nep-ban New Economics Papers
on Banking
Issue of 2022‒09‒19
28 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California By Todd Messer
  2. Are Public Sector Banks in India a Government Failure? -A Comparative Empirical Analysis of Public Sector and Private Sector Banks in India. By Sahil Chopra
  3. The Leading Role of Bank Supply Shocks By Bonilla-Mejía, Leonardo; Ruiz-Sánchez, María Alejandra; Villamizar-Villegas, Mauricio
  4. How Inflation Impacts Deposit Insurance: Real Coverage and Coverage Ratio By Bert Van Roosebeke; Ryan Defina
  5. Macrofinancial determinants of default probability using copula: A case study of Indonesian banks By Maulana Harris Muhajir
  6. Cash, COVID-19 and the Prospects for a Canadian Digital Dollar By Walter Engert; Kim Huynh
  7. Bank development and unemployment in Kenya: An empirical investigation By Nyasha, Sheilla; Odhiambo, Nicholas M; Musakwa, Mercy T
  8. COVID and Financial Stability: Practice Ahead of Theory By Jing Yang; Hélène Desgagnés; Grzegorz Halaj; Yaz Terajima
  9. The cost of complying with Basel III liquidity regulations for South African banks By Howard Diesel; Mukelani Nkuna; Tim Olds; Daan Steenkamp
  10. Occasional Bulletin Economic Notes 2201 Policy lessons from global retail Central Bank Digital Currency projects June 2022 By Nic Spearman
  11. The effects of Monetary Policy on Capital Flows A Meta-Analysis By Villamizar-Villegas, Mauricio; Arango-Lozano, Lucía; Castelblanco, Geraldine; Fajardo-Baquero, Nicolás; Ruiz-Sánchez, María Alejandra
  12. Policy Rules and Large Crises in Emerging Markets By Emilio Espino; Julian Kozlowski; Fernando M. Martin; Juan M. Sanchez
  13. Life after Default: Credit Hardship and its Effects By Giacomo De Giorgi; Costanza Naguib
  14. Liquidity and credit problems and the effect on the soundness of Tunisian groups (GDA ) By Neily, Oussama; Neily, Mohamed
  15. Unravelling the Narratives Behind Macroeconomic Forecasts By Marcela De Castro-Valderrama; Santiago Forero-Alvarado; Nicolas Moreno-Arias; Sara Naranjo-Saldarriaga
  16. BoC–BoE Sovereign Default Database: What’s new in 2022? By David Beers; Elliot Jones; Karim McDaniels; Zacharie Quiviger
  17. The Phillips Curve and Cost Pass-Through in Japan: Summary of the Second Workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic" By Research and Statistics Department
  18. Counter-cyclical fiscal rules and the zero lower bound By Hauptmeier, Sebastian; Kamps, Christophe; Radke, Lucas
  19. A Mixed Duopoly in Interbank Payment Services By Carlos A. Arango-Arango; Yanneth Rocio Betancourt-Garcia
  20. Patent collateral and access to debt By Bracht, Felix; Czarnitzki, Dirk
  21. Vine Copula based portfolio level conditional risk measure forecasting By Emanuel Sommer; Karoline Bax; Claudia Czado
  22. Individual Trend Inflation By Toshitaka Sekine; Frank Packer; Shunichi Yoneyama
  23. A war in a pandemic-The recent spike in economic uncertainty and the hedging abilities of Bitcoin By Refk Selmi
  24. Uncertainty, Shock Prices and Debt Structure: Evidence from the U.S.-China Trade War By Ali K. Ozdagli; Jianlin Wang
  25. DSGE Models and Machine Learning: An Application to Monetary Policy in the Euro Area By Daniel Stempel; Johannes Zahner
  26. Peculiaridades de la Economia islandesa en los albores del siglo XXI By I. Martin-de-Santos
  27. Modernizing and Reshaping the Bretton Woods Institutions for the 21st Century By Ajay Chhibber
  28. House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data By Gorea, Denis; Kryvtsov, Oleksiy; Kudlyak, Marianna

  1. By: Todd Messer
    Abstract: Flightiness, or depositor sensitivity to liquidity needs, can be an important determinant of financial distress. I leverage institutional differences that attract depositors with varying flightiness across building and loan associations in California during the Great Depression. A new type of plan, the Dayton plan, involved less restrictive savings plans and lower withdrawal penalties. Dayton plans in California were more likely to close during the Great Depression. Archival evidence on lending rates and returns supports the flightiness mechanism.
