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on Banking |
| By: | Gustavo Joaquim; Felipe Netto; José Renato Ornelas |
| Abstract: | We study a large-scale quasi-experiment in the Brazilian banking sector characterized by an unexpected and macroeconomically relevant increase in lending by commercial government owned banks. Using credit registry data, we find that this intervention led to a reduction in loan interest rates by private banks with limited effects on their credit supply. Firms reliant on government banks experienced a large increase in debt, and government banks faced a significant increase in default driven by levered firms. We find a small increase in employment at the firm level, suggesting limited direct benefits of the increase in credit by the government. At the regional level, we find that branch presence cannot explain credit growth due to cross-market borrowing. Once we account for this channel, we find real effects at the regional level that are substantially larger than those at the firm level, but less than half of those from the literature. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:579&r=ban |
| By: | Andrea Modena |
| Abstract: | We study bailouts in a macroeconomic model where banks provide services that facilitate firms’ investments but limit their own leverage to prevent costly recapitalizations. This precautionary motive can generate financial crises, in which banks’ limited intermediation capacity discourages investments and dampens growth. Bank recapitalizations are constrained-inefficient because they do not internalize that, in the aggregate, higher equity buffers allow for more intermediation, favouring investments and accelerating recoveries. System-wide bailouts can mitigate this inefficiency and improve long-run welfare as long as their positive effect on banks’ equity value outweighs their negative impact on risk-taking incentives. |
| Keywords: | bailout, efficiency, financial crisis, general equilibrium, recovery, welfare |
| JEL: | D51 G21 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_415&r=ban |
| By: | Viral V. Acharya; Richard Berner; Robert Engle; Hyeyoon Jung; Johannes Stroebel; Xuran Zeng; Yihao Zhao |
| Abstract: | We explore the design of climate stress tests to assess and manage macroprudential risks from climate change in the financial sector. We review the climate stress scenarios currently employed by regulators, highlighting the need to (i) consider many transition risks as dynamic policy choices; (ii) better understand and incorporate feedback loops between climate change and the economy; and (iii) further explore “compound risk” scenarios in which climate risks co-occur with other risks. We discuss how the process of mapping climate stress scenarios into financial firm outcomes can incorporate existing evidence on the effects of various climate-related risks on credit and market outcomes. We argue that more research is required to (i) identify channels through which plausible scenarios can lead to meaningful short-run impact on credit risks, given typical bank loan maturities; (ii) incorporate bank-lending responses to climate risks; (iii) assess the adequacy of climate risk pricing in financial markets; and (iv) better understand and incorporate the process of expectations formation around the realizations of climate risks. Finally, we discuss the relative advantages and disadvantages of using market-based climate stress tests that can be conducted using publicly available data to complement existing stress testing frameworks. |
| Keywords: | climate risk; financial stability; systemic risk |
| JEL: | Q54 G1 G2 |
| Date: | 2023–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:95943&r=ban |
| By: | Sergey Chernenko; Nathan Kaplan; Asani Sarkar; David S. Scharfstein |
| Abstract: | We use the 2020 Small Business Credit Survey to study the sources of racial disparities in use of the Paycheck Protection Program (PPP). Black-owned firms are 8.9 percentage points less likely than observably similar white-owned firms to receive PPP loans. About 55% of this take-up disparity is attributable to a disparity in application propensity, while the remainder is attributable to a disparity in approval rates. The finding in prior research that Black-owned PPP recipients are less likely than white-owned recipients to borrow from banks and more likely to borrow from fintech lenders is driven entirely by application behavior. Conditional on applying for a PPP loan, Black-owned firms are 9.9 percentage points less likely than white-owned firms to apply to banks and 7.8 percentage points more likely to apply to fintechs. However, they face similar average approval disparities at banks (7.4 percentage points) and fintechs (8.4 percentage points). Sorting by Black-owned firms away from banks and towards fintechs is significantly stronger in more racially biased counties, and the bank approval disparity is also larger in more racially biased counties. We conclude that insofar as automation by fintechs reduces racial disparities in PPP take-up, it does so by mitigating disparities in loan application rates, not loan approval rates. |
