nep-ban New Economics Papers
on Banking
Issue of 2023‒09‒04
34 papers chosen by
Sergio Castellanos-Gamboa, Tecnológico de Monterrey

  1. Public Guarantees and Private Banks’ Incentives: Evidence from the COVID-19 Crisis By Gabriel Jiménez; Luc Laeven; David Martínez-Miera; José-Luis Peydró
  2. (Shadow) money without a central bank: towards a theory of monetary time By Gabor, Daniela
  3. Sovereign Debt Issuance and Transformation of the Monetary Architecture in Prussia and the German Empire, 1740-1914 By Murau, Steffen
  4. Edutainment, Savings, and Generational Differences in Rural Areas of Peru By Alberto Chong; Martin Valdivia
  5. Underlying inflation and asymetric risks By Hervé Le Bihan; Danilo Leiva-León; Matías Pacce
  6. Information Transmission between Banks and the Market for Corporate Control By Christian Bittner; Falko Fecht; Melissa Pala; Farzad Saidi
  7. Same same but different: credit risk provisioning under IFRS 9 By Behn, Markus; Couaillier, Cyril
  8. The state-dependent impact of changes in bank capital requirements By Lang, Jan Hannes; Menno, Dominik
  9. The Economics of Financial Stress By Sergeyev, Dmitriy; Lian, Chen; Gorodnichenko, Yuriy
  10. "The Effect of Bank Recapitalization Policy on Credit Allocation, Investment, and Productivity: Evidence from a Banking Crisis in Japan" By Hiroyuki Kasahara; Yasuyuki Sawada; Michio Suzuki
  11. To lend or not to lend: the Bank of Japan's ETF purchase program and securities lending By Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
  12. The Distributional Impact of Money Growth and Inflation Disaggregates: A Quantile Sensitivity Analysis By Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
  13. Information Dynamics and Macro Fluctuations By Kyriakos T. Chousakos; Gary B. Gorton; Guillermo Ordoñez
  14. Inflation and entry costs in a monetary search model By Ryoji Hiraguchi; Keiichiro Kobayashi
  15. Causal Inference for Banking Finance and Insurance A Survey By Satyam Kumar; Yelleti Vivek; Vadlamani Ravi; Indranil Bose
  16. The Network Gravity of Global Banking By Minetti, Raoul; Romanini, Giacomo; Ziv, Oren
  17. Interest Rate Surprises: A Tale of Two Shocks By Ricardo Nunes; Ali Ozdagli; Jenny Tang
  18. FinPT: Financial Risk Prediction with Profile Tuning on Pretrained Foundation Models By Yuwei Yin; Yazheng Yang; Jian Yang; Qi Liu
  19. Analysis of the dynamic of inflation process in Nigeria: An application of GARCH modelling By Ekpeyong, Paul
  20. The Social Meaning of Mobile Money: Willingness to Pay with Mobile Money in Bangladesh By Jean N. Lee; Jonathan Morduch; Saravana Ravindran; Abu S. Shonchoy
  21. The term structure of inflation forecasts disagreement and monetary policy transmission By Alessandro Barbera; Dora Xia; Sonya Zhu
  22. The Rise and Fall of Cryptocurrencies: Defining the Economic and Social Values of Blockchain Technologies, assessing the Opportunities, and defining the Financial and Cybersecurity Risks of the Metaverse. By Petar, Radanliev
  23. Drivers of Large Recessions and Monetary Policy Responses By Giovanni Melina; Stefania Villa
  24. Analysis of bank leverage via dynamical systems and deep neural networks By Lillo, Fabrizio; Livieri, Giulia; Marmi, Stefano; Solomko, Anton; Vaienti, Sandro
  25. Forecasting banknote circulation during the COVID-19 pandemic using structural time series models By Bartzsch, Nikolaus; Brandi, Marco; de Pastor, Raymond; Devigne, Lucas; Maddaloni, Gianluca; Posada Restrepo, Diana; Sene, Gabriele
  26. Measuring the natural interest rate for the Macedonian economy: a multi-model approach By Mite Miteski; Magdalena Petrovska; Рртан Сулејмани
  27. How Do Financial Crises Redistribute Risk? By Kris J. Mitchener; Angela Vossmeyer; Kris James Mitchener
  28. Information Salience and Credit Supply: Evidence from Payment Defaults on Trade Bills By Baros Aleksandra; Croci Ettore; Girotti Mattia; Salvadè Federica
  29. Shifting Cryptocurrency Influence: A High-Resolution Network Analysis of Market Leaders By Arnav Hiray; Agam Shah; Sudheer Chava
  30. Complementing Business Training with Access to Finance: Evidence from SMEs in Kenya By Anik Ashraf; Elizabeth Lyons
  31. Sovereign bond and CDS market contagion: A story from the Eurozone crisis By Georgios Bampinas; Theodore Panagiotidis; Panagiotis Politsidis
  32. Implementing Yield Curve Control Measures into the CNB Core Forecasting Model By Frantisek Brazdik; Karel Musil; Stanislav Tvrz
  33. FX intervention and domestic credit in a partially dollarized economy: Evidence using microdata from Peru. By Marcos Ceron; Rafael Nivin; Diego Yamunaque
  34. Trust bridges and money flows By Tobias Adrian; Rodney Garratt; Dong He; Tommaso Mancini-Griffoli

  1. By: Gabriel Jiménez (Banco de España); Luc Laeven (European Central Bank and CEPR); David Martínez-Miera (UC3M and CEPR); José-Luis Peydró (Imperial College London, ICREA-UPF-CREIBSE and CEPR)
    Abstract: This paper shows that private incentives influence the allocation of public guaranteed lending (PGL), resulting in weaker banks shifting riskier corporate loans’ risk to taxpayers. We exploit data from the Banco de España’s Central Credit Register during the COVID-19 shock in Spain, and a stylized model is used to structure the empirical results. Unlike non-PGL, banks provide more PGL to riskier firms accounting for a higher share of their total lending to firms before the crisis. Importantly, the effects are stronger for weaker banks. Results using firm (bank) fixed effects and loan volume/price information suggest a supply-driven mechanism. Exploiting exogenous variations across similar firms with different access to PGL, we show that PGL increases banks’ lending to riskier firms, both overall and as a share of their total lending, especially for weaker banks.
