nep-ban New Economics Papers
on Banking
Issue of 2022‒10‒03
27 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Cross-Selling in Bank Household Relationships. Implications for Deposit Pricing, Loan Pricing, and Monetary Policy. By Christoph Basten; Ragnar Juelsrud
  2. Macrofinancial Stress Testing on Australian Banks By Nicholas Garvin; Samuel Kurian; Mike Major; David Norman
  3. SRISK: una medida de riesgo sistémico para la banca colombiana 2005-2021 By Camilo Eduardo Sánchez-Quinto
  4. Augmented credit-to-GDP gap as a more reliable indicator for macroprudential policy decision-making By Tihana Škrinjarić
  5. How Inflation Impacts Deposit Insurance: Real Coverage and Coverage Ratio By Van Roosebeke, Bert; Defina, Ryan
  6. Increasing Portfolio Overlap of Japanese Regional Banks with Global Investment Funds and Its Financial Stability Implications By Yoshiyasu Koide; Yoshihiko Hogen; Nao Sudo
  7. Quantitative Analysis of Haircuts: Evidence from the Japanese Repo and Securities Lending Markets By Kazuya Suzuki; Kana Sasamoto
  8. Cyber risk in central banking By Sebastian Doerr; Leonardo Gambacorta; Thomas Leach; Bertrand Legros; David Whyte
  9. Banking on Snow: Bank Capital, Risk, and Employment By Baumgartner, Simon; Stomper, Alex; Schober, Thomas; Winter-Ebmer, Rudolf
  10. Rise of NBFIs and the Global Structural Change in the Transmission of Market Shocks By Yoshihiko Hogen; Yoshiyasu Koide; Yuji Shinozaki
  11. Decentralized finance research and developments around the World By Ozili, Peterson K
  12. The Heterogeneous Impact of Inflation on Households’ Balance Sheets By Miguel Cardoso; Clodomiro Ferreira; José Miguel Leiva; Galo Nuño; Álvaro Ortiz; Tomasa Rodrigo
  13. Was it Debt Swap or Collateralised Foreign Currency Loan? Substance over Legal Form Considerations By Phiri Kampanje, Brian
  14. The Systemic Impact of Debt Default in a Multilayered Global Network Model By Mr. Nathan Porter; Mr. Camilo E Tovar Mora; Mr. Juan P Trevino; Johannes Eugster; Theofanis Papamichalis
  15. The Intertemporal Marginal Propensity to Consume out of Future Persistent Cash-Flows. Evidence from Transaction Data By Jeppe Druedahl; Emil Bjerre Jensen; Søren Leth-Petersen
  16. Open Markets in the Era of Fintech and Big Tech: Lessons for the Institutional Design of Competition Policy By Jens-Uwe Franck
  17. What drives trust in the financial sector supervisor? New empirical evidence By Carin van der Cruijsen; Maurice Doll; Jakob de Haan
  18. Startup Support of Regional Financial Institutions and Regional Startup (Japanese) By YAMORI Nobuyoshi; NAGATA Kunikazu; KONDO Kazumine; OKUDA Masayuki
  19. Grasping De(centralized) Fi(nance) through the Lens of Economic Theory By Jonathan Chiu; Thorsten V. Koeppl; Charles M. Kahn
  20. Inflation-at-Risk in in the Middle East, North Africa, and Central Asia By Mr. Maximilien Queyranne; Romain Lafarguette; Kubi Johnson
  21. Trust and Saving in Financial Institutions by the Poor By Sebastian Galiani; Peter Gertler; Camila Navajas Ahumada
  22. Quarterly Projection Model for the Bank of Ghana By Shalva Mkhatrishvili; Valeriu Nalban; Philip Abradu-Otoo; Ivy Acquaye; Abubakar Addy; Nana Kwame Akosah; James Attuquaye; Simon Harvey; Zakari Mumuni
  23. Inflation Measured Every Day Keeps Adverse Responses Away: Temporal Aggregation and Monetary Policy Transmission By Margaret M. Jacobson; Christian Matthes; Todd B. Walker
  24. How Can Safe Asset Markets Be Fragile? By Thomas M. Eisenbach; Gregory Phelan
  25. Central Bank Policy Mix: Policy Perspectives and Modeling Issues By Juhro, Solikin M.; Sahminan, Sahminan; Wijoseno, Atet; Waluyo, Jati; Bathaluddin, M. Barik
  26. Could reduction of violations in forex market be a key to mitigate risks of the depreciation and devaluation of Malawi Kwacha? By Phiri Kampanje, Brian
  27. Nr. 5 (2022): Het monetaire instrumentarium van het Eurosysteem in onconventionele tijden By Jan Kakes; Inge Klaver; René Rollingswier

  1. By: Christoph Basten (University of Zurich; Swiss Finance Institute; CESifo (Center for Economic Studies and Ifo Institute)); Ragnar Juelsrud (Norges Bank)
    Abstract: Using administrative data on deposits and loans of every Norwegian with every Norwegian bank, we show that an existing deposit account makes a household more likely to hold deposits at the same bank later despite better alternatives and more likely to borrow there. Consistent with this, banks pay higher deposit rates to potential future borrowers. Then they charge existing depositors a premium on loans compared to other households, suggesting that cross-selling is driven by demand rather than supply complementarities. Finally, discounting future cross-selling profits motivates lower deposit spreads in times of lower policy rates and contributes to monetary policy transmission.