    Keywords: Bank Failures; Banks, credit unions, and other financial institutions; Building and Loan; Great Depression
    JEL: N22 G23 G21
    Date: 2022–08–08
  2. By: Sahil Chopra
    Abstract: To extend banking services to the Indian rural sector, an act was passed in 1976 and then in 1980 to nationalize the banks. Giving the name to such an approach as social banking. Banking sector in India, therefore, has been bifurcated into public sector banks, private sector banks, foreign banks, regional rural banks, urban cooperative banks and rural cooperative banks. Many studies have assessed the performance of private and public sector banks. Such research has evaluated the performance of private and public sector banks by estimating bank-specific and macroeconomic parameters. However, not many quantitative literatures are available which have estimated the impact of ownership on bank performance by considering ownership as one of the bank-specific independent variables to evaluate the impact of ownership on bank profitability. This paper seeks to fill this gap by examining the determinants of profitability on the account of ownership, and it uses an independently constructed dataset containing all commercial public and private sector banks in India as on April 2020. The data ranges from 2004 to 2020. The justification to measure the impact of ownership comes from the theory of Government failure, which mainly points out how government intervention can result in costly solutions. Therefore, by adding the independent variable in an already established model, we can assess the impact of ownership. Banks’ characteristics are collected from respective banks’ websites, and the hypotheses are tested by estimating an econometric model, i.e. a pooled OLS model. The results are promising: the banking industry as a whole is not performing well, however government owned banks are showcasing the worst performances. The reason for this can be the huge amount of loans sanctioned in priority sectors and fraudulent cases which may be due to the presence of interest groups, corruption and inefficiency of employees in public sectors.
    Keywords: Government Failure, Empirical Analysis, Public Sector Banks, Panel Data, Pooled OLS model
    JEL: C30 H83 I38
    Date: 2022–07
  3. By: Bonilla-Mejía, Leonardo; Ruiz-Sánchez, María Alejandra; Villamizar-Villegas, Mauricio
    Abstract: This paper studies the impact of the Covid-19 pandemic on corporate credit in Colombia. We first exploit the geographic and temporal variation in the disease spread to estimate the effect of local exposure to the virus on credit. Our estimates indicate that neither local exposure to the virus, nor the sector-specific mobility restrictions had an impact on credit. We then assess the role of bank supply shocks. We create a measure of bank exposure, reflecting the geographic heterogeneity in pandemic vulnerability and deposits, and estimate its effect on credit. Results indicate that bank-supply shocks account for a credit contraction of approximately 5.2%. To further disentangle the role of bank supply shock, we control for the interaction between firm and time fixed-effects and restrict the sample to municipalities that were relatively spared from the pandemic, finding similar results. Most of the bank supply effects are driven by firms that are small, young, and have relatively low liquidity.
