|
on Banking |
| By: | Dávila-Ospina, Andrés O. (Universidad de los Andes) |
| Abstract: | What would happen if the central bank makes a mistake facing a crisis? This paper argues that it would leave scars in the long-run trend of production. If monetary policy is not expansionary-enough during crises, an inefficient rise of the interest rate intensifies the scarring effects of recessions. The hysteresis effect comes from higher innovation costs that induce a drop in productivity growth, an indiscriminate firms’ exit process, and a rise in unemployment. This article presents a theoretical model that rationalizes these mechanisms. The theory suggests that, in the longrun, even though growth recovers to its pre-shock rate and the economy converges to full firms’ survival and full employment, the long-term output level is persistently lower than the level it would have reached in the absence of errors. |
| Keywords: | Hysteresis; Monetary Policy; Endogenous Growth; Productivity; Firms’ Exit; Unemployment. |
| JEL: | E52 E58 O11 O40 O41 O42 O47 |
| Date: | 2023–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:021003&r=ban |
| By: | Michael D. Bordo; Edward S. 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. |
| JEL: | B0 E58 G28 H1 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31915&r=ban |
| By: | Benedict Guttman-Kenney; Paul D. Adams; Stefan Hunt; David Laibson; Neil Stewart; Jesse Leary |
| Abstract: | We run a field experiment and a survey experiment to study an active choice nudge. Our nudge is designed to reduce the anchoring of credit card payments to the minimum payment. In our field experiment, the nudge reduces enrollment in Autopaying the minimum from 36.9% to 9.6%. However, the nudge does not reduce credit card debt after seven payment cycles. Nudged cardholders tend to choose Autopay amounts that are only slightly higher than the minimum payment. The nudge lowers Autopay enrollment resulting in increasing missed payments. Finally, the nudge reduces manual payments by cardholders enrolled in Autopay. |
| JEL: | G5 H0 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31926&r=ban |
| By: | Andrea Bellucci (Universita' degli Studi dell'Insubria and Mo.Fi.R.); Gianluca Gucciardi (Universita' degli Studi di Milano-Bicocca) |
| Abstract: | This study investigates the impact of the COVID-19 pandemic on the European banking system, focusing on lending activities and risk-taking behavior. We use a difference-in-differences (DID) approach to compare the performance of banks highly impacted by the pandemic with those operating in less affected countries. Our results indicate a negative impact on lending activities, as banks reduced their exposure to both individuals and businesses. Nonetheless, the impact on banks' risk-taking was heterogeneous, as certain banks increased their risks taking by relaxing their lending standards in order to support their borrowers, while others adopted stricter lending criteria. The reduction in total lending observed for the entire banking system is primarily drive by less capitalized banks and those with limited access to public guarantees schemes. Different characteristics, such as size, profitability, and listing status, led to varied lending behaviors during the COVID-19 pandemic, with smaller and more profitable banks exhibiting greater resilience. In summary, our findings suggest that the COVID-19 pandemic has significantly impacted the European banking system, resulting in decreased lending activities and a varied effect on risk. |
| Keywords: | Banks; Finance; Risks; Lending activities; Financial Crisis; Pandemic |
| JEL: | G21 G22 G23 G24 F3 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:183&r=ban |
| By: | Yoosoon Chang; Fabio Gómez-Rodríguez; Christian Matthes |
| 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 |
| JEL: | E50 E62 G10 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-65&r=ban |
| By: | Andrea Auconi |
| Abstract: | A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks' states, the interaction correction to the stress expectation is derived and studied on the short-medium timescale in an expansion. It is shown that, while different interaction matrices can amplify or absorb fluctuations, on average interactions increase the stress expectation. More in general, this analytical framework enables to estimate the impact of uncertainty about financial exposures, and to draw conclusions about the importance of disclosure. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.17875&r=ban |
| By: | Jongrim Ha (World Bank, Prospects Group); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR, and CAMA); Franziska Ohnsorge (World Bank, South Asia Region, CEPR, and CAMA); Hakan Yilmazkuday (Florida International University) |
| Abstract: | This paper examines the drivers of fluctuations in global inflation, defined as a common factor across monthly headline consumer price index (CPI) inflation in G7 countries, over the past half-century. We estimate a Factor-Augmented Vector Autoregression model where a wide range of shocks, including global demand, supply, oil price, and interest rate shocks, are identified through narrative sign restrictions motivated by the predictions of a simple dynamic general equilibrium model. We report three main results. First, oil price shocks followed by global demand shocks explained the lion’s share of variation in global inflation. Second, the contribution of global demand and oil price shocks increased over time, from 56 percent during 1970-1985 to 65 percent during 2001-2022, whereas the importance of global supply shocks declined. Since the pandemic, global demand and oil price shocks have accounted for most of the variation in global inflation. Finally, oil price shocks played a much smaller role in global core CPI inflation variation, for which global supply shocks were the main source of variation. These results are robust to various sensitivity exercises, including alternative definitions of global variables, different samples of countries, and additional narrative restrictions. |
| Keywords: | Oil prices; demand shocks; supply shocks; interest rate shocks. |
| JEL: | E31 E32 Q43 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2310&r=ban |
| By: | Anne Beck; Sebastian Doerr |
| Abstract: | An increasing number of policies addresses spatial inequality, which is believed to lie at the heart of economic and social cleavages, including entrenched poverty, deaths of despair, and political polarization. Yet little is known about the origins of the gap between prospering urban and "left-behind" rural areas that has emerged since the 1980s. We provide new evidence on the role of banking deregulation in explaining this rural-urban divergence in incomes. In particular, we show that the income gap widened following the removal of geographic restrictions on banking. While deregulation promoted an overall increase in incomes, the increase was significantly larger in urban counties. We show that this is due to increased competition in the banking industry in cities post deregulation. Competition benefited financially constrained small and young firms, thereby boosting employment and incomes in urban areas. Our findings inform the debate on regional inequality and the design of place-based policies. |
| Keywords: | banking deregulation, credit supply, income inequality, regional inequality |
| JEL: | G21 R10 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1151&r=ban |
| By: | Xihan Xiong; Zhipeng Wang; Tianxiang Cui; William Knottenbelt; Michael Huth |
