nep-ban New Economics Papers
on Banking
Issue of 2022‒12‒19
25 papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Should Central Banks Have an Inequality Objective? By Roberto Chang
  2. The World Bank, the IMF, and the GATT/WTO: Which institution most supported trade reform in developing economies? By Douglas A. Irwin
  3. Applying Benford’s Law to detect accounting data manipulation in the pre-and post-financial engineering periods: Evidence from Lebanon By Etienne Harb; Nohade Nasrallah; Rim El Khoury; Khaled Hussainey
  4. Motif-aware temporal GCN for fraud detection in signed cryptocurrency trust networks By Chong Mo; Song Li; Geoffrey K. F. Tso; Jiandong Zhou; Yiyan Qi; Mingjie Zhu
  5. Central Bank Information Effects in Japan : The Role of Uncertainty Channel By Matsumoto, Ryo; Morita, Hiroshi; Ono, Taiki
  6. Regulatory Requirements of Banks and Arbitrage in the Post-Crisis Federal Funds Market By Rod Garratt; Sofia Priazhkina
  7. How Abundant Are Reserves? Evidence from the Wholesale Payment System By Gara Afonso; Darrell Duffie; Lorenzo Rigon; Hyun Song Shin
  8. Consumption Loan Augmented Divisia Monetary Index and China Monetary Aggregation By William Barnett; Kun He; Jingtong He
  9. Lending and monitoring: Big Tech vs Banks By Bouvard, Matthieu; Casamatta, Catherine; Xiong, Rui
  10. Bullard Discusses Interest Rates and Containing Inflation with MarketWatch By James B. Bullard
  11. The market for short-term debt securities in Europe: what we know and what we do not know By Darpeix, Pierre-Emmanuel
  12. Consumer credit in the age of AI: Beyond anti-discrimination law By Langenbucher, Katja
  13. Does Fintech Lending Lower Financing Costs? Evidence From An Emerging Market By Jose Renato Haas Ornelas; Alexandre Reggi Pecora
  14. ESG Factors and Firms’ Credit Risk By Bonacorsi, Laura; Cerasi, Vittoria; Galfrascoli, Paola; Manera, Matteo
  15. Central Bank Monetary Policy Strategies amid Turmoil in the World Economy By Michel Aglietta; Sabrina Khanniche
  16. COVID-19 and Public Support for the Euro By Roth, Felix; Jonung, Lars; Most, Aisada
  17. Financial development cycles and income inequality in a model with good and bad projects. By Spiros Bougheas; Pasquale Commendatore; Laura Gardini; Ingrid Kubin
  18. Stablecoins and Their Risks to Financial Stability By Cameron MacDonald; Laura Zhao
  19. What Happens in China Does Not Stay in China By William Barcelona; Danilo Cascaldi-Garcia; Jasper Hoek; Eva Van Leemput
  20. Bank lending rates and the remuneration for risk: evidence from portfolio and loan level data By Durrani, Agha; Metzler, Julian; Michail, Nektarios; Werner, Johannes Gabriel
  21. Does Globalization Promote Financial Integration in South Asian Economies? Unveiling the Role of Monetary and Fiscal Performance in Internationalization By Ali, Amjad; Ehsan, Rehan; Audi, Marc; Hamadeh, Hani Fayad
  22. Euro area monetary policy and TARGET balances: a trilogy By Eisenschmidt, Jens; Kedan, Danielle; Schmitz, Martin
  23. Resolute and Mindful: The Path to Price Stability By Mary C. Daly
  24. Mobile money and household consumption volatility By Ablam Estel Apeti
  25. Euro area inflation and a new measure of core inflation By Claudio Morana

  1. By: Roberto Chang
    Abstract: Should central banks care about inequality? To address this question, we extend a standard model of time inconsistency in monetary policy to allow for heterogeneity. As in the standard analysis, lack of policy commitment leads to a bias towards socially excessive inflation. But the novel result is that, in the presence of heterogeneity, the bias can be offset by assigning the central bank a mandate under which agents with higher nominal wealth are given a higher relative weight than under the social welfare function. In other words, society should choose a central banker that is less egalitarian than itself, a result reminiscent of Rogoff's "conservative central banker". Our analysis underscores that including a concern for redistribution in the central bank's mandate can enhance policy credibility, but the details can be unexpected and should reflect the role of the mandate in overcoming policy distortions.