    Keywords: Credit; Covid-19 Pandemic; Bank liquidity
    JEL: G01 G21
    Date: 2022–08
  4. By: Bert Van Roosebeke (International Association of Deposit Insurers); Ryan Defina (International Association of Deposit Insurers)
    Abstract: The recent emergence of inflationary pressures across the globe has presented an additional consideration for deposit insurers. This Policy Brief considers how inflation may impact on two key concepts of deposit insurance: coverage levels and coverage ratios. We introduce the concept of 'real coverage' and using IADI data, we illustrate that the cumulative impact of inflation over the years on coverage levels may be significant as increases in general price levels erode coverage and lead to a decrease in the real terms of unchanged nominal coverage levels. Using this metric in reviewing historic increases in nominal coverage levels by a limited number of deposit insurers only, we find some indications for consideration of real coverage levels in setting policy. Inflation affects coverage ratios, which are a prominent element of deposit insurers' policy. The impact of inflation is highly complex and may depend on a number of variables, including the duration and sudden nature of inflation and its distributional impact on wealth and savings. Using IADI Annual Survey data from the past seven years, we investigate the correlation between inflation and both eligible and covered deposits in nominal terms. We find evidence for both nominal covered and eligible deposits to grow at rates below inflation rates. Ignoring distributive effects of inflation on saving rates across income groups, this implies that all else equal, to hold an existing coverage ratio, deposit insurers can increase coverage levels at a ratio below inflation. An upcoming policy brief will cover the inflation considerations in international deposit insurance standards and governance arrangements.
    Keywords: deposit insurance, bank resolution
    JEL: G21 G33
    Date: 2022–08
  5. By: Maulana Harris Muhajir (Neoma Business School)
    Abstract: In the aftermath of the global financial crisis of 2008, macrofinancial linkages have gained more attention from policymakers as primary issues of financial system stability. A clearer understanding of probability of default (PD) drivers may help predict if a bank will default on its portfolio liabilities. This presentation develops a method to assess a bank's PD based on a multivariate copula distribution to capture nonlinear relationships between variables with complex data structures. Then we use the generalized method of moments (GMM) to observe the relationship between PD to bank performance (bank-specific indicators) and the macroeconomic indicators. Our findings illustrate some critical links between PD and macroeconomic environments. For example, empirical evidence suggests that bank-specific indicators such as the CET 1 ratio, inefficiency ratio, and deposit ratio appear to be negatively and statistically significant to a bank's PD. When we examined the structural and macroeconomic variables, we found that the policy rate, the real exchange rate, economic growth, and the unemployment rate may reduce the PD. We also found that central state-owned banks tend to have a higher risk than other bank groups and that regional state-owned banks in the central region have the greatest likelihood of default.
    Date: 2022–08–11
  6. By: Walter Engert; Kim Huynh
    Abstract: We provide an analysis of cash trends in Canada before and during the COVID-19 pandemic. Focusing on the pandemic period, we explore the implications on demand for, use of and access to cash. We find that cash demand has been strong pre-pandemic and increased sharply during the pandemic. While cash use fell initially due to the decreased number of in-person shopping opportunities, it recovered as containment measures eased. We explore the potential two scenarios for issuance of central bank digital currency or Canadian digital dollar. We discuss the Canadian experience in maintaining cash as an efficient and accessible method of payment and store of value.
    Keywords: Bank notes; Central bank research; Coronavirus disease (COVID-19); Digital currencies and fintech; Econometric and statistical methods
    JEL: C C12 C9 E E4 O O54
    Date: 2022–08
  7. By: Nyasha, Sheilla; Odhiambo, Nicholas M; Musakwa, Mercy T
    Abstract: This study has empirically investigated the impact of bank development on unemployment in Kenya, based on time-series data spanning from 1991 to 2019. Using the ARDL bounds testing approach, the results of the study have revealed that in Kenya, the impact of bank development on unemployment, though time-invariant, depends largely on the proxy used to measure the level of bank development. Consistent with expectations, bank development ? as proxied by liquid liabilities, bank deposits, deposit money bank assets and the banking development index ? has been found to have a negative impact on unemployment in Kenya. However, when bank development is proxied by the domestic credit to private sector by banks, its impact on unemployment was found to be statistically insignificant. These results were found to apply consistently in the long run and in the short run.
    Keywords: Unemployment; bank development; bank-based financial development; financial development; Kenya, ARDL
    Date: 2022–08
  8. By: Jing Yang; Hélène Desgagnés; Grzegorz Halaj; Yaz Terajima
    Abstract: The COVID-19 pandemic forced policy-makers to deploy a range of unprecedented measures to support the economy. In this discussion paper, we discuss the outcome of the economic measures implemented in the context of financial stability in Canada. We also present related challenging policy questions that are being tackled by staff at the Bank. These include the uneven impact of the pandemic on households’ financial conditions and how it affects the transmission of policy, the challenges associated with setting banks’ countercyclical capital buffers, detecting imbalances in a buoyant housing market, and policy coordination challenges.