| Abstract: | Technological advancement drives financial innovation, reshaping the traditional finance landscape and redefining user-market interactions. The rise of blockchain and Decentralized Finance (DeFi) underscores this intertwined evolution of technology and finance. While DeFi has introduced exciting opportunities, it has also exposed the ecosystem to new forms of market misconduct. This paper aims to bridge the academic and regulatory gaps by addressing key research questions about market misconduct in DeFi. We begin by discussing how blockchain technology can potentially enable the emergence of novel forms of market misconduct. We then offer a comprehensive definition and taxonomy for understanding DeFi market misconduct. Through comparative analysis and empirical measurements, we examine the novel forms of misconduct in DeFi, shedding light on their characteristics and social impact. Subsequently, we investigate the challenges of building a tailored regulatory framework for DeFi. We identify key areas where existing regulatory frameworks may need enhancement. Finally, we discuss potential approaches that bring DeFi into the regulatory perimeter. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.17715&r=ban |
| By: | Nevermann, Daniel; Heckmann, Lotta |
| Abstract: | Despite the ongoing consolidation trend in the banking industry and the attention some mergers (in particular between large banks) have been receiving, there is no consistent picture of the impact of mergers on the stability of the financial system. In this paper, we aim to provide a universal framework to study the generic effect of mergers and acquisitions on the resilience of financial systems based on different network models. We investigate the impact of a wide variety of model assumptions, e.g. connectivity, contagion channel and the merger process, on different static and dynamic stability measures. We provide a range of theoretical results highlighting the mechanisms that influence systemic risk in consolidated financial systems. Our main finding is that merger activities can stabilize or destabilize the modelled financial network, depending on various details such as the connectivity of the network and the assumed merger process. Merger activities can increase diversification of single banks and support their resilience to shocks, and may slow down contagious default. However, merger activities can also decrease stability if, for example, the network is driven into the contagion window or insufficiently stable banks emerge in key positions in the network. |
| Keywords: | Financial network model, Mergers and Acquisitions, Financial Stability, Contagion |
| JEL: | G01 G21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:280415&r=ban |
| By: | Chao Gu (University of Missouri); Janet Hua Jiang (Bank of Canada); Liang Wang (University of Hawaii) |
| Abstract: | We study the effects of the firm's credit condition on labor market performance and the relationship between expected inflation and unemployment in a new monetarist model. Better credit condition improves labor market outcomes as fi rms save on their cash financing cost, improve pro tability, and create more vacancies. Inflation affects unemployment through two opposing channels. First, inflation increases the firm's fi nancing cost, which discourages job creation and increases unemployment. Second, inflation lowers wages through bargaining because unemployed workers more heavily rely on cash transactions and suffer more from inflation compared to employed workers. This encourages job creation. The overall effect of inflation on employment depends on the firm's credit condition. We calibrate the model to match U.S. data. The calibrated model suggests a downward-sloping Phillips curve with flexible wages. Finally, we fi nd that improvement in firm credit conditions is consistent with the flattening of the Phillips curve. |
| Keywords: | toxic assets, market freezes, negative returns, liquidity |
| JEL: | E24 E31 E44 E51 |
| Date: | 2023–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:2314&r=ban |
| By: | Jana Hlavinova; Birgit Rudloff; Alexander Smirnow |
| Abstract: | In recent years, it has become apparent that an isolated microprudential approach to capital adequacy requirements of individual institutions is insufficient. It can increase the homogeneity of the financial system and ultimately the cost to society. For this reason, the focus of the financial and mathematical literature has shifted towards the macroprudential regulation of the financial network as a whole. In particular, systemic risk measures have been discussed as a risk measurement and mitigation tool. In this spirit, we adopt a general approach of multivariate, set-valued risk measures and combine it with the notion of intrinsic risk measures. In order to define the risk of a financial position, intrinsic risk measures utilise only internal capital, which is received when part of the currently held assets are sold, instead of relying on external capital. We translate this methodology into the systemic framework and show that systemic intrinsic risk measures have desirable properties such as the set-valued equivalents of monotonicity and quasi-convexity. Furthermore, for convex acceptance sets we derive a dual representation of the systemic intrinsic risk measure. We apply our methodology to a modified Eisenberg-Noe network of banks and discuss the appeal of this approach from a regulatory perspective, as it does not elevate the financial system with external capital. We show evidence that this approach allows to mitigate systemic risk by moving the network towards more stable assets. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.14588&r=ban |
| By: | Mikes, Anette; Power, Michael |
| Abstract: | We use content analysis to show that the diagnosis of the financial crisis of 2007–2009 shifted significantly from a focus on the need for structural change in the banking industry to an emphasis on culture and reform at the organizational level. We consider four overlapping subsystems in which this shift in problem–solution clusters played out—political, regulatory, legal, and consulting—and show that the “structural reform agenda, ” which was initially strong and publicly prominent in the political arena, lost attention. Over time it was displaced by a neoliberal managerialist turn, which watered down or abandoned structural solutions and instead played up a new “culture and conduct reform agenda.” We explain this shift in terms of the marketization of regulation, which—following Mautner (Language and the market society, 1st ed. Routledge, 2010)’s model of interdiscursive alignment—we detect in the shifting language of financial-services reform across the four subsystems in scope. We argue that a neoliberal turn took place with a discursive closure that made the structural reform alternative gradually unsayable and, in the end, unthinkable. At the same time, the discourse turned to embrace the neoliberal agenda, built on the myth of self-regulating actors and markets, manifest in the culture problematic. This managerialist turn was able to mobilise, and be operationalised by, an industry of consultants, whereas structural change came to be seen by regulators as too risky to implement. We claim that these dynamics reveal how a form of “collective strategic ignorance, ” based on powerful institutional myths, was systematically oriented to ignore and reject structural sources of crisis. Finally, we suggest that the observed pattern of displacement—whereby initial calls for structural change become later displaced by managerial and procedural solutions—is common to other social issues, such as audit reform and corporate social responsibility. |