    Keywords: switching costs, customer lifetime value (clv), cross-selling, relationship banking, supply complementarities, demand complementarities, deposit pricing, deposit channel of monetary policy
    JEL: D14 D43 E52 E58 G12 G21 G51
    Date: 2022–08
  2. By: Nicholas Garvin (Reserve Bank of Australia); Samuel Kurian (Reserve Bank of Australia); Mike Major (Reserve Bank of Australia); David Norman (Reserve Bank of Australia)
    Abstract: Macrofinancial stress testing is a tool to help policymakers better understand the key systemic vulnerabilities in a financial system. The Reserve Bank of Australia's (RBA) macrofinancial bank stress testing model is an example of this, enabling the RBA to analyse potential financial risks to Australia's banking sector, such as those arising during the COVID-19 pandemic. The model projects how economic shocks may influence a bank's profitability, dividends, loan growth and capital position, primarily using decision rules and accounting identities that are uniformly applied to profit and balance sheet data for the nine largest banks operating in Australia. It is designed with a focus on understanding systemic vulnerabilities and a philosophy of prioritising transparency over complexity. The key advantages of this model are its ability to quickly produce estimates of the capital loss in response to various macroeconomic scenarios, model various forms of contagion across banks, and allow the modeller to undertake 'reverse' stress tests. The paper sets out the key features of this model, how it was used during the past two years and the areas in which further work is required.
    Keywords: banks; stress testing; Australia
    JEL: E02 F01 G21
    Date: 2022–09
  3. By: Camilo Eduardo Sánchez-Quinto
    Abstract: Una de las lecciones que dejó la crisis financiera de 2008 fue la importancia de monitorear el riesgo sistémico en la búsqueda de la estabilidad de los sistemas financieros. Al respecto se han desarrollado líneas de investigación que, tomando la mayor cantidad de información, tienen el objetivo de brindar métricas fiables y oportunas de este riesgo. Entre ellas se encuentra el SRISK (Brownlees & Engle, 2016), una medida que combina el comportamiento del mercado, la relación de solvencia, el nivel de apalancamiento y los resultados contables de las entidades financieras para hallar el riesgo sistémico bajo un escenario de crisis financiera. Este documento replica la metodología SRISKajustada para el sistema bancario colombiano a través de modelos GJR-GARCH-DCC. Los resultados indican que, si bien el riesgo sistémico en la banca ha sido históricamente bajo, este alcanzó su máximo histórico en 2020, mostrando el impacto de la crisis sanitaria del Covid-19. Adicionalmente, se encuentra que el SRISK se correlaciona con variables de la actividad productiva y financiera, además tener capacidad predictiva en sentido de Granger. **** ABSTRACT: One of the lessons we learned from the 2008 financial crisis was the importance of monitoring the systemic risk in the stability of financial systems. In this regard, lines of research have been developed with the aim to provide reliable and timely metrics on this risk, taking as much information as possible. Among these, SRISK(Brownlees & Engle, 2016) stands out, a measure that combines market behavior, capital ratio, leverage and balance sheet of financial institutions to find the systemic risk exposure under a sustained crisis scenario. This paper replicates the SRISKmethodology adjusted for the Colombian banking system using GJR-GARCH-DCC models. The results show that, although systemic risk of banks has been historically low, it reached its maximum in 2020, adding empirical evidence on the impact of Covid-19 crisis. Furthermore, it is found that SRISKcorrelates with leading indicators of economic and financial sectors, in addition to having predictive power in the sense of Granger causality.