    Keywords: Coronavirus disease (COVID-19); Financial stability; Financial system regulation and policies
    JEL: H3 H84 G21 E61 E58
    Date: 2022–08
  9. By: Howard Diesel; Mukelani Nkuna; Tim Olds; Daan Steenkamp
    Abstract: The cost of complying with Basel III liquidity regulations for South African banks
    Date: 2022–08–12
  10. By: Nic Spearman
    Abstract: Occasional Bulletin Economic Notes 2201 Policy lessons from global retail Central Bank Digital Currency projects June 2022
    Date: 2022–06–24
  11. By: Villamizar-Villegas, Mauricio; Arango-Lozano, Lucía; Castelblanco, Geraldine; Fajardo-Baquero, Nicolás; Ruiz-Sánchez, María Alejandra
    Abstract: We investigate whether central banks are able to attract or redirect capital flows, by bringing together the entire empirical literature into the first quantitative meta-analysis on the subject. We dissect policy effects by the type of flow and by the origin of the monetary shock. Further, we assess whether policy effects depend on factors that drive investors to either search for yields or fly to safety. Our findings indicate a mean effect size of inflows in the amount of 0.09% of quarterly GDP in response to either a 100 basis point (bp) increase in the domestic policy rate or a 100bp reduction in the external rate. However, the effect size under a random effect specification is much lower (0.01%). Factors that significantly attract inflows include foreign exchange reserves, output growth, and financial openness, while factors that deter flows include foreign debt, capital controls, and departures from the uncovered interest rate parity. Also, both local and global risks matter (global risks exerting a larger pressure). Finally, we shed light on differences across the different types of flows: banking flows being the most responsive to monetary policy, while foreign direct investment being the least responsive.
    Keywords: Meta-Analysis; Capital Flows; Monetary Policy
    JEL: C83 E58 F21 F31 F32
    Date: 2022–08
  12. By: Emilio Espino; Julian Kozlowski; Fernando M. Martin; Juan M. Sanchez
    Abstract: In response to the COVID-19 pandemic, Latin American countries temporarily suspended rules limiting debt, fiscal and monetary policies. Despite this increase in flexibility, the crisis implied a substantial deterioration of macroeconomic variables (e.g., real GDP declined by 9.5%) and high welfare costs (which we estimate as equivalent to a 13% one-time reduction in non-tradable consumption). This paper studies a sovereign default model with fiscal and monetary policies to assess the policy response and evaluate the gains from flexibility in times of severe distress.
    Keywords: COVID-19; crises; default; Sovereign debt; Exchange rate; inflation; fiscal policy; emerging markets; Markov equilibrium
    JEL: E52 E62 F34 F41 G15
    Date: 2022–08–31
  13. By: Giacomo De Giorgi; Costanza Naguib
    Abstract: We analyze the impact of credit default on individual trajectories. Using a proprietary dataset for the years 2004-2020, we find that after default individuals relocate to cheaper areas. Importantly, default has long-lasting negative effects on income, credit score, total credit limit, and home-ownership status.
    Keywords: mobility, bankruptcy, default, credit, income
    JEL: J61 G51 D12
    Date: 2022–08
  14. By: Neily, Oussama; Neily, Mohamed
    Abstract: Many failures in water distribution groups (GDA) have been induced. We will try through this research to explore the main sources of groups fragility. We will use as a sample, 10 commercial groups operating in The Tunisian territory. Our research covers a 10-year study period from 2011-2021. It discusses the relationship between liquidity risk and credit risk as well as the implications for the strength of GDA groups during the same period. Most academic research validates that credit risk and liquidity risk do not have a contemporary or temporally significant reciprocal relationship economically and the idea of the relationship between the two risk categories is positive and can amplify other risk categories.