| JEL: | G01 G21 G23 G28 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31172&r=ban |
| By: | Stefano Federico; Giuseppe Marinelli; Francesco Palazzo |
| Abstract: | We study how a demand shock in an export market propagates to the exporting country’s banking system. Using the dual shocks of sanctions and falling oil prices suffered by Russia in 2014, we investigate the effects on Italian firms and banks more exposed to the Russian market. This event implied a sharp decline in sales for firms with a significant share of sales to Russia, but it did not affect the overall amount of credit available to them. Banks relatively more exposed to Italian exporters to Russia cut their overall credit supply, especially vis-à-vis ex ante risky borrowers, but continued to provide credit towards firms moderately hit by the trade shock, in an attempt to let them cope with the liquidity shortfall. Our results suggest that banks mitigate trade shocks for certain hit firms, while at the same time propagate them to other firms not directly affected by the shock. |
| JEL: | F10 G21 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31171&r=ban |
| By: | Katharina Bergant; Francesco Grigoli; Niels-Jakob Hansen; Katharina Damiano Sandri |
| Abstract: | We show that macroprudential regulation significantly dampens the impact of global financial shocks on emerging markets. Specifically, a tighter level of regulation reduces the sensitivity of GDP growth to capital flow shocks and movements in the VIX. A broad set of macroprudential tools contributes to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. We do not find evidence that capital controls provide similar benefits. |
| Keywords: | macroprudential regulation, monetary policy, capital controls |
| JEL: | F3 F4 E5 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1097&r=ban |
| By: | James B. Bullard |
| Abstract: | During an appearance on Bloomberg TV, St. Louis Fed President Jim Bullard discussed financial stress, the federal funds rate and inflation. On banking sector problems, Bullard said the reaction was swift and appropriate. He said he projected an 80% probability that the financial stress within the sector will decline. “You’ve got the macroprudential tools for financial stress, and you’ve got monetary policy to fight inflation. We can do both as long as financial stress doesn’t morph into something much larger, ” he said. To bring down inflation, Bullard said the median Federal Open Market Committee projection shows that the federal funds rate will need to reach a little over 5%, although his own estimate is “a little higher than that.” Bullard also discussed oil prices, labor markets and market expectations for future rate increases. |
| Keywords: | financial stress; federal funds rate; inflation; monetary policy; interest rates |
| Date: | 2023–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:95920&r=ban |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard presented “Financial Stress and the Economy” at a meeting of the Arkansas Bankers Association in Little Rock. He said that financial stress has been on the rise in recent weeks, but the macroprudential policy response has been swift and appropriate. He added that regulators are prepared to take additional steps if needed. Data on the real U.S. economy have generally been stronger than expected, and inflation remains too high, Bullard said. He pointed out that FOMC policy has kept market-based measures of inflation expectations relatively low, which bodes well for disinflation this year. Continued appropriate macroprudential policy can contain financial stress, while appropriate monetary policy can continue to put downward pressure on inflation, he said. |
| Keywords: | financial stress; macroprudential policy; inflation; monetary policy |
| Date: | 2023–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:95941&r=ban |
| By: | Xiang Fang; Bryan Hardy; Karen Lewis |
| Abstract: | This paper studies the impact of investor composition on the sovereign debt market. We construct a data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over 20 years. Private non-bank investors absorb disproportionately more sovereign debt supply than other investors. Moreover, non-bank investor demand is most responsive to the yield. Counterfactual analysis of emerging market sovereigns shows a 10% increase in debt leads to a 6.7% increase in costs, but an outsize 9% increase if non-bank investors are absent. We conclude that these sovereigns are vulnerable to losing non-bank investors. |
| Keywords: | new borrowing, debt service, financial cycle, financial flows and real effects |
| JEL: | F34 G11 G15 F41 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1099&r=ban |
| By: | Zlata Tabachov\'a; Christian Diem; Andr\'as Borsos; Csaba Burger; Stefan Thurner |