    Keywords: Riesgo sistémico, sistema bancario, causalidad de Granger, modelos Garch multivariados, Colombia, Systemic risk, banking system, Granger causality, multivariate Garch models, Colombia
    JEL: C22 C53 E44 G01 G21
    Date: 2022–09
  4. By: Tihana Škrinjarić (Hrvatska narodna banka, Hrvatska)
    Abstract: This paper aims to evaluate the possibilities of augmenting the credit-to-GDP gap series with out-of-sample forecasts to obtain a more stable indicator of excessive credit growth. The credit-to-GDP gap is a standardized and harmonized indicator of the Basel III regulatory framework used to calibrate the Countercyclical Capital Buffer (CCyB). Thus, a good indicator should be valid, stable, and represent future financial cycle movements. This research focuses on reducing the end-point bias problem of the Hodrick-Prescott (HP) filter approach to estimating this indicator. This is appropriate for those authorities whose analysis shows that the HP approach best predicts the financial crisis. Several popular models of out-of-sample forecasting are tested on Croatian data to extend the filtered original series, and the results are compared based on multiple criteria. These include the stability of the indicator, not just the usual model forecasting capabilities. The autoregressive approach, alongside the random walk model, was the best-performing one. The results of this study can be used in real-time decision-making, as they are relatively simple to estimate and communicate. Such augmented gaps reduce the bias in the series after the financial cycle turns. Moreover, the paper suggests possible corrections to the credit-to-GDP gap so that the resulting indicators are less volatile over time with stable signals for the policy decision-maker.
    Keywords: credit-to-GDP gap, out of sample forecasts, augmented credit gap, countercyclical capital buffer, estimation uncertainty.
    JEL: E32 G01 G21 C22
    Date: 2022–09–13
  5. By: Van Roosebeke, Bert; Defina, Ryan
    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; inflation
    JEL: G21 G33
    Date: 2022–08
  6. By: Yoshiyasu Koide (Bank of Japan); Yoshihiko Hogen (Bank of Japan); Nao Sudo (Bank of Japan)
    Abstract: While investment funds have grown rapidly in the global financial market, Japanese financial institutions have been increasing investments in foreign securities. This paper estimates the portfolio overlap - which we define as the correlation of changes in the market value of securities portfolios - between global investment funds and Japanese financial institutions in the last two decades and study the time series properties and the financial stability implications. There are three main findings. First, the number of financial institutions with a high portfolio overlap with investment funds has increased since before the Global Financial Crisis (GFC). The increase is particularly prominent for the portfolio overlap between bond funds and regional banks. Second, financial institutions with lower capital ratios, loan-to-deposit ratios, lending margins tend to have a higher degree of portfolio overlap with investment funds. Third, financial institutions with a higher degree of portfolio overlap with investment funds tend to see a larger decline in the market value of the securities portfolio in response to global market shocks such as redemption waves to investment funds, rises in U.S. interest rates, or disruptions in the U.S. bond market. Our results indicate that as secular changes in structural factors such as a decline in the potential growth rate of the home country weigh on the long-term profitability, Japanese financial institutions in particular regional banks have increased investment in foreign securities, making themselves susceptible to global market shocks that arise from the activities of global investment funds even without direct exposure to these funds. Moreover, an increase in the number of financial institutions with a higher portfolio overlap suggests that the impact of such a global market shock may extend over wide areas of the domestic financial system.