    Keywords: GDA, drinking water distribution, liquidity and credit problems, solidity, Tunisian groups.
    JEL: G2 G20 G23
    Date: 2022–08
  15. By: Marcela De Castro-Valderrama (Central Bank of Colombia); Santiago Forero-Alvarado (Central Bank of Colombia); Nicolas Moreno-Arias (Central Bank of Colombia); Sara Naranjo-Saldarriaga (Central Bank of Colombia)
    Abstract: What are the main narratives among the public regarding the future course of the Colombian economy, and how do they compare to those of the Central Bank of Colombia? Macroeconomic forecasts collected through surveys mainly assess observable variables; therefore, they offer little understanding of underlying narratives. Our study used a semi-structural general equilibrium model as an interpreter to infer the shocks behind Colombian economic analysts' forecasts in the Monthly Expectations Survey (MES), and thus, unravel their implicit narratives. Those narratives were compared to those implicit in the Central Bank's forecasts for each MES release at our disposal, covering a sample from 2020 to 2022. Analysts' narratives were qualitatively similar to those of the Central Bank. In particular, analysts broadly agreed with the Central Bank's view that the 2020 economic recession was driven more by demand than supply factors, and that in 2021, inflationary pressure was explained by demand recovery and adverse cost shocks. We observed that, over time, there was a tendency for the narratives of the public to converge with those of the Central Bank, which appeared to be an 'early mover' in response to economic shocks.
    Keywords: Macroeconomic expectations; Narratives; Central Bank; Monetary Policy; Professional forecasters; Survey
    JEL: C11 C32 C55 E47 E58 E37
    Date: 2022–08–15
  16. By: David Beers; Elliot Jones; Karim McDaniels; Zacharie Quiviger
    Abstract: The BoC–BoE database of sovereign debt defaults, published and updated annually by the Bank of Canada and the Bank of England, provides comprehensive estimates of stocks of government obligations in default.
    Keywords: Debt management; Development economics; Financial stability; International financial markets
    JEL: F3 F34 G1 G10 G14 G15
    Date: 2022–08
  17. By: Research and Statistics Department (Bank of Japan)
    Abstract: On May 30, 2022, the second workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic," entitled "The Phillips Curve and Cost Pass-Through in Japan," was held at the Bank of Japan's Head Office. The workshop featured lively discussions involving experts and scholars in economics and empirical analysis on the impact on prices of the recent increase in cost-push pressures triggered by high raw material costs and the weak yen, on the various factors affecting price formation from a somewhat longer-term perspective, and on what to make of these developments in light of changes in economic structure as a result of the pandemic. Session 1 focused on the characteristics of the recent pass-through of cost-push pressures to consumer prices, comparing current developments in Japan with those abroad and in the past. The session featured an analysis showing that in Japan, too, where the pass-through until recently was limited, the pass-through rate may be increasing, especially at the intermediate demand stage, and, based on this analysis, discussion of the recent price-setting behavior of firms, etc. Session 2 started with the presentation of an analysis of the impact of various factors, such as cost-push pressures and inflation expectations, on inflation based on the Phillips curve framework. The presentation further focused on the mechanism of inflation expectations formation, wage developments, and other issues, which are thought to have a significant impact on price formation in the long run, and featured discussion on the implications of the findings presented. Session 3 consisted of a panel discussion on what to expect with regard to future inflation developments taking structural changes due to the pandemic into account. First, it was pointed out that while the recent increase in cost-push pressures was expected to push up prices in the immediate future, from a somewhat longer-run perspective it was necessary to keep an eye on the downward pressure on the economy and prices from the downward push on real incomes. In this context, it was suggested that recent price hikes, especially for daily necessities, would have a greater impact on lower-income households. Second, in terms of whether the current cost-push inflation would help to achieve future price stability, the view was that the key issues were (1) whether firms' price-setting stance was gradually changing and this stance was becoming ingrained in society, and (2) whether, for this to happen, wages were going to rise firmly and household incomes were maintained.
