|
on Banking |
| By: | Alan Chernoff; Julapa Jagtiani |
| Abstract: | Fintech firms are often viewed as competing with banks. Instead, more recently, there has been growth in partnership and collaboration between fintech firms and banks. These partnerships have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning (AI/ML), and other tools. We explore the demographics of consumers targeted by banks that have entered into such partnerships. Specifically, we test whether banks are more likely to extend credit offers (by mail) and/or credit originations to consumers who would have otherwise been deemed high risk either because of low credit scores or lack of credit scores altogether. Our analysis uses data on credit offers based on a survey conducted by Mintel, as well as data on credit originations based on the Federal Reserve’s Y-14M reports. Additionally, we analyze a unique data set of partnerships between fintech firms and banks compiled by CB Insights to identify the relevant partnerships. Our results indicate that banks are more likely to offer credit cards and personal loans to the credit invisible and below-prime consumers — and are also more likely to grant larger credit limits to those consumers — after the partnership period. Similarly, we find that fintech partnerships result in banks being more likely to originate mortgage loans to nonprime homebuyers and that they increase the mortgage loan amounts that banks grant to nonprime buyers as well. Overall, we find that these partnerships could help to move us toward a more inclusive financial system. |
| Keywords: | Fintech; alternative data; fintech partnership; financial inclusion; credit invisible |
| JEL: | G21 G28 G18 L21 |
| Date: | 2023–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97019&r=ban |
| By: | Emiel Sanders; Mathieu Simoens; Rudi Vander Vennet (-) |
| Abstract: | At the outbreak of the Covid-19 pandemic, the European Central Bank issued a strong recommendation towards banks to halt dividend payouts. The goal of this de facto dividend ban was to boost banks’ capital to ensure the supply of new credit. However, given the importance of dividends for stock market investors, this unprecedented measure is likely to have impacted bank valuations. Hence, banks may have chosen to preserve their higher capital buffers to boost payouts after the lifting of the ban, rendering the intended positive effect on credit supply a priori uncertain. We first investigate the effect of the dividend ban announcement on euro area banks’ valuations and find a significantly negative impact. Second, we assess the effect of the dividend ban on syndicated lending, including potential heterogeneity depending on the stock market reaction. We show that credit supply significantly increased, without counteracting effect of the negative stock market reaction. |
| Keywords: | Covid-19; dividend, euro area banks; market valuation; syndicated lending |
| JEL: | E51 G21 G28 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:23/1078&r=ban |
| By: | Mantas Dirma; Jaunius Karmelavičius |
| Abstract: | Despite having introduced borrower-based measures (BBM), Lithuania's housing and mortgage markets were booming during the low-interest-rate period, casting doubt on the macroprudential toolkit's ability to contain excessive mortgage growth. This paper assesses the adequacy of BBMs’ parametrization in Lithuania. We do so by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the preregulatory era. Our BBM limit calibration exercise reveals that (1) in the low-rate environment, income-based measures could have been tighter; and (2) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment. |
| Keywords: | macroprudential policy; borrower-based measures; LTV; mortgage credit risk; lifetime expected loss; probability of default. |
| Date: | 2023–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/227&r=ban |
| By: | Bofinger, Peter; Geißendörfer, Lisa; Haas, Thomas; Mayer, Fabian |
| Abstract: | This study describes the Chinese growth model over the past 40 years. We show that China's growth model, with its dominant role of the banking system and "the banker", is a perfect illustration of the necessity and power of Schumpeter's "monetary analysis". This approach has allowed us to elaborate theoretically and empirically the uniqueness of the Chinese model. In our empirical analysis, we use a new dataset of Chinese provincial data to analyze the impact of the financial system, especially banks, on Chinese economic development. We also empirically assess the role of the financial system in Chinese industrial policy and provide case studies of the effects of industrial policy in specific sectors. Finally, we also discuss macroeconomic dimensions of the Chinese growth process and lessons that can be drawn from the Chinese experience for other countries. |