| Keywords: | neoliberal institutional myths; marketization; culture; risk culture; financial crisis; regulation; social problems |
| JEL: | E50 |
| Date: | 2023–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120300&r=ban |
| By: | Nobuhiro Abe (Bank of Japan); Yusuke Kawasumi (Bank of Japan); Yutaro Takano (Bank of Japan); Tomomi Naka (Bank of Japan); Naohisa Hirakata (Bank of Japan); Kohei Matsumura (Bank of England); Ko Munakata (Bank of Japan) |
| Abstract: | The use of scenario analysis for climate-related financial risks is progressing in various jurisdictions. In this paper, we conduct a top-down scenario analysis of transition risk for Japanese banks. We analyze a short-term (5-year) scenario, while long-term scenarios of about 30 years are often used in climate-related scenario analysis. In our analysis, we examine two cases regarding the extent to which firms adjust smoothly to carbon price increases: a smooth adjustment case and a slow adjustment case. In addition, we use a multi-sector dynamic general equilibrium model to account for inter-industry spillovers. There are two main findings of this paper. First, we find that the degree of firms' adjustment leads to substantial differences in credit cost ratios of banks. This suggests the importance of accounting for the degree of adjustment to carbon price increases. Second, we find that the carbon price increase not only has an impact on the directly affected key sectors, but also spreads indirectly to other sectors through inter-industry linkages, resulting in an increase in the credit cost ratio. This suggests that even regional banks with relatively small exposure to key sectors need to pay close attention to the transition risk. |
| Keywords: | Banks' stability; Macro stress test; Climate change; Transition risks; Carbon tax |
| JEL: | E10 E17 E44 E47 E65 F20 G10 G21 G28 G38 Q54 |
| Date: | 2023–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojron:ron231221a&r=ban |
| By: | Eric Paget-Blanc (UEVE - Université d'Évry-Val-d'Essonne, LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]); Phu Dao-Le Flécher (UEVE - Université d'Évry-Val-d'Essonne, LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]) |
| Abstract: | The article examines whether the new provisioning rules help to reduce the procyclicality of provisions, based on the Covid-19 crisis. The increased flexibility granted by accounting standards for credit loss provisions has been exacerbated by the measures taken by regulators to mitigate the impact of the crisis. From a sample of 94 listed European and American banks, we find that in 2020, impaired loans decreased and provisions for credit losses only slightly increased for European banks, despite the significant decrease of GDP. We conclude that IFRS 9, based on the expected credit losses and associated with regulatory easing measures in times of crisis, contributes to the reduction of the procyclicality of provisions. |
| Abstract: | L'article vise à déterminer si les nouvelles règles de provision permettent de réduire le caractère procyclique des provisions, en se fondant sur la crise de la Covid-19. La discrétion accrue en matière de provision a été exacerbée par les mesures prises par les régulateurs pour limiter l'impact de la crise. A partir d'un échantillon de 94 banques européennes et américaines cotées, nous constatons qu'en 2020, les encours à risque ont diminué et les dépréciations pour risque de crédit n'ont que légèrement augmenté en Europe, malgré la diminution sensible du PIB. Nous concluons que la norme IFRS 9, fondée sur l'approche par les pertes de crédit attendues et associée à des mesures d'assouplissement réglementaires en période de crise, permet de réduire la procyclicité des provisions. |
| Keywords: | IFRS 9, Provisions, Expected Credit Losses (ECL), Covid-19, Regulatory measures, Pertes de crédit attendues, Mesures réglementaires |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04302172&r=ban |
| By: | Rhys M. Bidder; Nicolas Crouzet; Margaret M. Jacobson; Michael Siemer |
| Abstract: | This paper documents new facts on the modification of bank loans using FR Y-14Q regulatory data on C&I loans. We find that loan-level modifications of key contractual terms, such as interest and maturity, occur at least once for 41% of loans. Cross sectional differences in modifications are substantial and amplified by borrower distress. Relative to single-lender loans, syndicated loans are 1.5 times more likely to be modified and interest rate changes are twice as likely. Our findings call into question whether 1) creditor dispersion makes loan modifications more challenging and 2) relationship lending between banks and small borrowers creates more scope for flexibility when borrower-level conditions change. |
| Keywords: | Corporate debt; Renegotiation; SME lending; Relationship lending |
| JEL: | G21 G32 G33 |
| Date: | 2023–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2023-76&r=ban |
| By: | Kanis Saengchote |
| Abstract: | Leveraged developers facing rollover risk are more likely to engage in fire sales. Using COVID-19 as a natural experiment, we find evidence of fire sale externalities in the Thai condominium market. Resales in properties whose developers have higher leverage ratios have lower listing prices for listed developers (who have access to capital market financing) but not unlisted developers (who primarily use bank financing). We attribute this difference to the flexibility of bank loan renegotiation versus the rigidity of debt capital market repayments and highlight the role of commercial banks in financial intermediation in the presence of information asymmetry. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2312.05013&r=ban |
| By: | Sangyup Choi; Tim Willems; Seung Yong Yoo |
| Abstract: | Combining industry-level data on output and prices with novel monetary policy shock estimates for 102 countries, we analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize or consisting of smaller firms, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, and only limited support for a channel running via exports. Our database (containing monetary policy shock estimates for 176 countries) may be of independent interest to researchers. |
| Keywords: | monetary policy transmission, industry growth, financial frictions, heterogeneity in transmission, monetary policy shocks |
| JEL: | E32 E52 F43 G20 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2023-64&r=ban |
| By: | Wendschlag, Mikael (Department of Economic History, Uppsala University) |
| Abstract: | In early April 1929, eight Swedish savings banks were found insolvent and closed due to economic crimes committed by some of their founders. After the crash, the Swedish parliament entered a debate about whether the state should cover some, all or none of the losses of the failed banks’ 88 000 depositors. The debate, mainly between the right party and the social democrats, was characterized by competing narratives about the causes of the crash, whether the state should intervene or not, whether there existed an implicit deposit insurance or not, who should be covered among the depositors, by how much, and how an intervention should be funded and administered. The debate, and the policy decision, is unique in Swedish banking history and illustrate the importance of narratives to understand political responses to bank crashes and crises. The debate ended in mid-May with a decision to partially cover the depositors’ losses. |
| Keywords: | bank crashes; competing narratives; deposit insurance; memories |
| JEL: | B52 G01 G28 H12 N24 |
| Date: | 2023–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uuehwp:2023_008&r=ban |
