|
on Banking |
|
Issue of 2023‒03‒20
thirty-six papers chosen by Sergio Castellanos-Gamboa, , Pontificia Universidad Javeriana |
| By: | Altunbas, Yener; Avignone, Giuseppe; Kok, Christoffer; Pancaro, Cosimo |
| Abstract: | This paper investigates to what extent the introduction of negative monetary policy rates altered competitive behaviour in the euro area banking sector. Specifically, it analyses the effect that negative policy rates had on euro area banks’ market power in comparison to banks that have not been subject to negative rates. The analysis, considering a sample of 4, 223 banks over the period 2011–2018 and relying on a difference-in-differences methodology, finds that negative monetary policy rates led to an increase in euro area banks’ market power. Furthermore, it shows that, during the negative interest rate policy period, change in banks’ competitive behaviour affected the bank lending channel and discouraged banks from taking excessive risks. JEL Classification: E44, E52, E58, G20, G21 |
| Keywords: | Bank lending channel, Bank Stability, DiD, Lerner index, NIRP |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232790&r=ban |
| By: | Sebastian Alvarez (Universidad Adolfo Ibañez, Santiago, Chile); Gianandrea Nodari (Université de Genève, Geneva, Switzerland) |
| Abstract: | This article explores the evolution of the Argentine banking system between 1925 and 1935. In order to reach this goal, we gathered individual banks' monthly balance sheets and offer a novel and comprehensive database on the Argentine banking system of the time. Using this new source, our analysis displays that the situation of Argentine banks during the Great Depression was more complex and dramatic than has been generally recognized. Although intense and deep, the banking crisis was not, however, homogeneous. The nature and timing of the problems, as well as their causes and scope, varied significantly between individual banks or groups of banks. As the article shows, the reasons and motives behind the heterogeneity of banks' problems seem to be linked both to national political episodes of instability as well as to the contagion of the financial crisis from the core countries. |
| Keywords: | Argentina, Great Depression, Banking crisis, International Finance |
| JEL: | G01 G21 N16 N26 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:2303&r=ban |
| By: | Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research) |
| Abstract: | Emerging markets and developing economies are currently facing major challenges from global shocks including: a slowdown in global growth; food and energy price increases; decline in risk appetite of international investors; unsustainable debts in low-income countries; and ongoing climate risks. National policies have not sufficed to meet these challenges. Efforts at the national level must be complemented by changes in the global economic and financial architecture designed to make the world a safer place. In this paper, we focus on the financial aspects of such reforms. The financial agenda as we see it has seven key elements: (i) reform of central bank swap lines; (ii) reform of IMF contingent credit lines; (iii) SDR reallocation; (iv) reform of credit rating agencies; (v) creation of currency hedging instruments; (vi) inclusion of climate-resilient debt clauses in new debt instruments; and (vii) steps to streamline the debt restructuring process. We detail this agenda, and urge the G20 members to implement the recommended measures. |
| Keywords: | G20 countries, Emerging markets, Developing economies, External debt, Financial reforms, Central bank swap lines, IMF contingent credit lines |
| JEL: | E44 E58 E61 F34 F36 F38 |
| Date: | 2023–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:145&r=ban |
| By: | Perry Mehrling (Boston University) |
| Abstract: | The global dollar system, though repeatedly reported to be on its last legs-most recently in the Global Financial Crisis of 2008, but most famously in the Nixon devaluation of 1971-has repeatedly instead consolidated and gone on to further geographical expansion (McCauley 2021). The key currency approach to international monetary economics, first put forward by John H. Williams in the aftermath of the 1931 devaluation of sterling, suggests that such resilience arises from the actions of market practitioners who appreciate the convenience of a global means of payment. So the question arises, why has the key currency approach remained a minority view, if not among practicing bankers then certainly among practicing academics? This paper proposes two main reasons—the discredit of monetary optimism during the depression, and the subsequent fateful adoption of Walrasian equilibrium as the frame for academic discussion after WWII. |
| Keywords: | key currency approach, Hahn Problem, sterling system, dollar system, exorbitant privilege. |
| JEL: | B2 F3 N1 |
| Date: | 2023–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp198&r=ban |
| By: | Raphael Auer; Giulio Cornelli; Jon Frost; Raphael A. Auer |
| Abstract: | The Covid-19 pandemic has been a shock to retail payment behaviour. How have the changes differed across countries? What do they imply for the future of cash and digital payments? We assemble a new “Future of Payments” database on retail payment behaviour for up to 95 countries over September 2019 to June 2022. We compare this with measures of the severity of the Covid-19 pandemic, using variation in the timing of waves of cases, changes in mobility and lockdown measures across countries. We find that card-not-present payments, payment app downloads and the volume of cash in circulation all rose in weeks of more stringent lockdowns. Changes were less pronounced in countries with higher mobile penetration. However, recent data suggest that some effects reversed once lockdowns were eased, and mobility rebounded. |