    Keywords: banking, private incentives, COVID-19, public guarantees, risk-shifting
    JEL: G01 G21 G38 E62 H81
    Date: 2023–07
  2. By: Gabor, Daniela
    Abstract: Since (at least) Keynes we think of money as a time machine that links the irrevocable past to the uncertain future by credibly storing value. But time as shorthand for uncertainty downplays its role in the emergence of new forms of money. Instead, this paper theorizes monetary time as the set of practices through which the state and private finance order time on their balance sheets in the process of creating credible promises to pay at par. While time makes money, there is no unique temporal order that characterizes money/credit creation in capitalism. Rather, monetary time varies across different modes of organizing credit creation, in relationship banking vs market-based finance where credit is created via securities markets and financed through shadow money, promises to pay backed by collateral securities. The alchemy of (shadow) banking is the alchemy of monetary time, of money that can extinguish time without the state. To illustrate, the paper explores the money-time order perfected by New York broker-dealers in the call market that powered the American credit machine before the creation of the Federal Reserve in 1913. Brokers developed practices for daily re-pricing of collateral securities that rendered call (shadow) money credible stores of value. The day-based temporal order allowed brokers to pump credit into circulation via securities markets, liquidity into the payment system and moneyness into bank and paper money.
    Date: 2023–08–10
  3. By: Murau, Steffen
    Abstract: This paper traces the transformation of the monetary architecture and concomitant sovereign debt issuance practices in Prussia and the German Empire from 1740 to 1914 in order to reflect on contemporary ideas regarding the appropriate relation between states' treasuries, central banks, and the private banking system in matters of sovereign debt issuance. It discusses three institutions as "protagonists" - the Königlich Preußische Bank, the Seehandlung, and the Disconto-Gesellschaft - and follows them through four phases of Prussian and German history: feudal Prussia from Friedrich II to the defeat against Napoleon (1740-1806); from the Stein-Hardenberg reforms to the March Revolution (1807-1848); post-revolutionary Prussia, including the rise of Bismarck, his three wars, and the foundation of the German Empire (1849-1871); and Prussia in the German Empire during the first era of globalization (1871-1914). Adopting the Monetary Architecture framework as a conceptual lens, the analysis yields three main findings. First, off-balance-sheet fiscal agencies (OBFAs) have played a key role in the issuance and management of sovereign debt, even before central banks and treasuries in the modern sense had formed. This is highlighted in the institutional role of the Seehandlung, which kick-started Prussian sovereign debt issuance during the Napoleonic Wars. Second, central banking institutions have historically shifted within the public-private spectrum. The state-owned Königlich Preußische Bank became more functional and accountable after it was converted into the hybrid Preußische Bank. When it was transformed into the Reichsbank in 1875, a fully private ownership structure was chosen. Third, the economic liberalization after 1848 and the increased need to harness private funding for war finance led to the emergence of syndicated sovereign bond issuance. The Disconto-Gesellschaft, which played a leading role in the Prussia Consortium and the Imperial Bond Consortium, was at the forefront of establishing a new relationship between private finance and the state.
    Keywords: Fiscal Policy, Debt, Institutions, History
    Date: 2023
  4. By: Alberto Chong (Department of Economics, Georgia State University and Department of Economics, Universidad del Pacifico); Martin Valdivia (Grupo Analisis para el Desarrrollo (GRADE))
    Abstract: We wrote, produced, and implemented a randomized five-episode soap opera on financial inclusion targeted to women from poor, rural areas ravaged by terrorism in Peru. We go beyond measuring attitudes and perceptions but observe actual savings accounts using bank data. Older women, those who directly suffered from terrorist violence, respond very well and save more two years after the intervention. Younger women, unborn or too little during the terrorist period, do not show any variation in their behavior. Key mediators of our findings are more involvement in economic decisions, higher earnings, and less time spent in domestic chores.
