nep-ban New Economics Papers
on Banking
Issue of 2023‒01‒16
thirty-two papers chosen by
Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana

  1. Open banking and customer data sharing: Implications for FinTech borrowers By Nam, Rachel J.
  2. Bank credit risk and macro-prudential policies: role of counter-cyclical capital buffer By Benbouzid, Nadia; Kumar, Abhishek; Mallick, Sushanta K.; Sousa, Ricardo M.; Stojanovic, Aleksandar
  3. Blockchain Network Analysis: A Comparative Study of Decentralized Banks By Yufan Zhang; Zichao Chen; Yutong Sun; Yulin Liu; Luyao Zhang
  4. Difficult issues in financial regulation for financial stability By Ozili, Peterson K
  5. Real interest rates, bank borrowing, and fragility By Ahnert, Toni; Anand, Kartik; König, Philipp Johann
  6. Is a State Bank a Useful Economic Development Tool in the United States? By Robert S. Chirinko
  7. Bank Funding Risk, Reference Rates, and Credit Supply By Darrell Duffie; Cooperman Harry; Stephan Luck; Zachry Wang; Yilin Yang
  8. Regional divides in firms’ take-up of bank debt moratoria and public guarantee schemes during the pandemic in Italy By Davide Arnaudo; Michele Cascarano; Rosalia Greco; Valentina Michelangeli; Litterio Mirenda; Davide Revelli
  9. International Liquidity Shock and Bank Resilience: Evidence from Matched Bank-Firm Data By Youngju Kim; Hyunjoon Lim; Youngjin Yun
  10. The Relative Benefits and Risks of Stablecoins as a Means of Payment: A Case Study Perspective By Annetta Ho; Sriram Darbha; Yuliya Gorelkina; Alejandro García
  11. The Consequences of Low Interest Rates for the Australian Banking Sector By Anthony Brassil
  12. Systemic fragility in decentralised markets By Alfred Lehar; Christine A Parlour
  13. Macroeconomic uncertainty and bank lending By Vegard H. Larsen; Ragnar E. Juelsrud
  14. Sustainability and trust: financial inclusion in the Global South By Úbeda, Fernando; Mendez, Alvaro; Forcadell, Francisco Javier
  15. Consumer credit in the age of AI: Beyond anti-discrimination law By Langenbucher, Katja
  16. Decentralized lending and its users: Insights from Compound By Kanis Saengchote
  17. Cryptocurrencies and Decentralised Finance By Igor Makarov; Antoinette Schoar
  18. The burst of high inflation in 2021–22: how and why did we get here? By Ricardo Reis
  19. Banks’ Balance-Sheet Costs, Monetary Policy, and the ON RRP By Gara Afonso; Marco Cipriani; Gabriele La Spada
  20. Public Banks and Development in Egypt: Overview, Issues and the Way Forward By Jasmin Fouad; Moheb Said; Wesam Sherif; Chahir Zaki
  21. Toxic Liquidation Spirals : Evidence from the bad debt incurred by AAVE By Jakub Warmuz; Amit Chaudhary; Daniele Pinna
  22. Evaluating Human Factors in Third-Party Services in Banking Sector By , Adedamola
  23. Digitalization, financial knowledge and financial decisions By Daniela Marconi; Marco Marinucci; Giovanna Paladino
  24. Inequality-Constrained Monetary Policy in a Financialized Economy By Fierro, Luca Eduardo; Giri, Federico; Russo, Alberto
  25. A look offshore: unpacking the routes of misinvoicing in international trade By Catalin Dragomirescu-Gaina; Leandro Elia
  26. On the macroeconomic effects of reinvestments in asset purchase programmes By Gerke, Rafael; Kienzler, Daniel; Scheer, Alexander
  27. Unemployment in the Euro Area and Unconventional Monetary Policy Surprises By Oliver Hülsewig; Horst Rottmann
  28. Robust real rate rules By Holden, Tom D.
  29. Debt advice for consumers: nature, European debate and implications for Italy By Diletta Antenucci; Gioia Caldarelli
  30. FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability By Damiano Sandri
  31. CANVAS: A Canadian Behavioral Agent-Based Model By Cars Hommes; Mario He; Sebastian Poledna; Melissa Siqueira; Yang Zhang
  32. Theories of crowdfunding and token issues: a review By Miglo, Anton

