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on Banking |
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Issue of 2023‒03‒13
35 papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen |
| Abstract: | After moving slowly downward for the better part of four decades, central bank gold holdings have risen since the Global Financial Crisis. We identify 14 “active diversifiers, ” defined as countries that purchased gold and raised its share in total reserves by at least 5 percentage points over the last two decades. In contrast to the diversification of foreign currency reserves, which has been undertaken by advanced and developing country central banks alike, active diversifiers into gold are exclusively emerging markets. We document two sets of factors contributing to this trend. First, gold appeals to central bank reserve managers as a safe haven in periods of economic, financial and geopolitical volatility, when the return on alternative financial assets is low. Second, the imposition of financial sanctions by the United States, United Kingdom, European Union and Japan, the main reserve-issuing economies, is associated with an increase in the share of central bank reserves held in the form of gold. There is some evidence that multilateral sanctions imposed by these, and other countries have a larger impact than unilateral sanctions on the share of reserves held in gold, since the latter leave scope for shifting reserves into the currencies of other non-sanctioning countries. |
| Keywords: | International Reserves; Gold; Sanctions; aggregate gold share regression; gold appeal; share of gold; gold share; country level gold share regression; Gold reserves; Reserve assets; Gold prices; Global |
| Date: | 2023–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/014&r=ban |
| By: | Martin Kuncl; Dmitry Matveev |
| Abstract: | The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as population aging, declining productivity, rising government debt and inequality. Foreign factors are captured by changes in the global neutral real rate. We use the model to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate. |
| Keywords: | Economic models; Interest rates; Monetary policy |
| JEL: | E21 E22 E43 E50 E52 E58 F41 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:23-5&r=ban |
| By: | Martin Cesnak (National Bank of Slovakia) |
| Abstract: | Retail loan growth, especially housing loan growth, in Slovakia continues to be one of the highest within the euro area, even during and after the COVID-19 pandemic. We decompose the annual growth rate of retail housing and consumer loans into the main factors enabling this high growth. These factors include growth of collateral value related to the strong price acceleration of residential real estate, income growth, the long-term decline of market interest rates and the extension of loan maturity. The latter is mainly used for refinancing loans and represents the strongest factor enabling increase of principal. Using microdata of individual retail loans granted in Slovakia, we show that the growth of housing loans would have been at least a third lower without these factors. The recent decrease of the consumer loan stock is explained by the strongly declining demand for consumer loans, triggered after the outbreak of the pandemic. |
| JEL: | G21 G51 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1092&r=ban |
| By: | Md Shah Naoaj; Mir Md Moyazzem Hosen |
| Abstract: | This paper assesses whether the higher capital maintenance drives up banks cost of equity. We investigate the hypothesis using fixed effect panel estimation with the data from a sample of 28 publicly listed commercial banks over the 2013 to 2019 periods. We find a significant negative relationship between banks capital and cost of equity. Empirically our baseline estimates entail that a 10 percent increase in capital would reduce the cost of equity by 4.39 percent. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.02762&r=ban |
| By: | Jean Barthélémy; Paul Gardin; Benoit Nguyen |
| Abstract: | Stablecoins are crypto-assets that aim to maintain a stable value relative to a fiat currency. This paper documents one implication of their massive growth since 2020 for the financing of the real economy. The largest stablecoins manage their peg with the US dollar by holding short-term safe assets. We identify changes in the stablecoin demand for US dollardenominated commercial papers (CP) by exploiting cross-sectional and time-varying heterogeneity in the main tablecoins’ reserve assets policy. We show that CP issuers catered to the additional demand from stablecoins by issuing more, illustrating the implications of stablecoins for financial stability and the financing of the real economy. |
| Keywords: | : Crypto-Assets, Stablecoins, Financial Markets, Safe Assets |
| JEL: | G14 G23 G29 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:908&r=ban |
| By: | Tuuli, Saara |
| Abstract: | Analyses of zombie firms have emphasised the role of bank financing as the reason for zombie survival. This conclusion was made despite no comparative analysis of the sources of external finance for zombie firms. This paper provides the first analysis of that sort using Finnish data. Surprisingly, the results show quite clearly that there is no connection between zombie survival and bank financing; this result is robust to various measurement and specification issues. Instead, a role is found for owners (i.e. equity funders) in keeping zombies alive in the (often correct) anticipation of the firm recovering. |