| Keywords: | retail payments, cash, Covid-19 pandemic, digital innovation |
| JEL: | E42 I18 O32 O33 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10258&r=ban |
| By: | Valentina Peruzzi (Sapienza University of Rome); Pierluigi Murro (LUISS University); Stefano Di Colli (Confindustria Research Department) |
| Abstract: | This paper investigates whether local cooperative banks mitigated income inequality in Italian municipalities after the two main crises that characterized the European landscape between 2008 and 2015, i.e. the financial and sovereign-debt crises. Estimation results reveal that, although in the post-crisis periods income inequality increased, this increase was lower in municipalities with at least one cooperative bank branch. The same result, that is a mitigation of income inequality, is not found for non-cooperative banks. Also the size of the cooperative banking system mattered after the crises: where cooperative banks extended more loans and collected more deposits income inequality was lower. The distributional impact of cooperative banks after the two crises was particularly relevant in small municipalities, and where the level of industrial and financial development was higher. |
| Keywords: | Cooperative banking; income inequality; financial development; financial crisis; municipalities |
| JEL: | G21 G38 O15 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:lui:casmef:2301&r=ban |
| By: | Jorge Carrera (Central Bank of Argentina); Gaspar Maciel (Central Bank of Argentina); Esteban Rodríguez (Central Bank of Argentina) |
| Abstract: | Este trabajo se concentra en la instrumentación de la política monetaria del BCRA desde fines de la convertibilidad hasta el presente. En este proceso, la emisión de pasivos remunerados fue un elemento central que le brindó autonomía operativa al BCRA para implementar su política monetaria en el marco de contextos macroeconómicos diversos. A los fines de recuperar esta historia, la cual deja muchas lecciones para el presente y futuro cercano, se realiza un análisis bajo tres ópticas distintas. En una primera sección, se describen a nivel estilizado los cambios en las hojas de balance ante diversas operaciones de esterilización monetaria. En una segunda sección, se realiza una recopilación de las distintas modificaciones normativas que fueron introduciéndose sobre los títulos emitidos por el BCRA. Finalmente, en una tercera sección, se repasa la historia reciente de la política monetaria y el marco económico en la cual se desarrolló la emisión de títulos propios por parte del BCRA. |
| Keywords: | Política Monetaria, Banco Central, Pasivos Remunerados |
| JEL: | E52 E58 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bcr:wpaper:2023107&r=ban |
| By: | Carlos Cañizares Martínez (Department of Economic and Monetary Analysis, National Bank of Slovakia, Slovakia; Rimini Centre for Economic Analysis) |
| Abstract: | The aim of this paper is to empirically identify the state of the US housing market and to set state-dependent policy rules to smooth the housing cycle. I do so by estimating a three states Markov-switching model of housing prices in which mortgage debt is the state-dependent variable. As a result, the housing market state might be classified as being in housing booms fueled by credit, normal or implosion times. Second, I propose a state-contingent policy rule fed with the probabilities of being in each state. I apply such rule to set a housing counter-cyclical capital buffer (SCCyB) and a time-varying home mortgage interest deduction rule. Finally, I show that such rules have forecasting ability to predict the charge-off rates on real estate residential loans. The significance of this study is that it informs policymakers about the state of the housing market mechanically while it also provides a simple rule that allows the implementation of state-contingent macroprudential policy. Further, the structure of such rule is general enough to be applied to other policy tools. |
| Keywords: | Housing prices, non-linear modeling, Markov switching model, housing demand, household debt, macroprudential policy |
| JEL: | C22 C24 G51 R21 R31 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:23-04&r=ban |
| By: | Antonio Coppola; Arvind Krishnamurthy; Chenzi Xu |
| Abstract: | We provide a liquidity-based theory for the dominant use of the US dollar as the unit of denomination in global debt contracts. Firms need to trade their revenue streams for the assets required to extinguish their debt obligations. When asset markets are illiquid, as modeled via endogenous search frictions, firms optimally choose to denominate their debt in the unit of the asset that is easiest to obtain. This gives central importance to the denomination of government-backed assets with the largest safe, liquid, short-term float and to financial market institutions that facilitate safe asset creation. Equilibria with a single dominant currency emerge from a positive feedback cycle whereby issuing in the more liquid denomination endogenously raises its liquidity, incentivizing more issuance. We rationalize features of the current dollar-dominant international financial architecture and relate our theory to historical experiences, such as the prominence of the Dutch florin and pound sterling, the transition to the dollar, and the ongoing debate about the potential rise of the Chinese renminbi. |
