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on Banking |
| By: | Michael D. Bordo; Edward Simpson Prescott |
| Abstract: | We evaluate the decentralized structure of the Federal Reserve System as a mechanism for generating and processing new ideas on monetary policy over the 1960 - 2000 period. We document the introduction of monetarism, rational expectations, credibility, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s and the increased ties with academia that developed in this period. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure. We illustrate this with a time-consistency model in which a decentralized organization is better at producing new ideas than a centralized one. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure by allowing for more competition in formulating ideas and by reducing groupthink. |
| Keywords: | Federal Reserve System; monetary policy; governance; time consistency |
| JEL: | B0 E58 G28 H1 |
| Date: | 2023–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:97331&r=ban |
| By: | Hotori, Eiji |
| Abstract: | In this article, I use documents obtained from the NatWest Group archives to examine the work of Alexander Shand as a director of Parr's Bank during the period 1909-1918. A Scottish banker, Alexander Shand was recruited by the Japanese government early in his career to instruct Japanese bureaucrats on the establishment of a modern banking system. Following a conflict with the Japanese government in 1877, Shand returned to the United Kingdom, where he used his connections within the British bankers' network to obtain a position with Alliance Bank, commencing in 1878. In 1892, Alliance Bank merged with Parr's Bank, and Shand was eventually appointed to the board in 1909, where he remained until Parr's Bank merged with Westminster Bank in 1918. Shand was not only keen to maintain discipline regarding insider lending, but also played an important role in underwriting bonds issued in Japan and China. In addition, Shand dealt with difficult issues related to the bank's participation in bailout plans and tax-related matters. This article confirms Shand's industrious and conservative attitude as a director of a British bank, as well as his sound management principles in the early 20th century. |
| Keywords: | financial history, UK-Japan relationship, British bank |
| JEL: | N23 N83 N93 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eabhps:280405&r=ban |
| By: | Sümeyra Atmaca; Karolin Kirschenmann; Steven Ongena; Koen Schoors |
| Abstract: | We employ proprietary data from a large bank to analyze how – during crisis – deposit insurance affects depositor behavior. Our focus is on Belgium where the government increased explicit deposit insurance coverage and implemented implicit deposit insurance arrangements. Estimating sorting below the respective insurance limits shows that depositors are aware of and understand these interventions. Difference-in-differences estimates show that both the increase in the explicit deposit insurance limit and the implicit deposit insurance had the intended calming effect on depositors. Close depositor-bank relationships mitigate these effects, while political trust seems to boost the general effectiveness of such government policies. |
| Keywords: | deposit insurance, coverage limit, implicit deposit guarantee, bank nationalization, depositor heterogeneity |
| JEL: | G21 G28 H13 N23 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10768&r=ban |
| By: | Guilherme Suedekum (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | This paper studies how the presence of foreign investors in local currency sovereign debt markets contributes to the transmission of global financial conditions to emerging market economies. My estimations indicate that the higher the share of local currency government bonds held by foreign investors, the more sensitive the credit risk of these bonds becomes to global financial shocks. When foreign investors’ holdings reach 45 percent, the credit risk of local currency government bonds becomes as sensitive to global financial shocks as the credit risk of foreign currency government bonds. I also explore exogenous foreign investor outflows caused by an unanticipated announcement of country weight rebalancing in the J.P. Morgan GBI-EM Global Diversified index in March 2014. Countries that experienced foreign investor outflows also experienced a decrease in the sensitivity of their local currency sovereign debt markets to changes in global financial conditions. |
| Keywords: | Emerging Market Economies; Local Currency Sovereign Debt; Credit Risk; Global Financial Conditions |
| JEL: | F34 G15 H63 |
| Date: | 2023–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp19-2023&r=ban |
| By: | Gara Afonso; Gabriele La Spada; Thomas M. Mertens; John C. Williams |
| Abstract: | This paper provides an analytically tractable theoretical framework to study the optimal supply of central bank reserves when the demand for reserves is uncertain and nonlinear. We fully characterize the optimal supply of central bank reserves and associated market equilibrium. We find that the optimal supply of reserves under uncertainty is greater than that absent uncertainty. With a sufficient degree of uncertainty, it is optimal to supply a level of reserves that is abundant (on the flat portion of the demand curve) absent shocks. The optimal mean spread between the market interest rate and administered rates under uncertainty may be higher or lower than that absent uncertainty. Our model is consistent with the observation that the variability of interest rate spreads is a function of the level of reserves. |
| Keywords: | central bank reserves; uncertainty |
| Date: | 2023–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97340&r=ban |
| By: | Nicola Cetorelli; Saketh Prazad |