  1. By: Nam, Rachel J.
    Abstract: With open banking, consumers take greater control over their own financial data and share it at their discretion. Using a rich set of loan application data from the largest German FinTech lender in consumer credit, this paper studies what characterizes borrowers who share data and assesses its impact on loan application outcomes. I show that riskier borrowers share data more readily, which subsequently leads to an increase in the probability of loan approval and a reduction in interest rates. The effects hold across all credit risk profiles but are the most pronounced for borrowers with lower credit scores (a higher increase in loan approval rate) and higher credit scores (a larger reduction in interest rate). I also find that standard variables used in credit scoring explain substantially less variation in loan application outcomes when customers share data. Overall, these findings suggest that open banking improves financial inclusion, and also provide policy implications for regulators engaged in the adoption or extension of open banking policies.
    Keywords: Open banking,FinTech,Marketplace lending,P2P lending,Big data,Customer data sharing,Data access,Data portability,Digital footprints
    Date: 2022
  2. By: Benbouzid, Nadia; Kumar, Abhishek; Mallick, Sushanta K.; Sousa, Ricardo M.; Stojanovic, Aleksandar
    Abstract: This paper investigates the impact of macro-prudential policy (proxied by the counter-cyclical capital buffer (CCyB)) on bank credit risk during uncertain times, as banking sector stability is crucial in promoting financial intermediation. Using a unique daily data set consisting of 4939 credit default swaps (CDS) of 70 banks from 25 countries over the period 2010–2019, we find that CCyB tightening decreases bank-level CDS spreads, while CCyB loosening increases CDS spreads. This heterogeneous effect of CCyB arises due to its asymmetric effect on the capital ratio (i.e., the equity-to-total assets ratio) of banks. Tightening CCyB significantly increases capital, whereas loosening CCyB does not impact capital. Thus, the risks that emanate from the banking sector during periods of heightened uncertainty and financial distress can be significantly dampened when CCyB regulation is enabled. Consequently, macro-prudential policies for banks to hold higher levels of capital during good times are justified to contain financial market risks during downturns.
    Keywords: Bank CDS; Macro-prudential policy; Bank-level characteristics; Macroeconomic environment; Uncertainty
    JEL: G15
    Date: 2022–12–01
  3. By: Yufan Zhang; Zichao Chen; Yutong Sun; Yulin Liu; Luyao Zhang
    Abstract: Decentralized finance (DeFi) is known for its unique mechanism design, which applies smart contracts to facilitate peer-to-peer transactions. The decentralized bank is a typical DeFi application. Ideally, a decentralized bank should be decentralized in the transaction. However, many recent studies have found that decentralized banks have not achieved a significant degree of decentralization. This research conducts a comparative study among mainstream decentralized banks. We apply core-periphery network features analysis using the transaction data from four decentralized banks, Liquity, Aave, MakerDao, and Compound. We extract six features and compare the banks' levels of decentralization cross-sectionally. According to the analysis results, we find that: 1) MakerDao and Compound are more decentralized in the transactions than Aave and Liquity. 2) Although decentralized banking transactions are supposed to be decentralized, the data show that four banks have primary external transaction core addresses such as Huobi, Coinbase, Binance, etc. We also discuss four design features that might affect network decentralization. Our research contributes to the literature at the interface of decentralized finance, financial technology (Fintech), and social network analysis and inspires future protocol designs to live up to the promise of decentralized finance for a truly peer-to-peer transaction network.