| Keywords: | zombie firms, banks, credit constraints, firm-level data, panel data |
| JEL: | D25 E51 G2 G3 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofrdp:22023&r=ban |
| By: | Aicha Kharazi (Free University of Bozen-Bolzano, Italy); Francesco Ravazzolo (BI Norwegian Business School, Norway; Free University of Bozen-Bolzano, Italy; Rimini Centre for Economic Analysis) |
| Abstract: | In light of the high levels of systemic risks and the elevated probability of a crisis occurring, understanding the effectiveness of macro-prudential policies is becoming increasingly crucial. We incorporate a collateral-based macro-prudential policy into a two-agent New Keynesian model, this policy adjusts counter-cyclically to the state of the borrowing sector. We show that regulators accommodate high delinquency rates by allowing for tighter collateral requirements. An active macro-prudential policy amplifies the impact of a monetary policy shock on output and labor supply, and this policy emerges as a potential tool to prevent the risk of delinquency in the short run. |
| Keywords: | macro prudential policies, credit supply, collateral constraint, monetary policy |
| JEL: | E32 E44 G21 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:23-03&r=ban |
| By: | Lioba Heimbach; Eric G. Schertenleib; Roger Wattenhofer |
| Abstract: | Anxiety levels in the AAVE community spiked in November 2022 as Avi Eisenberg performed an attack on AAVE. Eisenberg attempted to short the CRV token by using funds borrowed on the protocol to artificially deflate the value of CRV. While the attack was ultimately unsuccessful, it left the AAVE community scared and even raised question marks regarding the feasibility of large lending platforms under decentralized governance. In this work, we analyze Avi Eisenberg's actions and show how he was able to artificially lower the price of CRV by selling large quantities of borrowed CRV for stablecoins on both decentralized and centralized exchanges. Despite the failure of his attack, it still led to approximately 1.6 Mio USD of irretrievable debt and, thereby, quadrupled the protocol's irretrievable debt. Furthermore, we highlight that his attack was enabled by the vast proportion of CRV available to borrow as well as AAVE's lending protocol design hindering rapid intervention. We stress Eisenberg's attack exposes a predicament of large DeFi lending protocols: limit the scope or compromise on `decentralization'. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.04068&r=ban |
| By: | Jason Allen; Robert Clark; Jean-François Houde; Shaoteng Li; Anna Trubnikova |
| Abstract: | We develop an experimental framework to investigate the quantity theory of money and the real effects of inflation in an economy where money serves as a medium of exchange. We test the classical view that inflation reduces output and welfare by taxing monetary exchange. Inflation is engineered by constant money growth. We conduct three treatments, where the newly issued money is used to finance government spending, lump-sum transfers, and proportional transfers, respectively. Experimental results largely support theoretical predictions. Higher money growth leads to higher inflation. Output and welfare are significantly lower with government spending, and output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A deviation from theory is that the detrimental effect of money growth in our framework depends on the implementation scheme and is stronger with government spending than with lump-sum transfers. |
| Keywords: | Financial institutions; Financial services; Market structure and pricing |
| JEL: | D D4 G G2 G21 L L2 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-12&r=ban |
| By: | Ms. Naomi N Griffin; Gerardo Uña; Majid Bazarbash; Alok Verma |
| Abstract: | Fintech payments leverage large digital platforms to fill gaps in the traditional payment system. They have made great strides in increasing access to payment services in several countries around the globe. At the same time, like any innovation, the new payment models are exposed to risks in their operating environment. We review the main fintech payment models (mobile money, internet-based fintech payment, and digital money) and discuss operational and financial risks as well as challenges they face. We then explore how public financial management (PFM), especially treasury payments and non-tax revenue collections, could benefit from fintech payments by providing examples of early fintech applications in different countries and discuss the challenges of integrating them into the public sector. The use of fintech in public finance could bring various benefits—including strengthening fiscal transparency, improving budget planning and execution, and upgrading cash management—if public sector institutional and technological capacities are strengthened and risks are adequately mitigated. |
| Keywords: | financial technology; fintech; public financial management; payments; budget systems; financial management information system |
| Date: | 2023–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/020&r=ban |
| By: | Peter Csoka; Judit Hever (Magyar Nemzeti Bank) |