| Abstract: | Financial and technological innovation and changes in the macroeconomic environment have led to the growth of nonbank financial institutions (NBFIs), and to the possible displacement of banks in the provision of traditional financial intermediation services (deposit taking, loan making, and facilitation of payments). In this post, we look at the joint evolution of banks—referred to as depository institutions from here on—and nonbanks inside the organizational structure of bank holding companies (BHCs). Using a unique database of the organizational structure of all BHCs ever in existence since the 1970s, we document the evolution of NBFI activities within BHCs. Our evidence suggests that there exist important conglomeration synergies to having both banks and NBFIs under the same organizational umbrella. |
| Keywords: | nonbank financial institutions (NBFIs); conglomeration; benefits; banks |
| JEL: | G2 |
| Date: | 2023–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:97369&r=ban |
| By: | Ranjula Bali Swain; Aimable Nsabimana |
| Abstract: | We investigate if financial inclusion leads to improved nutrition in rural Rwanda, using Rwandan Integrated Household Living Conditions surveys (2013/14 and 2016/17). Our empirical evidence shows a robust positive impact of financial inclusion efforts undertaken by formal financial institutions, though informal institutions such as tontines are ineffective in improving food expenditure or nutrition. Furthermore, the study reveals heterogeneous marginal effects of financial inclusion in reducing the gender gap between the food demand and nutrition of female- and male-headed households. |
| Keywords: | Financial inclusion, Food security, Nutrition, SDGs, Rwanda |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2023-141&r=ban |
| By: | Nathan Blascak; Anna Tranfaglia |
| Abstract: | Using linked mortgage application and credit bureau data, we document the existence of unconditional and conditional gender gaps in the distribution of total bankcard limits. We estimate that male borrowers have approximately $1, 300 higher total bankcard limits than female borrowers. This gap is primarily driven by a large gender gap in the right tail of the limit distribution. At the median and in the left tail of the total limit distribution, women have larger limits than men. Results from a Kitagawa-Oaxaca-Blinder decomposition show that 87 percent of the gap is explained by differences in the effect of observed characteristics, while 10 percent of the difference is explained by differences in the levels of observed characteristics. The gap is persistent across geographies but has varied over time. Overall, these gender gaps are small in economic magnitude and have changed over time favoring women. |
| Keywords: | gender; credit; credit cards; decomposition |
| JEL: | J16 G51 G53 |
| Date: | 2023–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97415&r=ban |
| By: | Antoine Jacquier; Oleksiy Kondratyev; Gordon Lee; Mugad Oumgari |
| Abstract: | Quantum computing has recently appeared in the headlines of many scientific and popular publications. In the context of quantitative finance, we provide here an overview of its potential. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.06621&r=ban |
| By: | Hein, Eckhard |
| Abstract: | This paper reviews the post-Keynesian theory of inflation against the background of the simultaneous rise in inflation and profit shares in the course of the Covid-19 recovery and the Russian war in Ukraine. It distinguishes between the Keynes, Kaldor, Robinson, and Marglin tradition, and the Kalecki, Rowthorn, and Dutt tradition. Two prototype models in the latter tradition-the Dutt, Blecker/Setterfield and Lavoie variant, and the Rowthorn and Hein/Stockhammer variant-are discussed. The paper applies the latter to elucidate recent inflation trends propelled by increasing imported energy prices and then rising mark-ups. The effects of inflation-targeting central bank interest policies versus a post-Keynesian alternative macroeconomic policy approach are evaluated. It is argued that from a post-Keynesian perspective inflation is always and everywhere a conflict phenomenon, with different potential triggers. Adequate policies should thus focus on moderating distribution conflict by incomes policies, complemented by central banks targeting low long-term real interest rates, functional finance fiscal policies and international coordination of inflation targets. |
| Keywords: | conflict inflation, post-Keynesian models, imported energy inflation shock |
| JEL: | E12 E25 E31 E61 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:280430&r=ban |
| By: | Khaled AlAjmi; Jose Deodoro; Mr. Ashraf Khan; Kei Moriya |
| Abstract: | Using the 2010, 2015, and 2020/2021 datasets of the IMF’s Central Bank Legislation Database (CBLD), we explore artificial intelligence (AI) and machine learning (ML) approaches to analyzing patterns in central bank legislation. Our findings highlight that: (i) a simple Naïve Bayes algorithm can link CBLD search categories with a significant and increasing level of accuracy to specific articles and phrases in articles in laws (i.e., predict search classification); (ii) specific patterns or themes emerge across central bank legislation (most notably, on central bank governance, central bank policy and operations, and central bank stakeholders and transparency); and (iii) other AI/ML approaches yield interesting results, meriting further research. |
| Keywords: | central bank legislation; central banking; artificial intelligence; machine learning; Bayesian algorithm; Boolean algorithm; central bank governance; law and economics |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/241&r=ban |
| By: | Heider, Florian; Schlegel, Jonas; Tröger, Tobias; Wahrenburg, Mark |
| Abstract: | This study looks at potential windfall profits for the four banking acquisitions in 2023. Based on accounting figures, an FT article states that a total of USD 44bn was left on the table. We see accounting figures as a misleading analysis. By estimating marked-based cumulative abnormal returns (CAR), we find positive abnormal returns in all four cases which when made quantifiable, are around half of the FT's accounting figures. Furthermore, we argue that transparent auctions with enough bidders should be preferred to negotiated bank sales. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee. |