    JEL: E6 F4
    Date: 2022–11
  2. By: Douglas A. Irwin (Peterson Institute for International Economics)
    Abstract: The 1980s and 1990s saw a policy revolution in developing countries in which many highly protected (if not closed) economies were opened to world trade. These reforms were largely undertaken unilaterally, but international economic institutions such as the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade/World Trade Organization supported these efforts. This paper examines the ways in which these institutions promoted, or failed to promote, trade policy reform during this pivotal period.
    Keywords: IMF, World Bank, GATT, WTO, trade reform, structural adjustment, conditional aid, tariff reduction, trade liberalization
    JEL: F13
    Date: 2022–12
  3. By: Etienne Harb (Essca School of Management, Angers); Nohade Nasrallah (LaRGE Research Center, Université de Strasbourg); Rim El Khoury (Lebanese American University, Lebanon); Khaled Hussainey (University of Portsmouth, United Kingdom)
    Abstract: Purpose: Lebanon has faced one of the most severe financial and economic crises since the end of 2019. The practices of the Lebanese banks are blamed for dangerously exposing economic agents and precipitating the current financial collapse. This paper examines the patterns of manipulation of the 10 biggest banks before and after implementing the financial engineering mechanism. Design/methodology/approach: We apply Benford Law (BL) for the first and second positions of the reports of condition and income and four out of the six aspects of the CAMELS rating system (Capital Adequacy, Assets Quality, Management expertise, Earnings Strength, Liquidity, and Sensitivity to the market) by excluding Management and Sensitivity. The deviations from BL frequencies are tested using Z-statistic and Chi-square tests. Findings: Banks seem to have manipulated their Capital Adequacy, Liquidity, and Assets Quality in the pre- and considerably in the post-financial engineering periods. Fraudulent manipulations in the banking sector can distort depositors, shareholders, and regulating authorities. Originality: The study is the first to examine the patterns of fraudulent manipulation in the Lebanese banking industry using BL. Research implications: This study has many implications for governmental authorities, commercial banks, depositors, businesses, accounting and auditing firms, and policymakers. The Lebanese government needs to implement corrective fiscal and monetary policies and apply amendments to the bank secrecy and capital control law. The central bank should revamp its organizational structure, improve its disclosure practices and significantly reduce its ties to the government and the political elite.
    Keywords: Benford law; Frauds; Financial engineering; Reports of condition and income; CAMELS; Lebanon.
    JEL: G01 G21 M42
    Date: 2022
  4. By: Chong Mo; Song Li; Geoffrey K. F. Tso; Jiandong Zhou; Yiyan Qi; Mingjie Zhu
    Abstract: Graph convolutional networks (GCNs) is a class of artificial neural networks for processing data that can be represented as graphs. Since financial transactions can naturally be constructed as graphs, GCNs are widely applied in the financial industry, especially for financial fraud detection. In this paper, we focus on fraud detection on cryptocurrency truct networks. In the literature, most works focus on static networks. Whereas in this study, we consider the evolving nature of cryptocurrency networks, and use local structural as well as the balance theory to guide the training process. More specifically, we compute motif matrices to capture the local topological information, then use them in the GCN aggregation process. The generated embedding at each snapshot is a weighted average of embeddings within a time window, where the weights are learnable parameters. Since the trust networks is signed on each edge, balance theory is used to guide the training process. Experimental results on bitcoin-alpha and bitcoin-otc datasets show that the proposed model outperforms those in the literature.