    Date: 2022–12
  4. By: Ozili, Peterson K
    Abstract: This article explores some of the difficult issues in financial regulation for financial stability. Noting the lack of prior academic work in the topic, this article presents a discussion of some difficult issues in financial regulation for financial stability. Some of the difficult issues include: the difficulty in breaking too-big-to-fail financial institutions into small insignificant parts; the difficulty in regulating executive compensation in the financial sector without limiting the ability of financial institutions to attract and reward executive talent; the difficulty in instilling strict financial regulation and supervision without limiting the ability of financial institutions to exploit emerging profitable opportunities; the difficulty in ensuring that financial institutions increase lending during a recession or in bad times; the rarity of having a female CEO and Chair in a major financial institution; the difficulty in making central banks independent from the influence of the federal government; the difficulty in making financial institutions become relevant in the ever-changing digital technology environment; and the difficulty in preventing financial institutions from taking excessive risks when strict regulations are loosened under a light-touch regulatory regime. The implication of the findings is that financial regulation for financial stability is not an easy task. There will be issues that financial regulation can address, and there will be issues that financial regulation cannot address. Acknowledging that such difficulties exist on the path to financial stability is the first step to addressing these issues.
    Keywords: financial regulation, financial stability, bank supervision, crisis, central bank, banks, financial institutions, financial innovations, banking and finance.
    JEL: G21 G28
    Date: 2022
  5. By: Ahnert, Toni; Anand, Kartik; König, Philipp Johann
    Abstract: How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank's optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank creditors. Changes in the interest rate affect the price and amount of borrowing, both of which influence bank fragility in opposite directions. Thus, the marginal impact of changes to the interest rate on bank fragility depends on the level of the interest rate. Finally, we derive testable implications that may guide future empirical work.
    Keywords: bank borrowing,rollover risk,fragility,real interest rates,global games,funding liquidity risk channel
    JEL: G01 G21 G28
    Date: 2022
  6. By: Robert S. Chirinko
    Abstract: The possibility of creating a state bank has received much recent attention in the United States. In 2021, six states introduced legislation to create a state bank; in 2019, similar legislation was enacted in California for municipal banks. This paper develops a framework to evaluate state banking, reviews prior experiences with state banking and related alternatives to traditional private banking and identifies five questions determining the advisability of creating a state bank. The overall goal is to shed some light on whether a state bank can be a useful tool to further state economic development and the welfare of state residents.
    Keywords: state bank, public bank, credit allocation, economic development
    JEL: G21 G28 H70
    Date: 2022
  7. By: Darrell Duffie; Cooperman Harry; Stephan Luck; Zachry Wang; Yilin Yang
    Abstract: Corporate credit lines are drawn more heavily when funding markets are more stressed. This covariance elevates expected bank funding costs. We show that credit supply is inefficiently dampened by the associated debt-overhang cost to bank shareholders. Until 2022, this impact was reduced by linking the interest paid on lines to credit-sensitive reference rates such as LIBOR. We show that transition to risk-free reference rates may exacerbate this friction. The adverse impact on credit supply is offset if the majority of drawdowns are expected to be left on deposit at the same bank, which happened at some of the largest banks during the COVID-19 shock.
    Keywords: credit supply; reference rates; credit lines; London Interbank Offered Rate (LIBOR); Secured Overnight Financing Rate (SOFR); bank funding risk
    JEL: E4 E43 G00 G01 G2 G20 G21
    Date: 2022–12–01
  8. By: Davide Arnaudo (Bank of Italy); Michele Cascarano (Bank of Italy); Rosalia Greco (Bank of Italy); Valentina Michelangeli (Bank of Italy); Litterio Mirenda (Bank of Italy); Davide Revelli (Bank of Italy)
    Abstract: At the onset of the pandemic, the Italian government introduced a bank debt moratorium and a public guarantee scheme to support firms’ liquidity; additional private moratoria were introduced by banks and other financial institutions. The take-up of such measures in the June 2020-December 2021 period was heterogeneous across areas. Such differences can only be partially explained by heterogeneity in the regions’ economic and productive structure: differences in firms’ observable characteristics can explain the differential take-up in debt moratoria, while the probability of obtaining a publicly guaranteed loan is larger for Southern firms. Coeteris paribus, aid intensity - i.e. the share of a beneficiary’s bank debt subject to the support measures - is higher for Southern firms in the case of debt moratoria, but not for publicly guaranteed loans. This regional divide may reflect a relatively higher benefit associated to the measures for Southern firms, which are subject, on average, to tighter credit access conditions.
