|
on Banking |
| By: | Lea Bitter (TU Berlin) |
| Abstract: | One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is offset by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is offset by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency. |
| Keywords: | central bank digital currency; financial intermediation; financial stability; bank runs; |
| JEL: | E42 E58 G01 G21 |
| Date: | 2023–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:426&r=ban |
| By: | Gregory E. Elliehausen; Simona Hannon |
| Abstract: | Previous research has found evidence suggesting that financial technology (FinTech) lenders seek out opportunities in markets that have been underserved by mainstream banks. The research focuses primarily on the effect of bank market structure, limited income, and economic hardship in attracting FinTech companies to underserved markets. This paper expands the scope of FinTech research by investigating the role of interest rate regulation of consumer credit and institutional risk segmentation in FinTech lenders' efforts to solicit new customers in the personal loan market. We find that strategic partnerships between FinTech companies and specialist banks target marginal-risk, near-prime, and low-prime consumers for credit card and other debt consolidation loans. These FinTech-bank partnerships especially target marginal consumers in states with low interest rate ceilings. Mainstream banks largely avoid higher-risk consumers, and low rate ceilings inhibit consumer finance company lending |
| Keywords: | Consumer Credit; Access to Credit; Interest Rate Cap; Financial Regulation; FinTech |
| JEL: | G21 G23 G40 |
| Date: | 2023–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2023-56&r=ban |
| By: | Koray Alper (European Investment Bank); Tanju Capacioglu (Central Bank of the Republic of Turkey) |
| Abstract: | This paper documents how a system wide deterioration in funding quality, which we argue to be underpinned by macroeconomic conditions, can have a substantial effect in the pricing of deposit and loan rates. The study is motivated by a puzzling observation from Turkish banking system. During 2015-2016, retail rates of Turkish banks displayed a persistent upward trend when the policy and money market rates remained unchanged. We conjecture that the underlying reason was the continued deterioration in the structural liquidity positions of Turkish banks, reflected as rising loan-to-deposit ratios (LDR). Our results show that in the presence of increasing pressures from worsening funding quality, banks with high LDRs tried to attract more deposits while trying to slow down loan growth rates. To this end, these banks offered higher rates to deposits, particularly, to more stable deposit types. Similarly, evidence suggest that, on the loans side, banks with worse funding quality raised the rates more. As expected, banks increased the rates for the clients/segments where they have more market power. On the other side, despite the increasing pressures on interest rate margins, high LDR banks don’t seem to have opted for risky loans. |
| Keywords: | Retail rates, banks, financial stability, macro-financial linkages. |
| JEL: | D22 E43 G21 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2309&r=ban |
| By: | Gong, Di; Wu, Jin; Zhu, Jigao |
| Abstract: | This study examines the relationship between securitization and loan performance using proprietary loan-level data from a Chinese bank. Securitized loans exhibit lower ex-post default rates and prepayment chances compared to the loans retained on the bank's balance sheet, suggesting no adverse selection or moral hazard within the Chinese securitization market. Our finding is robust to controlling for possible endogeneity of loan selection by employing propensity score matching and instrumental variable estimators. Exploiting the introduction of the New Asset Management Rule as a quasi-natural experiment, which alters banks' business model and eliminates other options of credit risk transfer except for securitization, we show worse loan performance after the new regulation, in line with deterioration of the bank's incentive. This unintended consequence of the New Asset Management Rule, aimed at curbing shadow banking activities of banks, highlights the emergence of risk in the securitization sector of the shadow banking. |
| Keywords: | Securitization, loan performance, adverse selection, moral hazard, information frictions, default risk, prepayment risk |
| JEL: | G21 D82 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofitp:42023&r=ban |
| By: | Ivo Maes (Robert Triffin Chair, University of Louvain and Visiting Fellow, Bruegel) |