| Keywords: | Bank Resolution, Bank Acquisition, Auctions, "Event Study" |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:280399&r=ban |
| By: | Xudong An; Lawrence R. Cordell; Nicholas Smith |
| Abstract: | We study the evolution of the private-label CMBS market from one dominated by broadly diversified long-term, fixed-rate conduit securitizations to one dominated in 2021–22 by undiversified short-term, floating-rate Single-Asset, Single-Borrower (SASB) securitizations. Twenty-five years of stable bond returns and exceptionally low losses help explain the growth and standardization of the SASB market following the Global Financial Crisis. Historically low interest rates and pandemic-era dislocations help explain the recent dominance of short-term, floating-rate SASBs. Factors contributing to their strong performance have weakened considerably recently, exposing them to emerging risks, making their recent dominance unsustainable. |
| Keywords: | Commercial Mortgage-Backed Securities (CMBS); Single-Asset; Single-Borrower (SASB); Conduit; Bond Return; Deal |
| JEL: | D12 D63 G21 G50 |
| Date: | 2023–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97332&r=ban |
| By: | Koetter, Michael; Nguyen, Huyen |
| Abstract: | This paper assesses the progress made towards the creation of the European Banking Union (EBU) and the evolution of the banking industry in the European Union since the financial crisis of 2007. We review major regulatory changes pertaining to the three pillars of the EBU and the effects of new legislation on both banks and the real economy. Whereas farreaching reforms pertaining to the EBU pillars of supervision and resolution regimes have been implemented, the absence of a European Deposit Scheme remains a crucial deficiency. We discuss how European banks coped with recent challenges, such as the Covid-19 pandemic, a high inflation environment, and digitalization needs, followed by an outlook on selected major challenges lying ahead of this incomplete EBU, notably the transition towards a green economy. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhstu:280432&r=ban |
| By: | Paul Levine (University of Surrey); Maryam Mirfatah (King’s College London); Joseph Pearlman (City University); Stylianos Tsiaras (Ecole Polytechnique Federale de Lausanne) |
| Abstract: | We study central bank liquidity provisions to the banking sector in a DSGE model estimated for the Euro Area with financial frictions on the supply and demand side of credit. We show that liquidity provisions, as in the ECB’s recent Long Term Refinancing Operations, can be welfare-enhancing or welfare-reducing when both these financial frictions exist. They relax the banks’ leverage constraint and induce banks to provide more credit. This reduces the credit spread facing firms and increases investment, but this comes at the cost of implementing the liquidity policy. We compute a welfare optimized liquidity rule for the central bank responding to output, inflation and the interest rate spread that can increase welfare in comparison with the case of no liquidity provision. Crucially, this result is conditional on a high level of central bank monitoring of the its loanable funds to banks. |
| JEL: | C11 E44 E52 E58 E61 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1323&r=ban |
| By: | Blaber, Richard Michael |
| Abstract: | This paper will argue that the current level of international debt is a huge ‘bubble’ waiting to burst, and that, if and when it does so, the entire financial structure of global capitalism will collapse, taking capitalism, as such, with it. The mechanism of this collapse, if it occurs, will be a collapse of the international banking system, and complete loss of confidence on the exchange markets in any form of reserve currency – either the US dollar or any putative replacement for it. |
| Date: | 2023–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:3jr87&r=ban |
| By: | Viral V. Acharya; Maximilian Jager; Sascha Steffen |
| Abstract: | Over the past two decades, banks have increasingly focused on offering contingent credit in the form of credit lines as a primary means of corporate borrowing. We review the existing body of research regarding the rationales for banks’ provision of liquidity insurance in the form of credit lines, their significance in managing corporate liquidity, and the reasons and circumstances under which firms opt to utilize them. We emphasize that the options for firms to both draw down and repay credit lines are put options issued by banks, which are exercised by firms in a correlated manner during periods of widespread stress, with adverse affects on bank intermediation thereafter. We discuss the bank capital and the bank funding channels that can drive these effects, contrasting their roles during the Global Financial Crisis and the Covid-19 outbreak. We conclude by discussing the increasing extension of bank credit lines to non-bank financial intermediaries, as well as the role of stress tests and monetary policy in managing the risks of contingent credit under stress. |
| JEL: | G01 G21 G23 G32 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31909&r=ban |
| By: | Sumit Agarwal; Wenli Li; Raluca Roman; Nonna Sorokina |
| Abstract: | Using a unique data set of unsolicited credit card offer mailings by banks to consumers, we investigate how opioid abuse affects consumer credit supply in the U.S. To identify causal effects, we employ instrumental variables, propensity score matching, and contiguous counties techniques and control for varying local economic conditions and demographics. We find that banks contract credit supply to consumers in counties highly exposed to opioid abuse by offering higher interest rates, lower credit card limits, and fewer rewards and reducing credit offers overall. Further analyses using the supervisory Federal Reserve Y-14M credit card data set confirm these effects. What is more, the credit contraction disproportionately impacts riskier consumers, minorities (particularly Black people), low-income consumers, and younger individuals. Our examination of various state-level anti-opioid abuse legislation shows that opioid supply-oriented laws are somewhat helpful in curbing opioid overdoses or mitigating the credit supply contraction, but demand-oriented laws are not. Finally, we uncover the real effects associated with the opioid abuse-induced credit contraction: Local consumer spending significantly declines in the highly affected areas, with important macro-policy implications. |