    Date: 2022–11
  5. By: Matsumoto, Ryo; Morita, Hiroshi; Ono, Taiki
    Abstract: Central bank information effect have been analyzed in the recent literature on monetary policy. In this study, we apply the identification method by Jarocinski and Karadi (2020) to the Japanese data to empirically examine the macroeconomic effects of central bank information shock and pure monetary policy shock. These shocks are identified by combining of high-frequency identification and sign restriction. The empirical results support the presence of central bank information effects in Japan. Particularly, the central bank information shock accompanying monetary tightening decreases economic uncertainty and increases stock prices and output, suggesting that central bank’s optimistic outlook is conveyed through contractionary monetary actions. The results of the forecast error variance decomposition indicate that the central bank’s information effect may be spread through changes in uncertainty. Finally, the total effect of monetary policy and information shocks on the variables are much larger than that of the shocks identified by the conventional Cholesky decomposition. These findings are important for evaluating the true effects of monetary actions on the economy.
    Keywords: Monetary policy, Information effect, High-frequency data, VAR model
    JEL: C32 D83 E44 E52 G14
    Date: 2022–11
  6. By: Rod Garratt; Sofia Priazhkina
    Abstract: This paper explains the nature of interest rates in the U.S. federal funds market after the 2007-09 financial crisis. We build a model of the over-the-counter lending market that incorporates new aspects of the financial system: abundance of liquidity, different regulatory standards for banks, and arbitrage opportunities created by limited access to the facility granting interest on excess reserves. The model determines the equilibrium federal funds rate as a function of the policy rates and explains the “leaky floor” phenomenon in which we observe federal funds rates that are strictly below the interest rate paid on reserves. Using the model, we explain the impact of raising government yields and tightening the Liquidity Coverage Ratio (LCR) and the Supplementary Leverage Ratio (SLR) requirements on the federal funds rates.
    Keywords: Central bank research; Economic models; Financial institutions; Financial markets; Financial stability; Financial system regulation and policies; Wholesale funding
    JEL: E42 E58 G28
    Date: 2022–11
  7. By: Gara Afonso; Darrell Duffie; Lorenzo Rigon; Hyun Song Shin
    Abstract: Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments. By providing a window on liquidity constraints revealed by payment behavior, our results shed light on thresholds for the adequacy of reserve balances. Our findings are timely, given the ongoing shrinking of central bank balance sheets around the world in response to inflation.
    Keywords: real-time gross settlement; quantitative tightening; Balance sheet management; reserve balances
    JEL: E42 E44 E52 E58 G21
    Date: 2022–11–01
  8. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Kun He (Department of Economics, University of Kansas); Jingtong He (School of Economics, Nankai University, Tianjin, China)
    Abstract: Simple sum monetary aggregates are based on accounting conventions and have no aggregation theoretic foundations in economic theory. In contrast, Divisia monetary aggregates are directly derived from aggregation and index number theory. Credit card services cannot be included in simple sum monetary aggregates, since accounting conventions cannot aggregate over assets and liabilities. But microeconomic aggregation theory aggregates over service flows not stocks, regardless of whether from assets or liabilities. As a result, it has recently been shown that Divisia monetary aggregates can be augmented to include credit card services and are available from the Center for Financial Stability in New York City. Other sources of consumer credit cannot be included in Divisia monetary aggregates for the United States, since other sources of consumer credit in the United States are linked to specific groups of consumer goods and hence violate the weak separability condition for existence of an aggregator function. However, China produces a unique opportunity to broaden the Divisia monetary aggregates, since sources of consumer credit, not limited to credit cards, are applicable to all consumption purchase and hence do not violate the existence condition for an aggregator function. We report initial results with a broader Chinese Divisia monetary aggregate including not only credit card services but also other broadly acceptable consumer loan services.