    Keywords: Global Investment Funds, Regional Banks, Securities Portfolio, DCC-GARCH
    JEL: G10 G11 G21 G23
    Date: 2022–09–15
  7. By: Kazuya Suzuki (Bank of Japan); Kana Sasamoto (Bank of Japan)
    Abstract: Given the absence of comprehensive studies on market structure and haircuts for repo and securities lending transactions, this study provides a quantitative analysis of the subject using government bonds and equities transaction data covering most of the Japanese market. Specifically, we conducted a panel data regression analysis of government bond repo transactions, controlling for factors such as transaction entities and transaction types, and provided a detailed analysis of the haircut-setting mechanism. Accordingly, we determined that explanatory variables affecting credit risk, market risk, and liquidity risk, such as the credit quality of government bonds, the residual maturity of government bonds, and the presence of foreign exchange risk, significantly impact haircut setting. Furthermore, financial institutions closer to the center of the network, which engage in transactions with additional financial institutions, tend to set lower haircut rates through more efficient matching of borrowing and lending needs for cash and securities. Thus, the credit quality of government bonds transacted, exchange rate stability, and the presence of intermediaries important to the trading network significantly impact the degree of market functioning. The results were robust, paving the way for further discussions on trends and risk management of securities financing transactions, which are essential to financial markets.
    Keywords: Securities Financing Transactions; Repurchase Agreement; Haircut; Network Analysis
    JEL: D80 E43 G10 G20 L14
    Date: 2022–08–22
  8. By: Sebastian Doerr; Leonardo Gambacorta; Thomas Leach; Bertrand Legros; David Whyte
    Abstract: The rising number of cyber attacks in the financial sector poses a threat to financial stability and makes cyber risk a key concern for policy makers. This paper presents the results of a survey among members of the Global Cyber Resilience Group on cyber risk and its challenges for central banks. The survey reveals that central banks have notably increased their cyber security-related investments since 2020, giving technical security control and resiliency priority. Central banks see phishing and social engineering as the most common methods of attack, and the potential losses from a systemically relevant cyber attack are deemed to be large, especially if the target is a big tech providing critical cloud infrastructures. Generally, respondents judge the preparedness of the financial sector for cyber attacks to be inadequate. While central banks in most emerging market economies provide a framework for the collection of information on cyber attacks on financial institutions, less than half of those in advanced economies do. Cooperation among public authorities, especially in the international context, could improve central banks' ability to respond to cyber attacks.
    Keywords: cyber risk, central banks, financial institutions, cloud services, cyber regulation
    JEL: E5 E58 G20 G28
    Date: 2022–09
  9. By: Baumgartner, Simon (Humboldt University Berlin); Stomper, Alex (Humboldt University Berlin); Schober, Thomas (Auckland University of Technology); Winter-Ebmer, Rudolf (University of Linz)
    Abstract: How does small-firm employment respond to exogenous labor productivity risk? We find that this depends on the capitalization of firms' local banks. The evidence comes from firms offering (quasi-) fixed employment to workers whose productivity depends on the weather. Weather risk reduces this employment, and the effect is stronger in regions where the regional banks have less equity capital. Bank capitalization also proxies for the extent to which the regional banks' borrowers can obtain liquidity when the regions are hit by weather shocks. We argue that, as liquidity providers, well-capitalized banks support economic adaptation to climate change.
    Keywords: quasi-fixed employment, labor productivity risk, bank liquidity
    JEL: J23 J41 E44
    Date: 2022–08
  10. By: Yoshihiko Hogen (Bank of Japan); Yoshiyasu Koide (Bank of Japan); Yuji Shinozaki (Bank of Japan)
    Abstract: The March 2020 market turmoil raised concerns over vulnerabilities associated with the increasing market interconnectedness with Non-Bank Financial Intermediaries (NBFIs), most notably investment funds, in the global financial system (GFS). Studies on the measurement of fire sale vulnerabilities in part those associated with NBFIs in a financial system are often conducted at the jurisdiction level using fire-sale (FS) models. While existing studies use granular data to analyze details of fire sale dynamics; in most of these cases, the scope of analysis is focused on a certain jurisdiction or asset class, leaving the cross-jurisdiction or cross-asset spillover dimension out of the scope. To address these points, this paper measures cross-border and cross-asset spillovers of market shocks ("interlinkage effect") in the GFS using a standard FS model, specifically focusing on the role of NBFIs. With the help of existing FS models, we construct measures of the interlinkage effect across different types of financial institutions, including banks and various types of NBFIs, in Japan's financial system as well as those for the foreign financial system (the U.S. and Euro area) using flow of funds data of these jurisdictions. We find that the interlinkage effect has increased substantially, not only for Japan's financial system, but also for the overseas financial system since the Global Financial Crisis (GFC). These increasing interlinkages of NBFIs with various types of entities suggest there has been a global structural change in the transmission of market shocks.