| Abstract: | Liquidity and market risk are key considerations in financial markets, especially in times of financial crises. For this reason, regulatory attention to and measures in these fields have been on the rise for the past years. Based on practical experience, regulations aiming at ensuring funding liquidity or, in general, reducing certain risky positions have the side effect of reducing market liquidity. To understand this effect, we extend a standard general equilibrium model with transaction costs of trading, endogenous market liquidity, and the modeling of regulation. We prove that higher regulatory requirements or divesting bad ESG assets reduces market liquidity. |
| Keywords: | Market liquidity, Market risk, Liquidity risk, General equilibrium model, Regulatory requirement, ESG related asset |
| JEL: | G11 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2023/1&r=ban |
| By: | Bassam Fattouh (SOAS University of London); Beniamino Pisicoli (Università di Roma ‘Tor Vergata’); Pasquale Scaramozzino (Università di Roma ‘Tor Vergata’ & SOAS University of London) |
| Abstract: | This paper analyses the evolution of debt of Italian firms from 2010 to 2020 with special focus on the first year of the Covid-19 pandemic. By means of quantile regressions, our approach investigates several heterogeneities to assess the vulnerabilities of the most fragile firms. We find that, on average, Italian non-financial companies (NFCs) reduced their indebtedness over the sample period, a trend which did not get interrupted during the first year of the pandemic. By exploiting the high heterogeneity in the data, however, we find that the turmoil affected the most indebted firms and the trend of declining indebtedness for these firms was reversed. Moreover, sectors that were suspended ex lege during the first lockdown: i) already had the highest levels of the debt-to-assets ratios over our sample period, and ii) experienced the steepest increase in debt in 2020 relative to the previous year. Finally, our results show that highly indebted firms exhibit a qualitative different behaviour compared to the rest of the sample and that excessively piling up debt severely increases the likelihood of exiting the market. |
| Keywords: | leverage, corporate debt, debt ratio, quantile regression |
| JEL: | G30 G31 G32 |
| Date: | 2023–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:551&r=ban |
| By: | Andreeva, Desislava; Coman, Andra; Everett, Mary; Froemel, Maren; Ho, Kelvin; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Wong, Andrew; Wong, Eric; Żochowski, Dawid |
| Abstract: | We study the effects of negative interest rate policies (NIRP) on the transmission of monetary policy through cross-border lending. Using bank-level data from international financial centres – the United Kingdom, Hong Kong and Ireland – we examine how NIRP in the economies where banks have their headquarters influences cross-border lending from financial-centre affiliates. We find that NIRP impairs the bank-lending channel for cross-border lending to non-bank sectors, especially for those banks that have only a weak deposit base in IFCs – and are thus relatively more exposed to NIRP in their headquarters. Using euro-area data, including bank-level data from France, we find that NIRP does not influence overall cross-border lending from banks’ headquarters’ economies, but NIRP does impair lending to financial sectors based in IFCs. This impairment is stronger for banks with a large deposit base in headquarter economies exposed to NIRP. JEL Classification: E52, F34, F36, F42, G21 |
| Keywords: | bank lending, cross-border lending, International financial centres, monetary policy, negative interest rates, risk-taking |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232775&r=ban |
| By: | Wenqian Huang; Angelo Ranaldo; Andreas Schrimpf; Fabricius Somogyi |
| Abstract: | We study dealers’ liquidity provision in the currency market. We show that at times when dealers’ intermediation capacity is constrained their cost of liquidity provision increases disproportionately relative to dealer-provided volume. As a result, the elasticity of dealers’ liquidity provision drops by at least 80% relative to periods when they are unconstrained. We identify constrained periods based on leverage ratios, Value-at-Risk measures, credit default spreads, and debt funding costs. We interpret our novel empirical findings within a parsimonious model that sheds light on the key mechanisms of how liquidity provision by dealers tends to weaken when intermediary constraints are tightening. |
| Keywords: | currency markets, dealer constraints, market liquidity, foreign exchange, liquidity provision |
| JEL: | F31 G12 G15 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1073&r=ban |
| By: | Mr. Maria Soledad Martinez Peria; Ms. Prachi Mishra; Mr. Divya Kirti; Jan Strasky |
| Abstract: | This paper analyzes the impact of fiscal, monetary, and prudential policies during the COVID-19 pandemic on bank lending across a broad sample of countries. We combine a comprehensive announcementlevel dataset of policy actions with bank and firm-level information to analyze the effectiveness of different types of policies. We document that different types of policies were introduced together and hence accounting for policy combinations, or packages, is crucial. Lending grew faster at banks in countries that announced packages combining fiscal, monetary, and prudential measures relative to those that relied on some, but not all, policy dimensions. Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth. The impact was larger among more constrained banks with low equity levels. Large packages combining fiscal, monetary and prudential policies also increased liquidity for bank dependent firms, but did not disproportionately benefit unviable firms. |