    Date: 2023–08
  5. By: Hervé Le Bihan (Banque de France); Danilo Leiva-León (European Central Bank); Matías Pacce (Banco de España)
    Abstract: We propose a new measure of underlying inflation that provides real-time information on asymmetric risks in the outlook for inflation. The asymmetries are generated by nonlinearities induced by economic activity. The new indicator is based on a multivariate regime-switching framework estimated using disaggregated sub-components of euro area HICP and has several additional advantages. First, it is able to swiftly infer abrupt changes in underlying inflation. Second, it helps track turning points in underlying inflation on a timely basis. Third, the proposed indicator also performs satisfactorily vis-à-vis several criteria relevant to inflation monitoring.
    Keywords: underlying inflation, asymmetric risks, regime-switching, Bayesian methods
    JEL: E17 E31 C11 C22 C24
    Date: 2023–07
  6. By: Christian Bittner (Deutsche Bundesbank and Goethe University Frankfurt); Falko Fecht (Deutsche Bundesbank and Frankfurt School of Finance & Management); Melissa Pala (Deutsche Bundesbank); Farzad Saidi (University of Bonn and CEPR)
    Abstract: This paper provides evidence of deliberate private-information disclosure within banks' international business networks. Using supervisory trade-level data, we show that banks with closer ties to a target advisor in a takeover buy more stocks of the target firm prior to the deal announcement, enabling them to benefit from the positive announcement return. We do not find such effects for bank connections to acquirer advisors or for trades in acquirer stocks. Target advisors benefit from leaking information about takeover bids to connected banks, as it drives up the premium paid without compromising the probability of bid success.
    Keywords: bank networks, trading, information spillovers, mergers and acquisitions, syndicated lending
    JEL: G11 G15 G21 G24
    Date: 2023–08
  7. By: Behn, Markus; Couaillier, Cyril
    Abstract: We analyse the impact of the adoption of expected credit loss accounting (IFRS 9) on the timeliness and potential procyclicality of banks’ loan loss provisioning. We use granular loan-level data from the euro area’s credit register and investigate both firm-level credit events and macroeconomic shocks (2020 COVID-19 pandemic, 2022 energy price shock). We find that provisions under the new standard are higher before default and more responsive to shocks. However, the majority of provisioning still occurs at the time of default and the dynamics around default events are similar to pre-existing national standards. Additionally, banks with a larger capital headroom provision significantly more, particularly for loans using IFRS 9. This suggests a higher risk of underprovisioning for less capitalized banks. JEL Classification: G21, G28, G32
    Keywords: bank regulation, credit risk, financial stability, loan loss accounting
    Date: 2023–08
  8. By: Lang, Jan Hannes; Menno, Dominik
    Abstract: Based on a non-linear equilibrium model of the banking sector with an occasionally binding equity issuance constraint, we show that the economic impact of changes in bank capital requirements depends on the state of the macro-financial environment. In 'normal' states where banks do not face problems to retain enough profits to satisfy higher capital requirements, the impact on bank loan supply works through a 'pricing channel' which is small: around 0.1% less loans for a 1pp increase in capital requirements. In 'bad' states where banks are not able to come up with sufficient equity to satisfy capital requirements, the impact on loan supply works through a 'quantity channel', which acts like a financial accelerator and can be very large: up to 10% more loans for a capital requirement release of 1pp. Compared to existing DSGE models with a banking sector, which usually feature a constant lending response of around 1%, our state-dependent impact is an order of magnitude lower in 'normal' states and an order of magnitude higher in 'bad' states. Our results provide a theoretical justification for building up a positive countercyclical capital buffer in 'normal' macro-financial environments.
    Keywords: Bank capital requirements, loan supply, dynamic stochastic equilibrium model, financial accelerator, global solution methods
    JEL: D21 E44 E51 G21 G28
    Date: 2023
  9. By: Sergeyev, Dmitriy (Bocconi University); Lian, Chen (UC Berkeley); Gorodnichenko, Yuriy (University of California, Berkeley)
    Abstract: We study the psychological costs of financial constraints and their economic consequences. Using a representative survey of U.S. households, we document the prevalence of financial stress in U.S. households and a strong relationship between financial stress and measures of financial constraints. We incorporate financial stress into an otherwise standard dynamic model of consumption and labor supply. We emphasize two key results. First, a psychology-based theory of poverty traps requires two equally important components: financial stress itself and naivete about financial stress. Specifically, sophisticates save enough to escape high-stress states, because they understand that doing so alleviates the economic consequences of financial stress. On the other hand, naifs dis-save, fall into a poverty trap, and incur high welfare losses. Second, the financial stress channel can reverse the counterfactual negative wealth effect on labor supply because relieving stress frees up cognitive resources for productive work. Financial stress also has macroeconomic implications on wealth inequality and fiscal multipliers.