| Keywords: | Opioid Epidemic; Household Finance; Credit Supply; Spending; Risk |
| JEL: | G01 G28 D10 D12 E58 |
| Date: | 2023–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97380&r=ban |
| By: | Ceglar, Andrej; Boldrini, Simone; Lelli, Chiara; Parisi, Laura; Heemskerk, Irene |
| Abstract: | Biodiversity – the variety of life on Earth – is essential for sustaining the healthy ecosystems that our economy and banks depend on. Despite the clear benefits of a healthy natural world for people and the economy, humanity is putting immense pressure on nature and biodiversity. Economic activities that rely on healthy nature are often responsible for generating environmental pressures. It is important to assess the impact that firms and financial institutions have on nature degradation, in order to reveal their exposure to transition risk and highlight the need to move towards an economic system that values nature, rather than putting it at risk. This study analyses the contribution of euro area economic activities – and the bank loans provided to enable them – to biodiversity loss by estimating biodiversity footprints. The datasets we use account for approximately €4.3 trillion in corporate loans to around 4.2 million companies located in the euro area, issued by more than 2, 500 unique consolidated euro area banks. Considering two primary drivers of biodiversity loss (land-use change and climate change), the results show that the economy has had a significant impact on biodiversity, equivalent to the loss of 582 million hectares of “pristine” natural areas worldwide. Even though the impact on biodiversity is highest in Europe, the supply chains of companies are important determinants of their indirect biodiversity footprint worldwide. Asia and Africa have the largest areas impacted by activities that take place in company supply chains. Additionally, financing of economic activities with a high global impact on nature is concentrated: the ten banks with the highest financing share are responsible for financing around 40% of the total global impact of euro area firms. [...] JEL Classification: C55, G21, G38, Q5 |
| Keywords: | biodiversity loss, climate-nature nexus, economy, impact, input-output table, materiality score, nature degradation |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2023335&r=ban |
| By: | Paul De Grauwe; Yuemei Ji |
| Abstract: | The major central banks now operate in a regime of abundance of bank reserves. As a result, they can only raise the money market rate by increasing the rate of remuneration of bank reserves. This, in turn, leads to large transfers of the central banks’ profits (and more) to commercial banks that will become unsustainable and makes the transmission of monetary policies less effective. We propose a two-tier system of reserve requirements that would only remunerate the reserves in excess of the minimum required. This would drastically reduce the giveaways to banks, allow the central banks to maintain their current operating procedures and make monetary policies more effective in fighting inflation. |
| Keywords: | monetary policy, bank reserves, minimum reserve requirements |
| JEL: | E52 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10741&r=ban |
| By: | Mr. Mauricio Vargas; Jesus Sanchez |
| Abstract: | With some of the most significant levels of financial dollarization in the Western Hemisphere, Uruguay is characterized by extensive dollarization in both deposits and loans. While traditional factors like high inflation and substantial devaluations have been associated with such outcome, the enduring nature of dollarization in Uruguay also underscores the importance of structural elements. In formulating a holistic strategy to reduce dollarization, not only should there be an enhancement of the monetary policy framework aimed at maintaining low, stable inflation, but it should also consider the calibration of prudential policies such as currency-differentiated reserve requirements and foreign-currency credit repos. |
| Keywords: | Dollarization; Prudential Policies; Monetary Policy; Uruguay; Peru. |
| Date: | 2023–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/244&r=ban |
| By: | Matteo Foglia (Department of Economics and Finance, University of Bari ``Aldo Moro", Italy); Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Elie Bouri (School of Business, Lebanese American University, Lebanon) |
| Abstract: | Measuring risk lies at the core of the decision-making process of every financial market participant and monetary authority. However, the bulk of literature treats risk as a function of the second moment (volatility) of the return distribution, based on the implicit unrealistic assumption that asset return are normally distributed. In this paper, we depart from centred moments of distribution by examining risk spillovers involving robust estimates of second and third moments of model-implied distributions of stock returns derived from the quantile autoregressive distributed lag mixed-frequency data sampling (QADL-MIDAS) method. Using a century of data on the stock indices of the G7 and Switzerland over the period May 1917 to February 2023 and applying the multilayer approach to spillovers, we show the following. Firstly, the risk spillover among stock markets is significant within each layer (i.e. volatility and skewness) and across the two layers. Secondly, geopolitical risks have the power to shape both risk layer values, based on an out-of-sample forecasting exercise involving machine-learning methods. Interestingly, the multi-layer approach offers a comprehensive and nuanced view of how risk information is transmitted across major stock markets, while global measures of geopolitical risk affect risk spillovers at shorter horizons up to 6 months, while, at longer horizons, the forecasting exercise is dominated by market-specific characteristics. |