| Abstract: | Gianni Toniolo was one of Italy’s, and Europe’s, foremost economic historians. Unfortunately, he suddenly passed away in November 2022, a few weeks after he had presented in Rome his newest book, the first volume of his history of the Bank of Italy, Storia della Banca d’Italia. Tomo I. Formazione ed evoluzione di una banca centrale, 1893-1943 (History of the Bank of Italy. Part I. Formation and evolution of a central bank, 1893-1943). Toniolo’s history of the Bank of Italy illustrates very well many issues which are at the heart of the literature on central banking. What emerges very well is the gradual transformation of the Bank of Italy, from an emission bank to a central bank, with a growing public character of the Bank. The early relationship between the Bank of Italy and the commercial banks was often one of business rivalry and competition. Through time, the Bank of Italy gained the monopoly of the emission of banknotes but had to stop its commercial activities, while being entrusted with responsibilities in the supervision of the commercial banks. Toniolo’s book covers a turbulent period in Italian monetary history, with several banking crises. Monetary policy was dominated by the issue of the reconciliation of two contrasting objectives: the exchange rate of the lira and the stability of the banking system. A distinguishing feature of the Italian experience of central banking is how the development of the Bank of Italy was embedded in the process of nation-building. In other countries, where the nation-state was established before the central bank, this was very much a process of extending the network of branches. In Italy, where the process of unification was later, it implied the merger of emission banks, a much more delicate political issue. |
| Keywords: | central banking, Bank of Italy, banking crises, financial stability, Italian lira |
| JEL: | E42 E58 G28 N10 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202309-441&r=ban |
| By: | Loretta J. Mester |
| Abstract: | Let me start by thanking the organizers at the Federal Reserve Bank of Cleveland and the European Central Bank for putting together such a strong program and the ECB for its hospitality. It has been a very productive two days focused on frontier research on inflation. High inflation has been the major challenge facing many central banks over the past two years. Returning the economy to price stability in a sustainable and timely way has driven monetary policy decisions. Maintaining price stability is the responsibility of the central bank and only the central bank can deliver on this goal over time. While considerable progress has been made on developing inflation models and measures that can better inform monetary policymaking, we still have much to learn about inflation dynamics. I encourage the researchers participating in this conference to continue furthering their research agendas because good policymaking depends on the research that informs it. |
| Keywords: | inflation; central banks; monetary policy; price stability |
| Date: | 2023–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:96858&r=ban |
| By: | Bátiz-Zuk Enrique; González-Holden Alexa |
| Abstract: | This paper investigates how gender disparities affect the time to repay group micro-finance loans using survival analysis and hazard decomposition techniques. We also control for the effect of the COVID-19 pandemic on the time needed by micro-finance loan borrowers to repay. We use a large sample of bank microfinance group loans from August 2017 to August 2021. Despite the fact that female borrowers' overall default rate is smaller, our unconditional estimates show that female borrowers default almost the equivalent of three consecutive installments earlier. Moreover, this result persists when we control for micro, industry, and macroeconomic factors. We also observe that the COVID-19 pandemic materialized as a spike in aggregate default rates that gradually reduced afterward. Our study identified a potential gender gap that has been understudied in the literature. |
| Keywords: | Credit markets;Microfinanceloan;Group lending;Gender;Survival analysis |
| JEL: | C41 G21 J16 O12 O16 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-07&r=ban |
| By: | Dominique Torre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Qing Xu (UCL - Université catholique de Lille, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur) |
| Abstract: | With fast development of Fintech in financial industry and increasing popularity of cryptocurrencies and stablecoins, more and more central banks conducted extensive research on Central Bank Digital Currencies (CBDCs), the new form of digital fiat currency. Some of them are engaging in CBDCs pilots, with cross border payment tests. Important currency areas as China, EU or UK are interested in the subject but less significative ones as Bahamas, Nigeria, or Venezuela seem also interested in. This chapter aims to analyze this new phase in the development of the forms of money/means of payment. Different forms of CBDCs are imagined: are they different expressions of the same objective or not? Will hey substitute the official currency or other means of payments? Which technology will be activated to make the operational? Which will be the role of banks on this context? How to explain that some big central banks (the Federal Reserve) are not interested in them? Will they generalize? |