  18. By: Hauptmeier, Sebastian; Kamps, Christophe; Radke, Lucas
    Abstract: We analyse the effectiveness of optimal simple and implementable monetary and fiscal policy rules in stabilising economic activity, inflation and government debt in face of an occasionally binding lower bound on the nominal interest rate in a New Keynesian model. We show that, within the traditional assignment of active monetary policy and passive fiscal policy, the optimal fiscal policy rule features a strong counter-cyclical response to the deviation of inflation from the central bank’s target - providing significant macroeconomic stabilisation especially at the lower bound - while also featuring a strong response to government debt. Our quantitative results show that the optimal counter-cyclical fiscal feedback to inflation significantly improves welfare and reduces the lower-bound frequency. In addition, the optimal simple monetary and fiscal rules almost completely resolve the deflationary bias associated with the lower bound. JEL Classification: E31, E52, E61, E62
    Keywords: deflationary bias, fiscal rules, inflation targeting, zero lower bound
    Date: 2022–08
  19. By: Carlos A. Arango-Arango (Banco de la Republica de Colombia); Yanneth Rocio Betancourt-Garcia (Banco de la Republica de Colombia)
    Abstract: In this paper, we analyze theoretically the coexistence of two means of payment, such as cash and digital or electronic payments, introducing some distortions in the payments markets to understand the widespread use of cash, specially in emerging countries. Lagos and Wright (2005) theoretical approach allows us to model explicitly the frictions in the exchange process considering money as essential. We introduce in this framework theft and informality (measured by tax evasion) as factors aecting cash usage and competition with a private digital payment platform. Considering heterogeneity in the seller's side by assuming dierent levels of productivity we nd the factors that explain the use of cash or digital payments. If a public provider enters the market with a less expensive platform the fees charged by the private provider have to be adjusted to the cost level of the public platform, decreasing the use of cash in the economy.
    Keywords: Cash; means of payments; payments services; digital payments; instant payments
    JEL: E40 E41 E42 E44
    Date: 2022–08–15
  20. By: Bracht, Felix; Czarnitzki, Dirk
    Abstract: We investigate how intangible capital in form of intellectual property, such as patents, might mitigate financing constraints. While scholars have already argued that patents might have a signalling value reducing information asymmetries between borrowers and lenders, we quantify the value of using patents as collateral with regard to capital access. Although this mechanism of patents in financing further R&D is not new, we are the first to provide a treatment effects study of patent collateral and access to capital. We make use of mandatory collateral registry data in Sweden and the Netherlands to construct panels combining firm-level financial data and patent measures. Estimating conditional difference-in-difference regressions on firms' debt allows deducting treatment effects of using patents as collateral. We find that patent pledging enables Swedish (Dutch) firms to borrow about 21% (26%) more than in the counterfactual situation in which no patents would have been used as collateral. We also find that the collateral value of patents is higher than their signalling value, and a back-of-the-envelope scenario calculation shows that Dutch (Swedish) firms could raise more than € 7 (€ 10) billion additional debt capital if the complete patent portfolios would be pledged, all else constant.
    Keywords: Financing Constraints,Collateral,Intangible Assets,Patents,Treatment Effects Estimation
    JEL: O30 O34 G31
    Date: 2022
  21. By: Emanuel Sommer; Karoline Bax; Claudia Czado
    Abstract: Accurate estimation of different risk measures for financial portfolios is of utmost importance equally for financial institutions as well as regulators, however, many existing models fail to incorporate any high dimensional dependence structures adequately. To overcome this problem and capture complex cross-dependence structures, we use the flexible class of vine copulas and introduce a conditional estimation approach focusing on a stress factor. Furthermore, we compute conditional portfolio level risk measure estimates by simulating portfolio level forecasts conditionally on a stress factor. We then introduce a quantile-based approach to observe the behavior of the risk measures given a particular state of the conditioning asset or assets. In particular, this can generate valuable insights in stress testing situations. In a case study on Spanish stocks, we show, using different stress factors, that the portfolio is quite robust against strong market downtrends in the American market. At the same time, we find no evidence of this behavior with respect to the European market. The novel algorithms presented are combined in the R package portvine, which is publically available on CRAN.