| Keywords: | Risk spillover, advanced stock markets, multi-layer spillover approach, machine learning, geopolitical risks, forecasting |
| JEL: | C22 C32 C53 G15 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202337&r=ban |
| By: | Anusha Chari; Karlye Dilts Stedman; Christian Lundblad |
| Abstract: | This paper defines risk-on risk-off (RORO), an elusive terminology in pervasive use, as the variation in global investor risk aversion. Our high-frequency RORO index captures time-varying investor risk appetite across multiple dimensions: advanced economy credit risk, equity market volatility, funding conditions, and currency dynamics. The index exhibits risk-off skewness and pronounced fat tails, suggesting its amplifying potential for extreme, destabilizing events. Compared with the conventional VIX measure, the RORO index reflects the multifaceted nature of risk, underscoring the diverse provenance of investor risk sentiment. Practical applications of the RORO index highlight its significance for international portfolio reallocation and return predictability. |
| JEL: | F21 F31 F36 G11 G15 G17 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31907&r=ban |
| By: | Georgiadis, Georgios; Jarociński, Marek |
| Abstract: | We estimate spillovers from US monetary policy for different measures in the Federal Reserve’s toolkit. We make use of novel measures of exogenous variation in conventional rate policy, forward guidance and large-scale asset purchases (LSAPs) based on high-frequency asset-price surprises around Federal Open Market Committee meetings. The identification relies on relatively weak assumptions and accounts for the possible presence of residual endogenous components—such as central bank information effects—in these monetary policy surprises. We find that: (i) forward guidance and LSAPs trigger much larger spillovers than conventional rate policy; (ii) spillovers transmit predominantly through financial channels centering on global investors’ risk appetite and manifest in changes in equity prices, bond spreads, capital flows and the dollar exchange rate; (iii) LSAPs trigger immediate international portfolio re-balancing between US and advanced-economy bonds, but generally entail only rather limited term premium spillovers;(iv) both forward guidance and LSAPs entail trade-offs for emerging-market-economy central banks, either between stabilizing output and prices or between additionally ensuring financial stability in terms of capital inflows. JEL Classification: F42, E52, C50 |
| Keywords: | central bank information effects, high-frequency identification, Monetary policy spillovers, US monetary policy shocks |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232881&r=ban |
| By: | Felix F. Simione; Tara S Muehlschlegel |
| Abstract: | Will mobile money render cash less dominant over time in Africa? Can it promote financial inclusion? We shed light on these questions by exploring individual-level and nationally representative survey data for Uganda, a country in a region that pioneered mobile money in the world. We use the Propensity Score Matching method to robustly compare mobile money users and non-users across a range of indicators that capture individuals’ perceptions about cash, and the extent to which they remit, save, and borrow money. We present the first evidence that mobile money users, compared to non-users, are more likely to perceive cash as risky and less likely to prefer carrying large amounts of cash. We also confirm that mobile money users are more likely to receive and send remittances, save, and borrow. They also save and borrow larger amounts. |
| Keywords: | Developing Country; Innovation; Digital Divide |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/238&r=ban |
| By: | Thomas M. Mertens; Tony Zhang |
| Abstract: | This paper solves a standard New Keynesian model in terms of risk-neutral expectations and estimates it using a cross-section of longer-dated financial assets at a single point in time. Inflation risk premia appear in the theory and cause inflation to deviate from its target on average. We re-estimate the model based on each day’s closing prices to capture high-frequency changes in the expected path of the economy. Our estimates show that financial markets reacted to the post-COVID surge in inflation with higher short-run inflation expectations, an increase in the inflation risk premium, and an increase in the long-run neutral real rate, 𝑟∗, while long-term inflation expectations remained well anchored. Our model produces long term inflation forecasts that outperform several standard alternative measures. |
| Keywords: | Keynesian models; financial markets; covid19; inflation forecasts |
| Date: | 2023–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97341&r=ban |
| By: | Mr. Vimal V Thakoor; Engin Kara |
| Abstract: | As climate change intensifies, the frequency and severity of climate-induced disasters are expected to escalate. We develop a New Keynesian Dynamic Stochastic General Equilibrium model to analyze the impact of these events on monetary policy. Our model conceptualizes these disasters as left-tail productivity shocks with a quantified likelihood, leading to a skewed distribution of outcomes. This creates a significant trade-off for central banks, balancing increased inflation risks against reduced output. Our results suggest modifying the Taylor rule to give equal weight to responses to both inflation and output growth, indicating a gradual approach to climateexacerbated economic fluctuations. |
| Keywords: | Climate change; monetary policy; fiscal policy; Taylor rule |
| Date: | 2023–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/243&r=ban |
| By: | Nicola Cetorelli; Sarah Zebar |