| Keywords: | CBDC, People's Bank of China, blockchains, disintermediation, Stable coins, means of payment, currencies, digitalization |
| Date: | 2023–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-04194031&r=ban |
| By: | Zsámboki, Balázs; Leitner, Georg; Dvořák, Michal; Magi, Alessandro |
| Abstract: | This paper analyses banks’ ability to use capital buffers in the euro area, taking into account overlapping capital requirements between the risk-based capital framework and the leverage ratio capital framework from 2016 to 2022. This analysis is the first to quantify buffer usability in multiple jurisdictions and across various bank types, identify key drivers of buffer usability and assess the impact of various policy measures using longer time series. The paper shows that while both risk-based and leverage frameworks play a key role in enhancing the resilience of the banking system and ensuring financial stability, their simultaneous application creates interactions that may affect the functioning of capital buffers. In this regard, we investigate to what extent banks could have drawn down regulatory capital buffers in the risk-based framework without breaching current leverage ratio requirements, which is in line with the approach to buffer usability taken in ESRB (2021b). We show that buffer usability was partially constrained in the period examined and is expected to remain so under the current regulatory framework and if risk weight densities (RWDs) remain low. This finding indicates that the leverage ratio constitutes an effective backstop to the risk-based framework, both as regards minimum requirements and capital buffers. Limited buffer usability was identified especially for global systemically important institutions (G-SIIs) that rely largely on internal modelling approaches to calculate risk-based capital requirements, leading to comparably low risk weights and making the leverage ratio relatively more binding. Adding to previous contributions, we find that banks’ ability to use capital buffers fluctuated over time, generally increasing before 2019 and decreasing after the start of the coronavirus (COVID-19) pandemic, with substantial heterogeneity across countries. Furthermore, we provide new insights into the relationship between the RWD of a bank and its buffer usability and find that there is a critical RWD range between 25% JEL Classification: G21, G28 |
| Keywords: | banking regulation, buffer usability, capital buffers, leverage ratio, macroprudential policy |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023329&r=ban |
| By: | Alberto Botta; Eugenio Caverzasi (Universita' degli Studi dell'Insubria); Alberto Russo (Department of Economics and Social Sciences, Universita' Politecnica delle Marche) |
| Abstract: | This paper analyzes the macroeconomic and distributional implications of central banks' decisions to raise interest rates after a prolonged period at near the Zero Lower Bound (ZLB). The main goal of our study is to assess the interaction between monetary policy, inequality, and financial fragility, in a financialized economic system. Financialization is here portrayed as the presence in the economy of complex financial products, i.e., asset-backed securities, produced via the securitization of banks' loans. We do so in the context of a hybrid Agent-Based Model (ABM). We first compare the prevailing macroeconomic and nancial features of a low interest rate environment (LIRE) with respect to a "Great Moderation"(GM)-like setting. As expected, we show that LIRE tends to stimulate faster growth and higher employment, and to reduce income and wealth inequality, as well as (poor) households' indebtedness. Consistent with existing empirical literature, this comes at the cost of higher inflation and some signs of financial system's fragility, i.e., lower banks' profitability and Capital Adequacy Ratio (CAR), and higher "search for risk" given by credit extension to poorer households. We then show that increases in the central bank's policy rate, as motivated by the central bank's willingness to reduce inflation, effectively curb price dynamics and accomplish with central bank's inflation targeting mandate. Higher interest rates also improve commercial banks' CAR and profitability. However, they also cause a pronounced increase in non-performing loans (stronger than what possibly observed in a GM scenario) and some worrisome macro-financial dynamics. In fact, higher interest rates give rise to higher households' and overall economy indebtedness as allowed by wealthier households' demand for highyield complex financial products and mounting securitization. We finally show how financialization structurally changes the functioning of the economy and the behavior of central banks. Financialization actually contributes to create a (private sector) debt-led economy, which becomes structurally more resistant to central bank's attempts to control inflation. Central bank's reaction in terms of higher interest rates could likely come with perverse distributional consequences. |
