|
on Banking |
| By: | Skylar Brooks |
| Abstract: | Central banks play a crucial role in promoting financial stability. They act as financial system stabilizers through their capacity to create liquidity and channel it to financial institutions and markets in times of stress—a role that has evolved and expanded substantially over the past 15 years. This paper provides a stylized discussion of recent policy developments in this area and what they mean for debates and decisions about the design of central bank liquidity policy. Across several policy dimensions, the paper outlines broad changes since the 2008–09 global financial crisis and highlights some of the key challenges, choices and considerations facing the designers of central bank liquidity tools today. |
| Keywords: | Lender of last resort; Financial stability; Central bank research; Financial institutions; Financial markets |
| JEL: | D53 E58 E61 G01 G2 G21 G23 H12 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:24-06 |
| By: | Marco Cipriani; Thomas M. Eisenbach; Anna Kovner |
| Abstract: | We use high-frequency interbank payments data to trace deposit flows in March 2023 and identify twenty-two banks that suffered a run, significantly more than the two that failed but fewer than the number that experienced large negative stock returns. The runs were driven by large (institutional) depositors, rather than many small (retail) depositors. While the runs were related to weak fundamentals, we find evidence for the importance of coordination because run banks were disproportionately publicly traded and many banks with similarly bad fundamentals did not suffer a run. Banks that survived a run did so by borrowing new funds and then raising deposit rates, not by selling liquid securities. |
| Keywords: | bank runs; payments; coordination; public signals |
| JEL: | E41 E58 G01 G21 G28 |
| Date: | 2024–05–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:98373 |
| By: | Manthos Delis (Audencia Business School); Iftekhar Hasan (Fordham University [New York]); Thomas To (The University of Sydney); Eliza Wu (The University of Sydney) |
| Abstract: | Bank lobbying has a bitter taste in most forums, ringing the bell of preferential treatment of big banks from governments and regulators. Using corporate loan facilities and hand-matched information on bank lobbying from 1999 to 2017, we show that lobbying banks increase their borrowers' overall performance. This positive effect is stronger for opaque and credit-constrained borrowers, when the lobbying lender possesses valuable information on the borrower, and for borrowers with strong corporate governance. Our findings are consistent with the theory positing that lobbying can provide access to valuable lender-borrower information, resulting in improved efficiency in large firms' corporate financing. |
| Keywords: | JEL classification: D72 G21 G30 Bank lobbying Firm performance Syndicated loans Information-transmission theory Opaque firms, JEL classification: D72, G21, G30 Bank lobbying, Firm performance, Syndicated loans, Information-transmission theory, Opaque firms |
| Date: | 2024–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04585664 |
| By: | Patrick A. Imam; Mr. Christian Schmieder |
| Abstract: | We analyze how aging populations might affect the stability of banking systems through changes in the balance sheets and risk preferences of banks over the period 2000-2022. While the anticipated decline in maturity transformation due to aging hints at a possible reduction in risk exposure, an older population may propel banks towards yield-seeking behaviors, offsetting the diminishing prominence of conventional lending operations. Through a comprehensive examination of advanced economies over the past two decades, our findings reveal a general enhancement in bank stability correlating with the aging of populations. However, the adaptive responses of banks to these demographic changes are potentially introducing tail risks. Given the rapid global shift towards aging societies, our analysis highlights the critical need for policymakers to be proactive and vigilant. This is particularly pertinent considering historical precedents where periods of relative stability have often been harbingers of emerging risks. |
| Keywords: | Aging; Demographics; Bank risk-taking; Financial Stability |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/118 |
| By: | Chinara Azizova; Jonathan Witmer; Xu Zhang |
| Abstract: | Across several dimensions of lender of last resort policy, I highlight broad changes that have occurred since the 2008–09 global financial crisis and discuss some of the key challenges, choices and considerations facing the designers of central bank liquidity tools today. |
| Keywords: | Financial institutions, Financial markets, Financial system regulation and policies, Inflation and prices, Monetary policy, Monetary policy transmission |
| JEL: | E52 E58 G21 G28 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocadp:24-05 |