    Keywords: regional divide, Southern Italy, credit access, debt moratorium, public guarantee, Covid-19
    JEL: R11 G21 G38 H32
    Date: 2022–12
  9. By: Youngju Kim (Bank of Korea); Hyunjoon Lim (Bank of Korea); Youngjin Yun (Inha University)
    Abstract: Banks are the first line of defense against the propagation of adverse external shocks. This study examines the role of banks in the transmission of international liquidity shock using matched bank-firm data for Korea over the 2006-2015 period. We measure individual banks’ sensitivity to international shocks by analyzing their foreign exchange (FX) borrowing rates. The bank from which a firm borrows matters in times of FX liquidity shocks. We find that sensitive banks reduce FX credit supply to firms and that FX loan-reliant, highly productive firms subsequently reduce their investment. Foreign banks are affected less by the shocks, but they reduce credit supply more than domestic banks. Our findings emphasize the importance of bank resilience vis-Ã -vis external and domestic stability.
    Keywords: international liquidity shock, FX loan, credit register, real effect
    JEL: E22 F34 G15
    Date: 2022–12
  10. By: Annetta Ho; Sriram Darbha; Yuliya Gorelkina; Alejandro García
    Abstract: Our paper contributes to the discussion about the utility of stablecoins for retail payments through an objective, evidence-based approach that compares stablecoins with traditional retail payment methods. The paper also provides insights that could be useful in the design of central bank digital currencies. We identify the potential benefits, risks and costs of stablecoin arrangements used for retail payments relative to traditional retail payment methods. We select three real-world examples for comparison: (i) a Mastercard credit card payment through a traditional bank; (ii) a Unified Payments Interface fast payment through Paytm (a technology-enabled payments company regulated as a limited-purpose bank); and (iii) a stablecoin retail transaction using USD Coin and a BitPay wallet. We find that certain stablecoin arrangements offer end users greater control of their privacy, facilitate more rapid innovation and have the potential to increase transaction speeds, particularly for cross-border payments. At the same time, stablecoins may provide less consumer protection for fraud, present higher risks to the payment system and to efforts to combat financial crime (partly because of the more nascent regulatory framework), and be costlier relative to traditional payment arrangements. Our findings suggest that stablecoin arrangements do not currently serve as substitutes for the suite of traditional payment arrangements but instead address niche use cases or user segments that value their benefits and can accept their risks or costs.
    Keywords: Digital currencies and fintech; Payment clearing and settlement systems
    JEL: D78 O38
    Date: 2022–12
  11. By: Anthony Brassil (Reserve Bank of Australia)
    Abstract: There is a vast international literature exploring the consequences of low interest rates for various banking sectors. In this paper, I explore how this international literature relates to the Australian banking sector, which operates differently to other jurisdictions. In the face of low rates, the profitability of Australian banks has likely been less adversely affected than what the international literature would predict, but the flip side to this is that the pass-through of monetary policy to lending rates may have been more muted. I then use a recent advance in macrofinancial modelling to explore whether pass-through in Australia could turn negative – the so called 'reversal rate' – and find that the features of the Australian banking system mean a reversal rate is highly unlikely to exist in Australia.
    Keywords: banking; interest rates; monetary policy
    JEL: E43 E52 G21
    Date: 2022–12
  12. By: Alfred Lehar; Christine A Parlour
    Abstract: We analyze a unique data set of collateral liquidations on two Decentralized Finance lending platforms – Compound and Aave. Such liquidations require arbitrageurs to repay the loan in return for the discounted collateral. Using Blockchain transaction data, we observe if arbitrageurs liquidate positions out of their own inventory or obtain "flash loans." To repay flash loans, arbitrageurs immediately sell the collateral asset. We document the high frequency price impact of such liquidity trades on nine different decentralized exchanges. Consistent with large block trades in equity markets there is a temporary and permanent price impact of collateral asset sales in DeFi. We document the effect of these trades on return distributions. Our work highlights the systemic fragility of decentralized markets.
    Keywords: Decentralized lending, blockchain, decentralized finance, system risk
    JEL: G1 G23
    Date: 2022–12
  13. By: Vegard H. Larsen; Ragnar E. Juelsrud
    Abstract: We investigate the impact of macro-related uncertainty on bank lending in Norway. We show that an increase in general macroeconomic uncertainty reduces bank lending. Importantly, however, we show that this effect is largely driven by monetary policy uncertainty, suggesting that uncertainty about the monetary policy stance is key for understanding why macro-related uncertainty impacts bank lending.