| Abstract: | Realistic credit risk assessment, the estimation of losses from counterparty's failure, is central for the financial stability. Credit risk models focus on the financial conditions of borrowers and only marginally consider other risks from the real economy, supply chains in particular. Recent pandemics, geopolitical instabilities, and natural disasters demonstrated that supply chain shocks do contribute to large financial losses. Based on a unique nation-wide micro-dataset, containing practically all supply chain relations of all Hungarian firms, together with their bank loans, we estimate how firm-failures affect the supply chain network, leading to potentially additional firm defaults and additional financial losses. Within a multi-layer network framework we define a financial systemic risk index (FSRI) for every firm, quantifying these expected financial losses caused by its own- and all the secondary defaulting loans caused by supply chain network (SCN) shock propagation. We find a small fraction of firms carrying substantial financial systemic risk, affecting up to 16% of the banking system's overall equity. These losses are predominantly caused by SCN contagion. For every bank we calculate the expected loss (EL), value at risk (VaR) and expected shortfall (ES), with and without accounting for SCN contagion. We find that SCN contagion amplifies the EL, VaR, and ES by a factor of 4.3, 4.5, and 3.2, respectively. These findings indicate that for a more complete picture of financial stability and realistic credit risk assessment, SCN contagion needs to be considered. This newly quantified contagion channel is of potential relevance for regulators' future systemic risk assessments. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.04865&r=ban |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard shared his thoughts on the Federal Open Market Committee’s latest policy rate increase and the possibility of a soft landing for the U.S. economy. He spoke during a fireside chat with Minneapolis Fed President Neel Kashkari at an event hosted by the Economic Club of Minnesota. On May 3, the FOMC raised the target range for the federal funds rate by 25 basis points, to 5%-5.25%. Bullard said he thought the move “was a good next step for the committee.” He noted that the FOMC has done a lot in the past year or so. “But we have a lot of inflation in the U.S. economy, more than we’ve had since the early 1980s, ” he said. “And so I think it’s appropriate to put the policy rate at a higher level so we can try to get the inflation problem behind us sooner and get back to the 2% inflation environment that we enjoyed earlier.” While the U.S. economy always faces risks, Bullard said that a recession is not his base case. “I think the base case is slow growth, probably a somewhat softer labor market and declining inflation, ” he said. He also noted that the May 5 jobs report was stronger than expected again and that the U.S. has a very tight labor market, which will take a while to cool off. He also discussed the recent stresses in the banking sector, the role of Federal Reserve banks in supervising banks compared with the role of the Board of Governors, the composition of Reserve bank boards of directors, and his view on central bank digital currencies. |
| Keywords: | monetary policy; interest rates; soft landings; federal funds rate; labor markets; banking sector; central bank digital currencies |
| Date: | 2023–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:96124&r=ban |
| By: | Mary C. Daly |
| Abstract: | Remarks delivered at Salt Lake Chamber, Salt Lake City, UT, April 12, 2023, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco. |
| Keywords: | monetary policy; banking; banking supervision; Federal Open Market Committee (FOMC); inflation; labor market |
| Date: | 2023–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:96000&r=ban |
| By: | Hyeyoon Jung; João A. C. Santos; Lee Seltzer |
| Abstract: | We build on the estimated sectoral effects of climate transition policies from the general equilibrium models of Jorgenson et al. (2018), Goulder and Hafstead (2018), and NGFS (2022a) to investigate U.S. banks’ exposures to transition risks. Our results show that while banks’ exposures are meaningful, they are manageable. Exposures vary by model and policy scenario with the largest estimates coming from the NGFS (2022a) disorderly transition scenario, where the average bank exposure reaches 9 percent as of 2022. Banks’ exposures increase with the stringency of a carbon tax policy but tend to benefit from a corporate or capital tax cut redistribution policy relative to a lump sum dividend. Also, banks’ exposures increase, although not dramatically in stress scenarios. For example, according to Jorgenson et al. (2018), banks’ exposures range from 0.5—3.5 percent as of 2022. Assuming that loans to industries in the top two deciles most affected by the transition policy lose their entire value, banks’ exposures would increase to 12—14 percent. Finally, there is a downward trend in banks’ exposures to the riskiest industries, which appears to be at least in part due to banks gradually reducing funding to these industries. |
| Keywords: | climate risk; transition risk; climate; Network for Greening the Financial System (NGFS) scenarios |
| JEL: | G21 H23 Q54 |
| Date: | 2023–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:95939&r=ban |
| By: | Wolf Wagner (Erasmus University and CEPR); Jing Zeng (University of Bonn and CEPR) |