    Keywords: Divisia Monetary Aggregates, Consumption Loans, Chinese Monetary Aggregates.
    JEL: C32 C53 E31 E47 E51
    Date: 2022–11
  9. By: Bouvard, Matthieu; Casamatta, Catherine; Xiong, Rui
    Abstract: We show that by lending to merchants and monitoring them, an e-commerce platform can price-discriminate between merchants with high and low financial constraints: the platform offers credit priced below market rates and designed to select merchants with lower capital or collateral while simultaneously increasing the platform’s access fees. The credit market then becomes endogenously segmented with banks focusing on less financially constrained borrowers. Lending by the platform expands with its monitoring efficiency but can arise even when the platform is less efficient than banks at monitoring. Platform credit benefits more financially constrained merchants as well as buyers, but can hurt less financially constrained merchants if cross-side network effects with buyers are too small. The platform’s propensity to offer credit and the financial inclusion of more constrained merchants depends on the platform’s market power.
    Keywords: Big Tech; banks; two-sided markets; financial constraints; financial inclusion;; market power
    Date: 2022–11
  10. By: James B. Bullard
    Abstract: In an interview with MarketWatch during a Barron’s Live event, St. Louis Fed President Jim Bullard talked about the level of the policy rate needed to put sufficient downward pressure on inflation. Citing his Nov. 17 presentation to Greater Louisville Inc., Bullard reiterated that the policy rate would need to reach at least the bottom end of a 5% to 7% range to be sufficiently restrictive, given the data the Federal Open Market Committee has today. “I also think that we’re going to have to continue to pursue our interest rate increases into 2023, and there’s some risk that we’ll have to go even higher than the lower end of that range as we go through 2023 if the inflation data in particular does not cooperate with us,” Bullard said. Rates may have to stay in the restrictive range throughout 2023 and into 2024, he added. Bullard also talked about strong U.S. labor markets, his expectation for below-trend GDP growth in 2023, quantitative tightening of monetary policy through balance sheet reduction, the yield curve inversion, and the slowdown in the housing market.
    Keywords: inflation; policy rate
    Date: 2022–11–28
  11. By: Darpeix, Pierre-Emmanuel
    Abstract: In March 2020, against the backdrop of a worsening Covid crisis, some segments of the money market fund (MMF) industry faced severe redemption pressures. Given their central role within the short term funding market, MMFs were at the heart of financial stability concerns, and legitimately underwent careful reviews by macroprudential bodies and market supervisors to assess their vulnerabilities and propose policy options to remediate them. Yet it is clear that MMFs are only one part of a wider ecosystem. These funds collect excess cash from some economic agents, which is predominantly invested in the markets for short-term debt securities, thus providing funding to a wide array of entities in need for short-term funding (banks, non-financial corporates, States, local governments, etc.). And clearly, beyond funds, vulnerabilities were also identified both on the underlying market and on the investors’ side. In order to complement the recommendations issued in January 2022 by the ESRB ahead of the scheduled revision of the MMF Regulation, and so as to provide a better understanding of vulnerabilities still widely unaddressed, the AMF conducted a stock-take analysis of the public information available on the very fragmented and opaque market for short-term debt instruments in Europe. Thanks to a fruitful collaboration with ESRB who shared internal databases, it was able to fill in some data gaps and provide new insights on this market. In particular, this stock-take gives the first comprehensive and consolidated estimate of the outstanding in question (more than EUR 2.2 trillion as of Dec.2020), with a breakdown according to issuer types, instrument types and currencies. The analysis highlights the still unaddressed vulnerabilities such as the fragmentation of the market and of its supervision as well as the lack of a robust identification of Euro-CP and emphasizes the lack of transparency in the secondary market operations. JEL Classification: D53, E58, E65, G15, G18, G23, H63
    Keywords: Certificates of deposit, Commercial paper, Euro-CP, NEU-CP, Short term funding market, STEP, Treasury bills
    Date: 2022–12
  12. By: Langenbucher, Katja
    Abstract: Search costs for lenders when evaluating potential borrowers are driven by the quality of the underwriting model and by access to data. Both have undergone radical change over the last years, due to the advent of big data and machine learning. For some, this holds the promise of inclusion and better access to finance. Invisible prime applicants perform better under AI than under traditional metrics. Broader data and more refined models help to detect them without triggering prohibitive costs. However, not all applicants profit to the same extent. Historic training data shape algorithms, biases distort results, and data as well as model quality are not always assured. Against this background, an intense debate over algorithmic discrimination has developed. This paper takes a first step towards developing principles of fair lending in the age of AI. It submits that there are fundamental difficulties in fitting algorithmic discrimination into the traditional regime of anti-discrimination laws. Received doctrine with its focus on causation is in many cases ill-equipped to deal with algorithmic decision-making under both, disparate treatment, and disparate impact doctrine. The paper concludes with a suggestion to reorient the discussion and with the attempt to outline contours of fair lending law in the age of AI.