    Keywords: Interconnectedness; NBFI; cross-border spillovers; fire sales; systemic risk
    JEL: G10 G11 G21 G23
    Date: 2022–09–05
  11. By: Ozili, Peterson K
    Abstract: Decentralized finance is financial services offered on a public blockchain over the internet. This paper reviews the decentralized finance (DeFi) research and development around the world. The findings of the literature review are that decentralized finance offers many benefits such as broadening financial inclusion; encouraging permission-less innovation; eliminating the need for intermediaries; ensuring the immutability of transactions; censorship resistance and making cross-border transactions cheaper. The associated risks include execution risk in smart contracts, legal liability risk, data theft risk, interconnectedness risk, external data risk, and greater propensity for illicit activity using DeFi applications. The review of existing DeFi research show that there are few studies on DeFi, and a large number of DeFi research studies are non-empirical studies. Most studies hold a positive view about DeFi. They emphasize the benefits of DeFi in great depth but the challenges of DeFi were not analysed in great depth, and there are no critical studies on DeFi. Observations on DeFi developments from around the world show that there is growing interest in decentralized finance in Europe, U.S., Asia and Oceania. There are concerns that regulating decentralized finance can impede growth in decentralized finance markets in Asia. There are also concerns that banning crypto assets can hinder the growth of decentralized finance in African countries where regulators do not fully permit blockchain-enabled cryptocurrencies. Several policy issues associated with DeFi are discussed. Areas for further research are provided to advance the literature on decentralized finance.
    Keywords: decentralized finance, DeFi, blockchain, ethereum, cryptocurrency, distributed ledger technology, protocol, token, total valued locked, smart contract, digital currency, literature review.
    JEL: G21 G24 G28 O31 O38
    Date: 2022
  12. By: Miguel Cardoso (BBVA Research); Clodomiro Ferreira (Banco de España); José Miguel Leiva (BBVA Research); Galo Nuño (Banco de España); Álvaro Ortiz (BBVA Research); Tomasa Rodrigo (BBVA Research)
    Abstract: We identify and study three key channels that shape how inflation affects wealth inequality: (i) the traditional Fisher channel through which inflation redistributes from lenders to borrowers; (ii) a nominal labour income channel through which inflation reduces the real value of sticky wages and benefits; and (iii) a relative consumption channel through which heterogeneous increases in the price of different goods affect people differently depending on their consumption baskets. We then quantify these channels for Spain in 2021 using public surveys on households’ wealth, income, and consumption, as well as a novel proprietary bank dataset that includes detailed information on clients’ assets and liabilities, credit and debit card payments, bills and labour related income. Results show that the Fisher and labour income channels are one order of magnitude larger than the relative consumption channel. Middle-aged individuals were roughly unaffected by inflation while older ones suffered the most its consequences.
    Keywords: inflation inequality, net nominal positions, nominal wage rigidities.
    JEL: E31 E21 D31
    Date: 2022–09
  13. By: Phiri Kampanje, Brian
    Abstract: This is a transaction analysis in which deposit placement by PTA Bank in Malawi was classified as debt swap instead of a medium term loan. There was violation of substance over legal form principle and the study recommends that proper disclosures be made to rectify probable material misstatement of the financial statements.
    Keywords: Currency; Swap; FCY; Loan, Debt, Malawi
    JEL: F31 G21 G24
    Date: 2022–08–15
  14. By: Mr. Nathan Porter; Mr. Camilo E Tovar Mora; Mr. Juan P Trevino; Johannes Eugster; Theofanis Papamichalis
    Abstract: The world has become more interconnected over the past few decades. Against this backdrop, economic and financial contagion following adverse shocks can have a severe impact on the global economy. How systemic can the effects of contagion be? What specific transmission channels are involved? What is their relative importance? We address these questions using a multilayered global network model of contagion that simulates the impact of sovereign debt default on the global economy. We also develop a measure of global systemic risk and use bank stress testing techniques to quantify the systemic impact of the shock and the extent of contagion on the global economy. Our model shows that economic and financial contagion are highly non-linear, and many bystander economies can experience significant negative effects as the initial default is spread through the network. This suggests that many economies might be systemically more important than what conventional measures of size or openness might suggest.