    Keywords: household finance, survey, stress, behavioral economics
    JEL: E7 G5
    Date: 2023–07
  10. By: Hiroyuki Kasahara (University of British Columbia); Yasuyuki Sawada (Faculty of Economics, The University of Tokyo); Michio Suzuki (Tohoku University, Cabinet Office, Government of Japan)
    Abstract: This paper examines the ramification of government capital injections into financially distressed banks during the 1997 Japanese banking crisis. By leveraging a unique dataset merging firm-level financial statements and bank balance sheets, the study aims to examine whether the capital injections primarily benefited high-productivity firms or were misallocated to struggling "zombie" firms. The empirical results suggest that banks, post-injection, increased lending to both high-productivity non-zombie firms and low-productivity zombie firms. While the former is in line with conventional theories that prioritize high-productivity firms for investment and productivity enhancement, the latter suggests credit misallocation towards struggling firms mainly for debt servicing. Intriguingly, the study finds no evidence that these injections promoted investments among firms, irrespective of their productivity or financial health status. In particular, we provide suggestive evidence that zombie firms even reduced investments, especially in infrastructure, while high-productivity non-zombie firms did not exhibit a significant investment boost despite receiving more loans. However, these high-productivity firms displayed positive growth in labor productivity and total factor productivity, potentially driven by sales growth and increased advertisement expenses rather than employment and wage adjustments.
    Date: 2023–08
  11. By: Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
    Abstract: This study investigates the effects of the Bank of Japan's (BOJ) exchange-traded fund (ETF) purchase program on stock returns, particularly focusing on the role of the stock lending market. Using firm-level panel data, we find that the BOJ's purchases raised stock returns more for those stocks with limited availability in the stock lending market. Nonetheless, over the longer term, the BOJ's accumulated purchases lowered lending fees and weakened the effects of their purchases on stock returns. This result suggests that ETF managers supply stocks that constitute ETFs held by the BOJ to the stock lending market, which weakens the policy effects of the program.
    Keywords: large-scale asset purchase (LSAP), ETF purchase program, stock lending market, Bank of Japan
    JEL: E58 G12 G14
    Date: 2023–08
  12. By: Matteo Iacopini; Aubrey Poon; Luca Rossini; Dan Zhu
    Abstract: We propose an alternative method to construct a quantile dependence system for inflation and money growth. By considering all quantiles, we assess how perturbations in one variable's quantile lead to changes in the distribution of the other variable. We demonstrate the construction of this relationship through a system of linear quantile regressions. The proposed framework is exploited to examine the distributional effects of money growth on the distributions of inflation and its disaggregate measures in the United States and the Euro area. Our empirical analysis uncovers significant impacts of the upper quantile of the money growth distribution on the distribution of inflation and its disaggregate measures. Conversely, we find that the lower and median quantiles of the money growth distribution have a negligible influence on the distribution of inflation and its disaggregate measures.
    Date: 2023–08
  13. By: Kyriakos T. Chousakos; Gary B. Gorton; Guillermo Ordoñez
    Abstract: The amount of information produced about firms’ productivities and about the quality of collateral backing their loans varies over time. These information dynamics determine the evolution of credit, output and productivity, which feeds back into incentives to produce information. We characterize this intricate dynamic relation. A credit boom happens when information about collateral depreciates. A financial crisis happens when information about collateral is suddenly generated. Information about firms’ individual productivities over credit booms can prevent or tame the crisis, acting as an endogenous macroprudential force.
    JEL: E32 E44 G01
    Date: 2023–07
  14. By: Ryoji Hiraguchi; Keiichiro Kobayashi
    Abstract: In this study, we construct a variant of the Lagos-Wright monetary model in which both buyers and sellers optimally decide whether to enter decentralized market by paying fixed entry costs. In the decentralized market, the sellers produce the intermediate inputs which are necessary to produce the general good traded in the centralized market. We show that the Friedman rule of setting nominal interest rate to zero may not be optimal. The optimal inflation rate is derived explicitly for specific functional forms. It is shown that the optimal inflation rate is lower for lower buyer entry costs, because the lower entry costs generate the congestion of buyers which must be compensated for by lower cost of money holdings. It is also shown that the optimal inflation is lower for higher seller entry costs. These results may explain why the secular decline in inflation has been observed in recent decades when the emergence and growth of Internet usage has lowered shopping costs for buyers.
    Date: 2023–08
  15. By: Satyam Kumar; Yelleti Vivek; Vadlamani Ravi; Indranil Bose
    Abstract: Causal Inference plays an significant role in explaining the decisions taken by statistical models and artificial intelligence models. Of late, this field started attracting the attention of researchers and practitioners alike. This paper presents a comprehensive survey of 37 papers published during 1992-2023 and concerning the application of causal inference to banking, finance, and insurance. The papers are categorized according to the following families of domains: (i) Banking, (ii) Finance and its subdomains such as corporate finance, governance finance including financial risk and financial policy, financial economics, and Behavioral finance, and (iii) Insurance. Further, the paper covers the primary ingredients of causal inference namely, statistical methods such as Bayesian Causal Network, Granger Causality and jargon used thereof such as counterfactuals. The review also recommends some important directions for future research. In conclusion, we observed that the application of causal inference in the banking and insurance sectors is still in its infancy, and thus more research is possible to turn it into a viable method.
