Bank Enterprise Survey from seven African countries to identify these agricultural midstream firms and assess their access to formal credit, comparing them to other, non-agricultural midstream firms. We find that the identified agricultural midstream firms are larger and more productive than their non-agricultural midstream counterparts and are less likely to report barriers to accessing credit, though overall access levels remain low. Among agricultural midstream firms, those owned or managed by women are more likely to report barriers to accessing credit. Taken together, these findings help build our understanding about the financial needs of micro-, small-, and medium-size enterprises in the agricultural midstream.
    Keywords: AFRICA; AFRICA SOUTH OF SAHARA; CENTRAL AFRICA; EAST AFRICA; NORTH AFRICA; SOUTHERN AFRICA; WEST AFRICA; financial institutions; agro-industry; World Bank; surveys; value chains; demand; credit; enterprises; small and medium enterprises; finance
    Date: 2022
  11. By: Bert, Van Roosebeke; Ryan, Defina
    Abstract: Using IADI Annual Survey data, we find some evidence that deposit insurers in jurisdictions with particularly high deposit inflow during the pandemic tend to see their relative fund size decrease i.e. their absolute fund size grew at a slower pace than deposits. As this refers to annual data, lags in premium collection are unlikely to explain this in full and accommodative premium policies may contribute to this observation. At a quarterly level, and using weighted average relative fund sizes, we find that – globally – fund sizes relative to covered deposits 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 suggests 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 these 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; COVID-19
    JEL: G21 G33
    Date: 2022–06
  12. By: Rachel Cho; Rodolphe Desbordes; Markus Eberhardt
    Abstract: We study the causal implications of financial deepening for economic development and financial crises, adopting a heterogeneous difference-in-difference framework. Using cross-country data for the past six decades we demonstrate that very high levels of finance, proxied by credit/GDP, are neither associated with lower long-run growth nor with higher short-run propensity of banking crises due to ‘credit booms gone bust’ cycles or unfettered capital inflows. When we investigate ‘too much finance’ at intermediate levels of credit/GDP we find increased crisis propensity due to capital inflows and commodity price movements, but, again, no detrimental long-run growth effects for these (emerging) economies.
    Keywords: financial development, economic growth, financial crises, difference-in-difference, interactive fixed effects, heterogeneous treatment effects
    Date: 2022
  13. By: Angela Tritto (Adjunct Assistant Professor at the Division of Public Policy; Institute for Emerging Market Studies, Division of Social Science, Hong Kong University of Science and Technology); Yujia He (Assistant Professor; Patterson School of Diplomacy and International Commerce, University of Kentucky); Victoria Amanda Junaedi (Research Assistant; Institute for Emerging Market Studies, Hong Kong University of Science and Technology)
    Abstract: Peer-to-peer (P2P) online lending has the potential to boost innovation and financial inclusion in emerging markets, yet it can also incur investment and borrower-related risks, such as privacy breaches. Driven by regulation control in China, Chinese investments flocked to Indonesia, causing a rapid expansion of online lending platforms. Similar to what happened in China prior to the regulatory crackdown, the P2P lending boom in Indonesia saw a rise in unethical and illegal business practices. The government responded by creating new regulations and institutions to mitigate risks without stifling the potential for financial inclusion. A proactive approach towards monitoring and regulating emerging high-tech industries should be sought by strengthening links with industry and civil society, and through international cooperation for policy and knowledge sharing.
    Date: 2022–07
  14. By: Laurence Scialom; Gaëtan Le Quang; Jérôme Deyris
    Abstract: Central bank independence (CBI) has often been presented as a superior institutional arrangement demonstrated by economists in the 1980s for achieving a common good in a non-partisan manner. In this article, we argue that this view must be challenged. First, research in the history of economic facts and thought shows that the idea of CBI is not new, and was adopted under peculiar socio-historical conditions, in response to particular interests. Rather than an indisputable progress in economic science, CBI is the foundation for a particular configuration of the monetary regime, perishable like its predecessors. Secondly, we argue that the simplistic case imagined by the CBI theory (the setting of a single interest rate disconnected from political pressures) is long overdue. For nearly two decades, central banks have been increasing their footprint on the economy, embarking on large asset purchase programs and adopting macroprudential policies. This pro-activism forces independent central banks to constantly address new distributional - and therefore political - issues, leading to a growing number of criticisms of their actions with regard to inequality or climate change. This growing gap between theory and practices makes plausible a further shift of the institutional arrangement towards a democratization of monetary policy.