| By: | Beatriz González; Galo Nuño Barrau; Dominik Thaler; Silvia Albrizio |
| Abstract: | This paper analyzes the link between monetary policy and capital misallocation in a New Keynesian model with heterogeneous firms and financial frictions. In the model, firms with a high return to capital increase their investment more strongly in response to a monetary policy expansion, thus reducing misallocation. This feature creates a new time-inconsistent incentive for the central bank to engineer an unexpected monetary expansion to temporarily reduce misallocation. However, price stability is the optimal timeless response to demand, financial or TFP shocks. Finally, we present firm-level evidence supporting the theoretical mechanism. |
| Keywords: | monetary policy, firm heterogeneity, financial frictions, capital misallocation |
| JEL: | E12 E22 E43 E52 L11 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1148&r=ban |
| By: | Reis Castigo Intupo |
| Abstract: | In Mozambique there is no evidence of a bankruptcy prediction model developed in the national economic context, yet, back in 2016, the national banking sector suffered a financial shock that resulted in Mozambique Central Bank intervention in two banks (Moza Banco, S.A. and Nosso Banco, S.A.). This was a result of the deterioration of their financial and prudential indicators, although Mozambique had been adhering to the Basel Accords since 1994. The Basel Accords provides recommendations on banking sector supervision worldwide with the aim to enhance financial system stability. While it does not predict bankruptcy, the prediction model can be used as an auxiliary tool to manage that risk, but this has to be built in the national economic context. This paper develops for Mozambique banking sector a bankruptcy prediction model in the Mozambican context through the linear discriminant analyses method, following two assumptions: (i) composition of the sample and (ii) robustness of the financial prediction indicators (the capital structure, profitability asset concentration and asset quality) from 2012 to 2020. The developed model attained an accuracy level of 84% one year before Central Bank intervention (2015) with the entire population of 19 banks of the sector, which makes it recommendable as a risk management tool for this sector. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.16705&r=ban |
| By: | Carolina Laureti; Ariane Szafarz |
| Abstract: | Behavioral economics modelling assumes that the contractible commitments valued by sophisticated time-inconsistent agents come at a cost. This paper challenges this assumption by arguing that it disregards the benefits that providers derive from supplying commitment-based products. In our equilibrium model, the commitment embedded in an illiquid savings product is valuable to both market sides. Although sophisticated time-inconsistent agents value the commitment, they do not have to pay for contracting it. The necessary and sufficient conditions for having a costless commitment contract in the savings market combine strong liquidity constraints imposed on banks and the occurrence of harmful shocks. Our results have regulatory implications for social finance. |
| Keywords: | Behavioral Economics; Banking; Savings Account; Liquidity Premium; Time Inconsistency; Commitment Contract |
| JEL: | G21 E21 D53 D91 G28 |
| Date: | 2023–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/365340&r=ban |
| By: | Ricardo Correa; Julian di Giovanni; Linda S. Goldberg; Camelia Minoiu |
| Abstract: | The recent era of global trade expansion is over. Faced with increased geopolitical risk, fragile foreign supply chains, and uncertainties in the international trade environment, firms are postponing entry into foreign markets and pulling back from foreign activities (IMF 2023). Besides its direct effects on real activity, the recent rise in trade uncertainty has potentially important implications for the financial sector. This post describes how the lending activities of U.S. banks were affected by the rise in trade uncertainty during the 2018-19 “trade war.” In particular, banks that were more exposed to trade uncertainty contracted lending to all of their domestic nonfinancial business borrowers, regardless of whether these borrowers were facing high or low uncertainty themselves. Furthermore, banks’ lending strategies exhibited the type of “wait-and-see” behavior usually found in corporate firms facing investment decisions under uncertainty, and the lending contraction was larger for those banks that were more financially constrained. |
| Keywords: | bank loans; trade finance; trade uncertainty |
| JEL: | F34 F42 G21 |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:97497&r=ban |
| By: | Michał Greszta (Narodowy Bank Polski); Marcin Humanicki (Narodowy Bank Polski); Mariusz Kapuściński (Narodowy Bank Polski); Tomasz Kleszcz (Narodowy Bank Polski); Andrzej Kocięcki (Narodowy Bank Polski); Jacek Kotłowski (Narodowy Bank Polski); Michał Ledóchowski (Narodowy Bank Polski); Michał Łesyk (Narodowy Bank Polski); Tomasz Łyziak (Narodowy Bank Polski); Mateusz Pipień (Narodowy Bank Polski); Piotr Popowski (Narodowy Bank Polski); Ewa Stanisławska (Narodowy Bank Polski); Karol Szafranek (Narodowy Bank Polski); Grzegorz Szafrański (Narodowy Bank Polski); Dorota Ścibisz (Narodowy Bank Polski); Grzegorz Wesołowski (Narodowy Bank Polski); Ewa Wróbel (Narodowy Bank Polski) |
| Abstract: | This report presents the current body of knowledge on the monetary transmission mechanism in Poland. The presented findings confirm the impact of short-term interest rates on a range of macroeconomic variables, indicating in particular that following a monetary policy tightening there is – ceteris paribus – an appreciation of the domestic currency, and, with a lag, a decrease in the volume of credit, economic activity, and inflation. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:365&r=ban |
| By: | Chloé Zapha |
| Abstract: | This paper identifies the bank credit restrictions that small firms face after bankruptcy. Using the French credit register, I implement a difference-in-difference strategy that exploits staggered removal of bankruptcy flags in the form of an exogenous change in credit ratings. I focus on small and medium-sized businesses between 2012 and 2019 and show that flag removal leads to an increase in bank credit of 1.7% and a 2 percentage point higher chance of forming new banking relationships. Less well-informed banks increase their credit supply after flag removal, particularly to firms whose credit rating reveals good financial performance. New banks start lending to the most constrained firms. As a result, firms substitute trade credit for bank credit and increase their investment rate. This paper supports the policy choice of shortening the bankruptcy flag. |
| Keywords: | Corporate bankruptcy, Debt Restructuring, Credit Rating, Bank Lending Relationship, SMEs |
| JEL: | G21 G24 G33 G34 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:928&r=ban |
| By: | Seung Kwak; Charles Press |
| Abstract: | In the context of leveraged buyouts (LBOs), this paper empirically studies the relation between pre-buyout credit market conditions and the post-buyout behavior of target companies, employing a supervisory dataset to overcome limited data availability for post-buyout target financial information. We propose an LBO-specific measure of (changes of) credit market conditions---the short-term (6-month) change of credit spreads leading up to buyout close. Using this proposed measure, we show that loosening pre-LBO credit market conditions, which are related to higher buyout leverage consistent with the literature, are associated with poor post-LBO (operating) performance of the target company. These results support the narrative of agency costs of debt such as risk shifting and debt overhang but are inconsistent with theories of disciplinary effects of debt. We provide further evidence supportive of the theories of agency costs of debt and some results favorable to the risk shifting story. |