    Keywords: Network; Contagion; Crises; Stress-test
    Date: 2022–09–02
  15. By: Jeppe Druedahl (Department of Economics, University of Copenhagen and CEBI); Emil Bjerre Jensen (Department of Economics, University of Copenhagen, CEBI and Nykredit); Søren Leth-Petersen (Department of Economics, University of Copenhagen, CEBI and CEPR)
    Abstract: To analyze the effectiveness of stabilization policies which includes effects on households future income it is central to account for anticipation effects on consumption. We investigate this using high-frequency spending and balance sheet data from a major Danish bank. We examine the behavior of borrowers with adjustable rate mortgages, and exploit that the bank sends a letter before the annual reset containing advance information on the expected change in mortgage payments. We find that unconstrained households respond immediately, while liquidity constrained households instead wait and respond around the time the cash-flow-arrives. The cumulative response is similar across the liquidity distribution. This is in line with a standard buffer-stock consumption model, and implies that it is less effective to target stimulus to low liquidity households when the effect on household income is partly in the future.
    Keywords: Consumption, anticipation effects, intertemporal MPC, persistent shocks, mortgages, monetary policy, heterogeneous agent models
    JEL: D12 D14 D91 E21 E44 E52 G21
    Date: 2022–09–11
  16. By: Jens-Uwe Franck
    Abstract: This paper analyses three routes for the formation of market-opening rules: competition enforcement, legislation, and UK-style market investigation. Using case studies on facilitating market access for innovative payment services, we identify essential features and limitations of the different modes of rulemaking. The interrelation between them is explored, revealing the merits of having them available in parallel.
    Keywords: competition policy, institutional design, competition law, regulation, market investigation, open banking, fintech, big tech, payment services
    JEL: K21
    Date: 2022–09
  17. By: Carin van der Cruijsen; Maurice Doll; Jakob de Haan
    Abstract: Abstract: Using a survey among more than 2,000 consumers in the Netherlands, we examine the drivers of trust in the financial sector supervisor. Trust in De Nederlandsche Bank (DNB) declined sharply during the financial crisis and has not yet completely recovered. Our results suggest that consumers’ knowledge about supervision is positively associated with their trust in the supervisor. Assessing the fitness and propriety of top managers of financial institutions and supervising financial institutions enlarge trust in DNB. The same holds for the execution of the deposit guarantee system. Finally, we find that communicating about supervisory activities also increases trust.
    Keywords: Trust; financial sector supervisor; financial literacy; communication
    JEL: D12 D84 E58 G21
    Date: 2022–09
  18. By: YAMORI Nobuyoshi; NAGATA Kunikazu; KONDO Kazumine; OKUDA Masayuki
    Abstract: This paper examines whether the startup support provided by regional financial institutions contribute to startups in the region and which initiatives of regional financial institutions are effective in supporting startups, using the questionnaire information from two surveys. The analysis based on the 2020 startup firm questionnaire indicates that in the prefectures where firms have high opinions of regional financial institutions' support, more startup firms are founded, and the startup rate increases. Banks that are more highly motivated to support startups also have higher firms’ ratings for their capacity for lending without collateral or guarantees and evaluating business potential. The analysis comparing the 2020 startup firm questionnaire with the 2017 RIETI branch manager questionnaire shows that in prefectures where banks rely too heavily on collateral and guarantees, the assessments of banks’ loans and non-financing capacity decrease. Banks that are highly motivated to support startups make lending decisions based more on the management’s qualifications and motivations, and the evolution of business potential is vital in supporting startups.
    Date: 2022–09
  19. By: Jonathan Chiu (Bank of Canada); Thorsten V. Koeppl; Charles M. Kahn
    Abstract: In this viewpoint article, we provide an analysis of the value proposition of De(centralized) Fi(nance) and its limitations using a simple stylized model of collateralized lending. DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs associated with intermediated lending and improve nancial inclusion. Limitations are the volatility of crypto collateral and stablecoins used for settlement, the possible incompleteness of smart contracts and the lack of a reliable oracle. A proper infrastructure reducing such limiations could improve the value of DeFi.