| JEL: | E40 F33 G15 N20 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30984&r=ban |
| By: | Cyrus Minwalla; John Miedema; Sebastian Hernandez; Alexandra Sutton-Lalani |
| Abstract: | Offline functionality is a key consideration for a potential CBDC. We describe the different types of offline functionality based on their duration outside of network connection—either intermittent (for short periods) or extended (for longer periods). We discuss the advantages and drawbacks of each and consider implications for end-user devices, system resilience and universal accessibility. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E E42 E58 O O31 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:23-2&r=ban |
| By: | Raphael Auer; Giulio Cornelli; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Raphael A. Auer |
| Abstract: | Prices for cryptocurrencies have undergone multiple boom-bust cycles, together with ongoing entry by retail investors. To investigate the drivers of crypto adoption, we assemble a novel database (made available with this paper) on retail use of crypto exchange apps at daily frequency for 95 countries over 2015–22. We show that a rising Bitcoin price is followed by the entry of new users. About 40% of these new users are men under 35, commonly identified as the most “risk-seeking” segment of the population. We confirm these findings by exploiting two exogenous price shocks: the crackdown of Chinese authorities on crypto mining in mid-2021 and the social unrest in Kazakhstan in early 2022. Moreover, we find that when prices rise retail investors buy, while the largest holders sell — making a return at the smaller users’ expense. Overall, back of the envelope calculations suggest that around three-quarters of users have lost money on their Bitcoin investments. |
| Keywords: | Bitcoin, cryptocurrencies, cryptoassets, regulation, decentralised finance, DeFi, retail investment |
| JEL: | E42 E51 E58 F31 G28 L50 O32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10266&r=ban |
| By: | Bhargava, Apoorv; Gόrnicka, Lucyna; Xie, Peichu |
| Abstract: | Sector-specific macroprudential regulations can increase the riskiness of credit to other sec-tors. First, using cross-country bank-level data we find that after a tightening of household-specific macroprudential policy during a credit expansion, banks with larger portfolios of residential mortgages increase their corporate lending by more than banks with smaller mortgage portfolios. Second, we compute three country-level measures of the riskiness of corporate credit allocation based on firm-level data. Consistently across the measures, an unexpected tightening of household-specific macroprudential tools during a credit expansion is followed by an increase in riskiness of corporate credit. These effects are quantitatively meaningful: the riskiness of corporate credit increases by around 10 percent of the historical standard deviation following an unexpected policy tightening. Further evidence from bank lending standards surveys suggests that the leakage effects are stronger for larger firms com-pared to SMEs, consistent with recent evidence on the use of personal real estate as loan collateral by small firms. JEL Classification: G21, G28, G38 |
| Keywords: | corporate credit risk, corporate loan growth, macroprudential regulations, sector-specific financial regulations |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232784&r=ban |
| By: | Jingfang Zhang; Emir Malikov |
| Abstract: | Propelled by the recent financial product innovations involving derivatives, securitization and mortgages, commercial banks are becoming more complex, branching out into many "nontraditional" banking operations beyond issuance of loans. This broadening of operational scope in a pursuit of revenue diversification may be beneficial if banks exhibit scope economies. The existing (two-decade-old) empirical evidence lends no support for such product-scope-driven cost economies in banking, but it is greatly outdated and, surprisingly, there has been little (if any) research on this subject despite the drastic transformations that the U.S. banking industry has undergone over the past two decades in the wake of technological advancements and regulatory changes. Commercial banks have significantly shifted towards nontraditional operations, making the portfolio of products offered by present-day banks very different from that two decades ago. In this paper, we provide new and more robust evidence about scope economies in U.S. commercial banking. We improve upon the prior literature not only by analyzing the most recent data and accounting for bank's nontraditional off-balance sheet operations, but also in multiple methodological ways. To test for scope economies, we estimate a flexible time-varying-coefficient panel-data quantile regression model which accommodates three-way heterogeneity across banks. Our results provide strong evidence in support of significantly positive scope economies across banks of virtually all sizes. Contrary to earlier studies, we find no empirical corroboration for scope diseconomies. |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2302.14603&r=ban |