| Keywords: | Private equity; Leveraged buyout; Credit market condition; Agency cost |
| JEL: | G00 G12 G24 G34 |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2023-77&r=ban |
| By: | Philippe Bacchetta; J. Scott Davis; Eric Van Wincoop |
| Abstract: | Since 2007, an increase in risk or risk aversion has resulted in a U.S. dollar appreciation and greater deviations from covered interest parity (CIP). In contrast, prior to 2007, risk had no impact on the dollar, and CIP held. To explain these phenomena, we develop a two-country model featuring (i) market segmentation, (ii) limited CIP arbitrage (since 2007) and (iii) global dollar dominance. During periods of heightened global financial stress, dollar shortages in the offshore market emerge, leading to increased CIP deviations and a dollar appreciation. The appreciation occurs even in the absence of global dollar demand shocks. Central bank swap lines mitigate these effects. |
| Keywords: | dollar; CIP deviations; Central Bank Swap Lines |
| JEL: | E44 F31 G15 |
| Date: | 2023–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:97492&r=ban |
| By: | Mamoon Kader (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University) |
| Abstract: | Are collateral shocks the dominant source of U.S. business cycles? We show that the evidence is not strong enough to conclude that they are. Collateral shocks, as described in Becard and Gauthier (2022), which tighten bank lending standards for both households and firms, account for only 7% of the cyclical variation in output, and 1% of consumption, over the period from 1985:Q1 to 2009:Q3. During this time, lending standards for both households and firms were most closely aligned in the data. Additionally, we observe a significant dampening in the comovement between consumption and output. Through counterfactual exercises, we isolate the role of estimated collateral shocks and model parameters to explain our findings. Our result suggests that identifying a quantitatively significant financial shock, which drives the U.S. business cycle and also accounts for consumption dynamics, remains a challenging task. |
| Keywords: | collateral shocks, bank lending standards, outputs, consumption |
| JEL: | E21 E23 E24 E32 E44 |
| Date: | 2023–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:23-08&r=ban |
| By: | Zuchowski, David |
| Abstract: | Does pro-immigrant legislation improve financial inclusion? This paper examines how granting safe havens for immigrants impacts Hispanics' financial behavior and discrimination against them in the U.S. mortgage market. To identify the effect, I take advantage of the staggered implementation of sanctuary policies across counties between 2010 and 2021. Using an event study approach, I find that sanctuary policies increase the demand for mortgages among Hispanics. I also find evidence of a decrease in the rejection rates of mortgage loans requested by Hispanics in counties that implemented sanctuary policies. Politically volatile and Republican-leaning states are the main drivers of the reduction in this potential discriminatory behavior. Taken together, the findings underscore the importance of inclusive public policies in promoting financial inclusion of immigrants. |
| Abstract: | Fördern immigrantenfreundliche Gesetze die finanzielle Inklusion? Diese Studie untersucht, wie die Gewährung von sicheren Zufluchtsorten für Immigranten das Finanzverhalten von Hispanics und die Diskriminierung gegen sie auf dem US-amerikanischen Hypothekenmarkt beeinflusst. Um den Effekt zu identifizieren, mache ich Gebrauch von der zeitlich gestaffelten Einführung sogenannter Sanctuary Policies in den Kreisen in den USA zwischen 2010 und 2021. Mit Hilfe eines Ereignisstudienansatzes komme ich zu dem Ergebnis, dass Sanctuary Policies die Nachfrage nach Hypotheken unter Hispanics erhöhen. Es gibt auch Hinweise auf eine Verringerung der Ablehnungsquoten von Hypothekenanträgen von Hispanics in Kreisen, die Sanctuary Policies umgesetzt haben. Kreise in politisch instabilen und republikanisch geprägten Bundesstaaten sind die Haupttreiber der Reduzierung dieses potenziell diskriminierenden Verhaltens. Insgesamt unterstreichen die Ergebnisse die Bedeutung von inklusiven Gesetzen zur Förderung der finanziellen Integration von Einwanderern. |
| Keywords: | Sanctuary policies, immigration policy, mortgages, financial inclusion |
| JEL: | G21 J15 J68 K37 R21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:280425&r=ban |
| By: | Khadija Essalhi (Doctorante à la faculté des sciences juridiques, économiques et sociales, Cadi Ayyad, Marrakech); Salah Eddine (Enseignant chercheur à la Faculté des sciences juridiques économiques et sociales, Cadi Ayyad, Marrakech.) |
| Abstract: | The aim of this article is to analyze the relationship between monetary policy and private investment in Morocco. It explains how private sector investors react to changes in monetary policy decisions. Our study aims to understand the effect of monetary policy action on private investment in Morocco over the period 1995-2020, using the VECM method. The results indicate that in the long term, the policy rate and the money supply have a negative and significant impact on private investment, while the exchange rate and credit granted to the private sector have a positive and significant impact on private investment. |
| Abstract: | Résumé L'objectif de cet article est d'analyser la relation entre la politique monétaire et les investissements privés au Maroc. Il explique comment les investisseurs du secteur privé réagissent aux modifications des décisions de la politique monétaire. Notre étude vise à comprendre l'effet de l'action de la politique monétaire sur les investissements privés au Maroc durant la période 1995-2020 en utilisant la méthode VECM. Les résultats indiquent que dans le long terme, le taux directeur et la masse monétaire ont un impact négatif et significatif sur les investissements privés, tandis que le taux de change et les crédits accordés au secteur privé ont un impact positif et significatif sur les investissements privés. Mots clés : Investissement privé, taux directeur, Politique monétaire Abstract The aim of this article is to analyze the relationship between monetary policy and private investment in Morocco. It explains how private sector investors react to changes in monetary policy decisions. Our study aims to understand the effect of monetary policy action on private investment in Morocco over the period 1995-2020, using the VECM method. The results indicate that in the long term, the policy rate and the money supply have a negative and significant impact on private investment, while the exchange rate and credit granted to the private sector have a positive and significant impact on private investment. Keywords: Private investment, Policy rate, Monetary policy |
| Keywords: | Private investment, Policy rate, Monetary policy, Investissement privé, taux directeur, Politique monétaire, African Scientific Journal, Investissement privé, taux directeur, Politique monétaire |
| Date: | 2023–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04303914&r=ban |
| By: | Sanroman Graciela; Quagliotti Romina; Olivieri Cecilia |