    Keywords: credit scoring methodology,AI enabled credit scoring,AI borrower classification,responsible lending,credit scoring regulation,financial privacy,statistical discrimination
    JEL: C18 C32 K12 K23 K33 K40 J14 O31 O33
    Date: 2022
  13. By: Jose Renato Haas Ornelas; Alexandre Reggi Pecora
    Abstract: Using proprietary data of virtually all unsecured working capital loans to small businesses in Brazil, we find that online Peer-to-Peer (P2P) lenders focus on smaller and riskier firms already served by banks. P2P clients get lower interest rates compared to traditional banks. Once they borrow from P2Ps, they find a lower rate on subsequent bank loans, indicating that banks try to recapture runaway borrowers. In response to P2P entry, incumbent banks in oligopolistic markets decrease their lending rates by 2.5 percentage points and expand credit to older firms with difficulty accessing credit. We rationalize these findings in a structural IO model of the banking sector, where banks and P2Ps have different profit functions and compete for clients with risk heterogeneity. We use the estimated model to calculate welfare gains. P2Ps significantly increase social welfare in oligopolistic markets by offering lower interest rates to riskier borrowers and forcing the banks to do the same. Welfare gains range from 10% of the local output in municipalities with only one incumbent bank to 1% in those with five banks.
    Date: 2022–10
  14. By: Bonacorsi, Laura; Cerasi, Vittoria; Galfrascoli, Paola; Manera, Matteo
    Abstract: We study the relationship between the risk of default and Environmental, Social and Governance (ESG) factors using Supervised Machine Learning (SML) techniques on a cross-section of European listed companies. Our proxy for credit risk is the z-score originally proposed by Altman (1968). We consider an extensive number of ESG raw factors sourced from the rating provider MSCI as potential explanatory variables. In a first stage we show, using different SML methods such as LASSO and Random Forest, that a selection of ESG factors, in addition to the usual accounting ratios, helps explaining a firm’s probability of default. In a second stage, we measure the impact of the selected variables on the risk of default. Our approach provides a novel perspective to understand which environmental, social responsibility and governance characteristics may reinforce the credit score of individual companies.
    Keywords: Financial Economics, Productivity Analysis, Research Methods/ Statistical Methods
    Date: 2022–11–29
  15. By: Michel Aglietta; Sabrina Khanniche
    Abstract: This policy brief addresses the challenges that confronted the main central banks in the face of uncertainties arising from multiple disruptions: the waves of the Covid-19 pandemic since early 2020 to the energy crisis of 2022, to the disastrous events generated by climate change, the war in Ukraine and the real-estate crisis in China. Inflation has surged due to supply-side problems and fiscal policies fostered by socio-political rivalries both within and between countries. In this environment, the task of central banks to fight high and persistent inflation, while limiting the risk of severe or prolonged recession, is extremely difficult, and particularly so when their lack of cooperation can lead them to overbid one another in raising their policy rate. To understand better how central banks are responding to inflation surges and financial vulnerabilities, we start from reviews of monetary policy frameworks by the Fed and ECB to highlight why they have been induced to abandon their forward guidance in favor of day-to-day responses to the flow of new events. Since early 2022, the main challenge forcing central banks from easing to restrictive monetary policy has been the surge in inflation triggered by the rise in energy and food prices related to the war in Ukraine in a context of deep uncertainty. However, specific national issues remain key to central bank policies.