| By: | Iñaki Aldasoro; Sebastian Doerr; Haonan Zhou |
| Abstract: | This paper shows that non-banks curtail their syndicated credit by significantly more than banks during crises, even after accounting for time-varying lender and borrower characteristics. We provide novel evidence that differences in the value of lending relationships explain most of the gap: unlike for banks, relationships with non-banks – whether measured by duration or intensity – do not improve borrowers' access to credit during crises. The rise of non-banks could therefore lead to a shift from relationship towards transaction lending and exacerbate the repercussions of financial crises. |
| Keywords: | Non-banks, syndicated loans, financial crises, financial stability, relationship lending |
| JEL: | F34 G01 G21 G23 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1074&r=ban |
| By: | Jesper Lindé; Mathias Trabandt; Martin Harding |
| Abstract: | We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the Post-Covid period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is high. |
| Keywords: | Inflation dynamics; inflation risk; monetary policy; linearized model; nonlinear model; real rigidities; cost-push shock; nonlinear Phillips curve; inflation-output gap trade-off; Inflation; Output gap; Central bank policy rate; Demand elasticity; Interest rate floor; Global |
| Date: | 2023–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/010&r=ban |
| By: | Ahnert, Toni; Hoffmann, Peter; Leonello, Agnese; Porcellacchia, Davide |
| Abstract: | What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run, using global games. As an alternative to bank deposits, consumers can also store their wealth in remunerated CBDC issued by the central bank. Consistent with widespread concerns among policymakers, higher CBDC remuneration increases the withdrawal incentives of consumers, and thus bank fragility. However, the bank optimally responds to the additional competition by offering better deposit rates to retain funding, which reduces fragility. Thus, the overall relationship between CBDC remuneration and bank fragility is U-shaped. JEL Classification: D82, G01, G21 |
| Keywords: | bank fragility, central bank digital currency, demand deposits, global games |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232783&r=ban |
| By: | Ehrmann, Michael; Georgarakos, Dimitris; Kenny, Geoff |
| Abstract: | We show that the announcement of the ECB’s Strategy Review and the revision of its inflation target in summer 2021 went largely unnoticed by the wider public. Although it is hard to reach out to this group, we find evidence that communicating key elements of the strategy can enhance the perceived credibility that price stability will be maintained in the medium-term. Randomised information treatments reveal that providing additional explanations about monetary policy’s stabilising role has the strongest positive impact on credibility, boosting credibility also among the less financially literate and generating more persistent credibility gains, even after inflation increased. JEL Classification: E52, E58, E31 |
| Keywords: | central bank communication, Consumer Expectations Survey, credibility, financial literacy, randomised control trial |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232785&r=ban |
| By: | Nigo, Ayine; Gibogwe, Vincent |
| Abstract: | This study contributes to the literature on financial efficiency and growth. We show that banking development exerts a statistically significant and positive impact on local economic growth. We use the ARDL method to find the impact of institutional financial quality on agriculture sector growth in 14 Sub-Saharan African countries from 1990 to 2020. Our results show that land, rural population, and per capita agricultural income growth have long-run and significant (at 1% level) causal effects on the magnitude of agricultural value added as a percentage of GDP. |
| Keywords: | foreign direct investment, economic growth, absorptive capacity, human capital, market liberalization |
| JEL: | F36 F63 G21 O15 O19 O47 O55 |
| Date: | 2023–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116397&r=ban |
| By: | Aydin, Deniz |
| Abstract: | I study debt relief policies in a large-scale field experiment with a unique 2-by-2-by-2 design. I then provide novel tests of models in which default is triggered by solvency, liquidity, and strategic behavior. In contrast to solvency driving decisions, modifications orthogonal to face value affect whether and when to default. Forbearance only has short-term effects, whereas rate reductions have immediate effects that persist. In contrast to liquidity being the sole trigger, reduction in payments has a weak association with default. Forbearance reduces payments twice as much as rate reductions, whereas delinquencies are more responsive to a rate reduction. Compatible with strategic behavior, unexpected news about a dollar increase in future payments increases defaults by as much as a 30-cent increase in current payments. Compatible with the endogeneity of triggers, whether a borrower is Ricardian—merely postponing forbearance is ineffective, behavior is sensitive to future payments, and defaults are strategic—is tightly linked to balance sheets. Among alternatives, results are most compatible with the interpretation whereby every default is strategic, with the endogenous trigger being influenced by liquidity and distress, as in Campbell and Cocco (2015). Findings provide a unified explanation for disagreeing results from previous debt relief studies and have implications for modeling loan modifications and the pass-through of interest rates. |