    Keywords: Decentralized Finance, Cryptocurrency, Stablecoins, Collateralized Lending
    JEL: G2
    Date: 2022–08
  20. By: Mr. Maximilien Queyranne; Romain Lafarguette; Kubi Johnson
    Abstract: This paper investigates inflation risks for 12 Middle East and Central Asia countries, with an equal share of commodities exporters and importers. The empirical strategy leverages the recent developments in the estimation of macroeconomic risks and uses a semi-parametric approach that balances well flexibility and robustness for density projections. The paper uncovers interesting features of inflation dynamics in the region, including the role of backward versus forward-looking drivers, non-linearities, and heterogeneous and delayed exchange rate pass-through. The results have important implications for the conduct of monetary policy and central bank communication in the Middle East and Central Asia and emerging markets in general.
    Keywords: Emerging markets; inflation; inflation expectations; Phillips Curve; monetary policy; central bank communication; Middle East; North Africa; Central Asia
    Date: 2022–09–02
  21. By: Sebastian Galiani (University of Maryland/NBER); Peter Gertler (University of California, Berkeley/NBER); Camila Navajas Ahumada (Universidad Torcuato Di Tella)
    Abstract: We randomly assigned beneficiaries of a conditional cash transfer program in Peru to attend a 3 hour training session designed to build their trust in financial institutions.We find that the intervention: (a) increased trust in banks, but had no effect on financial literacy, and (b) increased savings over a ten month period. The increase insavings represents a 1.4 percentage point increase in the savings rate out of the cash transfer deposits, and a 0.4 percentage point increase in the savings rate out of household income.
    Keywords: Trust, savings and poverty
    JEL: G20 D14 I30
    Date: 2022–09
  22. By: Shalva Mkhatrishvili; Valeriu Nalban; Philip Abradu-Otoo; Ivy Acquaye; Abubakar Addy; Nana Kwame Akosah; James Attuquaye; Simon Harvey; Zakari Mumuni
    Abstract: The paper describes the Quarterly Projection Model (QPM) that underlies the Bank of Ghana Forecasting and Policy Analysis System (FPAS). The New Keynesian semi-structural model incorporates the main features of the Ghanaian economy, transmission channels and policy framework, including an inflation targeting central bank and aggregate demand effects of fiscal policy. The shock propagation mechanisms embedded in the calibrated QPM demonstrate its theoretical consistency, while out-of-sample forecasting accuracy validates its empirical robustness. Another important part of the QPM is endogenous policy credibility, which may aggravate policy trade-offs in the model and make it more realistic for developing economies. Historical track record of real time policy analysis and medium-term forecasting conducted with the QPM – as a component of the broader FPAS analytical organization – establishes its critical role in supporting the Bank’s forward-looking monetary policy framework.
    Keywords: Ghana; Forecasting and Policy Analysis; Quarterly Projection Model; Monetary Policy; Transmission Mechanism
    Date: 2022–09–02
  23. By: Margaret M. Jacobson; Christian Matthes; Todd B. Walker
    Abstract: Using daily inflation data from the Billion Prices Project [Cavallo and Rigobon (2016)], we show how temporal aggregation biases estimates of monetary policy transmission. We argue that the information mismatch between private agents and the econometrician —the source of temporal aggregation bias —is equally important as the more studied mismatch between private agents and the central bank (the “Fed information effect”). We find that the adverse response of daily inflation to high-frequency monetary policy shocks is short-lived, if present at all, in impulse responses from both local projections and an unobserved components model of inflation dynamics. To reconcile how one can obtain a sizable adverse response with monthly or quarterly data when only a limited adverse response exists at a higher frequency, we appeal to a simple monetary policy model and show how temporal aggregation bias can exacerbate initial impulse response functions. Because our modeling results are generic and macroeconomic indicators are published with a lag, we argue that temporal aggregation bias will be a key feature of the nascent field of high-frequency macroeconomics.