| Keywords: | COVID-19; policy packages; policy effectiveness; bank lending |
| Date: | 2023–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/025&r=ban |
| By: | Marco Del Negro; Julian di Giovanni; Keshav Dogra |
| Abstract: | We develop a two-sector New Keynesian model to analyze the inflationary effects of climate policies. Climate policies do not force a central bank to tolerate higher inflation, but may generate a tradeoff between the central bank's objectives for inflation and real activity. The presence and size of this tradeoff depends on how flexible prices are in the “dirty” and “green” sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies. |
| Keywords: | inflation; central bank's tradoffs; green transition |
| JEL: | E12 E31 E52 Q54 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:95652&r=ban |
| By: | Jorge Alvarez; Allan Dizioli |
| Abstract: | We document that past highly inflationary episodes are often characterized by a steeper inflationslack relationship. We show that model-generated data from a standard small Dynamic Stochastic General Equilibrium (DSGE) model can replicate this empirical finding when estimated with different expectation formation processes. When inflation becomes de-anchored and expectations drift, we can observe high inflation even with a mildly positive output gap in response to cost-push shocks. The results imply that we should not use an unconditioned (not controlling for expectations change) Phillips curve estimated in normal times to predict the cost of reining in inflation. Our optimal policy exercises prescribe early monetary policy tightening and then easing in the context of positive output gaps and inflation far above the central bank target. |
| Keywords: | DSGE; inflation dynamics; optimal monetary policy; forecasting and simulation; bayesian estimation |
| Date: | 2023–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/021&r=ban |
| By: | OECD |
| Abstract: | Open banking allows users to access financial information and services through consent-based data portability. This paper brings together the views of private and public experts from a wide variety of countries to explore opportunities and challenges of open banking for financial regulation, privacy protection, and competition. It discusses the different approaches taken by jurisdictions across the globe, and the importance of regulation and standards. While open banking empowers users in sharing and re-using their data across digital services, online platforms, sectors and borders, uncertainty in the interactions with data protection and privacy regimes remains challenging. This paper informs OECD work to consider how cross-sectoral cooperation between financial, competition and data protection authorities could help further open banking. |
| Date: | 2023–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaab:348-en&r=ban |
| By: | Marco Del Negro; Julian di Giovanni; Keshav Dogra |
| Abstract: | Are policies aimed at fighting climate change inflationary? In a new staff report we use a simple model to argue that this does not have to be the case. The model suggests that climate policies do not force a central bank to tolerate higher inflation but may generate a trade-off between inflation and employment objectives. The presence and size of this trade-off depends on how flexible prices are in the “dirty” and “green” sectors relative to the rest of the economy, and on whether climate policies consist of taxes or subsidies. |
| Keywords: | inflation; climate policy; green transition |
| JEL: | E31 |
| Date: | 2023–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:95653&r=ban |
| By: | Jean Marie Tshimula; D'Jeff K. Nkashama; Patrick Owusu; Marc Frappier; Pierre-Martin Tardif; Froduald Kabanza; Armelle Brun; Jean-Marc Patenaude; Shengrui Wang; Belkacem Chikhaoui |
| Abstract: | This paper scrutinizes a database of over 4900 YouTube videos to characterize financial market coverage. Financial market coverage generates a large number of videos. Therefore, watching these videos to derive actionable insights could be challenging and complex. In this paper, we leverage Whisper, a speech-to-text model from OpenAI, to generate a text corpus of market coverage videos from Bloomberg and Yahoo Finance. We employ natural language processing to extract insights regarding language use from the market coverage. Moreover, we examine the prominent presence of trending topics and their evolution over time, and the impacts that some individuals and organizations have on the financial market. Our characterization highlights the dynamics of the financial market coverage and provides valuable insights reflecting broad discussions regarding recent financial events and the world economy. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.03694&r=ban |
| By: | Juliano Assunção; Flávia Chein; Giovanni Leo Frisari; Sérgio Mikio Koyama |