| Abstract: | March 2023 will rightfully be remembered as a period of major turmoil for the U.S. banking industry. In this post, we go beyond banks to analyze how fixed-income, open-end funds (bond funds) fared in the days after the start of the banking crisis. We find that bond funds experienced net outflows each day for almost three weeks after the run on Silicon Valley Bank (SVB), and that these outflows were experienced diffusely across the entire segment. Our preliminary evidence suggests that the outflows from bond funds may have been an unintended consequence of the exceptional measures taken to strengthen the balance sheet of banks during this time. |
| Keywords: | Silicon Valley Bank (SVB); Bank Term Funding Program (BTFP) |
| JEL: | G2 |
| Date: | 2023–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:97381&r=ban |
| By: | Jiro Sugie (Bank of Japan); Junichiro Hatogai (Bank of Japan) |
| Abstract: | In recent years, central banks of various countries have conducted experiments to distribute wholesale CBDC using DLT. Underlying these developments are the growing momentum for upgrading existing payment systems and efforts by the private sector to provide new payment services. A closer look at the experiments confirms a broadening of the focus areas covered by the experiments, from payments to securities settlement and cross-border settlement. While the findings of these experiments suggest that the introduction of wholesale CBDC has the potential to bring about improvements including the shortening of long transaction chains and the reduction of costs, they also point to further needs, such as adjusting the rules for establishing a distribution platform that spans multiple countries and examining the macroeconomic impact of the introduction of such a platform. Meanwhile, as an approach that does not involve the establishment of a DLT platform or the introduction of wholesale CBDC, there are moves to improve payments by enhancing and utilizing existing payment and settlement systems. It is important to continue to carefully monitor these developments and work closely with relevant parties both at home and abroad |
| Date: | 2023–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev23e09&r=ban |
| By: | Michal MarenÄ ák (National Bank of Slovakia) |
| Abstract: | This paper shows that the impact of inflation expectations on consumption depends on prevailing inflation. Beyond the quantitative-qualitative distinction in inflation expectations, differentiating among qualitative expectations of higher, constant, or positive inflation is key. Qualitative expectations have a greater impact on consumption than expected levels and changes in inflation, and the significance of specific qualitative expectations is contingent upon the prevailing inflation conditions. The effect of expecting qualitatively higher inflation on the willingness to consume is more pronounced during periods of inflation surges than in times of low and stable inflation, and is insignificant during periods of decline or deflation. Policy implications are discussed. |
| JEL: | D1 D8 E2 E3 E5 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1102&r=ban |
| By: | Juhana Hukkinen (Monetary Policy and Research Department of Bank of Finland); Matti Viren (Monetary Policy and Research Department of Bank of Finland & Economics Department of University of Turku) |
| Abstract: | The failure to predict the surge in inflation in 2021 raises questions about whether we are better equipped to anticipate a future decline in inflation. What tools do we intend to use for predicting the trajectory of inflation? Are we still primarily relying on survey data regarding inflation expectations, and are we still employing a Calvo-type structure to model inflation, in which only the intensive margin (the size of price increases) adjusts in response to changes in demand and supply? We would like to emphasize that our highly disaggregated consumer price data for the Euro area, consisting of 280 commodity categories, strongly suggests that price increases (inflation) are influenced not only by aggregate trends but also by sector-specific developments that result in state-dependent price adjustments. These factors may lead to more volatile fluctuations in the inflation rate. Furthermore, these reactions do not appear to be entirely symmetric when it comes to rising and falling inflation. When the inflation rate is close to zero, the role of state-dependent pricing is diminished, and nonlinearities become less significant. |
| Keywords: | inflation, state-dependent pricing, menu costs |
| JEL: | D22 E31 F41 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp163&r=ban |
| By: | Iñaki Aldasoro; Perry Mehrling; IDaniel H. Neilson |
| Abstract: | This paper presents a money view analysis of the recent crypto innovation of stablecoins, which have seen a remarkable rise and more recently some spectacular collapses. By analogizing on-chain with offshore, and developing an extended analogy of stablecoins with Eurodollars, we reveal the primitive character of the existing on-chain liquidity mechanism which supports the promise of par settlement by existing on-chain stablecoin models. Liquidity, not solvency, is the issue confronted by par settlement. |
| Keywords: | stablecoins, Eurodollar, forward market, dealer function, liquidity |
| JEL: | E42 F33 G21 G23 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1146&r=ban |
| By: | Elizondo Rocío |
| Abstract: | This document estimates for México the three intelligible factors of the yield curve considered in Lengwiler and Lenz (2010), for the period 2001-2019. These factors are related to interest rates of different maturities and are identified as the long, short and curvature factors. The most important results highlight that the long and short factors have their greatest influence on the longest- and shortest-term rates, respectively. In addition, their trajectories are related with the 10-year rate and the bank funding rate. On the other hand, the curvature factor weighs most in the 3- to 24-months and its dynamics is similar to the expectation of the short-term rate estimated for Mexico. Thus, factor can be considered as an indicator of monetary policy expectations. Furthermore, the results found for México are similar to the stylized facts found for advanced economies from 1999 to 2010. For an extended sample until 2021, the results remain unchanged. |