    Keywords: central bank independence, monetary policy, macroprudential policy
    JEL: E58 G28 N20
    Date: 2022
  15. By: Ana Aguilar; Fernando Pérez-Cervantes
    Abstract: We determine if the communication of private banks to their clients with financial interests in Mexico changes or not after Mexico's Central Bank communicates its monetary policy decision (MPD) and also two weeks later, with the publication of the minutes of Mexico's Central Bank monetary policy decision (MMPD) between 2011 and 2019. We use unsupervised Natural Language Processing (NLP) techniques to turn the text that private banks send to their clients about the Mexican economy into vectors of topics. We find that every time, private banks cover a large diversity of topics and words before the MMPD with no evident consensus of topics, and that almost always the quantities of terms and topics are reduced and repeated by almost every bank after the MMPD indicating some surprise (notable exception: the liftoff in December 2015), and that the topics vary depending on the date of the MMPD. The fact that private banks discuss the same topics and write to their clients with sentences that contain the exact same words indicates that the private banks react to the MMPD, independent of their opinion about the Central Bank's statements. We also found weak evidence that a measure of the size of the changes in the private bank's communication with their clients is positively correlated to changes in the long-term yields but negatively correlated to the size of exchange rate movements.
    Keywords: natural language processing, unsupervised sentence embedding, central bank communication, Mexico
    JEL: C6 E5 E6
    Date: 2022–06
  16. By: Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska)
    Abstract: Makroprudencijalna politika ima važan zadatak pratiti akumulaciju cikličkih sistemskih rizika pomoću širokog raspona indikatora. Odluke o upotrebi instrumenata kojima se nastoji ublažiti procikličnost sustava trebaju se donositi temeljeni na ispravno definiranim i stabilnim indikatorima koji na vrijeme signaliziraju buduća kretanja samog ciklusa. Europski odbor za sistemske rizike u svojoj Preporuci razmatra nekoliko važnih kategorija indikatora praćenja cikličkih rizika, a kako je kreditni jaz kao glavni indikator cikličkih rizika tijekom godina pokazao brojne nedostatke u praksi, u literaturi se razvijaju kompozitni indikatori koji obuhvaćaju širi skup informacija o kretanju cikličkih rizika u ekonomiji. Kako u dosadašnjoj praksi u Hrvatskoj nije postojao takav kompozitni indikator, u ovome istraživanju se razmatra nekoliko popularnih pristupa konstrukcije kompozitnih indikatora cikličkih rizika upravo za slučaj Hrvatske. Kako se radi o nekoliko različitih pristupa koji su trenutno dostupni, ovo istraživanje razmatra njihove karakteristike, prednosti i nedostatke, s posebnim osvrtom na hrvatske podatke. Usporedbom kompozitnog indikatora financijskog ciklusa, ciklograma, indikatora sistemskog cikličkog rizika, kao i dodatnim mogućnostima agregacije podataka u pogledu analize glavnih komponenti i indeksa pregrijavanja, rezultati upućuju da je problematika definiranja adekvatnog indikatora za slučaj Hrvatske zahtjevan zadatak. Razlozi se nalaze u kratkim vremenskim serijama, gdje izostaju karakteristike različitih tipova kriza koje su zahvatile druge zemlje, nestabilnosti pojedinih varijabli relevantnih za praćenje cikličkih rizika, kao i tumačenju rezultata za komunikaciju s javnosti. Na kraju se temeljem diskusije i odabira trenutno najboljeg indikatora razmatraju mogućnosti kalibracije protucikličkog zaštitnog sloja kapitala s obzirom na dobivene rezultate. Doprinos istraživanja se sastoji u sažimanju pregleda različitih pristupa na jednome mjestu, s posebnim fokusom na usporedbu, što se prethodno ne nalazi u literaturi, u prijedlozima unapređenja pojedinih indikatora, i dodatno, što se detaljno analizira mogućnost kalibracije protucikličkog zaštitnog sloja kapitala, što također nedostaje u primjenama.
    Keywords: sistemski rizik, makrobonitetna politika, protuciklički zaštitni sloj kapitala, kompozitni indikatori, ciklički rizici.