| Abstract: | We evaluate the impact of climate-related events on the Brazilian banking sector. The analysis of physical risks reveals that, although short-run weather fluctuations and extreme events (droughts and floods) have limited impact on financial outcomes, climate change projections are expected to generate sizeable consequences to deposits and credit. We also document relevant geographical heterogeneity in the results and the importance of bank adaptation responses, avoiding areas with more considerable climate risks. The analysis of transition risks shows that the exposure of banks to green sectors concerning high impact sectors has a U-shape, growing since 2011. |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:572&r=ban |
| By: | Olovsson, Conny (Research Department, Central Bank of Sweden); Vestin, David (Research Department, Central Bank of Sweden) |
| Abstract: | This paper examines the hypothesis of "Greenflation". We find that under flexible prices, the relative price adjustment of green and brown energy comes about without consequences for inflation. We extend the analysis to the case of sticky prices and wages and our findings continues to support the notion that a transition to a green economy may progress without too much worry about inflation, at least in the case where the fiscal measures are introduced in an orderly and well planned fashion. |
| Keywords: | Inflation; green transition; monetary policy; climate change |
| JEL: | E52 E58 Q43 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0420&r=ban |
| By: | Walter Cuba (Central Reserve Bank of Peru); Eduardo Diaz (Central Reserve Bank of Peru) |
| Abstract: | We review the initial effects of the imposition of caps on interest rates in Peru's financial system. We developed a methodology that allows us to quantify the potential exclusion of clients. We found that financial institutions excluded close to 243 thousand clients from the financial system. Regarding consumer loans, the exclusion ratio was higher among debtors outside the capital city, under the age of 25. Additionally, the effect was smaller for married debtors. In the case of small and micro-business loans, the effect was higher for natural persons, the commerce sector, and firms in the capital city. In summary, the effects induced by caps on interest rates are concentrated among people with lower incomes and those with vulnerable firms. Additionally, these debtors typically had the highest interest rates and were the main clients of non-banking financial institutions. |
| Keywords: | Cap on interest rate; credit market; exclusion |
| JEL: | G21 G23 G28 K20 |
| Date: | 2023–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp02-2023&r=ban |
| By: | Jonathan Chiu; Emre Ozdenoren; Kathy Yuan; Shengxing Zhang |
| Abstract: | We develop a dynamic model of decentralized finance (DeFi) lending that incorporates two/these key features: 1) borrowing and lending are decentralized, anonymous, overcollateralized and backed by the market value of crypto assets where contract terms are pre-specified and rigid; and 2) information friction exists between borrowers and lenders. We identify a price-liquidity feedback: the market outcome in any given period depends on agents’ expectations about lending activities in future periods, with higher price expectations leading to more lending and higher prices in that period. Given the rigidity inherent to smart contracts, this feedback leads to multiple self-fulfilling equilibria where DeFi lending and asset prices move with market sentiment. We show that flexible updates of smart contracts can restore equilibrium uniqueness. This finding highlights the difficulty of achieving stability and efficiency in a decentralized environment without a liquidity backstop. |
| Keywords: | Digital currencies and fintech; Financial stability |
| JEL: | G10 G01 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-14&r=ban |
| By: | Sarah Brown (Department of Economics, University of Sheffield, UK; and IZA Bonn); Alexandros Kontonikas (Essex Business School, University of Essex); Alberto Montagnoli (Department of Economics, University of Sheffield, UK); Harry Pickard (Newcastle University Business School, Newcastle University); Karl Taylor (Department of Economics, University of Sheffield; and IZA Bonn) |
| Abstract: | In this paper we analyse the asset allocation of European households, focusing on developments during the period that followed the recent twin financial crises. We examine whether “search for yield” materialises outside financial institutions and whether the degree of financial literacy plays a role. We consider a wider set of alternatives to the safe assets by incorporating mutual funds to the standard set of stocks and bonds. We provide novel evidence which suggests that the “search for yield” during the post-crisis period of low interest rates took place not by raising the direct holdings of stocks and bonds, but rather indirectly through higher mutual funds’ holdings, in line with a “flight to delegation”. Importantly, this behaviour is strongly linked to the level of financial literacy, with the most literate households displaying significantly higher use of mutual funds. |
| Keywords: | Asset allocation; Financial literacy; Delegation |
| JEL: | E2 E44 G11 G51 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2023005&r=ban |
| By: | Janet Hua Jiang; Daniela Puzzello; Cathy Zhang |