| Abstract: | We analyze the design of bailout regimes when investment is distorted by a too-many-to-fail problem. The first-best allocation equalizes benefits from more banks investing in high-return projects with endogenously higher systemic risk due to more banks failing simultaneously. A standard bailout policy cannot implement the first-best, as bailouts cause herding by banks. However, a bailout policy that assigns banks to separate bailout regimes eliminates herding and achieves the first-best. When such a policy is not feasible, targeted bailouts can be implemented by decentralizing bailout decisions to independent regulators. Our results have various implications for the optimal allocation of regulatory powers, both at the international level and domestically. |
| Keywords: | systemic risk, too-many-to-fail, optimal investment, bailouts |
| JEL: | G1 G2 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:230&r=ban |
| By: | Yannick Hoga |
| Abstract: | Systemic risk measures have been shown to be predictive of financial crises and declines in real activity. Thus, forecasting them is of major importance in finance and economics. In this paper, we propose a new forecasting method for systemic risk as measured by the marginal expected shortfall (MES). It is based on first de-volatilizing the observations and, then, calculating systemic risk for the residuals using an estimator based on extreme value theory. We show the validity of the method by establishing the asymptotic normality of the MES forecasts. The good finite-sample coverage of the implied MES forecast intervals is confirmed in simulations. An empirical application to major US banks illustrates the significant time variation in the precision of MES forecasts, and explores the implications of this fact from a regulatory perspective. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.10349&r=ban |
| By: | Sebastian Doerr; Sebastian Egemen Eren; Semyon Malamud |
| Abstract: | US money market funds (MMFs) play an important role in short-term markets as large investors of Treasury bills (T-bills) and repurchase agreements (repos). We build a theoretical model in which MMFs strategically interact with banks and each other. These interactions generate interdependencies between repo and T-bill markets, affecting the pricing of these near-money assets. Consistent with the model's predictions, we empirically show that when MMFs allocate more cash to the T-bill market, T-bill rates fall, and the liquidity premium on T-bills rises. To establish causality, we devise instrumental variables guided by our theory. Using a granular holding-level dataset to examine the channels, we show that MMFs internalize their price impact in the T-bill market when they set repo rates and tilt their portfolios towards repos with the Federal Reserve when Treasury market liquidity is low. Our results have implications for the transmission of monetary policy, benchmark rates, and government debt issuance. |
| Keywords: | T-bills, repo, money market funds, near-money assets, liquidity |
| JEL: | E44 G11 G12 G23 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1096&r=ban |
| By: | Said Kaawach (University of Huddersfield); Oskar Kowalewski (IESEG School of Management); Oleksandr Talavera (University of Birmingham) |
| Abstract: | Using unique data from a leading peer-to-peer (P2P) lending platform, we investigate the link between past investment performance and choice of auto-investing tool. Our results suggest that investors with poorly performing loan portfolios are more likely to switch automatically. This negative relationship can be explained by algorithmic aversion or investor inattention. In other words, the results suggest that good-performing investors who pay close attention to their loan portfolios or are not interested in using automated services are more likely to rely on themselves in manual mode. These results are robust to alternative specifications. |
| Keywords: | FinTech; Peer-to-Peer Lending; Investor Switching; Automatic Bidding |
| JEL: | G11 G40 G51 D90 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:23-04&r=ban |
| By: | Bichler, Shimshon; Nitzan, Jonathan |
| Abstract: | This paper is part of a dialogue with Blair Fix on how inflation redistributes income between creditors and workers and the way in which monetary policy affects this process. In his 2023 paper, ‘Inflation! The Battle Between Creditors and Workers’, Fix shows, first, that the impact of U.S. inflation on creditor-worker distribution has been historically contingent (favouring workers during some periods and creditors in others); and second, that since the 1970s, Fed policy to combat inflation with higher interest rates boosted the yield of creditors relative to the wage rate of workers. Our own research suggests that these conclusions might be too general. We point out that creditors are not a monolithic class and that different types of creditors are affected differently, and often inversely, by the rate of interest. We illustrate that, contrary to bank depositors, bondholders tend to lose from inflation. And we show that monetary policy, at least in the United States, appears to follow rather than determine market yields. More generally, since most capitalists nowadays are lenders as well as borrowers, and given that ‘dominant capital’ profits from the full spectrum of investment instruments, we wonder if ‘creditors’ is still a useful category for analysing redistribution in general and inflationary redistribution in particular. |