    JEL: C14 C32 E32
    Date: 2022–07–08
  17. By: Mario Gonzalez and Raul Cruz Tadle; Raul Cruz Tadle
    Abstract: Around the world, several countries have adopted inflation targeting as their monetary policy framework. These institutions set their target interest rates in monetary policy meetings. These decisions are then circulated through press releases that explain the policy rationale. The information contained in the press releases includes current policies, economic outlook, and signals about likely future policies. In this paper, using linguistic methods, such as Latent Dirichlet Allocation (LDA) and semi-automated content analysis, we examine the information contained in the monetary press releases of inflation targeting countries. In addition, we build a custom dictionary for analyzing monetary policy press releases. Using Semi-automated Content Analysis, we then develop a measure, which we refer to as the Sentiment Score index, that quantifies the policy tilt implied in the information provided in the press releases. We find that for a significant majority of the in flation targeting countries, the index provides additional information that helps predict monetary policy rate movements.
    Keywords: central bank, financial market, monetary policy, communication
    JEL: E44 E52 E58
    Date: 2022–06
  18. By: Mehdi EL HERRADI; Aurélien LEROY
    Abstract: This paper assesses whether monetary policy announcements have an impact on households’ (subjective) well-being by analysing life satisfaction on the days before and after monetary surprises in Germany. To do so, we use individual-level information on life satisfaction from the German Socio-Economic Panel (SOEP) survey and identify the day on which each answer is submitted to the survey. We also exploit the Euro Area Monetary Policy event study Database (EA-MPD) to obtain daily-level information on European Central Bank (ECB) monetary surprises. Our results show that life satisfaction is significantly affected by monetary policy surprises: tightening surprises decrease life satisfaction, while easing surprises increase it.
    Keywords: Monetary policy, Subjective Well-Being, Survey data, European Central Bank
    JEL: E52 E58 I31
    Date: 2022
  19. By: Atangana Ondoa, Henri; Tomo, Christian Parfait
    Abstract: The objective of this paper is to identify the determinants of household access to credit from tontines in Cameroon. We use a univariate probit model on a sample of households from the fourth Cameroonian household survey (ECAM IV) collected by the National Institute of Statistics in 2014. Thus, the results show that heads of households who seek credit from Tontines are slightly older women in reference to men. These women have a large household size. However, the fact that the latter apply for consumer credit in reference to credit intended for production or even investment reduces the chances of obtaining credit within the tontines.
    Keywords: Households, Tontines, Access to the credit, Univariate probit, Cameroon.
    JEL: D1 D81 E2 O17
    Date: 2022–06–30
  20. By: Macaulay, Alistair; Song, Wenting
    Abstract: This paper studies the role of narratives for macroeconomic fluctuations. Microfounding narratives as directed acyclic graphs, we show how exposure to different narratives can affect expectations in an otherwise-standard macroeconomic framework. We identify such competing narratives in news media reports on the US yield curve inversion in 2019, using techniques in natural language processing. Linking this to data from Twitter, we show that exposure to the narrative of an imminent recession causes consumers to display a more pessimistic sentiment, while exposure to a more neutral narrative implies no such change in sentiment. Applying the same technique to media narratives on inflation, we estimate that a shift to a viral narrative of inflation damaging the real economy in 2021 accounts for 42% of the fall in consumer sentiment in the second half of the year.
    Keywords: conomic narratives, sentiment, yield curve, inflation, natural language processing, twitter, social media
    JEL: C8 D8 D84 D91 E3 E31 E32 E4 E43 E44 E5 G1
    Date: 2022–06–29
  21. By: Rishabh Aggarwal; Adrien Auclert; Matthew Rognlie; Ludwig Straub
    Abstract: We study the effects of debt-financed fiscal transfers in a general equilibrium, heterogeneous-agent model of the world economy. In the long run, increases in government debt anywhere raise the world interest rate and increase private wealth everywhere. In the short run, a country with a larger-than-average fiscal deficit experiences both a large increase in private savings (“excess savings”) and a small but persistent current account deficit (a slow-motion “twin deficit”). These patterns are consistent with the evolution of the world’s balance of payments since the beginning of the Covid pandemic.
    JEL: E21 E62 F32 F41
    Date: 2022–06
  22. By: Ana Aguilar; Carlo Alcaraz Pribaz; Victoria Nuguer; Jessica Roldán-Peña
    Abstract: In this paper we study the effects of Mexico's Central Bank monetary policy decisions on the expectations about inflation and monetary policy rate expectations of private forecasters. We estimate a fixed effect model at analyst level using a panel of professional forecasters from 2010 to 2017. We study the differences in expectations before and after a monetary policy announcement and we compare them when there are no announcements. We find that professional forecasters "listen" to the central bank, i.e. the changes in their short-run expectations are different when there are monetary policy announcements. Also, we find that analysts' surprises in realized inflation affect short-term inflation expectations but do not affect long-term inflation expectations suggesting anchored inflation expectations. Aditionally, monetary policy surprises have an impact on end-of-the-year inflation expectations and reference rate expectations.