| Abstract: | We develop an experimental framework to investigate the quantity theory of money and the real effects of inflation in an economy where money serves as a medium of exchange. We test the classical view that inflation reduces output and welfare by taxing monetary exchange. Inflation is engineered by constant money growth. We conduct three treatments, where the newly issued money is used to finance government spending, lump-sum transfers, and proportional transfers, respectively. Experimental results largely support theoretical predictions. Higher money growth leads to higher inflation. Output and welfare are significantly lower with government spending, and output is significantly lower with lump-sum transfers, while there are no significant real effects with proportional transfers. A deviation from theory is that the detrimental effect of money growth in our framework depends on the implementation scheme and is stronger with government spending than with lump-sum transfers. |
| Keywords: | Inflation and prices; Inflation: costs and benefits; Monetary policy |
| JEL: | C92 D83 E40 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-11&r=ban |
| By: | Mr. Gee Hee Hong; Deborah Lucas |
| Abstract: | Advanced economies made available more than 5 trillion USD through government-supported credit guarantee and direct loan programs to provide lifelines to firms in the face of the COVID-19 pandemic. Notwithstanding the unprecedented scale of credit made available, an in-depth analysis of the fiscal consequences is missing, and the costs of these programs are not recognized in a transparent way. In this paper, we fill in an important aspect of the fiscal picture by estimating the subsidies that were provided by the largest credit guarantee programs introduced in 2020 in seven advanced economies. We estimate the subsidies on a fair value basis that provides a consistent and comprehensive upfront measure of cost. We explain the logic behind applying a fair value framework in a government context and compare it to alternative approaches. For the programs that we examine, total credit extended totaled 1.7 trillion USD. The subsidy element (cash-equivalent subsidy) is estimated to be 67 percent of loan principal on average (37 percent, excluding the US PPP), with a wide range across programs, from 12 to 100 percent. The variation is explained by differences across programs including eligibility criteria, loan terms, compensation to lenders, and other program design choices. |
| Keywords: | credit guarantee programs; fair-value basis; COVID-19; fiscal risks; Credit guarantee program; government Credit support program; pandemic credit program; major credit program; Credit; Loans; Loan guarantees; Discount rates; Europe; Global |
| Date: | 2023–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/016&r=ban |
| By: | Alina Evstigneeva (Bank of Russia, Russian Federation); Daniel Karpov (Bank of Russia, Russian Federation) |
| Abstract: | This study presents a novel approach to distinguishing the news that has the greatest impact on households’ perception of inflation in Russia. Narrowing down the long list of all news items to only the strongly negative requires taking into account the concept of rational inattentiveness by the implementation of a 'too costly to ignore' principle. The feature importance models return very close results about the high importance of three main factors: news about the acceleration of inflation and single prices, about economic crisis and recession, and about the devaluation of the ruble, which is closely related to geopolitics. We also report differences in 1) higher and lower income households' perception of inflation and 2) in the formation of expected and perceived inflation. With these findings, we shed more light on the nature of households’ perception of inflation, which might be useful for central bank communications, especially during crises. |
| Keywords: | : monetary policy, text analysis, inflation expectations |
| JEL: | D83 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps111&r=ban |
| By: | Popov, Alexander; Steininger, Lea |
| Abstract: | We study how monetary policy affects local market competition in a union of countries ex-periencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing). JEL Classification: E2, G1, G12 |
| Keywords: | Competition, Eurozone, Low Interest Rates, Monetary Policy, Monetary Union |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232778&r=ban |
| By: | Auboin, Marc; Bekkers, Eddy; De Quarti, Dario |
| Abstract: | In this paper we integrate the costs of trade finance in a computable general equilibrium (CGE) model to evaluate the trade and output effects of counterfactual policy experiments on costs of and access to trade finance. The costs of financing international trade consist of two components: the financial costs and the costs associated with the risk of goods not being delivered, considering risk aversion of traders. These costs are determined for four ways to finance international trade (cash-in-advance, trade loans, letters of credit, and exports financed with internal working capital). Trade finance costs are a weighted average of the costs under the four different ways of financing. The framework is applied to trade of four ECOWAS countries employing data collected on financial costs, costs of risk and trade finance instrument shares through a comprehensive bank survey in these countries complemented with data from the literature. Counterfactual experiments on increases in the availability of letters of credit and trade loans and the costs of these instruments show that raising the shares and costs to African averages would increase trade of the four ECOWAS countries by about 11%. The framework is generic and can be applied to other countries. |