| Keywords: | Bank credit, Bank-led Growth, China, Economic development, Economic growth, Finance, Finance-growth nexus, Industrial Policy, Strategic Emerging Industries |
| JEL: | E |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewep:279552&r=ban |
| By: | Marie-Claire Broekhoff; Carin van der Cruijsen; Jakob de Haan |
| Abstract: | Using unique payment diary survey data, this paper analyses trust in the Dutch payment system (broad-scope trust) and trust in the payment services of customers’ own bank (narrow-scope trust) among several customer groups at risk of being financially excluded due to the ongoing digitalisation. We focus on people with low digital skills, disabilities or financial difficulties. Our results suggest that respondents with low digital skills or those who experience difficulties to make ends meet have below-average levels of both broad-scope and narrow-scope trust. Among people who have difficulty walking or are wheelchair-bound we find a significant positive effect on broad-scope trust in the payment system in general, while blind or visually impaired people and people with limited or no hand function are less likely to have trust in the payment system compared to people who do not belong to one of these groups. Among those who fall in a group at risk due to a physical disability, we only uncover a significant negative effect on narrow-scope trust for people who are blind or with a visual impairment. Respondents with little broad-scope trust report various reasons for their lack of trust, such as dissatisfaction with banks’ policies and the cost of bank services, interruptions in the payment system and the ongoing digitalisation of payment services. The findings underscore the importance of cultivating an accessible and inclusive payment system to increase financial inclusion from a trust-centred perspective. |
| Keywords: | trust in payment services; customer groups at risk; broad-scope trust; narrow-scope trust; digital literacy |
| JEL: | D12 G21 O33 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:795&r=ban |
| By: | Patrick T. Harker |
| Abstract: | Philadelphia Fed President and CEO Patrick Harker told an audience at a Risk Management Association event in Philadelphia that he will “closely watch the data before making any decisions on moving the policy rate in either direction.” He said that “impacts from lingering uncertainties, ” including labor strikes, resuming student loan payments, and international events “each come with their own set of economic effects.” Since the banking sector in the Third District weathered the spring banking turmoil, he noted that “Customers can have faith in their deposits and in their financial institutions.” As for the outlook, Harker said, “This is a time where doing nothing is doing something, and, in fact, I’d argue that it equates to doing quite a lot.” |
| Date: | 2023–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpsp:97189&r=ban |
| By: | Lelli, Chiara; Parisi, Laura; Heemskerk, Irene; Boldrini, Simone; Ceglar, Andrej |
| Abstract: | The loss of biodiversity and the degradation of natural ecosystems pose a significant threat to the broader economy and financial stability that central banks and financial supervisors cannot ignore. To gain further insights into the implications of nature and ecosystem service degradation for financial stability, this study assesses the dependencies of euro area non-financial corporations and banks on different ecosystem services. The study then develops a method to capture banks’ credit portfolio sensitivity to possible future changes in the provision of ecosystem services. Our results show that 75% of all corporate loan exposures in the euro area have a strong dependency on at least one ecosystem service. We also find that loan portfolios may be significantly affected if nature degradation continues its current trend, with greater vulnerabilities concentrated in certain regions and economic sectors. JEL Classification: C55, G21, G38, Q5 |
| Keywords: | biodiversity loss, economy, ENCORE, impact, input-output table, materiality score, nature degradation, nexus |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023333&r=ban |
| By: | Goutsmedt, Aurélien (UC Louvain - F.R.S-FNRS); Sergi, Francesco; Claveau, François; Fontan, Clément |