| Keywords: | debt relief, forbearance, interest rates, liquidity, strategic, randomized field experiment |
| JEL: | G51 D15 E63 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esrepo:268646&r=ban |
| By: | Kund, Arndt-Gerrit; Rugilo, Daniel |
| Abstract: | IFRS 9 substantially affects the financial sector by changing the impairment methodology for credit losses. This paper analyzes the implications of the change from IAS 39 to IFRS 9 in the context of bank resilience. We shed light on two effects. First, the “cliff-effect”, which refers to sudden increases in impairments. It occurred under IAS 39, as credit losses were only recognized with hindsight, and thus late and abruptly. IFRS 9 was designed to mitigate this issue through a staging approach, which gradually recognizes expected credit losses (ECL). These anticipated impairments, however, constitute a significant “front-loading”, which is the second effect we investigate. The earlier recognition of losses may adversely impact bank resilience through lower capital levels. In the absence of archival data of IFRS 9 and their potential biases due to the COVID-19 pandemic, we use the European bank stress test results as a natural experiment, in which all banks are subject to the same regulations and exogenous shocks. This characteristic allows us to isolate otherwise immeasurable effects and empirically investigate, whether the conjunction of both effects constitutes a net benefit to banks’ resilience. Furthermore, the vigorousness of procyclicality under IFRS 9 can be compared to IAS 39 by contrasting a hypothetical baseline and an adverse scenario. JEL Classification: E58, G21, G28, M41, M48 |
| Keywords: | Bank stress test, CET1, impairment, procyclicality |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232792&r=ban |
| By: | Bert Van Roosebeke (International Association of Deposit Insurers); Ryan Defina (International Association of Deposit Insurers) |
| Abstract: | The IADI Deposit Insurance report provides, on a yearly basis, an overview of global trends in deposit insurance and investigates key issues. IADI has identified the following five themes: macroeconomic environment; deposit insurers and bank resolution; digitalisation: CBDCs and stablecoins; climate changes and ESG; IADI Core Principles review and update. The report also highlighted many areas whereby deposit insurers are continuing to improve their overall compliance with the IADI Core Principles for Effective Deposit Insurance Systems. |
| Keywords: | deposit insurance, bank resolution |
| JEL: | G21 G33 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:awl:respap:2302&r=ban |
| By: | Ozili, Peterson K; Lay, Sok Heng; Syed, Aamir |
| Abstract: | Empirical research on the relationship between financial inclusion and economic growth has neglected the influence of religion or secularism. We investigate the effect of financial inclusion on economic growth in religious and secular countries. The financial inclusion indicators are the number of ATMs per 100, 000 adults and the number of bank branches per 100, 000 adults. The findings reveal that bank branch contraction significantly increases economic growth in secular countries. Bank branch expansion combined with greater internet usage increases economic growth in secular countries while high ATM supply combined with greater internet usage decreases economic growth in secular countries. We also find that bank branch expansion, in the midst of a widening poverty gap, significantly increases economic growth in religious countries, implying that financial inclusion through bank branch expansion is effective in promoting economic growth in poor religious countries. It was also found that internet usage is a strong determinant of economic growth in secular countries. |
| Keywords: | financial inclusion, economic growth, ATMs per 100, 000 adults, bank branches per 100, 000 adults, poverty, internet usage, access of finance, religion, religious countries, secular countries. |
| JEL: | E32 E51 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116413&r=ban |
| By: | Mr. Irineu E de Carvalho Filho; DingXuan Ng |
| Abstract: | This paper examines how countries use Macroprudential Policies (MaPs) to respond to external shocks such as US monetary policy surprises or fluctuations in capital flows. Constructing a model of a small open economy with financial frictions and a MaP authority that adjusts loan to value (LTV) ratio limits on borrowers and capital adequacy ratio (CAR) limits on banks, we show that using MaPs where stochastic external financial shocks are present entails a trade-off between macro-financial volatility and GDP growth. The terms of the trade-off are a function of a few country characteristics that amplify financial channels of external monetary shocks. Estimating MaP reaction functions for a panel of 41 countries in the period 2000–2017, we find that countercyclical macroprudential policy in response to surprise US monetary tightening is more likely for countries with net short currency mismatches (that is, foreign currency denominated liabilities larger than foreign currency denominated assets), consistent with the model’s predictions. The paper also finds that domestic credit and interest rates are more insulated from US monetary tightening for countries that employ MaPs countercyclically. |