| By: | Ryuichiro Izumi (Department of Economics, Wesleyan University); Yang LI (Singapore University of Social Sciences) |
| Abstract: | The banking turmoil of 2023 highlighted how technological advancements have significantly accelerated the speed of bank runs. This paper investigates the impact of these faster bank runs on the effectiveness of policy interventions by interpreting them as a constraint on the relative speed of policy responses. Using a model of bank runs and ex-post policy responses, we examine how delays caused by this constraint affect financial fragility and welfare. We find that while delays exacerbate welfare loss by distorting allocations, they may also decrease fragility by making banks more cautious. We explore the optimal level of structural delay, balancing the trade-off between distributional distortions and financial fragility. |
| Keywords: | Bank runs, Delayed Intervention, Speed of Bank Runs |
| JEL: | G21 G28 E58 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:wes:weswpa:2024-006 |
| By: | Haavio, Markus; Heikkinen, Joni; Jalasjoki, Pirkka; Kilponen, Juha; Paloviita, Maritta; Vänni, Ilona |
| Abstract: | We depart from the common reaction function-based approach used to infer central bank preferences. Instead, we extract the tone from the textual information in the central bank communication using both a lexicon-based approach and a language model. We combine the tone with real-time information available to the monetary policy decision-maker and directly estimate the loss function. We find strong and robust evidence of asymmetry in the case of the European Central Bank during 1999-2021: the slope of the loss function was roughly three times steeper when inflation exceeded the target compared to when it was below the target. This represents a significant departure from the quadratic and symmetric monetary policy loss function typically applied in macro models. |
| Keywords: | central bank communication, textual analysis, language models, asymmetric loss function, optimal monetary policy |
| JEL: | E31 E52 E58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:298852 |
| By: | Hervé Alexandre (DRM, CNRS, [UMR 7088], Université Paris-Dauphine, PSL, Place du Maréchal de Lattre de Tassigny 75775 PARIS Cedex 16;); Catherine Refait-Alexandre (Université de Franche-Comté, CRESE, F-25000 Besançon, France); Larry D. Wall (Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E, Atlanta, Georgia 30309-4470, USA) |
| Abstract: | The Fed operated various liquidity facilities during 2007-10 that were intended to alleviate financial system stress but could have been interpreted as an adverse signal. We analyze the response of the credit default swap market to the announcement and usage of these facilities by European banks. We find that Fed financial assistance tended to reduce market perception of risk if the information was related to Fed’s liquidity policies and increased risk perceptions when the information was more about banks’ riskiness. We also find the facilities reduced the perceived risk of publicly assisted banks but increased the perceived risk of banks that were not assisted. |
| Keywords: | Financial crisis, Federal Reserve lending facilities, European banks. |
| JEL: | E58 G21 G28 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2024-12 |
| By: | Bäckman, Claes; Moran, Patrick; van Santen, Peter |
| Abstract: | How does the design of debt repayment schedules affect household borrowing? To answer this question, we exploit a Swedish policy reform that eliminated interest-only mortgages for loan-to-value ratios above 50%. We document substantial bunching at the threshold, leading to 5% lower borrowing. Wealthy borrowers drive the results, challenging credit constraints as the primary explanation. We develop a model to evaluate the mechanisms driving household behavior and find that much of the effect comes from households experiencing ongoing flow disutility to amortization payments. Our results indicate that mortgage contracts with low initial payments substantially increase household borrowing and lifetime interest costs. |
| Keywords: | Mortgage design, Amortization payments, Macroprudential policy, Bunching |
| JEL: | G51 G21 E21 E6 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:297998 |
| By: | Nicolas Veron (Peterson Institute for International Economics) |
| Abstract: | Europe's banking union, the project to pool responsibility for prudential policy at the European Union level, became a reality in 2014 with the empowerment of the European Central Bank (ECB) as banking supervisor. Ten years on, the project remains unfinished, as European countries can still leverage their domestic banking sectors to serve their special interests, and the intervention framework for banking crises continues to be an awkward mix of national and EU authorities and instruments. But the achievements of even this incomplete banking union have been impressive. The decision on ECB banking supervision, made in mid-2012, was crucial for the eventual resolution of the euro area crisis. The subsequent decade of supervisory practice appears to have been successful, meeting its objectives of banking system safety and soundness. Still, Europe pays a high price for its reluctance to finish the work. This paper offers a comprehensive exploration of the genesis, implementation, and possible future completion of this major policy endeavor. |