    Date: 2023–07
  16. By: Minetti, Raoul (Michigan State University, Department of Economics); Romanini, Giacomo (Bank of Italy); Ziv, Oren (Michigan State University, Department of Economics)
    Abstract: A substantial fraction of international banking is intermediated through banking hubs and complex multi-national routing. These flows are ignored or unaccounted for, both theoretically and empirically. We develop an N-country DSGE model of lending where banks choose the path of lending through a network of partner institutions in multiple countries. Banking hub countries arise endogenously as central nodes in the intermediation network. The model provides a framework to rationalize observable international statistics with theoretical models of banking gravity. It generates a set of bilateral locational flow of funds that conceptually matches aggregate (BIS LBS) statistics, as distinct from the ultimate demand and supply of lending. Using a series of calibrations for both node and edge shocks, we show that accounting for the network is crucial for understanding the propagation of shocks and the impact of banking consolidation on aggregate fluctuations. The analysis reveals that neglecting the multinational banking network can lead to biased conclusions about the aggregate effects of banking unions.
    Keywords: Heterogeneous Banks; Gravity; Intermediation Network; Contagion
    JEL: F40 G20
    Date: 2023–08–17
  17. By: Ricardo Nunes (University of Surrey, CIMS, and CfM; Centre for International Macroeconomic Studies (CIMS); Centre for Macroeconomics (CFM)); Ali Ozdagli (Federal Reserve Bank of Dallas); Jenny Tang (Federal Reserve Bank of Boston)
    Abstract: Interest rate surprises around FOMC announcements contain both pure policy shocks and interest rate movements driven by central bank information about the economy. By analyzing interest rate changes on days of macroeconomic data releases, the impact of the central bank’s information shocks can be identified and separated from the pure policy shocks. Results show that there is a significant central bank information component in the widely used policy rate surprise measure. Removing this component reveals that the contractionary effects of a positive pure policy shock are more pronounced relative to those estimated using the entire policy rate surprise. A positive information shock, on the other hand, is expansionary.
    Keywords: Monetary policy, central bank information, high frequency identification, proxy structural VAR, external instruments
    JEL: C36 D83 E52 E58
    Date: 2023–07
  18. By: Yuwei Yin; Yazheng Yang; Jian Yang; Qi Liu
    Abstract: Financial risk prediction plays a crucial role in the financial sector. Machine learning methods have been widely applied for automatically detecting potential risks and thus saving the cost of labor. However, the development in this field is lagging behind in recent years by the following two facts: 1) the algorithms used are somewhat outdated, especially in the context of the fast advance of generative AI and large language models (LLMs); 2) the lack of a unified and open-sourced financial benchmark has impeded the related research for years. To tackle these issues, we propose FinPT and FinBench: the former is a novel approach for financial risk prediction that conduct Profile Tuning on large pretrained foundation models, and the latter is a set of high-quality datasets on financial risks such as default, fraud, and churn. In FinPT, we fill the financial tabular data into the pre-defined instruction template, obtain natural-language customer profiles by prompting LLMs, and fine-tune large foundation models with the profile text to make predictions. We demonstrate the effectiveness of the proposed FinPT by experimenting with a range of representative strong baselines on FinBench. The analytical studies further deepen the understanding of LLMs for financial risk prediction.
    Date: 2023–07
  19. By: Ekpeyong, Paul
    Abstract: This study investigates the dynamics of inflation volatility in Nigeria, with a specific focus on the Food Consumer Price Index (CPI), Core CPI, and Headline CPI. The analysis utilizes the Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models to capture time-varying volatility in the inflation rates. The study covers the period from January 1995 to December 2022, employing monthly data sourced from the Central Bank of Nigeria database. The results indicate that all three inflation series display time-varying volatility, signifying varying degrees of fluctuations and uncertainties in price movements over different periods. Furthermore, the presence of ARCH and GARCH effects in the residuals of the volatility models confirms the dynamic nature of inflation volatility. The study identifies significant structural breaks in the volatility of Food CPI during the years 2000, 2008, and 2018, emphasizing the importance of understanding the drivers of inflation volatility. External events and policy changes during these periods impacted food prices and led to shifts in volatility. Policy recommendations are made to address the challenges posed by inflation volatility in Nigeria. These include implementing price stability measures, enhancing food security, strengthening monetary policy, promoting data transparency and analysis, and undertaking fiscal reforms. The findings of this study contribute to a deeper understanding of inflation volatility in Nigeria and provide valuable insights for policymakers in formulating effective strategies to manage inflation and achieve macroeconomic stability. The study highlights the importance of monitoring inflation dynamics and implementing timely policies to ensure sustained economic growth and development in the country.