| Keywords: | Intelligible factors;yield curve;state-space models |
| JEL: | C13 C31 E43 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2023-13&r=ban |
| By: | Huifeng Chang; Federico Grinberg; Lucyna Gornicka; Mr. Marcello Miccoli; Brandon Tan |
| Abstract: | Would the introduction of a Central Bank Digital Currency (CBDC) lead to lower deposits (disintermediation) and lending in the banking sector? This paper develops a model where households heterogeneous in wealth allocate between an illiquid asset and assets that can be used for payments: bank deposits, cash, and CBDC. CBDC is more efficient as a means of payment and has lower access cost than deposits. Deposits are offered by an imperfectly competitive banking sector which raises deposit interest rates after CBDC introduction to prevent substitution away from deposits to CBDC. We find that there are two opposing margins of impact on the level of aggregate deposits: (1) the intensive margin gain in deposits by richer households increasing their holdings of deposits because of higher interest rates, and (2) the extensive margin loss of deposits among poorer households who switch from deposits to the CBDC. The extensive margin loss in deposits is more likely to dominate (yielding a fall in aggregate deposits) when the mass of poorer households is large and when it is relatively costly to access bank accounts. This tends to be the case in developing and emerging market economies. However, even when the extensive margin loss of deposits dominates and there is disintermediation, the impact on lending is quantitatively small if banks have access to other forms of funding, such as wholesale or central bank financing. |
| Keywords: | CBDC; banking disintermediation; financial inclusion; monetary policy |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/236&r=ban |
| By: | Vivek Sharma |
| Abstract: | Using a Two-Agent RBC model with time-varying shock to loan-to-value (LTV) ratios, I show that including housing (real estate or land) in the entrepreneurial production function has profound implications for results. In a model in which housing does not play a role as a production input, an LTV tightening has starkly different effects compared to a model in which it is a factor in the production process. In a setup devoid of a role for housing as a production input, differently from the results in the current literature, an LTV tightening leads to a spike in housing price at impact and a lesser fall afterwards. Other macroeconomic variables such as investment and output fall more at lower initial LTV ratios than at higher steady state LTV ratios. The findings of this paper indicate that housing plays an important role in shaping macroeconomic effects of LTV shocks. |
| Keywords: | Loan-to-Value (LTV) Shocks, Housing in the Production Function, Macroeconomic Fluctuations |
| JEL: | E32 E44 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-62&r=ban |
| By: | Mansur, Alfan; Nizar, Muhammad Afdi |
| Abstract: | Supply-leading theory predicts that the financial sector development precedes economic development while demand-following theory believes that the economy should develop, then the financial sector follows. This study exploits the financial sector and economic development relationship in a data-rich environment. Besides the depth, financial access and efficiency are also vital in the financial sector development. We employ a FAVAR model using 22 financial development indicators and 12 economic variables of the monthly Indonesian data series 2015M1-2023M6. Our empirical results reveal the bi-causal relationships between the financial sector and economic development. Then, whether the relationship is more demand-following or supply-leading depends on the measures used and the time trajectory. While an expansion in real GDP seems to have a more persistent impact on the development of financial institutions such as the banking and insurance sectors (demand-following relationship), the supply-leading relationship is influential in the short run. We also find that boosting access to credit and both stock and bond markets provokes economic activities. In addition, the increasing usage of electronic money encourages more consumption of imported goods than domestic goods. |
| Keywords: | financial sector, economic activities, demand, supply, FAVAR |
| JEL: | C11 C38 C55 E44 G10 G18 G21 G28 |
| Date: | 2023–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119132&r=ban |
| By: | Sami Ben Naceur; Bertrand Candelon; Mr. Selim A Elekdag; Drilona Emrullahu |
| Abstract: | This paper examines how the growing presence of FinTech firms affects the performance of traditional financial institutions. The findings point to a negative impact on profitability, primarily due to a reduction in interest income and a rise in operational costs. Although established financial institutions have tried to diversify their revenue streams, these efforts have proven inadequate to offset the losses associated with increased competition from FinTech firms. Our study also reveals that various FinTech business models, such as Peer-to-Peer (P2P) lending and Balance Sheet lending, have varying effects on financial institutions. Cooperative banks experience more significant profit deterioration under both models, whereas (larger) commercial banks appear to benefit from partnerships with P2P platforms, as evidenced by an increase in non-interest income. Furthermore, the findings suggest that FinTech presence has a disproportionately larger adverse effect on banks in countries with more competitive, profitable, and developed financial systems. Interestingly, however, traditional financial institutions in countries with stronger regulatory frameworks appear to benefit from the expanding influence of FinTech firms. |
| Keywords: | fintech; bank profitability; competition; business models |
| Date: | 2023–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2023/239&r=ban |