| Abstract: | This paper examines the impact of measures implemented in Uruguay to promote financial inclusion. We analyse the changes in terms of access to debit and credit cards and their determinants. We also employ Diff in Diff strategies to assess the effect of a particular measure: the mandatory payment of salaries through bank accounts. We find evidence that financial inclusion has improved during the period analysed, through the expansion of debit cards. We document that the impact was strongest among low-income households and those headed by women or Afro-descendants. We also show that the expansion was greater than that observed in other similar countries. However, we find almost no change in access to credit cards. |
| JEL: | G21 G50 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4690&r=ban |
| By: | Patrick Gruning (Latvijas Banka); Zeynep Kantur (Baskent University) |
| Abstract: | The most effective approach to tackling climate change is by decarbonising produc- tion processes. However, decarbonisation might render assets stranded, impacting not only the relevant sector but also causing a ripple effect across all sectors, thereby potentially destabilising macroeconomic stability. We develop a multi-sector New Keynesian model with two physical capital types (brown and green) and input- output linkages to examine the economic impact of sector-specific capital stranding. Stranded brown capital in the brown sector yields a relocation of economic ac- tivities to the green sector and thus environmental benefits with small aggregate consequences, while brown capital stranding in both sectors implies larger economic costs and smaller environmental benefits. Brown consumption taxes and green pro- ductivity shocks facilitate the green transition, while brown investment taxes or green investment subsidies turn out to be less favourable policies in this respect. However, a combination of these two investment policies yields favourable economic and environmental outcomes. Doubling the carbon tax in the brown sector yields significant relocation activities at relatively small economic costs. If the central bank responds strongly to short-run inflationary pressures of carbon tax increases, this leads to larger output losses in the short run and higher output gains in the long run. |
| Keywords: | capital utilization, stranded assets, production network, climate change, fiscal policy, monetary policy |
| JEL: | E22 E32 E52 E61 L14 |
| Date: | 2023–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:202306&r=ban |
| By: | Alkis Georgiadis-Harris; Maxi Guennewig |
| Abstract: | Since the Great Financial Crisis, the share of deposits—both insured and uninsured—in bank liabilities has increased substantially. In this paper, we document this fact for the largest US banks. We show that it can be theoretically explained by the introduction of resolution powers, i.e. the ability to impose losses on bank shareholders and creditors. In such a world, banks issue deposits in order to channel resources towards uninsured depositors, imposing losses on insured depositors and forcing the government to conduct bailouts. Our model suggests that resolution and deposit insurance must be complemented by equity or long-term debt requirements. |
| Keywords: | Bank Resolution, Deposit Insurance, and Fragility |
| JEL: | G18 G21 G32 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_477&r=ban |
| By: | Eva L\"utkebohmert; Julian Sester; Hongyi Shen |
| Abstract: | Sovereign loan portfolios of Multilateral Development Banks (MDBs) typically consist of only a small number of borrowers and hence are heavily exposed to single name concentration risk. Based on realistic MDB portfolios constructed from publicly available data, this paper quantifies the magnitude of the exposure to name concentration risk using exact Monte Carlo simulations. In comparing the exact adjustment for name concentration risk to its analytic approximation as currently applied by the major rating agency Standard & Poor's, we further investigate whether current capital adequacy frameworks for MDBs are overly conservative. Finally, we discuss the choice of appropriate model parameters and their impact on measures of name concentration risk. |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2311.13802&r=ban |
| By: | Onaga, Tomokatsu; Caccioli, Fabio; Kobayashi, Teruyoshi |
| Abstract: | Trading activities in financial systems create various channels through which systemic risk can propagate. An important contagion channel is financial fire sales, where a bank failure causes asset prices to fall due to asset liquidation, which in turn drives further bank defaults, triggering the next rounds of liquidation. This process can be considered as a complex contagion, yet it cannot be modeled using the conventional binary-state contagion models because there is a continuum of states representing asset prices. Here, we develop a threshold model of continuous-state cascades in which the states of each node are represented by real values. We show that the solution of a multistate contagion model, for which the continuous states are discretized, accurately replicates the simulated continuous state distribution as long as the number of states is moderately large. This discretization approach allows us to exploit the power of approximate master equations to trace the trajectory of the fraction of defaulted banks and obtain the distribution of asset prices that characterize the dynamics of fire sales through overlapping portfolios. We examine the accuracy of the proposed method using real data on asset-holding relationships in exchange-traded funds. Our methodology could contribute to evaluating and controlling systemic risk that would emerge in various real-world networked systems in the form of continuous-state complex contagion. |
| JEL: | G32 G33 |
| Date: | 2023–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120898&r=ban |
| By: | Kateryna Savolchuk (National Bank of Ukraine); Tetiana Yukhymenko (National Bank of Ukraine) |
| Abstract: | This study investigates the influence of central bank credibility in forming inflation expectations, using data obtained from business surveys conducted by the National Bank of Ukraine. We employ a two-stage treatment model to mitigate the potential bias of the endogeneity of firms' answers. The results confirm the vital role of credibility in shaping inflation expectations. Notably, credibility reduces sensitivity to past inflation deviations. Robustness checks, which are based on bootstrapping, reinforce the reliability of the findings. Our study underscores the importance of central bank credibility in anchoring inflation expectations. |
| Keywords: | credibility, inflation expectations, endogeneity, surveys |
| JEL: | C51 E58 E70 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:04/2023&r=ban |
| By: | Kevin L. Kliesen |
| Abstract: | The 1994-95 Fed tightening episode was one of the most notable in the Fed’s history. First, the FOMC raised the policy rate by 300 basis points in a year, even though headline and core inflation were trending lower prior to the liftoff that occurred in February 1994. Second, the Fed’s actions caught the Treasury market by surprise, triggering a sharp decline in long-term bond prices. Third, Fed Chair Alan Greenspan and the Federal Open Market Committee were regularly surprised that inflation was not rising by more than the forecasts suggested during the episode. This article presents some evidence that the Greenbook forecast systemically, albeit modestly, overpredicted CPI inflation during the tightening period. Greenspan eventually concluded that the nascent strengthening in labor productivity growth that was a key factor in restraining the growth of unit labor costs, and thus in keeping inflation pressures in check. At the same time, the success of the episode stemmed importantly from the decision by Greenspan and the FOMC to increase the policy rate to a level deemed restrictive for most of 1995. This effort reduced longer-run inflation expectations without triggering a recession. By that metric the 1994-95 tightening episode was a roaring success. Although not the focus of this article, the 1994-95 tightening episode holds important lessons for the FOMC in late 2023, which is attempting to defuse a sharp and unexpected increase in headline and core inflation to levels not seen since the early 1980s without triggering a recession. |