    Keywords: Surging inflation;Financial vulnerabilities;Yield curve inversion
    JEL: E58 E62 F31
    Date: 2022–11
  16. By: Roth, Felix; Jonung, Lars; Most, Aisada
    Abstract: The COVID-19 pandemic had disastrous effects on health and economic activity worldwide, including in the Euro Area. The application of mandatory lockdowns contributed to a sharp fall in production and a rise in unemployment, inducing an expansionary fiscal and monetary response. Using a uniquely large macro database, this paper examines the effects of the pandemic and the ensuing economic policies on public support for the common currency, the euro, as measured by the Eurobarometer survey. It finds that public support for the euro reached historically high levels in a majority of the 19 Euro Area member states in the midst of the pandemic. This finding suggests that the expansionary fiscal policies initiated at the EU level significantly contributed to this outcome, while the monetary measures taken by the European Central Bank did not have a similar effect.
    Keywords: COVID-19,lockdowns,support for the euro,unemployment,inflation,monetary policies,fiscal policies,EU
    JEL: C23 E24 E42 E52 E62 I18
    Date: 2022
  17. By: Spiros Bougheas; Pasquale Commendatore; Laura Gardini; Ingrid Kubin
    Abstract: We introduce a banking sector and heterogeneous agents in the Matsuyama et al. (2016) dynamic over-lapping generations neoclassical model with good and bad projects. The model captures the benefits and costs of an advanced banking system which can facilitate economic development when allocates resources to productive activities but can also hamper progress when invests in projects that do not contribute to capital formation. When the economy achieves higher stages of development it becomes prone to cycles. We show how the disparity of incomes across agents depends on changes in both the prices of the factors of production and the reallocation of agents across occupations.
    Keywords: banks; financial innovation; economic development; business cycles; income inequality
    Date: 2022
  18. By: Cameron MacDonald; Laura Zhao
    Abstract: The market for fiat-referenced cryptoassets, commonly known as stablecoins, has expanded rapidly in recent years alongside the growth of the cryptoasset ecosystem. In fact, the market capitalization of stablecoins increased by more than 30 times since the beginning of 2020. What risks could stablecoins pose to the financial system? We examine price stabilization mechanisms of stablecoins as well as the current and potential use cases of stablecoins. We then analyze the risks stemming from both. We argue that the price stabilization mechanisms of current stablecoins could lead to the risk of confidence runs, which can propagate to broader cryptoasset markets and the traditional financial sector. We also argue that stablecoins can contribute to risks to financial stability by facilitating the buildup of leverage and liquidity mismatches in decentralized finance. Such risks cannot be addressed by regulating the safety and soundness of stablecoins alone without adequately regulating broader activities in the crypto ecosystem. Finally, we explore the potential implications of the substitution of cash and bank deposits for stablecoins in payments and the financial system more broadly, particularly the current system of bank-intermediated credit and for monetary policy.