    Keywords: ARCH, Consumer price index, Headline, core, volatility, GARCH
    JEL: E6 E61 E63
    Date: 2023–07–28
  20. By: Jean N. Lee (World Bank); Jonathan Morduch (Robert F. Wagner Graduate School of Public Service, New York University); Saravana Ravindran (Lee Kuan Yew School of Public Policy, National University of Singapore); Abu S. Shonchoy (Department of Economics, Florida International University)
    Abstract: Mobile money has spread globally, introducing new payment technologies and reducing dependence on cash. Using mobile money can affect spending decisions and how people perceive money itself. Behavioral household finance shows that people are often more willing to spend when using less tangible forms of money like debit and credit cards than when spending in cash. We test whether a similar positive “payment effect†holds for mobile money. In contrast, we find a consistently lower willingness to spend in Bangladesh, where mobile money is now widespread. We draw on surveys embedded within an experiment that allows us to control for the relationships between senders and receivers of mobile money. The findings are consistent with mobile money being earmarked or labeled for particular uses. For rural households, who typically receive remittances from relatives working in the city, for example, mobile money often comes with expectations of how the money should be spent. Spending with cash, in contrast, tends to be more fungible. In urban areas, where the sample is largely comprised of remittance-senders, payment effects are substantially smaller.
    Keywords: payment effect, digital finance, willingness to pay, social meaning of money, earmarks
    JEL: O15 G41 G50 D91 D14
    Date: 2023–08
  21. By: Alessandro Barbera; Dora Xia; Sonya Zhu
    Abstract: The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.
    Keywords: inflation expectation; forecasts disagreement; monetary policy transmission
    JEL: E31 E37 E52
    Date: 2023–08
  22. By: Petar, Radanliev
    Abstract: This paper contextualises the common queries of "why is crypto crashing?" and "why is crypto down?", the research transcends beyond the frequent market fluctuations to unravel how cryptocurrencies fundamentally work and the step-by-step process on how to create a cryptocurrency. The study examines blockchain technologies and their pivotal role in the evolving Metaverse, shedding light on topics such as how to invest in cryptocurrency, the mechanics behind crypto mining, and strategies to effectively buy and trade cryptocurrencies. Through an interdisciplinary approach, the research transitions from the fundamental principles of fintech investment strategies to the overarching implications of blockchain within the Metaverse. Alongside exploring machine learning potentials in financial sectors and risk assessment methodologies, the study critically assesses whether developed or developing nations are poised to reap greater benefits from these technologies. Moreover, it probes into both enduring and dubious crypto projects, drawing a distinct line between genuine blockchain applications and Ponzi-like schemes. The conclusion resolutely affirms the continuing dominance of blockchain technologies, underlined by a profound exploration of their intrinsic value and a reflective commentary by the author on the potential risks confronting individual investors.
    Keywords: Blockchain Technologies, Cryptocurrencies, Metaverse, Decentralised Finance (DeFi), Crypto Regulations, Blockchain Standards, Risk, Value.
    JEL: O30 O31 O32 O33 O34 O35 O38 O39
    Date: 2023–08–09
  23. By: Giovanni Melina; Stefania Villa
    Abstract: Shocks to capital utilization are introduced in a structural macroeconomic closed-economy model with financial frictions to capture disruptions on the ability of the capital stock to provide capital services used in production. Estimates for the Euro Area and the United States show that these shocks were among the most important drivers of the output contraction during the Global Financial Crisis and the COVID-19 Crisis, while financial shocks were more relevant during the Global Financial Crisis. Thanks to the timely and strong intervention of the European Central Bank and the U.S. Federal Reserve, monetary policy shocks exerted a sizable positive contribution to output and inflation during the COVID-19 Crisis.
    Keywords: Covid-19, Global Financial Crisis, Great Lockdown, monetary policy, capital utilization
    JEL: E40 E50 E60
    Date: 2023
  24. By: Lillo, Fabrizio; Livieri, Giulia; Marmi, Stefano; Solomko, Anton; Vaienti, Sandro
    Abstract: We consider a model of a simple financial system consisting of a leveraged investor that invests in a risky asset and manages risk by using value-at-risk (VaR). The VaR is estimated by using past data via an adaptive expectation scheme. We show that the leverage dynamics can be described by a dynamical system of slow-fast type associated with a unimodal map on [0, 1] with an additive heteroscedastic noise whose variance is related to the portfolio rebalancing frequency to target leverage. In absence of noise the model is purely deterministic and the parameter space splits into two regions: (i) a region with a globally attracting fixed point or a 2-cycle; (ii) a dynamical core region, where the map could exhibit chaotic behavior. Whenever the model is randomly perturbed, we prove the existence of a unique stationary density with bounded variation, the stochastic stability of the process, and the almost certain existence and continuity of the Lyapunov exponent for the stationary measure. We then use deep neural networks to estimate map parameters from a short time series. Using this method, we estimate the model in a large dataset of US commercial banks over the period 2001-2014. We find that the parameters of a substantial fraction of banks lie in the dynamical core, and their leverage time series are consistent with a chaotic behavior. We also present evidence that the time series of the leverage of large banks tend to exhibit chaoticity more frequently than those of small banks.