    Date: 2022–08
  22. By: Toshitaka Sekine (Hitotsubashi University and CAMA (E-mail:; Frank Packer (Bank for International Settlements (E-mail:; Shunichi Yoneyama (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper extends the recent approaches to estimate trend inflation from the survey responses of individual forecasters. It relies on a noisy information model to estimate the trend inflation of individual forecasters. Applying the model to the recent Japanese data, it reveals that the added noise term plays a crucial role and there exists considerable heterogeneity among individual trend inflation forecasts that drives the dynamics of the mean trend inflation forecasts. Divergences in forecasts as well as moves in estimates of trend inflation are largely driven by a identifiable group of forecasters who see less noise in the inflationary process, expect the impact of transitory inflationary shocks to wane more quickly, and are more flexible in adjusting their forecasts of trend inflation in response to new information.
    Keywords: Inflation forecast, Disagreement, Unobserved components model, Noisy information, Inflation target, Quantitative and qualitative monetary easing, Bank of Japan
    JEL: E31 E52 E58
    Date: 2022–08
  23. By: Refk Selmi (ESC PAU - Ecole Supérieure de Commerce, Pau Business School)
    Abstract: The ongoing Russian/Ukrainian war, along with sanctions imposed on Russia, poses a major shock to the world economy, merely two years after the COVID-19 pandemic. Accordingly, the global economic policy uncertainty has surged due to the resulting spiraling energy prices and economic disruptions. This paper uses a quantile-on-quantile approach to compare the ability of Bitcoin to hedge the economic policy uncertainty (EPU) of major global Bitcoin exchange markets (China, Japan, Korea and the United States) for the periods prior to and post-the COVID-19 and Russia's invasion of Ukraine. The results reveal that, prior to the pandemic, significant rises in EPU lead to high Bitcoin returns. After the COVID-19 and the recent war in Ukraine, the hedge effectiveness of Bitcoin is weakening due to the tight correlation with stocks in times of rising inflation expectations and the global central banks' hawkish response to it. Moreover, the Bitcoin hedging property is country-specific, and depends to different Bitcoin market conditions and various uncertainty levels. We explain this heterogeneity by differences across countries in terms of the recognition of Bitcoin as a legal tender, the Bitcoin trading volume, the exchange market maturity, and the investors' attitude towards risk.
    Keywords: Bitcoin,the COVID-19,the war in Ukraine,the economic policy uncertainty,hedge,country-specific analysis
    Date: 2022
  24. By: Ali K. Ozdagli; Jianlin Wang
    Abstract: Using the recent U.S.-China trade war as a laboratory, we show that policy uncertainty shocks have a significant impact on stock prices. This impact is less negative for firms that heavily rely on bank debt whereas non-bank debt does not have a mitigating effect. Moreover, the mitigating effect of bank debt is concentrated among zombie firms. A zombie firm that derives half of its capital from bank debt has no negative stock price reaction to increased uncertainty. These results are consistent with bank debt providing insurance for zombie firms in bad economic times.
    Keywords: Policy uncertainty; asset prices; debt structure; zombie firms; trade war
    JEL: E44 F13 G12 G20 G30
    Date: 2022–08–19
  25. By: Daniel Stempel (University of Duesseldorf); Johannes Zahner (University of Marburg)
    Abstract: In the euro area, monetary policy is conducted by a single central bank for 19 member countries. However, countries are heterogeneous in their economic development, including their inflation rates. This paper combines a New Keynesian model and a neural network to assess whether the European Central Bank (ECB) conducted monetary policy between 2002 and 2022 according to the weighted average of the inflation rates within the European Monetary Union (EMU) or reacted more strongly to the inflation rate developments of certain EMU countries. The New Keynesian model first generates data which is used to train and evaluate several machine learning algorithms. We find that a neural network performs best out-of-sample. Thus, we use this algorithm to classify historical EMU data. Our findings suggest disproportional emphasis on the inflation rates experienced by southern EMU members for the vast majority of the time frame considered (80%). We argue that this result stems from a tendency of the ECB to react more strongly to countries whose inflation rates exhibit greater deviations from their long-term trend.