| Keywords: | Low interest rate environment, Contractionary monetary policy, Securitization |
| JEL: | E24 E44 E52 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:481&r=ban |
| By: | Jamie Coen; Anil K Kashyap; May Rostom |
| Abstract: | We characterize the large number of mortgage offers for which people qualify in the United Kingdom. Very few pick the cheapest option, nonetheless the one selected is not usually noticeably more expensive. A few borrowers make very expensive choices. These are most common when the menu they face has many expensive options, and are most likely for high loan-to-value and loan-to-income borrowers. Young people and first-time buyers are more prone to making expensive choices. The dispersion in the mortgage menu is consistent with banks price discriminating for borrowers who might pick poorly, while competing for others who shop more effectively. |
| JEL: | D12 G21 G51 G53 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31652&r=ban |
| By: | Damiano Sandri; Francesco Grigoli; Yuriy Gorodnichenko; Olivier Coibion |
| Abstract: | Using a survey with information treatments conducted in the aftermath of SVB’s collapse, we study households’ perspectives on bank stability, the potential for panic-driven bank runs, and the role of public communication. When informed about SVB’s collapse, households become more likely to withdraw deposits, due to both a higher perceived risk of bank failure and higher expected losses on deposits in case of bank failure. Leveraging hypothetical questions and the exogenous variation in beliefs generated by the information treatments, we show that households reallocate deposit withdrawals primarily into other banks and cash, with little passthrough into spending. Information about FDIC insurance and communication about bank stability by the Federal Reserve can reassure depositors, while communication from political leaders only influences their electoral base. |
| JEL: | E21 E58 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31644&r=ban |
| By: | Miguel Ampudia; Manuel A. Muñoz; Frank Smets; Alejandro Van der Ghote (-) |
| Abstract: | We provide evidence that the ECB system-wide dividend recommendation (SWDR) of March 2020 contributed to sustain lending, had a negative but moderate and transitory impact on bank stock prices and largely operated as a deferral of dividend payouts rather than as a dividend cut. Then, we develop a quantitative macro-banking DSGE model that accounts for this evidence and captures the key mechanism through which SWDRs operate to study the general equilibrium effects of the ECB SWDR. The measure contributed to sustain aggregate bank lending and mitigate the adverse impact of the COVID-19 shock on economic activity by safeguarding euro area banks’ capitalization. Welfare-maximizing SWDRs stabilize the economy regardless of the shock type but they only induce significant welfare gains in response to financial shocks. |
| Keywords: | dividend recommendation, dividend prudential target (DPT), COVID-19, usable capital buffers, welfare |
| JEL: | E44 E58 E61 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:23/1075&r=ban |
| By: | Soukaina Boualou (UIT - Université Ibn Tofaïl); Najwa Dorhmi (UIT - Université Ibn Tofaïl); Ilham El Haraoui (UIT - Université Ibn Tofaïl) |
| Abstract: | The banking landscape has undergone a significant transformation with the advent of alternative service delivery channels like mobile banking apps. However, despite the advantages these services offer, their uptake among Moroccan clients remains relatively limited. This study aims to uncover the key factors influencing the decision to adopt such services. In order to do so, we carried out an online survey disseminated through social media and gathered 98 responses from individuals who has a bank account but do not use mobile banking apps. Our findings indicate a significant correlation between perceived effort, perceived usefulness, social influence, and the intention to use mobile banking apps. The used methodology, facilitated the validation and reliability testing of our survey instrument, involving meticulous translation, and rephrasing of all items, and utilizing a five-point Likert scale for measurements. We opted for exploratory factor analysis as the evaluation method, revealing underlying data structures and explaining correlations among our variables. Following this, we tested the hypothesized influence between our dependent and independent variables through multiple regression. Despite our research's valuable insights, it does have limitations. Given our data collection method's online nature, our sample was one of convenience, potentially limiting our findings' generalizability. Nonetheless, our research has substantial practical implications. Banks can use our findings to gain a deeper understanding of what drives customer decisions to adopt mobile banking services, thereby enabling them to tailor their offerings accordingly relationship between the different variables on the intention to use mobile banking services. |