| Keywords: | Blair Fix, bond yields, creditors, income distribution, inflation, interest rate, monetary policy, total returns, wages |
| JEL: | G12 E5 J3 D3 E5 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:capwps:202301&r=ban |
| By: | Simon H. Kwan; Mauricio Ulate; Ville Voutilainen |
| Abstract: | Despite the implementation of negative nominal interest rates by several advanced economies in the last decade and the many papers that have been written about this novel policy tool, there is still much we do not know about the effectiveness of this instrument. The pass-through of negative policy rates to loan rates is one of the main points of contention. In this paper, we analyze the pass-through of the ECB’s changes in the deposit facility rate to mortgage rates in Finland between 2005 and 2020. We use monthly data and three different empirical methodologies: correlational event studies, high-frequency identification, and exposure-measure regressions. We provide robust evidence that there continues to be pass-through of a cut in the policy rate to mortgage rates even when the policy rate is in negative territory, but that this pass-through is smaller than when the policy rate is in positive territory. The evidence in this paper contrasts with some previous studies and provides moments that can be useful to discipline theoretical negative-rates models. |
| Keywords: | negative nominal interest rates; Finland; European Central Bank (ECB); negative rates; mortgage rates |
| Date: | 2023–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:96029&r=ban |
| By: | Bineet Mishra; Eswar S. Prasad |
| Abstract: | We develop a general equilibrium model that highlights the trade-offs between physical and digital forms of retail central bank money. The key differences between cash and central bank digital currency (CBDC) include transaction efficiency, possibilities for tax evasion, and, potentially, nominal rates of return. We establish conditions under which cash and CBDC can co-exist and show how government policies can influence relative holdings of cash, CBDC, and other assets. We illustrate how a CBDC can facilitate negative nominal interest rates and helicopter drops, and also how a CBDC can be structured to prevent capital flight from other assets. |
| JEL: | E4 E5 E61 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31198&r=ban |
| By: | Alain Chaboud; Dagfinn Rime; Vladyslav Sushko |
| Abstract: | This chapter discusses the structure and functioning of the spot foreign exchange (FX) market. The market structure, which has become far more complex over the past three decades, has mostly evolved endogenously as the global FX market is subject to notably less regulatory oversight than equity and bond markets in most countries. Major banks used to dominate liquidity provision, but they have found their role challenged by high frequency trading firms in an increasingly fragmented electronic market. The information structure of the market has also changed. As such, high-frequency cross-asset correlations, especially with the futures market, have become more important. The chapter also discusses the important role of the official sector in the FX market, and it highlights a few special topics such as flash events and the FX fixing scandal. We conclude with some suggestions for future research. |
| Keywords: | financial markets, foreign exchange, market microstructure, dealer intermediation, electronic trading, algorithmic trading |
| JEL: | F31 G15 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1094&r=ban |
| By: | Jorge Arenas; Stephany Griffith-Jones |
| Abstract: | In this article we evaluate the effectiveness of the last two foreign exchange interventions (FXI) of the Central Bank of Chile (BCCh), dated 2019 and 2022. Using data with daily and intra-daily frequency for the nominal exchange rate, results show through different empirical methods that both intervention episodes have significant effects in the expected direction on the level and volatility of the exchange rate. The effects associated with the 2019 and 2022 interventions are appreciations of an average of 2% and 6%, respectively. The estimated decrease in volatility is also greater in the 2022 intervention. The results support the implications of the different mechanisms that have been proposed in the literature to understand the effectiveness of FXI. Simultaneously, these results suggest that intervening the forward market seems just as effective as intervening into the spot market. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp546&r=ban |