| By: | NAKAJIMA, Jouchi |
| Abstract: | This study uses the Bank of Japan's Tankan (Short-Term Economic Survey of Enterprises in Japan) data to estimate the long-run time series of Japanese firms' inflation expectations since 1990. In the Tankan, the series for "consumer price inflation expectations" and "output price inflation expectations" go back to 2014, while that for "output price DI" features a longer time series. Using the relationship between these series for 2014–2022, we estimate the one-year ahead consumer price inflation expectations for 1990–2013 based on the output price DI. The firms' inflation expectations obtained are found to have information that improves forecast accuracy when forecasting consumer price inflation, which is not included in the lag in inflation or the output gap, and enhances forecast accuracy more than economists' inflation expectations. |
| Keywords: | Inflation expectations, Output price expectations, Tankan |
| JEL: | C22 E31 E37 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:749&r=ban |
| By: | Gulnara Nolan (Reserve Bank of Australia); Jonathan Hambur (Reserve Bank of Australia); Philip Vermeulen (University of Canterbury, New Zealand) |
| Abstract: | We provide new evidence on the effect of monetary policy on investment in Australia using firm-level data. We find that contractionary monetary policy makes firms less likely to invest and lowers the amount they invest if they do so. The effects are similar for young and old firms, indicating that the decline in the number of young firms in Australia over time is unlikely to have weakened the effect of monetary policy. The effects are also broadly similar for smaller and larger firms. This suggests that evidence that some, particularly large, firms have sticky hurdle rates does not mean that they do not respond to monetary policy. It also suggests that overseas findings that expansionary monetary policy lessens competition by supporting the largest firms likely do not apply to Australia. We find evidence that financially constrained firms, and sectors that are more dependent on external finance, are more responsive to monetary policy, highlighting the important role of cash flow and financing constraints in the transmission of monetary policy. Finally, we find evidence that monetary policy affects firms' actual and expected investment contemporaneously, suggesting that expectations are reactive and will tend to lag over the cycle. |
| Keywords: | investment; monetary policy; financial constraints |
| JEL: | E22 E52 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2023-09&r=ban |
| By: | Herrmann-Fankhänel, Anja; Lay-Kumar, Jenny |
| Abstract: | In dieser Studie, die für und gemeinsam mit dem Sustainable Finance Beirat der Bundesregierung erstellt wurde, wurden Expertinnen und Experten in Interviews darum gebeten, aktuelle Finanzprodukten und deren Einsatzmöglichkeiten für KMUs im Rahmen nachhaltigen Wirtschaftens einzuschätzen. Insbesondere deren Haltedauer, Renditeerwartungen und Wirkung wird adressiert. Insgesamt wurden 18 Interviews mit Vertreterinnen und Vertretern der Rubriken Investoren (3), Asset Manager (9), Versicherer (2), Asset Owner (2) und öffentliche Institutionen (2) geführt. Es werden Rahmenbedingungen nachhaltiger Finanzprodukten systemisch aufgearbeitet für Kunde- und Finanzierer-Beziehungen, die Realwirtschaft, der Finanzmarkt und die landes-, bundes- und EU-weiten Rahmenbedingungen. Außerdem werden Handlungsempfehlungen ausgewiesen. Es wurde in den Interviews deutlich, dass an Sutainable Finance Instrumente nahezu identische Erwartungen bestehen wie zu klassischen Finanzinstrumenten und eine konsistente Definition zu ESG-Performance gefordert wird, welche für KMUs vereinfacht und vereinheitlich werden sollte. Außerdem wurde die Perspektive für ESG-Finanzierungen als "new normal" eröffnet, wobei Anreize und Regulatorik verknüpft werden sollten, um Marktverzerrung entgegenzuwirken. |
| Abstract: | In this study, which was prepared for and together with the Sustainable Finance Advisory Board of the Federal Government, experts were asked in interviews to assess current financial products and their possible uses for SMEs in the context of sustainable business. In particular, their holding period, expected returns and impact were addressed. A total of 18 interviews were conducted with representatives from the categories of investors (3), asset managers (9), insurers (2), asset owners (2) and public institutions (2). The framework conditions for sustainable financial products are analyzed systemically for customer and financier relationships, the real economy, the financial market and the state, federal and EU-wide framework conditions. Recommendations for action are also identified. It became clear in the interviews that the expectations of sustainable finance instruments are almost identical to those of traditional financial instruments and that a consistent definition of ESG performance is required, which should be simplified and standardized for SMEs. In addition, the prospect of ESG financing as the "new normal" was opened up, whereby incentives and regulation should be linked to counteract market distortion. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tucitm:280406&r=ban |
| By: | Qionghua Chu |
| Abstract: | In the inverted yield curve environment, whether the sixteen SDGs set up by the United Nations could be realized by 2030 sparks interesting considerations. Meanwhile, as the Reserve Bank of New Zealand is considering the potential issuance of the CBDC, the boost to SDG 8 - decent work and economic growth, as examined from the perspectives of Cobb-Douglas production function, growth accounting relation from Solow, and Theory of Aggregate Demand from Keynes, intrigues further analysis. How twelve targets of SDG 8 could be achieved with the possible issuance of the CBDC in the backdrop is analyzed. Despite the inverted yield curve, bright prospects exist for New Zealand to realize SDG 8 with the issuance of the CBDC in mind. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.06718&r=ban |