    Keywords: Macroeconomic uncertainty, Textual analysis, Bank lending
    Date: 2022–11
  14. By: Úbeda, Fernando; Mendez, Alvaro; Forcadell, Francisco Javier
    Abstract: Lack of access to banking and financial services appreciably hinders development, particularly in the global South. For this reason, financial inclusion is a crucial objective of the Sustainable Development Goals. One main barrier to financial inclusion is the lack of trust in banking. From a sample of 40 developing countries and 82,724 individuals, we verify that multinational banks can increase trust in banking by incorporating sustainability criteria into their business model.
    Keywords: sustainable banking; finance inclusion; ESG criteria; trust in banking; multinational banks; SDGs
    JEL: F3 G3 N0
    Date: 2023
  15. 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 antidiscrimination 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.0F 1 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
  16. By: Kanis Saengchote
    Abstract: Permissionless blockchains offer an information environment where users can interact privately without fear of censorship. Financial services can be programmatically coded via smart contracts to automate transactions without the need for human intervention or knowing user identity. This new paradigm is known as decentralized finance (DeFi). We investigate Compound (a leading DeFi lending protocol) to show how it works in this novel information environment, who its users are, and what factors determine their participation. On-chain transaction data shows that loan durations are short (31 days on average), and many users borrow to support leveraged investment strategies (yield farming). We show that systemic risk in DeFi arises from concentration and interconnection, and how traditional risk management practices can be challenging for DeFi.
    Date: 2022–12
  17. By: Igor Makarov; Antoinette Schoar
    Abstract: The paper provides an overview of cryptocurrencies and decentralized finance. The discussion lays out potential benefits and challenges of the new system and presents a comparison to the traditional system of financial intermediation. Our analysis highlights that while the DeFi architecture might have the potential to reduce transaction costs, similar to the traditional financial system, there are several layers where rents can accumulate due to endogenous constraints to competition. We show that the permissionless and pseudonymous design of DeFi generates challenges for enforcing tax compliance, anti-money laundering laws, and preventing financial malfeasance. We highlight ways to regulate the DeFi system which would preserve a majority of benefits of the underlying blockchain architecture but support accountability and regulatory compliance.
    Keywords: Decentralized finance, blockchain technology, financial intermediation, system risk
    JEL: G12 G15 F38
    Date: 2022–12
  18. By: Ricardo Reis
    Abstract: The current institutional arrangements for monetary policy delivered more than two decades of low and stable inflation. Yet, central banks failed to prevent a burst of high inflation in 2021-22. This paper inspects four tentative hypotheses for why this happened. The first is a misdiagnosis of the nature of shocks during a time of great uncertainty leading to an overly long period of expansionary policy. The second is a neglect of expectations data driven by a strong belief that inflation expectations were firmly anchored and so inflation increases would be temporary. The third is an over-reliance on the credibility earned in the past, creating an illusion of too much room to focus on the recovery of real activity and underpredicting the resulting inflation. The fourth is a revision of strategy that made central banks tolerant of higher inflation because of the trend fall in the return on government bonds, even though the return on private capital stayed high.
    Keywords: Price level, central bank independence, r-star, dove, hawk
    JEL: E58 E50 E31
    Date: 2022–12
  19. By: Gara Afonso; Marco Cipriani; Gabriele La Spada
    Abstract: In June 2022, the Federal Reserve started reducing the size of its balance sheet, which had expanded to just under $9 trillion in response to the COVID-19 pandemic. However, whereas banks’ reserves at the Federal Reserve have decreased, the investment of money market funds (MMFs) at the Federal Reserve’s overnight reverse repo (ON RRP) facility has continued to increase, reaching $2.4 trillion in September 2022. In this paper, we causally identify the drivers of ON RRP take-up through a diff-in-diff approach. By exploiting a temporary change in the computation of banks’ Supplementary Leverage Ratio (SLR) implemented in 2020-21, we show that banks’ balance sheet costs incentivize them to push deposits toward MMFs and to reduce their overnight borrowing from MMFs, leading to an increase in MMF investment at the ON RRP. Furthermore, we show that monetary policy tightening, and Treasury bill scarcity are two additional factors contributing to the recent increase in ON RRP usage.