| Abstract: | L'évolution du secteur bancaire a vu l'émergence de services comme les applications mobiles. Cependant, leur adoption par les clients marocains est faible. L'objectif de cette étude est d'examiner les raisons sous-jacentes de cette situation. Une enquête en ligne, diffusée sur les réseaux sociaux et totalisant 98 réponses, a été réalisée auprès de personnes possédant un compte bancaire mais n'utilisant pas ces applications. Les résultats montrent une corrélation entre l'effort perçu, l'utilité perçue, l'influence sociale et l'intention d'utiliser les applications. La méthodologie assurait la validité et la fiabilité des données, avec une attention particulière à la traduction et reformulation des questions, et une échelle de Likert à cinq points. L'analyse factorielle exploratoire a dévoilé la structure des données et a clarifié les liens entre les variables. Les hypothèses ont ensuite été validées par une régression multiple. Malgré la pertinence des découvertes, l'étude présente des limites, notamment à cause de la nature de l'échantillon en ligne. Néanmoins, elle offre des informations utiles pour les banques souhaitant adapter leurs services mobiles selon les besoins et perceptions des clients. |
| Keywords: | Effort expectancy, performance expectancy, Mobile banking, Unified theory of acceptance and use of technology., Effort perçu, utilité perçue, influence sociale, mobile banking, Théorie unifiée de l'acceptation et de l'utilisation de la technologie. |
| Date: | 2023–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04189598&r=ban |
| By: | Schnorpfeil, Philip; Weber, Michael; Hackethal, Andreas |
| Abstract: | We study the redistributive effects of inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation. |
| Keywords: | Inflation Beliefs, Information Treatment, Consumption, Monetary Policy |
| JEL: | D12 D14 D83 D84 E21 E31 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:400&r=ban |
| By: | Daniel Greenwald; Sabrina T. Howell; Cangyuan Li; Emmanuel Yimfor |
| Abstract: | When race is not directly observed, regulators and analysts commonly predict it using algorithms based on last name and address. In small business lending—where regulators assess fair lending law compliance using the Bayesian Improved Surname Geocoding (BISG) algorithm—we document large prediction errors among Black Americans. The errors bias measured racial disparities in loan approval rates downward by 43%, with greater bias for traditional vs. fintech lenders. Regulation using self-identified race would increase lending to Black borrowers, but also shift lending toward affluent areas because errors correlate with socioeconomics. Overall, using race proxies in policymaking and research presents challenges. |
| JEL: | C81 G21 G23 G28 J15 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31646&r=ban |
| By: | Boualou Soukaina (UIT - Université Ibn Tofaïl); Najwa Dorhmi (UIT - Université Ibn Tofaïl); Pr. Ilham El Haraoui (UIT - Université Ibn Tofaïl) |
| Abstract: | Perceived risk has been the focus of several researches in consumer behavior's field, particularly in light of the rise of new technologies and, specially, mobile phones, notably in the banking industry, where banks constantly strive to solicit the trust of their customers in order to encourage them to use the services offered on mobile applications. Our research outcomes have enabled the development of a valid and reliable measure instrument of perceived risk's concept. This instrument comprises six 6 items covering time risk, social risk, privacy risk and security risk, . However, we decided to exclude three items from the initial list, one related to the social aspect and two related to the performance of mobile banking applications. |
| Abstract: | Le risque perçu a fait l'objet de plusieurs recherches dans le domaine du comportement du consommateur notamment avec l'émergence des nouvelles technologies et celle du mobile en particulier. D'autant plus, dans le secteur bancaire, où les banques s'efforcent constamment à solliciter la confiance de leurs clients afin de les inciter à utiliser les services offerts sur les applications mobiles. Les résultats de cette recherche ont permis de développer un instrument de mesure valide et fiable du risque perçu composé de 6 items liés à la perception du risque temporel, social, de confidentialité et de sécurité tandis que nous avons décidé de retirer trois items de la liste initiale à savoir un item relatif à l'aspect social et deux autres liés à la performance des applications de mobile Banking. |
| Keywords: | Perceived risk, Mobile banking, consumer behavior, measurement instrument, Moroccan bank’s client, e risque perçu, services bancaires mobile, comportement du consommateur, instrument de mesure, client bancaire marocain |
| Date: | 2023–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04185120&r=ban |
| By: | Minford, Patrick (Cardiff Business School) |