    Keywords: Disaggregated inflation; Billion prices project; High-frequency macroeconomics; Monetary policy transmission; Temporal aggregation bias
    JEL: E00 E52 E31
    Date: 2022–08–16
  24. By: Thomas M. Eisenbach; Gregory Phelan
    Abstract: The market for U.S. Treasury securities experienced extreme stress in March 2020, when prices dropped precipitously (yields spiked) over a period of about two weeks. This was highly unusual, as Treasury prices typically increase during times of stress. Using a theoretical model, we show that markets for safe assets can be fragile due to strategic interactions among investors who hold Treasury securities for their liquidity characteristics. Worried about having to sell at potentially worse prices in the future, such investors may sell preemptively, leading to self-fulfilling “market runs” that are similar to traditional bank runs in some respects.
    Keywords: safe assets; liquidity shocks; global games; Treasury securities; COVID-19
    JEL: G1
    Date: 2022–09–08
  25. By: Juhro, Solikin M.; Sahminan, Sahminan; Wijoseno, Atet; Waluyo, Jati; Bathaluddin, M. Barik
    Abstract: This paper discusses the core model of Bank Indonesia policy mix (BIPOLMIX), a macroeconomic modeling breakthrough designed for economic and financial projections and policy simulations. The BIPOLMIX model captures the integrated central bank policy responses, e.g. monetary, macroprudential, and payment system policies, and considers the role of fiscal policy. The strategy of developing the model is flexible, dynamic, and forward-looking to make the model relevant as the basis for Bank Indonesia policy transformation in coping with challenges in a rapidly changing environment. In this regard, the model takes into account various economic dynamics and policy instrument mix in optimizing the achievement of macroeconomic and financial system stability. Amid main issues related to the model parameter consistency, in line with theoretical and technical considerations, the modeling framework is believed to be useful as a pivotal reference by the central banks in EMEs in developing core models to support optimal policy responses.
    Keywords: Central Bank Policy Mix, Policy Modeling, Projections and Simulations, Bank Indonesia.
    JEL: C51 E37 E58
    Date: 2022–09
  26. By: Phiri Kampanje, Brian
    Abstract: The acute depreciation and devaluation of the Malawi Kwacha in the past ten years seems to stem out in part due to massive illegal externalisation of forex by unscrupulous business people aided by banks despite the existence of various Acts of Parliament and Reserve Bank of Malawi’s Directives, Press Releases and Forex Trading Guidelines. There appears to be little willingness to severely punish the perpetrators as penalties meted out on wayward banks are not publicly disclosed and this is unsustainable as the rewards for mischievous behaviour seems to outweigh any penalties thereof. It is the local ordinary citizen who suffers from high prices of inorganic fertiliser and hence possibility of food insecurity, rising fuel prices and shortage of drugs in the hospitals. Now is time to act.
    Keywords: Devaluation; Malawi; Violations; Forex
    JEL: E02 E03 E5 E50 E58
    Date: 2022–08–15
  27. By: Jan Kakes; Inge Klaver; René Rollingswier
    Abstract: Centrale banken hebben wereldwijd een reeks nieuwe monetaire beleids instrumenten ingezet in reactie op uitzonderlijke crisisomstandigheden en de aanhoudend lage inflatie. In reactie op achtereenvolgens de kredietcrisis, de Europese schuldencrisis en de COVID-crisis hebben centrale banken ingegrepen om ervoor te zorgen dat de markten bleven functioneren en om fragmentatie van markten te voorkomen. Bovendien bleef de inflatie, ondanks de steeds verder gedaalde rente, hardnekkig onder de doelstelling van twee procent. Omdat de conventionele beleidsruimte wordt beperkt door de effectieve ondergrens van rentetarieven (effective lower bound, hierna ELB), hebben centrale banken hun instrumentarium uitgebreid om hun mandaat te kunnen blijven vervullen. Na meer dan een decennium “onconventioneel monetair beleid†(unconventional monetary policy, hierna UMP) is de voetafdruk van centrale banken in de financiële markten veel groter geworden, waarbij hun balansen zijn opgerekt tot niveaus die meestal worden geassocieerd met extreme gebeurtenissen zoals oorlogen en ernstige economische crises (figuur 1.1).
    Date: 2022–08

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