    Keywords: balance sheet constraints; banks; leverage ratio; monetary policy; money market funds; overnight reverse repo (ON RRP)
    JEL: G10 G21 E41 E51 E58
    Date: 2022–12–01
  20. By: Jasmin Fouad (American University in Cairo); Moheb Said (Economic Research Forum); Wesam Sherif (AUC); Chahir Zaki (Cairo University)
    Abstract: A public development bank (PDB), like any other bank, serves as a financial intermediary, but with a strong developmental role. This paper provides an overview of PDBs in Egypt. The latter is of particular interest for two reasons. First, while PDBs have a long history in the Egyptian economy, their roles and interventions are rather limited. This applies to banks that were created during the socialist era of Former Egyptian President Gamal Abdel Nasser. Second, the largest share of PDB-related projects implemented in Egypt is undertaken by government-owned commercial banks, namely the National Bank of Egypt, Banque Misr, and Banque du Caire. Thus, the objective of this paper is twofold: first, to analyze how and why the role of PDBs can be played by public banks; and second, to highlight the lessons that can be learned from the resilience of the Egyptian financial systems to the succession of crises/disruptions.
    Date: 2022–11–20
  21. By: Jakub Warmuz; Amit Chaudhary; Daniele Pinna
    Abstract: On November 22nd 2022, the lending platform AAVE v2 (on Ethereum) incurred bad debt resulting from a major liquidation event involving a single user who had borrowed close to \$40M of CRV tokens using USDC as collateral. This incident has prompted the Aave community to consider changes to its liquidation threshold, and limitations on the number of illiquid coins that can be borrowed on the platform. In this paper, we argue that the bad debt incurred by AAVE was not due to excess volatility in CRV/USDC price activity on that day, but rather a fundamental flaw in the liquidation logic which triggered a toxic liquidation spiral on the platform. We note that this flaw, which is shared by a number of major DeFi lending markets, can be easily overcome with simple changes to the incentives driving liquidations. We claim that halting all liquidations once a user's loan-to-value (LTV) ratio surpasses a certain threshold value can prevent future toxic liquidation spirals and offer substantial improvement in the bad debt that a lending market can expect to incur. Furthermore, we strongly argue that protocols should enact dynamic liquidation incentives and closing factor policies moving forward for optimal management of protocol risk.
    Date: 2022–12
  22. By: , Adedamola
    Abstract: The purpose of this paper was to contextualize the impact of the human factor owing to the increased involvement of third-party vendors by banks and other financial services providers and the rising threat level of supply chain attacks. On this, this paper presents a literature review of the risks posed by third party vendors within the present-day cyber environment including an evaluation of two core supply chain attacks, namely, Carbanak attack and the Equifax data breach. From these, it is established that with the increased prevalence and utilization of third-party vendors in banking and financial service provision, there is a need to integrate third-party risk management by addressing the key risks that emanate from the contracting organizations’ activities and relationships with the third-party vendors, and those posed by practices adopted by third-party vendors. To this, it has been established that while they are both independent organizations, there is a need to adopt an integrated framework that brings together strategy, processes, technology, and people dimensions associated with the human factor risk in the cyber environment.
    Date: 2022–12–14
  23. By: Daniela Marconi (Bank of Italy); Marco Marinucci (Bank of Italy); Giovanna Paladino (Museo del Risparmio-Intesa Sanpaolo)
    Abstract: Is the propensity to save and to invest related to digital skills and financial knowledge? Do digital skills and financial knowledge affect people’s attitudes towards digital payments and digital financial services? Is there a gender gap? This paper addresses these issues by using a new dataset based on around 4, 000 individuals interviewed in two waves between 2019 and 2021. We find that digital and financial skills are fundamental to shaping financial behaviours and attitudes, including those towards digital financial services. But there are some reservations to be made: digital skills complement financial ones in managing personal budgets, monitoring expenses and saving money at the end of the month, as well as helping people realize the benefits of making use digital financial services. On the other hand, digital skills do not affect investment decisions. We also show that both digital and financial skills are positively associated with educational and income levels and are characterized by a significant gender gap.