| Keywords: | Macroprudential policy; external shocks; loan to value; figures entry; map authority; Model simulation; foreign currency; interest rate shock; bank profit; Credit; Real exchange rates; Financial statements; Bank credit; Self-employment; Global |
| Date: | 2023–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/012&r=ban |
| By: | Akkaya, Yildiz (Monetary Policy Department, Central Bank of Sweden); Belfrage, Carl-Johan (Monetary Policy Department, Central Bank of Sweden); Di Casola, Paola (European Central Bank); Strid, Ingvar (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | This paper evaluates the macroeconomic effects of foreign and domestic central bank government bond purchases on the Swedish economy before and during the Corona pandemic using a small open economy DSGE model with segmented asset markets. In this model, the effects of foreign and domestic quantitative easing on the Swedish economy occur mainly through the exchange rate channel. The calibrated model is able to broadly capture the movements in foreign and domestic bond yields, capital flows and the Krona exchange rate associated with QE since the global financial crisis in 2007-2009. We find that foreign quantitative easing strengthened the Krona exchange rate and had modestly negative effects on Swedish GDP and inflation. Domestic QE, on the other hand, depreciated the Krona and had modestly positive macroeconomic effects. In 2015-2019 the government bond purchases on average depreciated the Krona by 2.5 percent, increased GDP by 0.2 percent, and increased inflation by 0.2 percentage points. The government bond purchases following the pandemic, which were more limited in size, had roughly half of these effects. |
| Keywords: | Unconventional Monetary Policy; Quantitative Easing; Effective Lower Bound; International Spillovers; DSGE model |
| JEL: | E44 E52 F41 |
| Date: | 2023–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0421&r=ban |
| By: | Benedikt Ballensiefen (University of St. Gallen - School of Finance); Angelo Ranaldo (University of St. Gallen; Swiss Finance Institute); Hannah Winterberg (University of St. Gallen) |
| Abstract: | A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank's deposit facility and assets’ eligibility for Quantitative Easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through. |
| Keywords: | Money Market, Segmentation, Deposit Facility, QE, Monetary Policy |
| JEL: | E40 E43 E50 E52 E58 G18 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2312&r=ban |
| By: | Daudignon, Sandra; Tristani, Oreste |
| Abstract: | Empirical analyses starting from Laubach and Williams (2003) find that the natural rate of interest is not constant in the long-run. This paper studies the optimal response to stochastic changes of the long-run natural rate in a suitably modified version of the new Keynesian model. We show that, because of the zero lower bound (ZLB) on nominal interest rates, movements towards zero of the long-run natural rate cause an increasingly large downward bias in expectations. To offset this bias, the central bank should aim to keep the real interest rate systematically below the long-run natural rate, as long as policy is not constrained by the ZLB. The neutral rate – the level of the policy rate consistent with stable inflation and the natural rate at its long-run level – will be lower than the long-run natural rate. This is the case both under optimal policy, and under a price level targeting rule. In the latter case, the neutral rate is equal to zero as soon as the long-run natural rate falls below 1%. JEL Classification: C63, E31, E52 |
| Keywords: | commitment, liquidity trap, New Keynesian, nonlinear optimal policy, zero lower bound |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232788&r=ban |
| By: | Goldfayn-Frank, Olga; Vellekoop, Nathanael |
| Abstract: | We explore how personality traits are related to household borrowing behavior. Using survey data representative for the Netherlands, we consider the Big Five personality traits (openness, conscientiousness, agreeableness, extraversion and neuroticism), as well as the belief that one is master of one's fate (locus of control). We hypothesize that personality traits can complement as well as substitute financial knowledge of a household. We present three sets of results. First, we find that personality traits are positively correlated with borrowing expectations. Locus of control, extraversion and agreeableness are correlated with informal borrowing expectations, which is the expectation that one can borrow from family and friends. With respect to expectations on the approval of a formal loan application, it is locus of control and conscientiousness that are positively associated. Effect sizes are large and economically meaningful. Second, we find that personality traits are important for borrowing constraints. A more internal locus of control and higher neuroticism are correlated with being denied for credit, as well as discouraged borrowing. Our third set of results reports findings on personality traits and loan regret, and how traits are correlated with dealing with loan troubles. Many households in our sample express regret (21%), but more open, more agreeable and more neurotic individuals are more likely to express regret. Our results are not driven by financial knowledge, time preferences or risk attitudes. Overall these findings imply that non-cognitive traits are important for borrowing behavior of households. |