| Abstract: | Monetary developments of recent decades began with much promise with inflation targeting by independent central banks; the financial crisis of 2007 ushered in a period of great monetary instability. There are lessons for a return to more stability. Central banks need to stabilize money supply growth. Fiscal policy should be coopted to a stabilization role to reduce interest rate instability, and particularly future risks of hitting the zero-interest rate bound. Budget discipline should be enforced by long run solvency rules, not by short run fiscal rules that in practice prevent the use of fiscal policy. Nor should the budget be burdened by monetary policy methods that transfer seigniorage to commercial banks. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2023/25&r=ban |
| By: | Asli Demirgüç-Kunt (Center for Global Development); Bálint Horváth (University of Arizona); Harry Huizinga (Tilburg University and CEPR) |
| Abstract: | Using new data from the European Banking Authority on loan recovery outcomes, we examine how variation in loan recovery efficiency affects the transmission of financial sector and overall economic weakness to firm-level financial and real outcomes. We find that firms linked to under-capitalized banks experience higher debt, employment, and sales growth rates, if they are located in countries with less efficient loan recoveries. Furthermore, during economic downturns zombie firms—insolvent firms that continue to receive credit—achieve higher debt, employment, and sales growth, and fewer defaults if they are resident in such countries. Overall, we find that less efficient loan enforcement mitigates the transmission of financial sector and economic weakness to firm-level outcomes. This stabilizing effect, however, is likely to come at the cost of significant distortions documented in earlier literature. |
| Keywords: | loan recovery, zombie firm, business cycle |
| JEL: | E32 G21 |
| Date: | 2023–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:654&r=ban |
| By: | Sullivan, Megan |
| Abstract: | This paper investigates the determinants of countries’ choice of monetary policy frameworks for emerging and developing countries. It draws on the literature concerning how exchange rate regimes are determined, and the much smaller body of literature on determination of monetary policy frameworks (for advanced and emerging countries), to identify 3 approaches that account for countries’ choice of monetary policy framework. We empirically test the joint relevance of the variables within each theory and find them to be jointly statistically significant. A key highlight of this paper is that it uses an (emerging and developing) country tailored variable that measures trade networks of potential currency blocs. The model correctly predicts 79% of countries’ choice of framework, when aggregated by target variable, and 84% of countries’ choices, when aggregated by degree of monetary control. |
| Keywords: | monetary policy frameworks; trade networks; inflation targets; exchange rate targets; discretion; central bank independence |
| JEL: | E42 E52 E58 F40 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118398&r=ban |
| By: | Kenechukwu E. Anadu; Pablo D. Azar; Catherine Huang; Marco Cipriani; Thomas M. Eisenbach; Gabriele La Spada; Mattia Landoni; Marco Macchiavelli; Antoine Malfroy-Camine; J. Christina Wang |
| Abstract: | Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similarly to money market fund investors, stablecoin investors engage in flight to safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds, run risk has historically materialized only in prime funds, with stablecoins, runs occurred in different stablecoin types across the 2022 and 2023 episodes. We also show that, similarly to intrafamily flows in money market funds, stablecoin flows tend to be within blockchains. Finally, for stablecoins, we estimate a discrete “break-the-buck” threshold of $0.99, below which redemptions accelerate. |
| Keywords: | stablecoins; money market mutual funds; financial stability; Crypto Assets; runs; liquidity transformation |
| JEL: | G10 G20 G23 |
| Date: | 2023–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:96880&r=ban |
| By: | Md. Toaha; Laboni Mondal |
| Abstract: | The paper examined the impact of agricultural credit on economic growth in Bangladesh. The annual data of agriculture credit were collected from annual reports of the Bangladesh Bank and other data were collected from the world development indicator (WDI) of the World Bank. By employing Johansen cointegration test and vector error correction model (VECM), the study revealed that there exists a long run relationship between the variables. The results of the study showed that agriculture credit had a positive impact on GDP growth in Bangladesh. The study also found that gross capital formation had a positive, while inflation had a negative association with economic growth in Bangladesh. Therefore, the government and policymakers should continue their effort to increase the volume of agriculture credit to achieve sustainable economic growth. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.04118&r=ban |