    Keywords: Financial knowledge, digital skills, financial behavior, digital payments, digitalization, financial inclusion
    JEL: D53 G11 G53 O16
    Date: 2022–12
  24. By: Fierro, Luca Eduardo; Giri, Federico; Russo, Alberto
    Abstract: We study how income inequality affects monetary policy through the inequality-household debt channel. We design a minimal macro Agent-Based model that replicates several stylized facts, including two novel ones: falling aggregate saving rate and decreasing bankruptcies during the household's debt boom phase. When inequality meets financial liberalization, a leaning against-the-wind strategy can preserve financial stability at the cost of high unemployment, whereas an accommodative strategy can dampen the fall of aggregate demand at the cost of larger leverage. We conclude that inequality may constrain the central bank, even when it is not explicitly targeted.
    Keywords: Inequality; Financial Fragility; Monetary Policy; Agent-Based Model
    JEL: E21 E25 E31 E52 G01
    Date: 2022–12–01
  25. By: Catalin Dragomirescu-Gaina; Leandro Elia
    Abstract: We study whether misinvoicing in international trade is reflected in cross-border bank accounts as reported by offshore financial centres. We show that residents hold more offshore wealth when local misinvoicing practices thrive, especially for under-invoiced exports of natural resources. These results are driven by less-developed countries, autocracies, and resource-rich countries, which typically lack institutional capacity and/or political willingness to deter capital flight and misinvoicing practices.
    Keywords: Misinvoicing, Banking, Offshore financial centres, Natural resources, International trade, Rent-seeking, Elites, Capital flight
    Date: 2022
  26. By: Gerke, Rafael; Kienzler, Daniel; Scheer, Alexander
    Abstract: A feature of recent monetary policy asset purchase programmes is the reinvestment policy: the central bank announces to keep the overall volume of assets on its balance sheet constant for some time. In this paper, we systematically assess the macroeconomic effects of such reinvestment policies. Conceptually, monetary policy can achieve a given macroeconomic stimulus by substituting higher overall volumes (more net purchases) with longer reinvestments. Quantitatively, we find that omitting reinvestments in a programme that embeds key features of the Eurosystem's pandemic emergency purchase programme reduces the effect on inflation by roughly one third. Stochastic simulations reveal that reinvestment policies can be applied to mitigate the constraints of upper purchase limits. Introducing bounded rationality attenuates the effects of reinvestment policies.
    Keywords: Reinvestment,Stock effect,State-dependent asset purchases,Cognitive discounting,Bayesian estimation
    JEL: D78 E31 E44 E52 E58
    Date: 2022
  27. By: Oliver Hülsewig; Horst Rottmann
    Abstract: We examine the impact of the European Central Bank’s monetary policy on the euro area labor markets over the period 2010-2018. Using Jordà’s (2005) local projection method, we find that unemployment rates decline in response to expansionary monetary policy surprises that can be related to unconventional policy measures. At the same time, hours worked rise. In the periphery countries, the reduction in unemployment rates is relatively pronounced, while in the core countries it is only minor. Thus, labor markets in the euro area were impacted differently by unconventional monetary policy measures.
    Keywords: Euro area, unconventional monetary policy, labor markets, local projections
    JEL: E24 E52 E58 C23
    Date: 2022
  28. By: Holden, Tom D.
    Abstract: Central banks wish to avoid self-fulfilling fluctuations. Monetary rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational household/firm expectations, active fiscal policy, missing transversality conditions and to any form of intertemporal or nominal-real links. They are easy to employ in practice, using inflation protected bonds to infer real rates. With a time-varying inflation target, they can implement arbitrary inflation dynamics, including optimal policy. They work thanks to the key role played by the Fisher equation in monetary transmission.