    Keywords: New Keynesian Models, Monetary Policy, European Monetary Union, Neural Networks, Transfer Learning
    JEL: C45 C53 E58
    Date: 2022
  26. By: I. Martin-de-Santos
    Abstract: Se repasa brevemente la historia y las finanzas islandesas de manera diacr\'onica. Se presenta a Islandia como basti\'on del estallido de la crisis financiera internacional que comienza a gestarse a principios del siglo XXI y cuyo origen se hace evidente en la fecha simb\'olica del a\~no 2008. Se analizan las razones fundamentales de esta crisis, centrandonos en las particularidades de la estructura econ\'omica islandesa. Se consideran las diferencias y parecidos de esta situaci\'on en relaci\'on a algunos otros pa\'ises en similares circunstancias. Se estudia el caso del banco Icesave. Se considera la repercusi\'on que la crisis experimentada por Islandia tiene en el \'ambito internacional, especialmente en los inversores extranjeros y en los conflictos jur\'idicos surgidos a ra\'iz de las medidas adoptadas por el gobierno island\'es para sacar al pa\'is de la bancarrota. -- Icelandic history and diachronically finances are briefly reviewed. Iceland is presented as a bastion of the outbreak of the global financial crisis begins to take shape in the early twenty-first century and whose origin is evident in the symbolic date of 2008. The main reasons for this crisis are analyzed, focusing on the particularities of Iceland's economic structure. The differences and similarities of this in relation to some other countries in similar circumstances are considered. Bank Icesave case is studied. The impact of the crises experienced by Iceland has in the international arena, especially foreign investors and legal disputes arising out of actions taken by the Icelandic government to pull the country out of bankruptcy is considered.
    Date: 2022–08
  27. By: Ajay Chhibber (George Washington University)
    Abstract: This paper lays out the contours of a reformed Bretton Woods Institutions - the IMF, the World Bank Group (WBG) and the WTO - that the world needs for the 21st century. Some of the challenges the world faces today - rising inequality, growing nationalism and protection are what led to World War II from whose ruin emerged the current Bretton Woods international financial architecture. While these institutions performed well over their first 50 years - they have been struggling in more recent times as problems of rising inequality, financial instability and protectionism have re-emerged. But in addition, the threat of climate change and ecological stress, rising disasters, and a more inter-connected world with new threats like cyber-security and pandemics require a new international financial architecture. A modernized and re-invigorated set of Bretton Woods institutions to help address and mitigate these challenges, with a global remit and the mandate to monitor agreed global rules and enhanced resources not only to help individual countries but also to address global problems.
    Keywords: Bretton Woods, IMF, WTO, World Bank,
    JEL: F40 F60 F02 E00 Q00 G20
    Date: 2022–06
  28. By: Gorea, Denis (European Investment Bank); Kryvtsov, Oleksiy (Bank of Canada); Kudlyak, Marianna (Federal Reserve Bank of San Francisco)
    Abstract: Existing literature documents that house prices respond to monetary policy surprises with a significant delay, taking years to reach their peak response. We present new evidence of a much faster response. We exploit information contained in listings for the residential properties for sale in the United States between 2001 and 2019 from the CoreLogic Multiple Listing Service Dataset. Using high-frequency measures of monetary policy shocks, we document that a one-standard-deviation contractionary monetary policy surprise lowers housing list prices by 0.2–0.3 percent within two weeks—a magnitude on par with the effect on stock prices. House prices respond stronger to the surprises to future rates as compared to the surprise changes in the federal funds rate. Sale prices are mostly pre-determined by list prices and do not independently respond to monetary policy surprises.
    Keywords: house prices, monetary policy, transmission of monetary policy, list and sales prices
    JEL: E52 R21 R31
    Date: 2022–08

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