| Keywords: | monetary policy; inflation; forecasts |
| JEL: | E31 E32 E52 E58 E65 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:97435&r=ban |
| By: | Francesco Caloia; David-Jan Jansen; Kees van Ginkel |
| Abstract: | We study whether floods can affect financial stability through a credit risk channel. Our focus is on the Netherlands, a country situated partly below sea level, where insurance policies exclude property damages caused by some types of floods. Using geocoded data for close to EUR 650 billion in real estate exposures, we consider possible implications of such floods for bank capital. For a set of 38 adverse scenarios, we estimate that flood-related property damages lead to capital declines that mostly range between 30 and 50 basis points. We highlight how starting-point loan-to-value ratios are one important driver of capital impacts. Our estimates focus on property damages as the main transmission channel and are also subject to a number of assumptions. If climate change continues, more frequent floods or flood-related macrofinancial disruptions may have stronger implications for financial stability than our estimates so far indicate. |
| Keywords: | floods; financial stability; real estate; credit risk; climate change |
| JEL: | G21 Q54 R30 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:796&r=ban |
| By: | Andrea Bellucci (Universita' degli Studi dell'Insubria and Mo.Fi.R.); Alexander Borisov (Lindner College of Business, University of Cincinnati and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR) |
| Abstract: | This paper studies the interplay between allocation of decision-making authority and information production within a bank in the context of small business lending. Using a sample of credit lines to small businesses and changes in the overlap between decision-making authority and information production following an organizational restructuring of the bank, we show that an increase in the authority of the information-producing loan officer leads to a reduction in the use of collateral but leaves interest rates broadly unchanged. The reduction of collateral requirements is more pronounced when loan officers have tacit local knowledge or soft information or when their real authority is limited pre-restructuring. Our results highlight the effect of alignment of information production and decision-making authority on the contract terms of bank credit. |
| Keywords: | Soft and hard information, Collateral, Interest rate, Organizational hierarchies, SMEs financing |
| JEL: | D83 D21 G21 G30 L11 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:184&r=ban |
| By: | Hospido, Laura (Bank of Spain); Iriberri, Nagore (University of the Basque Country); Machelett, Margarita (Banco de España) |
| Abstract: | Gender gaps in financial literacy are pervasive and persistent. They are partly explained because women choose "I do not know" more frequently. We test for the effectiveness of three interventions to shift this behavior. The control survey includes the possibility of "I do not know". The three treatments either exclude this possibility, offer incentives for correct answers, or inform survey takers of the existing gender gap in choosing this answer option. While all interventions are very effective in reducing this answer option, only the information significantly reduces the gender gap in "I do not know" and in financial literacy. |
| Keywords: | financial literacy, gender gaps, survey methods |
| JEL: | C8 C9 D14 D91 G53 I22 J16 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16628&r=ban |
| By: | Paul Labonne; Leif Anders Thorsrud |
| Abstract: | The nonlinear nexus between financial conditions indicators and the conditional distribution of GDP growth has recently been challenged. We show how one can use textual economic news combined with a shallow Neural Network to construct an alternative financial indicator based on word embeddings. By design the index associates growth-at-risk to news about credit, leverage and funding, and we document that the proposed indicator is particularly informative about the lower left tail of the GDP distribution and delivers significantly better out-of-sample density forecasts than commonly used alternatives. Speaking to theories on endogenous information choice and credit-market sentiment we further document that the news-based index likely carries information about beliefs rather than fundamentals. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0125&r=ban |
| By: | Bérard, Guillaume; Freitas, Dimitria; Verma, Priyam |
| Abstract: | Xu (2022) estimates the causal impact of bank failures on the level of trades with a staggered difference-in-differences design and an IV strategy with Bartik instrument, using the 1866 banking crisis as a quasi-natural experiment. Findings, based on historical data on the trades and loans between London banks and banks around the world, show that countries exposed to bank failures in London immediately exported significantly less and did not recover their lost growth relative to unexposed places. Moreover, the effect lasted for decades. First, we reproduce the paper's main findings by running the original code and uncover three issues, one of which that slightly affects the main estimates reported in the study. Second, we test the robustness of the results to (1) removing weights from the regressions, (2) using a spatial HAC correction for the standard errors, and (3) implementing a method for possibly heterogeneous treatment effects with a staggered difference-indifferences design. Overall, we conclude that the main findings are valid and robust. |
| Keywords: | Replication, Robustness, Trade, Bank failures, Historical data, Difference-in-differences |
| JEL: | F14 G01 G21 N20 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:i4rdps:85&r=ban |
| By: | Greppmair, Stefan; Jank, Stephan |
| Abstract: | We utilize the Eurosystem securities lending facilities as a laboratory to investigate the impact of collateral scarcity on market functioning. The reduction of securities lending fees, implemented in November 2020, provides a natural experiment for our analyses. This policy change results in a surge in the utilization of securities lending facilities, particularly for bonds with limited supply elasticity in the repo market. We find no evidence of substitution effects; instead, the overall activity in the repo market expands through the collateral multiplier. The improved pricing conditions alleviate collateral scarcity and enhance market quality in both the repo and cash markets. |
| Keywords: | safe assets, collateral scarcity, monetary policy, quantitative easing, securities lending facilities, repo, market functioning |
| JEL: | G10 G21 E50 E58 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:280417&r=ban |
| By: | Anton Nakov (ECB and CEPR); Carlos Thomas (Banco de España) |