    Keywords: leverage cycles; Lyapunov exponents; neural networks; random dynamical systems; risk management; systemic risk; unimodal maps;
    JEL: F3 G3 C1
    Date: 2023
  25. By: Bartzsch, Nikolaus; Brandi, Marco; de Pastor, Raymond; Devigne, Lucas; Maddaloni, Gianluca; Posada Restrepo, Diana; Sene, Gabriele
    Abstract: As part of the Eurosystem's annual banknote production planning, the national central banks draw up forecasts estimating the volumes of national-issued banknotes in circulation for the three years ahead. As at the end of 2021, more than 80 per cent of euro banknotes in circulation (cumulated net issuance) had been issued by the national central banks of France, Germany, Italy and Spain ('4 NCBs'). To date, the 4 NCBs have been using ARIMAX models to forecast the banknotes issued nationally in circulation by denomination ('benchmark models'). This paper presents the structural time series models developed by the 4 NCBs as an additional forecasting tool. The forecast accuracy measures used in this study show that the structural time series models outperform the benchmark models currently in use at each of the 4 NCBs for most of the denominations. However, it should be borne in mind that the statistical informative value of this comparison is limited by the fact the projection period is only twelve months.
    Keywords: euro, demand for banknotes, forecast of banknotes in circulation, structural time series models, ARIMA models, intervention variables
    JEL: C22 E41 E47 E51
    Date: 2023
  26. By: Mite Miteski (National Bank of the Republic of North Macedonia); Magdalena Petrovska (National Bank of the Republic of North Macedonia); Рртан Сулејмани (National Bank of the Republic of North Macedonia)
    Abstract: This paper identifies the natural interest rate for the Macedonian economy using quarterly data for 2001Q4-2019Q3. To this end, the estimation is made by using different types of models, such as the Holston, Laubach, and Williams model and the full-fledged country-specific structural MAKPAM model. The empirical results show that the natural rate of interest in the Macedonian economy has declined over time, which is similar to the findings for other countries. The decomposition of the natural rate suggests that the main driver for the decline is the slowdown of the Macedonian potential GDP growth in the period after the global economic crisis, although there are signs of its recovery at the end of the sample period. In addition, the results indicate that the monetary policy conditions in the Macedonian economy have been broadly accommodative from 2011Q4 onwards. The substantive conclusions are unchanged across the multiple models used in this study.
    Keywords: Natural interest rate, interest rate gap, Holston, Laubach, and Williams model, MAKPAM Model
    JEL: C32 E43 E52 O40
    Date: 2023
  27. By: Kris J. Mitchener; Angela Vossmeyer; Kris James Mitchener
    Abstract: We examine how financial crises redistribute risk, employing novel empirical methods and micro data from the largest financial crisis of the 20th century – the Great Depression. Using balance-sheet and systemic risk measures at the bank level, we build an econometric model with incidental truncation that jointly considers bank survival, the type of bank closure (consolidations, absorption, and failures), and changes to bank risk. Despite roughly 9, 000 bank closures, risk did not leave the financial system; instead, it increased. We show that risk was redistributed to banks that were healthier prior to the financial crisis. A key mechanism driving the redistribution of risk was bank acquisition. Each acquisition increases the balance-sheet and systemic risk of the acquiring bank by 25%. Our findings suggest that financial crises do not quickly purge risk from the system, and that merger policies commonly used to deal with troubled financial institutions during crises have important implications for systemic risk.
    Keywords: Bayesian inference, financial crises, sample selection, mergers, banking networks
    JEL: G21 C30 N12
    Date: 2023
  28. By: Baros Aleksandra; Croci Ettore; Girotti Mattia; Salvadè Federica
    Abstract: This paper provides novel evidence that information salience shapes banks’ lending decisions. We use a setting in which information about a borrower’s payment default on trade bills is available to all banks, but it appears more prominently to the bank managing the payment transaction (the reporting bank). We show that reporting banks reduce lending to defaulting borrowers more than other lenders. This effect is more pronounced when the default information presents salient attributes unrelated to the borrower’s creditworthiness and for the branch of the reporting bank that directly observes the missed payment. Information gaps between the reporting bank and other lenders cannot explain our findings.
    Keywords: Bank Lending, Payment Defaults, Salience, Information Sharing Mechanisms
    JEL: G21 G32 G40
    Date: 2023
  29. By: Arnav Hiray; Agam Shah; Sudheer Chava
    Abstract: Over the last decade, the cryptocurrency market has experienced unprecedented growth, emerging as a prominent financial market. As this market rapidly evolves, it necessitates re-evaluating which cryptocurrencies command the market and steer the direction of blockchain technology. We implement a network-based cryptocurrency market analysis to investigate this changing landscape. We use novel hourly-resolution data and Kendall's Tau correlation to explore the interconnectedness of the cryptocurrency market. We observed critical differences in the hierarchy of cryptocurrencies determined by our method compared to rankings derived from daily data and Pearson's correlation. This divergence emphasizes the potential information loss stemming from daily data aggregation and highlights the limitations of Pearson's correlation. Our findings show that in the early stages of this growth, Bitcoin held a leading role. However, during the 2021 bull run, the landscape changed drastically. We see that while Ethereum has emerged as the overall leader, it was FTT and its associated exchange, FTX, that greatly led to the increase at the beginning of the bull run. We also find that highly-influential cryptocurrencies are increasingly gaining a commanding influence over the market as time progresses, despite the growing number of cryptocurrencies making up the market.