| Keywords: | borrowing constraints, personality traits, household finance |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:381&r=ban |
| By: | Mr. Marco Gross; Elisa Letizia |
| Abstract: | We set up a model of banks, the central bank, the payment system, and the surrounding private sector economic environment. It is a structural, choice-theoretic model which is deeply rooted in data. We use the model to conduct a structural counterfactual that introduces a Central Bank Digital Currency (CBDC) which is optionally interest-bearing. The model can be used to provide estimates of the emerging CBDC-in-total-money shares, the drop of deposit rate spreads to policy rates, the impact on reserve needs, the implied rotation of profits away from banks toward central banks, and the extent to which monetary policy pass-through may become stronger. We obtain upper bound estimates for the CBDC-in-money shares of about 25 percent and 20 percent, respectively for the U.S. and euro area, when CBDC would be remunerated at the policy rates and be perceived as “deposit-like” by the public. Actual take-up may likely be below such upper bound estimates. The model codes—to replicate all results and to apply them to other countries—are made available along with the paper. |
| Keywords: | Central bank digital currency; bank funding costs; central bank seigniorage; monetary policy pass-through; reinforcement learning; Authorss e-mail; bank agent; Central Bank digital currencies; Deposit rates; Central bank policy rate; Monetary base; Bank deposits; Global |
| Date: | 2023–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/009&r=ban |
| By: | Andreeva, Desislava; Bochmann, Paul; Schneider, Julius |
| Abstract: | This paper evaluates the impact of the March 2020 European Central Bank recommenda-tion that banks do not pay dividends or buy back shares on their market values. It documents a causal negative impact on bank share prices of around 7% during the two weeks following its announcement. The recommendation affected the market values of banks directly, by delaying investor cash flows and indirectly, by increasing the uncertainty about future distri-butions and thus banks’ equity risk premia. The impact differed across banks depending on their distribution plans and risk-adjusted profitability. Our analysis highlights the impor-tance of managing perceptions about dividend uncertainty through credible communication about the expected duration, frequency and severity of dividend restrictions to limit their unintended side effects. JEL Classification: G12, G21, G28, G35 |
| Keywords: | bank capital, bank cost of equity, bank dividends, banking supervision, COVID-19 pandemic |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232787&r=ban |
| By: | Delis, Manthos; Galariotis, Emilios; Iosifidi, Maria |
| Abstract: | Corporate taxation can have redistributive effects on income and wealth. We hypothesize and empirically establish such an effect working via bank credit. Using a unique sample of majority-owned firms that apply for credit, we show that after a decrease in corporate tax rates the relative-ly poor get easier access to credit. However, this policy also considerably increases loan amounts and decreases loan spreads for the relatively rich. Ultimately, reducing the corporate tax rate pre-dominantly increases the future income and wealth of relatively rich business owners. |
| Keywords: | Corporate taxes; Economic inequality; Bank credit; Credit score |
| JEL: | D63 G20 G21 H25 |
| Date: | 2023–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116396&r=ban |
| By: | Andrea Bacchiocchi (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Sebastian Ille (Northeastern University London); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo) |
| Abstract: | The monetary policy operations of a Central Bank (CB) involve allocation decisions when purchasing assets and taking collateral. A green monetary policy aims to steer or tilt the allocation of assets and collateral towards low-carbon industries, to reduce the cost of capital for these sectors in comparison to high-carbon ones. Starting from a corporate bonds purchase program (e.g. CSPP) that follows a carbon-neutral monetary policy, we analyze how a shift in the CB portfolio allocation towards bonds issued by low-carbon companies can favor green firms in the market. Relying on optimal portfolio theory, we study how the CB might include the risk related to the environmental sustainability of firms in its balance sheet. In addition, we analyze the interactions between the neutral or green CB re-balancing policy and the evolutionary choice (i.e. by means of expo- nential replicator dynamics) of a population of firms that can decide to be green or not according to bonds borrowing cost. |
| Keywords: | Monetary Policy; Optimal Portfolio Allocation; Environmental Economics; Interacting Agents; Evolutionary Dynamics |
| JEL: | E52 E58 G11 C61 C73 Q50 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:23_01&r=ban |
| By: | Pham, Thu Phuong; Singh, Harminder; Vu, Van Hoang |
| Abstract: | We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realised spreads of borrowers' stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increases liquidity provision, and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment. |