| Abstract: | We study the implications of climate change and the associated mitigation measures for optimal monetary policy in a canonical New Keynesian model with climate externalities. Provided they are set at their socially optimal level, carbon taxes pose no trade-offs for monetary policy: it is both feasible and optimal to fully stabilize inflation and the welfare-relevant output gap. More realistically, if carbon taxes are initially suboptimal, trade-offs arise between core and climate goals. These trade-offs however are resolved overwhelmingly in favor of price stability, even in scenarios of decades-long transitions to optimal carbon taxation. This reflects the untargeted, inefficient nature of (conventional) monetary policy as a climate instrument. In a model extension with financial frictions and central bank purchases of corporate bonds, we show that green tilting of purchases is optimal and accelerates the green transition. However, its effect on CO2 emissions and global temperatures is limited by the small size of eligible bonds’ spreads. |
| Keywords: | Ramsey optimal monetary policy, climate change externalities, Pigouvian carbon taxes, green QE |
| JEL: | E31 E32 Q54 Q58 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2334&r=ban |
| By: | Uroš Herman (Aix-Marseille Univ., CNRS, AMSE, Marseille, France); Matija Lozej (Central Bank of Ireland, Macroeconomic Modelling) |
| Abstract: | This paper first provides empirical evidence that labour market outcomes for the less educated workers, who also tend to be poorer, are substantially more volatile than those for the well-educated, who tend to be richer. We estimate job finding rates and separation rates by educational attainment for several European countries and find that job finding rates are smaller and separation rates larger at lower educational attainment levels. At cyclical frequencies, fluctuations of the job finding rate explain up to 80% of unemployment fluctuations for the less educated. We then construct a stylised HANK model augmented with search and matching and ex-ante heterogeneity in terms of educational attainment. We show that monetary policy has stronger effects when the job market for the less educated and, hence, poorer workers is more volatile. The reason is that these workers have the most procyclical income coupled with the highest marginal propensity to consume. An expansionary monetary policy shock that increases labour demand disproportionally affects the labour market segment for the less educated, causing a strong increase in consumption. This further amplifies labour demand and increases the labour income of the poor even more, amplifying the initial effect. The same mechanism carries over to forward guidance. |
| Keywords: | heterogeneous agents, Search and matching, monetary policy, business cycles, Employment |
| JEL: | E40 E52 J64 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2334&r=ban |
| By: | Lea Borchert; Ralph De Haas; Karolin Kirschenmann; Alison Schultz |
| Abstract: | We exploit proprietary information on severed correspondent banking relationships (due to the stricter enforcement of financial crime regulation) to assess how payment disruptions impede cross-border trade. Using firm-level export data from emerging Europe, we show that when local respondent banks lose access to correspondent banking services, their corporate borrowers start to export less. This trade decline occurs on both the extensive and intensive margins, and firms only partially substitute these foregone exports with higher domestic sales. As a result, total firm revenues and employment shrink. These findings highlight an often overlooked function of global banks: providing the payment infrastructure and trade finance that enables firms in less-developed countries to export to richer parts of the world. |
| Keywords: | Correspondent banking; trade finance; de-risking, global banks; international trade; anti-money laundering |
| JEL: | F14 F15 F36 G21 G28 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_478&r=ban |
| By: | Roberto Alvarez; Alvaro Miranda; Jaime Ruiz-Tagle |
| Abstract: | We study the impact of a simplified financial counseling service provided by text messages, that includes images and videos, to low-income clients of a public bank in Chile. Using a randomized experiment and administrative data, we study the delinquency rates of individuals that received a set of messages about how to prevent and face shocks, and how to face present bias and social comparison. We also randomized the provision of an additional set of messages about concrete and practical options offered by the bank that individuals could take when they are at risk of defaulting. The estimated effect for addition of both types of financial counseling is a reduction in the loan delinquency rates of between 20% and 26%. The intervention also proved to be highly cost-effective allowing for large bank savings. We also find heterogeneous impacts, obtaining larger effects for young individuals, for men, for those with ex-ante higher probability to default, and for low-income individuals. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp552&r=ban |
| By: | Ross Batzer (Federal Housing Finance Agency) |
| Abstract: | This paper studies how mortgage debt shapes the consumption response to fiscal transfers using an incomplete markets model with housing and defaultable longterm debt. The model is estimated to match the share of households in the data whose spending is constrained by low liquidity. Among homeowners, the model predicts those with mortgage debt have an average response to transfers six times larger than those without debt. Spending responses are found to be poorly correlated with earnings. Unlike a standard model without mortgage debt, the model with mortgages predicts restricting transfers based on income may substantially reduce their efficacy in increasing aggregate spending. |
| Keywords: | mortgages, macro-policy, stimulus, marginal propensity to consume |
| JEL: | E21 H31 G21 G51 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:hfa:wpaper:23-07&r=ban |
| By: | Gerth, Florian |
| Abstract: | This paper empirically analyzes the link between financial inclusion (SDG 8.10) and economic activity. Instead of following the past literature and approximating financial inclusion by variables only capturing traditional financial services, it takes into account non-traditional financial services including mobile money and non-branch retail agent outlets. With the help of the Normalized Inverse of the Euclidian Distance and a one-way fixed effects panel model, this pa-per documents empirically robust results about the positive link between financial inclusion and the level economic activity. In addition, a break between poverty and financial inclusion is established by regressing the calculated index of financial inclusion on demographic, socio-economic and variables concerning the health and depth of the financial sector. The implications of this finding are two folds. First, it highlights the improvements of low, lower-middle and upper-middle income countries in terms of outreach to financial services in the last decade. Second, it shows that the level of education and the soundness and depth of the local financial sector are important in reaching higher levels of financial inclusion. Overall, our results emphasize the importance of targeted policies to increase the accessibility, availability and usage of the financial sector in attaining sustainable and long-lasting economic prosperity. |
| Keywords: | financial inclusion; non-traditional financial services; economic development; Financial Access Survey (FAS) |
| JEL: | C23 E13 E44 G20 O16 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119265&r=ban |