| Abstract: | This article investigates the scientization process in central banks, using the Bank of England (BoE) as a case study. It proposes an ideal type of the scientized central bank, which is tied to the core idea that the scientization of an organization grows with its willingness to contribute to the relevant science. We derive from this ideal type empirically observable characteristics regarding leadership and staff profiles, use of internal resources, composition of external networks, and publication and discursive outputs. The BoE is then contrasted to this ideal type of a thoroughly scientized central bank. The empirical material includes archives and interviews as well as three databases providing quantitative information from 1980 to 2019. We find that the path towards scientization is strategically motivated and varied, influenced by factors such as balancing the imperatives of expert credibility and informing policymaking. Based on this empirical analysis, we underline the multifaceted dynamics of the scientization process and call for more nuanced representations in the academic literature. |
| Date: | 2023–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:jzwdt&r=ban |
| By: | Timu, Anne G.; Shee, Apurba; You, Liangzhi |
| Abstract: | Changes in frequency and intensity of climate and weather events are a key challenge to agricultural production among farmers in Zambia. Climate variability reduces farm productivity, which in turn contributes to household food insecurity, income variability, and reduced overall economic growth. Using improved technologies such as mechanization, improved seed varieties, irrigation, and fertilizer can improve climate resilience and farm production among smallholder farmers. However, in Zambia, as in many countries in sub-Saharan Africa, most famers lack sufficient access to credit to purchase these technologies. Limited access to credit is mainly attributed to lack of collateral, fear of losing collateral in case of a default, and low financial literacy among smallholder famers (Balana et al. 2022). Information asymmetry also makes it risky and expensive for lenders to serve smallholder farmers, thus they ration the quantity of credit offered and/or raise the interest rates making credit too expensive and inaccessible for millions of smallholder farmers. Bundling agricultural credit with insurance, commonly referred to as risk-contingent credit (RCC), provides a mechanism for addressing some of the credit access constraints faced by smallholder farmers in developing countries. RCC is a loan product that is bundled with an insurance component. RCC seeks to enhance long-term resilience to climate uncertainties by promoting optimal farm investment and productivity among smallholders through sustainable access to credit markets. Under RCC, qualifying smallholder farmers borrow funds for agricultural production from formal financial institutions such as banks and microfinance institutions with minimum collateral requirements. The borrower’s ability to repay the loan is linked to climate outcomes, which are highly correlated with farm productivity. An insurance company underwrites the climate risks (either in the form of drought or flood), such that if that underlying risk passes a certain threshold, the insurance is triggered and part or all of the borrower’s liability is transferred to the insurer. If the underlying risk remains below the threshold, the borrower repays the loan at the agreed upon interest rates and is also obligated to pay the insurance premium, as part of the loan repayment. Linking farmers’ loan repayment obligations to an underlying risk, as opposed to stringent collateral requirements, is expected to reduce the borrowing constraints faced by many poor farmers. At the same time, de-risking the lender by transferring a portion of risks to the insurance market is expected to promote credit supply, hence expanding the rural credit market (Shee et al. 2019). |
| Keywords: | ZAMBIA; SOUTHERN AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; agricultural credit; agricultural production; climate change; climate resilience; extreme weather events; households; income; irrigation; smallholders |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:prnote:136947&r=ban |
| By: | Fabio Bagarello; Biagio Bossone |
| Abstract: | According to the Accounting View of Money (AVM), the money issued by commercial banks in the form of demand deposits features a hybrid nature, since deposits can be shown to consist of a share of deposits bearing the characteristics of debt (debt-deposits) and a share of deposits bearing the characteristics of equity (equity-deposits), in a mix that depends on factors that relate to the issuing banks and the environment where they operate and interact, which may change over time. Following this important finding of the AVM, it is only consequential to associate the hybrid nature of bank deposits with the dual nature of the objects which is typical in quantum physics, and to investigate whether and how the application of quantum analytical methods and ideas to a form of money showing dualistic features could be used to extract valuable economic information. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.01542&r=ban |
| By: | Xudong An; Sadok El Ghoul; Omrane Guedhami; Ross Levine; Raluca Roman |