    Keywords: Digital currencies and fintech; Financial institutions; Financial markets; Financial stability; Financial system regulation and policies
    JEL: E44 E58 G23
    Date: 2022–11
  19. By: William Barcelona; Danilo Cascaldi-Garcia; Jasper Hoek; Eva Van Leemput
    Abstract: Spillovers from China to global financial markets have been found to be small owing to China's limited integration in the global financial system. In this paper, however, we provide evidence that China constitutes an important driver of the global financial cycle. We argue that because of China's importance for global consumption, stronger Chinese growth raises global growth prospects, inducing an increase in global risk sentiment and an expansion in global asset prices and global credit. Two contributions are key to this finding: (1) We construct a measure of China's credit impulse to identify Chinese policy-induced demand shocks. Our approach takes advantage of the fact that a primary tool of China's stabilization policy-encompassing monetary, fiscal, and regulatory policies-is controlling the amount of credit in the economy. Without China's credit impulse, it is difficult to discern global financial spillovers; (2) We estimate an alternative measure of Chinese GDP growth that captures its business cycle given data concerns about the smoothness of official GDP data. Without China's alternative GDP measure, it is difficult to attribute any global cycle movements to economic developments in China.
    Keywords: China; Growth; Credit Impulse; Global Financial Cycle; Global Business Cycle; Global Risk Sentiment; Commodity Prices
    JEL: C52 E50 F44
    Date: 2022–11–25
  20. By: Durrani, Agha; Metzler, Julian; Michail, Nektarios; Werner, Johannes Gabriel
    Abstract: We employ interest rates and expected loss probabilities from the 2021 EBA Stress Test dataset and euro area credit registries to examine whether the risk-return relationship holds in banking. After controlling for bank, loan, and debtor characteristics as well as macroeconomic conditions, results indicate that a risk-return relationship in bank lending is present but varies significantly across and within borrower segments. While bank lending rates appear to be quite responsive to risks towards households, results suggest that banks only significantly increase interest rates towards non-financial corporations that reside in the riskiest quantiles of the distribution. This potentially implies the presence of a cross-subsidization effect of credit risk. JEL Classification: E51, E52, E58
    Keywords: banking, credit register, interest rates, loans, risk-return
    Date: 2022–11
  21. By: Ali, Amjad; Ehsan, Rehan; Audi, Marc; Hamadeh, Hani Fayad
    Abstract: Presently, monitoring and analyzing financial integration has become a key function and requirement of the financial regulatory bodies and central banks of the countries. It has also been observed that financial integration is important to make the financial system streamlined and efficient which is eventually used to make monetary policies and to judge a country’s financial performance. Financial integration also highlights disruption in the financial system of the country if it does not work properly. This study has examined the impact of globalization on financial integration in the case of South Asian countries from 1996 to 2020. The selected South Asian countries are Bangladesh, India, Nepal, Pakistan, and Sri Lanka. Financial integration is selected as the dependent variable, whereas political instability, globalization, fiscal performance, monetary performance, and economic misery are selected as explanatory variables. PP-FC, ADF-FC, IP&S, and LLC unit root tests have been used to check the stationarity of the variables. Panel least squares and fixed-effect model have been used for examining the dependence of financial integration on selected explanatory variables. The outcomes of unit root tests show that there is the same order of integration among the selected variables of the model i.e. first difference. The results show that level of political instability has a negative and insignificant impact on financial integration. The outcome shows that monetary performance, globalization, and economic misery have positive and significant impacts on financial integration. Fiscal performance has a negative and significant impact on financial integration. Based on the results, it suggested that South countries should make stable monetary and fiscal performance with a rise in globalization to raise financial integration. Moreover, political instability and economic misery should be discouraged for higher financial integration.