    Keywords: central bank communication, survey microdata, monetary policy interest rate expectations
    JEL: E43 E59 D84 C83
    Date: 2022–06
  23. By: Vladimir Skavysh; Sofia Priazhkina; Diego Guala; Thomas Bromley
    Abstract: Computational methods both open the frontiers of economic analysis and serve as a bottleneck in what can be achieved. Using the quantum Monte Carlo (QMC) algorithm, we are the first to study whether quantum computing can improve the run time of economic applications and challenges in doing so. We identify a large class of economic problems suitable for improvements. Then, we illustrate how to formulate and encode on quantum circuit two applications: (a) a bank stress testing model with credit shocks and fire sales and (b) a dynamic stochastic general equilibrium (DSGE) model solved with deep learning, and further demonstrate potential efficiency gain. We also present a few innovations in the QMC algorithm itself and in how to benchmark it to classical MC.
    Keywords: Business fluctuations and cycles; Central bank research; Econometric and statistical methods; Economic models; Financial stability
    Date: 2022–06
  24. By: Sophocles N. Brissimis (University of Piraeus and Bank of Greece); Evangelia A. Georgiou (Bank of Greece and University of Piraeus)
    Abstract: This paper develops a macro-finance term structure model based on the expectations hypothesis extended to include a time-varying term premium. The model establishes inter alia the link between quantitative easing and the term premium, allowing us to measure the total impact on the bond yield of all phases of the Fed’s unconventional monetary policy implementation, including balance sheet expansion and normalization. Furthermore, by focusing on the long-run behavior of the model, an estimate of the equilibrium real interest rate is derived capturing longer-run macroeconomic trends, including the Fed’s, pre-financial crisis, balance-sheet trend.
    Keywords: Quantitative easing; balance sheet normalization; term structure; time-varying term premium;equilibrium real interest rate
    JEL: E43 E44 E52 E58
    Date: 2022–06
  25. By: Helena Chuliá (Riskcenter- IREA and Department of Econometrics and Statistics, University of Barcelona.); Ignacio Garrón (Department of Econometrics and Statistics, University of Barcelona.); Jorge M. Uribe (Faculty of Economics and Business Studies, Open University of Catalonia.)
    Abstract: Using a high-frequency framework, we show that the Auroba-Diebold-Scotti (ADS) daily business conditions index significantly increases the accuracy of U.S. unemployment nowcasts in real-time. This is of particular relevance in times of recession, such as the Global Financial Crisis and the Covid-19 pandemic, when the unemployment rate is prone to rise steeply. Based on our results, the ADS index presents itself as a better predictor than the financial indicators widely used by the literature and central banks, including both interest and credit spreads and the VXO.
    Keywords: Quantile regressions, Mixed-data sampling, Nowcast, Unemployment rate. JEL classification: C54,E23,E24, E27,E32.
    Date: 2022–07
  26. By: Tut, Daniel
    Abstract: Why do some firms borrow from multiple creditors and employ multiple debt types? This paper shows that entrenched managers exploit coordination failure and free-riding problem amongst multiple creditors. [1] We find that managerial entrenchment is inversely related to debt specialization and creditors concentration. [2] We find that firms under entrenched management have a higher proclivity to employ multiple debt types and have a dispersed debt structure. Firms that are well-managed have a tendency to concentrate debt and borrow predominantly from a few creditors. [3] We also show that while bank debt is negatively related to debt specialization, market debt is positively related to debt specialization. Overall, our findings suggest that creditors can discipline managers through debt specialization.
    Keywords: Ownership structure, corporate governance, debt specialization, banks, debt structure, debt types
    JEL: G00 G2 G31 G32 G33 G34 G35
    Date: 2022–06–18
  27. By: Matthew Ferranti
    Abstract: Central banks manage over \$12 trillion in foreign exchange reserves, influencing global exchange rates and asset prices. However, some of the largest holders of reserves report minimal information about their currency composition, hindering empirical analysis. I develop a Hidden Markov Model to estimate the composition of a central bank's reserves by relating the fluctuation in the portfolio's valuation to the exchange rates of major reserve currencies. I apply the model to China and Singapore, two countries that collectively hold over \$3.5 trillion in reserves and conceal their composition. The results underscore the U.S. dollar's predominance in foreign exchange reserves.
    Date: 2022–06

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