| By: | Torfs, Wouter |
| Abstract: | This working paper elaborates on the most recent update of the EIF SME Access to Finance (ESAF) Index, a composite indicator used to monitor the state of SME external financing markets in the EU. The current update, using data for 2022, constitutes the tenth iteration of this exercise, resulting in a 10-year long time series for each of the 27 EU countries. The latest data captures the first impact of the rise in inflationary pressures and sustained geopolitical uncertainty arising from the war in Ukraine on European SMEs' access to finance. For an extensive overview of the current state of SME financing markets the reader is referred to the EIF's European Small Business Finance Outlook (Kraemer-Eis et al., 2023). The EIF Working Papers are designed to make available to a wider readership selected topics and studies in relation to EIF's business. The Working Papers are edited by EIF's Research & Market Analysis and are typically authored or co-authored by EIF staff or are written in cooperation with EIF. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eifwps:202392&r=ban |
| By: | Santino Del Fava (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany); Lavinia Rognone (University of Edinburgh Business School, 29 Buccleuch Place, Edinburgh, EH8 9JS, United Kingdom) |
| Abstract: | We study the predictive value of climate risks for subsequent financial stress in a sample of daily data running from October 2006 to December 2022 of thirteen countries, which include China, ten European Union (EU) countries, the United Kingdom (UK), and the United States (US). The climate risk indicators are the result of a text-based approach which combines the term frequency-inverse document frequency and the cosine-similarity techniques. Given the persistence of financial stress as well as the importance of spillover effects of financial stress from other countries, we use random forests, a machine-learning technique tailored to handle many predictors, to estimate our forecasting models. Our findings show that climate risks tend to have a moderate impact, albeit in several cases statistically significant, on predictive accuracy, which tends to be stronger, in our cross-section of countries, on a daily than at a weekly or monthly forecast horizon of financial stress. Furthermore, the predictive value of climate risks for financial stress is heterogeneous across the countries in our sample, implying that a univariate forecasting model appears to be better suited than a corresponding multivariate one. Finally, the predictive value of climate risks for financial stress appears to be stronger in several countries at the lower conditional quantiles of financial stress. |
| Keywords: | Financial stress, Climate risks, Random forests, Forecasting |
| JEL: | C22 C32 C53 G15 Q54 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202329&r=ban |
| By: | Felix Aidala; Daniel Mangrum; Wilbert Van der Klaauw |
| Abstract: | “Buy now, pay later” (BNPL) has become an increasingly popular form of payment among Americans in recent years. While BNPL provides shoppers with the flexibility to pay for goods and services over time, usually with zero interest, the Consumer Financial Protection Bureau (CFPB) has identified several areas of potential consumer harm associated with its growing use, including inconsistent consumer protections, and the risk of excessive debt accumulation and over-extension. BNPL proponents have argued that the service enables improved credit access and greater financial inclusion, with approval being quick and relatively easy. More research is needed to assess the overall risks and benefits of BNPL for consumers. As a first step, we draw on new survey data to examine the background and circumstances of consumers who receive and take up BNPL offers. We find both the availability and use of BNPL to be fairly widespread but see disproportionate take-up among consumers with unmet credit needs, limited credit access, and greater financial fragility. While BNPL expands financial inclusion, especially to those with low credit scores, there is a risk that these payment plans contribute to excessive debt accumulation and over-extension. |
| Keywords: | Buy Now Pay Later (BNPL); credit access; household borrowing; financial inclusion; inequality |
| JEL: | D14 |
| Date: | 2023–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:96929&r=ban |
| By: | Marco Del Negro; Pranay Gundam; Donggyu Lee; Ramya Nallamotu; Brian Pacula |
| Abstract: | This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since June 2023. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A. |
| Keywords: | Dynamic Stochastic General Equilibrium (DSGE) models; forecasting |
| JEL: | E5 |
| Date: | 2023–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:96879&r=ban |
| By: | Christopher Bockel-Rickermann; Sam Verboven; Tim Verdonck; Wouter Verbeke |