    Keywords: globalization, financial integration, political instability, monetary performance, fiscal performance, economic misery
    JEL: F36 F50 F60 O23
    Date: 2022
  22. By: Eisenschmidt, Jens; Kedan, Danielle; Schmitz, Martin
    Abstract: The growth in TARGET balances after 2009 has given rise to intense academic and public debate. Our paper offers a systematic exposition of the necessary conditions for TARGET balances to emerge and provides a clear link to monetary policy. We show that large TARGET balances can only arise with excess liquidity. The interpretation of TARGET balances therefore depends on the monetary policy context in which excess liquidity is created. We distinguish three phases of TARGET balances growth and propose some easy-to-derive metrics for policy makers and academics to assess developments in TARGET balances. We develop a comprehensive econometric framework to account for relevant factors driving TARGET balances in the different phases. We find that while financial market stress and economic imbalances were the drivers of TARGET balances during the great financial and sovereign debt crises, the implementation of Eurosystem asset purchases was the driving force since March 2015. As excess liquidity is likely to persist on account of higher demand for central bank reserves compared to the pre-crisis period, TARGET balances have the potential to remain sizeable in the future. JEL Classification: E42, E58, F32
    Keywords: asset purchase programme, balance of payments, excess liquidity, TARGET2
    Date: 2022–11
  23. By: Mary C. Daly
    Abstract: Presentation at Orange County Business Council, Irvine, California, November 21, 2022, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco.
    Keywords: monetary policy; inflation; price stability
    Date: 2022–11–21
  24. By: Ablam Estel Apeti (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Access to financial services plays an important role in household welfare, as it provides access to investment opportunities, savings, consumption smoothing, and insurance against unexpected shocks. In developing economies where formal financial services exclude nearly half of the population, the development of mobile cellular offers an exciting avenue to provide poor households with access to basic financial services through mobile money. In this study, we analyze the effect of this financial innovation, i.e., mobile money, on household consumption volatility. Our results show that mobile money reduces household consumption volatility. Finally, we identify financial inclusion and migrant remittances as potential major transmission channels.
    Abstract: L'accès aux services financiers joue un rôle important dans le bien-être des ménages, car il permet d'accéder à des opportunités d'investissement, d'épargne, de lissage de la consommation et d'assurance contre des événements inattendus. Dans les économies en développement où les services financiers formels excluent près de la moitié de la population, le développement de la téléphonie mobile donne une opportunité aux ménages pauvres d'accéder aux services financiers de base par le mobile money. Dans cette étude, nous analysons l'effet de cette innovation financière, c'est-à-dire le mobile money, sur la volatilité de la consommation des ménages. Nos résultats soulignent qu'elle réduit cette volatilité. Pour expliquer ce résultat, nous identifions l'inclusion financière et les transferts des migrants comme de potentiels canaux de transmission majeurs.
    Keywords: Mobile money services,Mobile money,Volatilité,Pays en dévelopement,Consommation des ménages
    Date: 2022–11–10
  25. By: Claudio Morana (Center for European Studies, University of Milano-Bicocca, Italy; Rimini Centre for Economic Analysis; CeRP, Collegio Carlo Alberto, Italy; CES, Harvard, USA)
    Abstract: This paper introduces a new decomposition of euro area headline inflation into core, cyclical and residual components. Our new core inflation measure, the structural core inflation rate, bears the interpretation of expected headline inflation, conditional to medium to long-term demand and supply-side developments. It shows smoothness and trending properties, economic content, and forecasting ability for headline inflation and other available core inflation measures routinely used at the ECB for internal or external communication. Hence, it carries additional helpful information for policy-making decisions. Concerning recent developments, all the inflation components contributed to its post-pandemic upsurge. Since mid-2021, core inflation has been on a downward trend, landing at about 3% in 2022. Cyclical and residual inflation -associated with idiosyncratic supply chains, energy markets, and geopolitical tensions- are currently the major threats to price stability. While some cyclical stabilization is ongoing, a stagflation scenario cum weakening overall financial conditions might be lurking ahead. A pressing issue for ECB monetary policy will be to face -mostly supply-side- inflationary pressure without triggering a financial crisis.
    Keywords: headline inflation, core inflation, Russia's war in Ukraine, COVID-19 pandemic, sovereign debt crisis, subprime financial crisis, dot-com bubble, euro area, ECB monetary policy, trend-cycle decomposition
    JEL: C22 C38 E32 F44 G01
    Date: 2022–12

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