| Abstract: | Using comprehensive mortgage-level data, we discover that the social capital of the community in which households live positively influences the likelihood of the approval of their mortgage applications, the terms of approved mortgages, and the subsequent performance of those mortgages. The results hold when conditioning on extensive household and community characteristics and a battery of fixed effects, including individual effects, data permitting, and when employing instrumental variables and propensity score matching to address identification and selection concerns. Concerning causal mechanisms, evidence suggests that social capital enhances lender screening and monitoring of borrowers and increases the social costs to borrowers of defaulting on their debts. |
| Keywords: | consumer credit; mortgage approval; screening; loan performance; social capital; interpersonal connections; trust; banks; fintech |
| JEL: | G01 G28 D10 D12 E58 |
| Date: | 2023–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97148&r=ban |
| By: | Hugo Oriola; Matthieu Picault |
| Abstract: | We define the concept of Opportunistic Political Central Bank Coverage (OPCBC) which corresponds to an opportunistic modification of parties’ popularity induced by media coverage of monetary policy. More precisely, we suppose that the treatment of monetary policy in the press has a significant impact on the popularity of national political parties prior to an election. To investigate on the existence of this concept, we collect monthly popularity ratings for 6 German political forces on the period between January 2005 and December 2021. Then, we measure media coverage through a textual analysis on more than 26.000 press articles from 6 different German newspapers. Finally, we estimate popularity functions for these German political parties in which we introduce our textual measures interacted with a dummy taking the value 1 in the month prior to an election. Our analysis underlines the existence of OPCBCs in Germany in the month preceding federal elections and elections to the European Parliament. This result is robust to the use of a SUR model, alternative pre-electoral periods, the implementation of two different tone analysis, the use of Google Trends data and the interest of the public for members of the ECB. Finally, it seems that the existence of OPCBCs depend on the partisanship of the media studied. |
| Keywords: | European Central Bank; Press; Textual Analysis; Tone Analysis; Elections; Political Cycles; Germany |
| JEL: | E58 D72 P35 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2023-30&r=ban |
| By: | Ishmeet Matharoo |
| Abstract: | This research paper presents a thorough economic analysis of Bitcoin and its impact. We delve into fundamental principles, and technological evolution into a prominent decentralized digital currency. Analysing Bitcoin's economic dynamics, we explore aspects such as transaction volume, market capitalization, mining activities, and macro trends. Moreover, we investigate Bitcoin's role in economy ecosystem, considering its implications on traditional financial systems, monetary policies, and financial inclusivity. We utilize statistical and analytical tools to assess equilibrium , market behaviour, and economic . Insights from this analysis provide a comprehensive understanding of Bitcoin's economic significance and its transformative potential in shaping the future of global finance. This research contributes to informed decision-making for individuals, institutions, and policymakers navigating the evolving landscape of decentralized finance. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.09745&r=ban |
| By: | Holden, Tom D. |
| Abstract: | Central banks wish to avoid self-fulfilling fluctuations. Interest rate rules with a unit response to real rates achieve this under the weakest possible assumptions about the behaviour of households and firms. They are robust to household heterogeneity, hand-to-mouth consumers, non-rational household or firm expectations, active fiscal policy and to any form of intertemporal or nominal-real links. They are easy to employ in practice, using inflation-protected bonds to infer real rates. With a time-varying short-term inflation target, they can implement an arbitrary inflation path, including optimal policy. This provides a way to translate policy makers’ desired path for inflation into one for nominal rates. US Federal Reserve behaviour is remarkably close to that predicted by a real rate rule, given the desired inflation path of US monetary policy makers. Real rate rules work thanks to the key role played by the Fisher equation in monetary transmission. |
| Keywords: | robust monetary rules, determinacy, Taylor principle, inflation dynamics, monetary transmission mechanism |
| JEL: | E52 E43 E31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:279481&r=ban |