    Date: 2023–07
  30. By: Anik Ashraf (LMU Munich); Elizabeth Lyons (University of California San Diego)
    Abstract: In this paper, we study the complementarity between business training and access to financial capital for small and medium enterprises (SMEs) in Kenya. All participants in a business training program are offered training. One-third of participants are offered loans immediately after training (Concurrent Loan group), one-third are offered loans six weeks after training (Delayed Loan group), and the remaining third are offered loans after another four weeks (Control group). While a long delay between training and loans may reduce knowledge retention and application by SMEs in the presence of complementarity, concurrent access to loans and associated business spending may crowd out the entrepreneurs' attention from improving business practices. We find evidence for the latter in both intention-to-treat and treatment-on-the-treated estimates. While SMEs in both Control and Delayed Loan groups improve their business practices, SMEs in the Concurrent Loan group who take loans do not improve their practices at all. Moreover, entrepreneurs who take loans spend less time on their businesses and their business revenue falls. Our evidence is consistent with the entrepreneurs in our study using loans to substitute for their income.
    Keywords: business training; access to finance;
    JEL: O12 L26 M53
    Date: 2023–08–09
  31. By: Georgios Bampinas (Panteion University of Social and Political Sciences); Theodore Panagiotidis (UoM - University of Macedonia [Thessaloniki]); Panagiotis Politsidis (Audencia Business School)
    Abstract: We examine the asymmetric and nonlinear nature of the cross-and intra-market linkages of eleven EMU sovereign bond and CDS markets during 2006-2018. By adopting the excess correlation concept of Bekaert et al. (2005) and the local Gaussian correlation approach of Tjøstheim and Hufthammer (2013), we find that contagion phenomena occurred during two major phases. The first, extends from late 2009 to mid 2011 and concerns the outright contagion transmission from EMU South bond markets towards all European CDS markets. The second, is during the revived fears of a Greek exit in November 2011 and is characterized by contagion from (i) CDS spreads in the EMU South towards bond yields in the same bloc and Belgium, and (ii) from Italian and Spanish CDS spreads towards all European CDS spreads. Consistent with their "too big to bail out" status, Italy and Spain emerge as pivotal for the evolution of sovereign credit risk across the Eurozone. Our examination of the relevant mechanisms, highlights the importance of credit risk over liquidity risk, and the containment effect of the naked CDS ban.
    Keywords: sovereign bond market, sovereign CDS market, nonlinear dependence, contagion, local Gaussian correlation JEL Classification: G01 G14 G15 C1 C58, local Gaussian correlation JEL Classification: G01, G14, G15, C1, C58
    Date: 2023–07
  32. By: Frantisek Brazdik; Karel Musil; Stanislav Tvrz
    Abstract: In response to the 2008 financial crisis, when policy rates hit their lower bound, central banks adopted unconventional policies to meet their announced targets. These policies can either directly target interest rates or the quantities of assets. Taking into account the specific features of the Czech economy, this paper presents an extension of the CNB's core projection model for long-term assets and yield curve control measures. This extension demonstrates the ability of the CNB to consider and assess various unconventional policies within its analytical framework.
    Keywords: DSGE models, inflation targeting, quantitative easing, unconventional monetary policy, yield curve
    JEL: E32 E37 E43 E58
    Date: 2023–08
  33. By: Marcos Ceron (Central Reserve Bank of Peru); Rafael Nivin (Central Reserve Bank of Peru); Diego Yamunaque (Central Reserve Bank of Peru)
    Abstract: In this work we study the impact of FX interventions on Credit growth in Peru. Using Panel data at the firm-bank level from the Peruvian Credit Registry we find that purchases of dollars by the Central Bank are associated with reductions on the stock of credit held by Medium, Big and Corporate Firms in the Peruvian economy. We also found that the impact is stronger for firms with a higher level of debt dollarization. These results suggest that FX interventions can be seen as an additional tool for Financial stability, especially in times of large inflows of capital.
    Keywords: FX intervention; Credit registry; Emerging markets; Credit growth
    JEL: E58 F31 F33 G20
    Date: 2023–08–13
  34. By: Tobias Adrian; Rodney Garratt; Dong He; Tommaso Mancini-Griffoli
    Abstract: Cross-border payments are expensive, slow, and opaque. These problems reflect multiple frictions, many of which boil down to limited trust among counterparties. Trust plays a central role in exchanging credit-based money. End users need to trust the issuers of money, and issuers must trust users to satisfy financial integrity requirements. Transactions are possible only where trust links exist. Interoperability between different forms of money can thus be conceptualised as the network of trusted links necessary for transactions. Traditionally, across borders, trust links involve exclusive bilateral credit relationships among correspondent banks. However, the fixed costs required to build these links foster an expensive and concentrated system. This paper interprets different payment arrangements in terms of the implied trust structures. It discusses how the tokenisation of money alters trust links and allows for a potentially more efficient market structure to exchange money. The paper ends with a suggested global marketplace to trade tokenised money directly across borders.
    Keywords: cross-border payments
    JEL: E42 E51 E58 F31 G28 O32
    Date: 2023–07

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