| Keywords: | Trade credit, international trade, financial institutions, general equilibrium simulations |
| JEL: | F10 F14 F39 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wtowps:ersd202301&r=ban |
| By: | Patrick Mabuza; Francis H. Kemeze; Oluwatoba J. Omotilewa; Mamadou Bah; Btissam Benkerroum |
| Abstract: | Development finance institutions (DFIs) foster sustainable development through financing, advisory services, and technical assistance. They complement public investments in developing and underserved markets to unlock development opportunities and deliver development results. Whereas DFIs' missions are known among practitioners, their development achievements are often less understood. Consequently, DFIs have developed different results measurement and reporting systems to document the impacts of their interventions. |
| Keywords: | Development finance, Development effectiveness, Institutions, Measurement, Impacts |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-31&r=ban |
| By: | Cristhian Hernando Ruiz Cardozo; Jens H. E. Christensen |
| Abstract: | Portfolio diversification is as important to debt management as it is to asset management. In this paper, we focus on diversification of sovereign debt issuance through greater reliance on inflation-indexed bonds for a representative emerging economy, Colombia. Using an arbitrage-free dynamic term structure model of fixed-coupon and inflation-indexed bond prices, we account for inflation and liquidity risk premia and calculate the net benefit of issuing inflation-indexed bonds over nominal bonds. Our results suggest that the Colombian government could lower its funding costs by as much as 0.69 percent by increasing its issuance of inflation-indexed debt, in particular at long maturities. |
| Keywords: | term structures; Modeling; liquidity risk; financial market frictions; central bank credibility; debt management |
| JEL: | D84 E31 E43 E44 E47 E52 E58 G12 |
| Date: | 2023–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:95617&r=ban |
| By: | Beyer, Marcel |
| Abstract: | In crisis times, insurance companies might feel the pressure to present a performance of their investment portfolios that is superior to the market, since investment portfolios back the claims of policyholders and serve as a signal for the claims' safety. I seek to show whether a stock market crisis as experienced over the course of the Covid-19 pandemic influences insurance firms' decisions on the allocation of credit risk bearing assets in their investment portfolio. I find, consistently with previous research, that insurers shift their portfolio holdings towards lower credit risk assets as financial market conditions tighten. This tendency seems to be restricted by the liquidity risk of high-yield assets, and the credit risk of lower-rated investment-grade assets. Both effects ultimately lead to a larger fraction of less liquid assets during the crisis and the recovery. |
| Keywords: | Insurance, Covid-19, Financial Stability |
| JEL: | G01 G11 G22 G32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:icirwp:4623&r=ban |
| By: | Vadim Grishchenko (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Sergey Seleznev (Bank of Russia, Russian Federation) |
| Abstract: | We estimated a model of households’ usage of alternative payment instruments (cash and bank cards) using a new dataset from a survey of Russian households. In our modelling set-up, households’ preferences are determined by the instruments’ perceived attributes and hence their choice regarding payment methods depends on the differences across instruments in these attributes. The results indicate a statistically significant sensitivity of consumer choice to the perceived attributes. We employ the estimated model to evaluate the demand for CBDC depending on its expected design and consumers’ perception of it. We discuss several illustrative projections to demonstrate the application of the tool developed. The predicted utilisation of CBDC varies considerably depending on the attributes hypothesised, although under the conservative assumptions, the projected use of CBDC in household transactions is limited. |
| Keywords: | : Central Bank Digital Currency, Digital Ruble, payment instruments, ordered probit, banknotes, bank cards, Russia |
| JEL: | E42 E47 E50 E58 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps108&r=ban |
| By: | Jan-Frederik Mai |
| Abstract: | We develop a method to decompose the PnL of a portfolio of assets into four parts: (a) PnL due to FX rate changes, (b) PnL due to interest rate changes, (c) carry gain due to time passing, (d) PnL due to residual market risk changes (credit risk, liquidity risk, volatility risk etc.). We demonstrate the usefulness of our approach by decomposing the performance of an FX- and interest rate-hedged negative basis position in our fund XAIA Credit Basis II, and we apply the methodology to decompose the performance of our fund XAIA Credit Debt Capital in the first quarter of 2022 into PnL contributions of the single positions. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.01010&r=ban |