| By: | Tihana Škrinjarić (Bank of England, United Kingdom Author-Name2: Maja Sabol Author-Name2-First: Maja Author-Name2-Last: Sabol Author-Email2: maja.sabol@europarl.europa.eu Author-Workplace-Name2: European Parliament) |
| Abstract: | House price dynamics are particularly interesting for macroprudential policymakers due to their effects on financial stability and future macroeconomic performance. As the main goal of macroprudential policy is to mitigate systemic risks, it is essential to monitor the central tendency of future house price growth dynamics and focus on downside risks and their possible materialization. This research, the first of its kind applied to the Croatian housing market, tries to identify and capture the main drivers of house price-at-risk (HaR) for the period between 2002Q1 and 2022Q3. It also predicts downside risks to future real house price growth. Based on the quantile regression results, we conclude that downside risks on housing market have increased in recent years. The approach is found to be insightful to monitor the uncertainty of the forecasts and decomposing the drivers to house price forecasting. Our results have implications for a range of policies that influence housing markets. |
| Keywords: | financial stability, macroprudential policy, quantile regression, growth at risk, house price dynamics, downside risks |
| JEL: | E32 E44 E58 G01 G28 C22 |
| Date: | 2023–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:hnb:wpaper:73&r=ban |
| By: | Hale, Galina; Lopez, Jose A |
| Abstract: | The need to monitor aggregate financial stability was made clear during the global financial crisis of 2008-2009, and, of course, the need to monitor individual financial firms from a microprudential standpoint remains. However, linkages between financial firms cannot be observed or measured easily. In this paper, we propose a procedure that generates measures of connectedness between individual firms and for the system as a whole based on information observed only at the firm level; i.e., no explicit linkages are observed. We show how bank outcome variables of interest can be decomposed, including with mixed-frequency models, for how network analysis to measure connectedness across firms. We construct two such measures: one based on a decomposition of bank stock returns, the other based on a decomposition of their quarterly return on assets. Network analysis of these decompositions produces measures that could be of use in financial stability monitoring as well as the analysis of individual firms' linkages. |
| Keywords: | Economics, Banking, Finance and Investment, Applied Economics, Commerce, Management, Tourism and Services |
| Date: | 2023–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucscec:qt17h5v7rj&r=ban |
| By: | Bakkar, Yassine; Machokoto, Michael |
| Abstract: | Utilizing data from 31, 336 firms across 69 countries over the period 2011-2017, we find evidence suggesting macroprudential policies have a significant negative impact on corporate debt, particularly long-term debt. We further find that macroprudential policies have heterogeneous effects, with a greater impact observed among firms facing binding credit constraints and high market competition, as well as those operating in countries with less developed institutions. These findings underscore the importance of institutional factors in determining the effectiveness of macroprudential policies. |
| Keywords: | Capital structure, debt maturity, macroprudential policies |
| JEL: | G20 G30 G32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qmsrps:279524&r=ban |
| By: | Hans Brits; Nicole Jonker |
| Abstract: | This paper examines whether the ‘privacy paradox’, i.e. a dichotomy between privacy intentions and privacy behaviours, is visible amongst users of financial services apps. Using a survey among Dutch consumers, we study to what extent people share financial data with third parties, and whether their data sharing activities are in line with their privacy concerns. We find that paradoxical usage of financial apps as measured by the privacy paradox metric is low, most users seem to make a rational calculation of benefits versus privacy risks. Paradoxical non-usage is substantial. This could be an efficiency issue, but is not a problem from a risk perspective. Regression analysis shows that app usage correlates positively with its perceived benefits and negatively with privacy risks. Furthermore, usage of certain types of apps depends on people’s trust in the app providers. Overall, the results point to privacy calculating behaviour amongst the users of the data sharing apps in this study rather than to paradoxical behaviour. |
| Keywords: | Financial apps; Consumer choice; Discrete Choice Modelling; Metric; Personal Data; Privacy Calculus; Privacy Paradox; PSD2; Westin Index |