| Abstract: | In lending, where prices are specific to both customers and products, having a well-functioning personalized pricing policy in place is essential to effective business making. Typically, such a policy must be derived from observational data, which introduces several challenges. While the problem of ``endogeneity'' is prominently studied in the established pricing literature, the problem of selection bias (or, more precisely, bid selection bias) is not. We take a step towards understanding the effects of selection bias by posing pricing as a problem of causal inference. Specifically, we consider the reaction of a customer to price a treatment effect. In our experiments, we simulate varying levels of selection bias on a semi-synthetic dataset on mortgage loan applications in Belgium. We investigate the potential of parametric and nonparametric methods for the identification of individual bid-response functions. Our results illustrate how conventional methods such as logistic regression and neural networks suffer adversely from selection bias. In contrast, we implement state-of-the-art methods from causal machine learning and show their capability to overcome selection bias in pricing data. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2309.03730&r=ban |
| By: | Miguel Ampudia; Michael Ehrmann; Georg Strasser |
| Abstract: | This paper studies the effect of monetary policy on inflation along the income distribution in several euro area countries. It shows that monetary policy has differential effects and identifies two channels which point in opposite directions. On the one hand, different consumption shares imply that inflation by high-income households responds less to monetary policy. On the other hand, the paper provides novel evidence that there are substantial differences in shopping behaviour and its reaction to monetary policy, which imply that inflation by high-income households responds more to monetary policy. |
| Keywords: | inflation, distributional effects, monetary policy, shopping behaviour, substitution |
| JEL: | E31 E52 D30 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1124&r=ban |
| By: | Meyer-Gohde, Alexander; Tzaawa-Krenzler, Mary |
| Abstract: | We present determinacy bounds on monetary policy in the sticky information model. We find that these bounds are more conservative here when the long run Phillips curve is vertical than in the standard Calvo sticky price New Keynesian model. Specifically, the Taylor principle is now necessary directly - no amount of output targeting can substitute for the monetary authority's concern for inflation. These determinacy bounds are obtained by appealing to frequency domain techniques that themselves provide novel interpretations of the Phillips curve. |
| Keywords: | Determinacy, Taylor Rule, Sticky Information, Frequency Domain, z-Transform |
| JEL: | C62 E31 E43 E52 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:189&r=ban |
| By: | Bofinger, Peter; Haas, Thomas |
| Abstract: | The necessary adjustments to prominent measures of the neutral rate of interest following the COVID pandemic sparked a wide-ranging debate on the measurement and usefulness of r-star. Due to high uncertainty about relevant determinants, trend patterns and the correct estimation method, we propose in this paper a simple alternative approach derived from a standard macro model. Starting from a loss function, neutral periods can be determined in which a neutral real interest rate is observable. Using these values, a medium-term trend for a neutral interest rate can be determined. An application to the USA shows that our simple calculation of a neutral interest rate delivers comparable results to existing studies. A Taylor rule based on our neutral interest rate also does a fairly good job of explaining US monetary policy over the past 60 years. |
| Keywords: | Neutral rate of interest, equilibrium real interest rate, monetary policy rul |
| JEL: | E3 E4 E5 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewep:106&r=ban |
| By: | Han Gao; Juan Pablo Nicolini |
| Abstract: | We build a scenario for inflation in the United States in the years to come. Following Gao, Kulish, and Nicolini (2021), we use the quantity theory of money as a conceptual framework and confront the theory with evidence from both the United States and other OECD countries. We argue that a) the quantity theory of money works very well in the medium term, which we define to be close to four years; b) deviations from the inflation rate predicted by the quantity theory tend to disappear in the medium term; c) the burst in inflation that started in 2012 in the United States is a deviation from the inflation rate predicted by the quantity theory; and d) if the policy framework does not change, we expect inflation to be back close to its 2% target no later than 2025. |
| Keywords: | Quantity theory of money; Inflation; Monetary policy |
| JEL: | E51 E41 E52 |
| Date: | 2023–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:96701&r=ban |