    Keywords: robust monetary rules,determinacy,Taylor principle,inflation dynamics,monetary transmission mechanism
    JEL: E52 E43 E31
    Date: 2022
  29. By: Diletta Antenucci (Bank of Italy); Gioia Caldarelli (Bank of Italy)
    Abstract: Debt advice indicates a set of activities including personalized assistance of a technical, legal or psychological nature provided by independent professional operators for consumers who experience or might experience difficulties with their financial commitments. In the European framework it is considered an effective tool for dealing with over-indebtedness and is already well developed in nine EU countries, including Germany and France. A plurality of reasons makes this topic important in Italy as well: the international debate has directed attention to all the potential benefits of this service and the most recent European initiatives are moving in the direction of introducing measures to facilitate its spread/take-up or even impose its adoption. The paper describes nature and characteristics of debt advice for consumers, illustrating: the activities included; the entities that can provide it and the sources of financing; the current debate and some of Europe’s best practices; the differences between debt advice and the main types of advice to debtors already in existence; and the still limited experiences and some possible perspectives for Italy.
    Keywords: debt advice, debt counselling, overindebtness
    JEL: D18 G51 I22 K10
    Date: 2022–12
  30. By: Damiano Sandri
    Abstract: We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable from an ex-ante perspective, suggesting that FX intervention is used to stabilize the exchange rate against temporary excessive fluctuations relative to UIP conditions. Consistent with this interpretation, we document that the direction and size of FX intervention respond to UIP deviations. We also find that FX intervention respond more aggressively to UIP deviations when there is less uncertainty about the future level of the exchange rate and when the exchange rate is overvalued.
    Keywords: FX intervention, profitability, exchange rate
    JEL: E58 F31
    Date: 2022–12
  31. By: Cars Hommes; Mario He; Sebastian Poledna; Melissa Siqueira; Yang Zhang
    Abstract: We develop a Canadian behavioral agent-based model (CANVAS) that utilizes Canadian micro- and macroeconomic data for forecasting and policy analysis. CANVAS represents a next-generation modelling effort, as it improves upon the previous generation of models in three dimensions: introducing household and firm heterogeneity, departing from rational expectations, and explicitly modelling the Canadian production network. This modelling capacity is achieved by harnessing large-scale Canadian micro- and macroeconomic datasets (of financial flows and national balance sheet accounts, input-output tables, government finance statistics, and the Labour Force Survey). By incorporating adaptive learning and heuristics, we equip the model to examine macroeconomic dynamics under significant uncertainty. We assess the out-of-sample forecasting performance of CANVAS against a benchmark vector auto-regressive (VAR) model and a DSGE model (Terms of Trade Economic Model, ToTEM). CANVAS advances several new frontiers of macroeconomic modelling for the Canadian economy. First, the detailed structure of the model allows for forecasting of the medium-run macroeconomic effects of the economy at the sector level. For instance, this structure allows us to assess the macroeconomic impact of the COVID-19 pandemic in Canada. Second, the realistic agent behaviour in CANVAS makes the model an ideal candidate for evaluating the effects of multiple macroeconomic policies. Third, the enriched modelling of the financial market structure allows policy-makers to conduct stress testing and assess the implication of macroprudential policies in Canada.
    Keywords: Central bank research; Econometric and statistical methods; Economic models; Firms dynamics; Inflation and prices
    JEL: C D22 D83 E E17
    Date: 2022–12
  32. By: Miglo, Anton
    Abstract: Entrepreneurial, innovative and small- and medium-sized firms experience difficulties with raising funds using traditional debt and equity. Consequently, they are constantly looking for new strategies of financing. Latest inventions are crowdfunding and token issues. In contrast to traditional ways of raising funds these innovations: 1) use modern technology (on-line transactions, blockchain etc.) much more actively; 2) are usually quicker in reaching potential investors/funders; 3) use more actively network benefits such as, for example, a large number of interactions between investors/funders and between funders and firms. These changes are so significant that some experts list them among the top business inventions of 21st century. This article provides a review of the growing number of theoretical papers in the areas of crowdfunding and token issues, compare their findings with empirical evidence and discuss directions for future research. The research shows that a large gap exists between theoretical literature and empirical literature.
    Keywords: entrepreneurial finance, crowdfunding, token issues, initial coin offerings (ICO), initial exchange offerings (IEO), security token issues (STO)
    JEL: G32 L26 M13 M21
    Date: 2022

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