| JEL: | C35 D12 D80 G21 G23 G28 E42 O31 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:794&r=ban |
| By: | Jon Danielsson; Andreas Uthemann |
| Abstract: | Artificial intelligence (AI) is making rapid inroads in financial regulations. It will benefit micro regulations, concerned with issues like consumer protection and routine banking regulations, because of ample data, short time horizons, clear objectives, and repeated decisions that leave plenty of data for AI to train on. It is different with macro regulations focused on the stability of the entire financial system. Here, infrequent and mostly unique events frustrate AI learning. Distributed human decision making in times of extreme stress has strong advantages over centralised AI decisions, which, coupled with the catastrophic cost of mistakes, raises questions about AI used in macro regulations. However, AI will likely become widely used by stealth as it takes over increasingly high level advice and decisions, driven by significant cost efficiencies, robustness and accuracy compared to human regulators. We propose six criteria against which to judge the suitability of AI use by the private sector and financial regulation. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.11293&r=ban |
| By: | Carolina Camassa |
| Abstract: | In the rapidly evolving field of crypto-assets, white papers are essential documents for investor guidance, and are now subject to unprecedented content requirements under the EU's Markets in Crypto-Assets Regulation (MiCAR). Natural Language Processing can serve as a powerful tool for both analyzing these documents and assisting in regulatory compliance. This paper delivers two contributions to the topic. First, we survey existing applications of textual analysis to unregulated crypto-asset white papers, uncovering a research gap that could be bridged with interdisciplinary collaboration. We then conduct an analysis of the changes introduced by MiCAR, highlighting the opportunities and challenges of integrating NLP within the new regulatory framework. The findings set the stage for further research, with the potential to benefit regulators, crypto-asset issuers, and investors. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.10333&r=ban |
| By: | Juan M. Londono; Sai Ma; Beth Anne Wilson |
| Abstract: | Policymakers, including Federal Open Market Committee (FOMC) participants, have been stressing the elevated level of uncertainty, especially related to inflation, and the challenge this poses for monetary policy. As seen in Figure 1, with few exceptions, FOMC participants see the level of uncertainty around their forecasts for core PCE inflation as high, compared to the average over the past 20 years. |
| Date: | 2023–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2023-09-25&r=ban |
| By: | Patrick T. Harker |
| Abstract: | At the 80th anniversary celebration of the Chartered Financial Analyst (CFA) Society Philadelphia, Philadelphia Fed President and CEO Patrick Harker noted that the economic indicators tracked by the Philadelphia Fed “give me reason to feel positive about the path forward.” Taking a holistic view, Harker said the “workings of the economy cannot be rushed, ” noting the impact of other pressures in play, including labor market turmoil, the resumption of student loan payments, and the events around the world. With the data he has now, Harker said the economic “underpinnings remain strong, ” and he expects “the economy’s overall resilience to continue.” |
| Date: | 2023–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpsp:97188&r=ban |
| By: | William Tayler; Roy Zilberman |
| Abstract: | We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary. |
| Keywords: | deposit tax-subsidy, cost channel, optimal policy, discretion vs. commitment, zero lower bound |
| JEL: | E32 E44 E52 E58 E63 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:400233890&r=ban |
| By: | John O'Trakoun |
| Abstract: | I introduce the "trimmed persistence PCE, " a new measure of core inflation in which component prices are weighted according to the time-varying persistence of their price changes. The components of trimmed persistence personal consumption expenditures (PCE) display less tendency to mechanically pass-through the level of the prior period's inflation to the current period; thus, the impact of the current stance of monetary policy and real economic factors are more likely to be visible in recent trimmed persistence inflation compared to headline inflation. Trimmed persistence inflation performs comparably to existing popular measures of core inflation in terms of volatility and relationship with economic slack. Model selection procedures confirm trimmed persistence PCE contributes additional information to inflation forecasting models when stacked against other popular measures of core inflation. Applying the new index in a Taylor rule analysis suggests the Fed's aggressive path of federal funds rate hikes during the pandemic may have achieved appropriately restrictive levels by the fourth quarter of 2022, clearing the way for more measured policy adjustment thereafter as risks of policy overshooting became more salient. |