| Keywords: | Loans announcements; Stock liquidity; Transaction costs, Corporate decisions |
| JEL: | G10 G14 G20 G24 |
| Date: | 2023–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116398&r=ban |
| By: | Hou Wang; Allan Dizioli |
| Abstract: | This paper estimates a standard Dynamic Stochastic General Equilibrium (DSGE) model that includes a wage and price Phillip's curves with different expectation formation processes for Brazil and the USA. Other than the standard rational expectation process, we also use a limited rationality process, the adaptive learning model. In this context, we show that the separate inclusion of a labor market in the model helps to anchor inflation even in a situation of adaptive expectations, a positive output gap and inflation above target. The estimation results show that the adaptive learning model does a better job in fitting the data in both Brazil and the USA. In addition, the estimation shows that expectations are more backward-looking and started to drift away sooner in 2021 in Brazil than in the USA. We then conduct optimal policy exercises that prescribe early monetary policy tightening 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.; learning expectation; inflation expectation; wages expectation; Inflation; Output gap; Real wages; Wage gap; Central bank policy rate; Global |
| Date: | 2023–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/019&r=ban |
| By: | Israel, Karl-Friedrich; Sepp, Tim Florian; Sonnenberg, Nils |
| Abstract: | In this study, we investigate the impact of monetary policy on Japanese household incomes using the Family Income and Expenditure Survey. Our analysis focuses on the savings and income structure of households, and covers the period from Q1 2007 to Q2 2021. We find that households in the highest income brackets have a higher proportion of their savings invested in stocks, while middle and lower income households hold a greater share of their savings in bank deposits. Our hypothesis is that the Bank of Japan's monetary policies have boosted stock markets in particular, leading to disproportionate benefits for high-income households through capital gains and dividends. Using local projections, we first identify a positive, lasting cumulative effect of both conventional and unconventional monetary expansion on Japanese stock markets. We then examine how stock market performance impacts household incomes, and find that the effect is strongest for high-income households, decreases for middle-income households, and disappears for lower-income households. Our results suggest that monetary policy may have contributed to the persistent growth in income inequality in Japan, as measured by metrics such as the Gini coefficient and top-to-bottom income ratios. |
| Keywords: | monetary policy, inequality, Japan, household income |
| JEL: | D31 D63 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:177&r=ban |
| By: | Ganguly, Shrimoyee |
| Abstract: | In the existing literature, several channels have been suggested for the effects of monetary policy on income inequality. This paper explores an altogether different channel by examining the effect of an expansionary monetary policy on wage inequality between skilled and unskilled workers in a competitive general equilibrium framework of a small open economy. This issue assumes relevance since monetary policies are often pursued by the central banks to manage exchange rate fluctuations under a managed float regime, which may adversely affect the wages to low skilled workers. Under optimal allocation of wealth over a portfolio of cash, domestic assets and foreign assets, we show that an increase in the domestic money supply affects the wage inequality primarily in two ways. One is through larger investment, capital formation and consequent endowment effect; the other is through changes in the nominal exchange rate. Expansionary monetary policy aggravates wage inequality if the labour to capital share required to produce the traditional export good exceeds that needed in the skill-based export good. A contractionary monetary policy in the foreign country on the other hand, minimises wage inequality if the capital-cost share in the export good Z is highest followed by that in the composite traded good and that in the non-traded good is least. |
| Keywords: | Monetary Policy, Wage inequality, Employment, Exchange rate, Portfolio choice. |
| JEL: | E24 E52 F11 F41 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:116374&r=ban |
| By: | Carletti, Elena; Leonello, Agnese; Marquez, Robert |
| Abstract: | Loan guarantees represent a form of government intervention to support bank lending. However, their use raises concerns as to their effect on bank risk-taking incentives. In a model of •nancial fragility that incorporates bank capital and a bank incentive problem, we show that loan guarantees reduce depositor runs and improve bank underwriting standards, except for the most poorly capitalized banks. We highlight a novel feedback effect between banks•' underwriting choices and depositors' •run decisions, and show that the effect of loan guarantees on banks' incentives is different from that of other types of guarantees, such as deposit insurance. JEL Classification: G21, G28 |
| Keywords: | bank monitoring, charter value, fundamental runs, panic runs |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232782&r=ban |