| By: | Héloïse Berkowitz (LEST - Laboratoire d'Economie et de Sociologie du Travail - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université); Antoine Souchaud (NEOMA - Neoma Business School, i3-CRG - Centre de recherche en gestion i3 - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Crowdlending is an investment tool that appeared in the early 2000s. This tool allows individuals and companies, via an online platform, to finance directly, in the form of remunerated loans and in a traceable way, projects which are presented to them and on which they can interact publicly. This tool therefore encourages the development of direct financing decided by a crowd of contributors who place their trust in project leaders via an extremely transparent, rapid and cheap online selection and subscription process. This chapter aims to analyze the potential of this new financing tool to induce the necessary transformation the financial system required in order to achieve the SDGs. Financing is indeed at the heart of Agenda 2030. It is also an issue that explicitly touches on two SDGs: SDG 8.3 (development of SMEs) and SDG 9.3 (access to financial services for all enterprises). Crowdfunding is indeed one of the answers identified by the August 2020 United Nations report "Citizen's Money: Harnessing digitalization to finance a sustainable future". It is now a question of truly developing this tool, which aims to put the human being and sustainable development at the heart of the lending relationship. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04072362&r=ban |
| By: | Jonathan Hambur (Reserve Bank of Australia); Qazi Haque (University of Adelaide) |
| Abstract: | Understanding the effects of monetary policy and its communication is crucial for a central bank. This paper explores a new approach to identifying the effects of monetary policy using high-frequency data around monetary policy decisions and other announcements that allows us to explore different facets of monetary policy, specifically: current policy action; signalling or forward guidance about future rates; and the effect on uncertainty and term premia. The approach provides an intuitive lens through which to understand how policy and its communication affected expectations for rates and risks during certain historical periods, and more generally. For example, it suggests that: (i) signalling/forward guidance shocks tended to raise expected future policy rates in the mid-2010s as the RBA highlighted rising risks in housing markets; (ii) COVID-19-era monetary policy worked mainly through affecting term premia rather than expectations for future policy rates, unlike pre-COVID-19 policy; and (iii) shocks to the expected path of rates are predictable based on data available at the time, which suggests that markets systematically misunderstand how the RBA reacts to data, highlighting the importance of clear communication. We also explore the macroeconomic effects of these different shocks. The effects of shocks to current policy are similar to those estimated in previous papers, and existing issues such as the 'price puzzle' remain, while the effects of other shocks are imprecisely estimated. Although the approach provides little new information on the macroeconomic effects of monetary policy, it does highlight the importance of these other facets of policy in moving interest rates and suggests additional work in this space could be valuable. |
| Keywords: | high-frequency data; affine term structure model; multidimensional policy shocks; monetary policy transmission |
| JEL: | C58 E43 E52 E58 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2023-04&r=ban |
| By: | Yui Kishaba (Bank of Japan); Tatsushi Okuda (Bank of Japan) |
| Abstract: | We estimate the slope of the Phillips curve for service prices in Japan using prefecture-level panel data, where we control the impact of inflation expectations on inflation by including time-fixed effects instead of proxies for inflation expectations. Our estimates indicate the flattening of the slope of the Phillips curve for the majority of seven subgroups in services since the 2000s. We also examine for any changes in the slope of the Phillips curve in the 2010s and during the Covid-19 pandemic, but observe no clear evidence of such changes. |
| Keywords: | Phillips curve; Service prices; Inflation expectations; Inflation dynamics |
| JEL: | C32 C33 E31 E52 |
| Date: | 2023–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp23e08&r=ban |
| By: | Loretta J. Mester |
| Abstract: | The Akron Roundtable’s work to foster community dialog aligns very well with the Federal Reserve Bank of Cleveland’s own efforts to engage with the public. I like that word “dialog.” At the Cleveland Fed we strive to provide our communities with useful research, data, and analysis. For example, our Center for Inflation Research provides various resources to policymakers, researchers, and the general public on inflation and its drivers.1 And in return, we receive economic reconnaissance from a wide variety of contacts from throughout our region. I firmly believe that the Fed’s engagement with the public leads us to make better policy decisions. I also believe that the structure of the Federal Reserve System supports that engagement. So before turning to the outlook, I will give a brief overview of the Fed’s structure. |
| Date: | 2023–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:96025&r=ban |