| Keywords: | inflation; core inflation; inflation persistence; time-varying; inflation dynamics |
| JEL: | C22 E31 E37 E52 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:97228&r=ban |
| By: | Ahmad, Mahyudin; Hall, Stephen G.; Law, Siong Hook; Nayan, Sabri |
| Abstract: | Despite the extensive literature on the relationship between financial development (FD) and economic growth, previous studies have largely overlooked the potential spatial interdependence between countries. To address this gap, this paper employs spatial Durbin estimation that explicitly captures the spillover effects of FD and institutions on a panel dataset of 56 emerging countries over a 30-year period. The findings reveal a significant impact of FD on economic growth, although no evidence of its threshold effect. Institutions play a critical role in shaping the FD-growth relationship, with political institutions being the most influential in driving economic growth both within and across neighboring countries. On the other hand, improvement in economic institutions moderates the growth-effect of FD. Financial institutions drive the within-country effect of FD on growth, while the spillover effect primarily stems from financial markets in neighboring countries. The robustness of the findings is confirmed through a battery of tests. In conclusion, this empirical study offers valuable insights into the complex relationship between financial development, institutions, and economic growth in emerging countries. By considering spatial interdependencies and the role of institutions, policymakers can devise effective strategies to harness the positive effects of financial development and create an enabling environment for sustained and inclusive economic growth. |
| Keywords: | Economic growth, spillover effects, financial development, institutional quality, spatial Durbin model. |
| JEL: | C31 O16 O43 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118966&r=ban |
| By: | Popova, Olga (Leibniz Institute for East and Southeast European Studies (IOS)); See, Sarah Grace (University of Groningen); Nikolova, Milena (University of Groningen); Otrachshenko, Vladimir (Justus Liebig University, Giessen) |
| Abstract: | What are the broad societal implications of inflation and unemployment? Analyzing a dataset of over 1.9 million individuals from 156 countries via the Gallup World Poll spanning 2005 to 2021, alongside macroeconomic data at the national level, we find that both inflation and unemployment have a negative link with confidence in financial institutions. While inflation is generally unassociated with confidence in government and leadership approval, unemployment still has a strong negative association with these outcomes. While we find no gender differences in the consequences of inflation and unemployment for confidence in political and financial institutions, the associations we document are more substantial for the cohorts that are likely to bear a disproportionate burden from inflation and unemployment—the middle-aged, lower-educated, and unmarried individuals, and for those living in rural areas. Uncertainty about the country's economic performance and one's own economic situation are the primary channels behind the associations we identify. These findings hold significant implications for policymakers, Central Banks, and public discourse, necessitating targeted strategies to alleviate the social consequences of inflation and unemployment. |
| Keywords: | inflation, unemployment, trust, confidence in institutions, Gallup World Poll |
| JEL: | D12 D83 E31 E58 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16541&r=ban |
| By: | Yoosoon Chang (Indiana University); Fabio Gomez-Rodriguez (Lehigh University and Central Bank of Costa Rica); Christian Matthes (Indiana University) |
| Abstract: | We investigate the influence of the U.S. government’s spending and taxation decisions, along with the monetary policy choices made by the Federal Reserve, on the dynamics of the nominal yield curve. Aggregate government spending moves the long end of the yield curve, whereas monetary policy and changes in taxation move the short end of the yield curve on impact. Disentangling different types of government spending, we find that only government consumption exerts a discernible influence on the short end of the yield curve. The effects are generally transient and disappear after one year. |
| Keywords: | Yield Curve, Fiscal Policy, Monetary Policy, Functional Time Series |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2023008&r=ban |