| Keywords: | Banking union, European Union, European Central Bank, Euro area |
| JEL: | G28 N24 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:iie:wpaper:wp24-15 |
| By: | Neil Bhutta; Andreas Fuster; Aurel Hizmo |
| Abstract: | Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers’ mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the US mortgage market, limited borrower sophistication may provide lenders with market power. |
| Keywords: | Mortgage; price dispersion; consumer search; financial literacy; interest rates |
| JEL: | G21 G53 D14 D18 D83 E43 |
| Date: | 2024–06–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:98395 |
| By: | Facundo Costa de Arguibel (Universidad Nacional de Misiones); Juan Antonio Dip (Universidad Nacional de Misiones); Gerardo Stvass (Universidad Nacional de Misiones) |
| Abstract: | In this paper, we apply a two-stage data envelopment analysis to study the effect of the interrelation between banking activities, the ownership structure, and the technical efficiency of Argentine banks (2012-2019). The first stage involves a Bootstrapped DEA to estimate the banks’ technical efficiency with and without service revenues. The second stage estimates a truncated regression with Bootstrap to examine the effect of non-traditional activities and the origin of assets on the technical efficiency of banks. Besides, we control for differences in the entities’ financial risk and the influence of environmental variables. Our robust results show that non-traditional activities are positively related to bank efficiency. Those banks that have a greater presence in non-traditional activities are more efficient. On the other hand, foreign banks with a greater weight in non-traditional activities are more efficient than their local peers. Foreign banks better exploit the advantages of diversification of activities compared to/over their local peers. Finally, public banks are more inefficient than private ones. The results are robust to changes in the selection and specification of certain variables. |
| Keywords: | Banking diversification; Non-traditional activities; Efficiency; Double Bootstrap Regression DEA; Argentina |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:326 |
| By: | Roberto Blanco (BANCO DE ESPAÑA); Miguel García-Posada (BANCO DE ESPAÑA); Sergio Mayordomo (BANCO DE ESPAÑA); María Rodríguez-Moreno (BANCO DE ESPAÑA) |
| Abstract: | We study the access to credit and the propensity to exit the market of firms with no bank debt (the main funding source of Spanish non-listed firms) around the COVID-19 crisis. Our methodology allows us to disentangle credit supply from credit demand, as having no bank debt may be the result of financial constraints or a deliberate strategy. Before the COVID-19 crisis, zero-bank-debt firms, especially risky ones, faced more difficult access to bank loans than firms that had previously held bank debt owing to their lack of credit history. These credit constraints were tightened by the COVID shock, regardless of firms’ risk, arguably because of increased information asymmetries during a period of high macroeconomic uncertainty. Zero-bank-debt firms, even those with a low probability of default, were much more likely to leave the market during the COVID-19 crisis than firms with a history of bank debt. Moreover, granting new credit to zero-bank-debt firms reduced their probability of exit, which suggests a causal relationship between the two aforementioned findings. Beyond the specific setting of the pandemic, this paper adds to the broader literature on a better understanding of supply and demand-side constraints for corporate external funding, as crystalised in zero-debt firms. |
| Keywords: | zero-debt firms, credit constraints, information asymmetries, guarantees, market exit |
| JEL: | G30 G32 G21 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2421 |
| By: | Lambert, Derek (Central Bank of Ireland); Mahony, Michael (Central Bank of Ireland); McGeever, Niall (Central Bank of Ireland) |
| Abstract: | In this Note, we use a range of granular datasets to provide novel insight into the financial resilience of Irish CRE borrowers. We show that the pass-through of tighter financial conditions to CRE borrowers since 2022 has been moderate, with the balance-weighted average interest rate rising by approximately 225 basis points by end-2023. A gradual loan refinancing schedule has also provided borrowers with scope to adjust to the shock. Nonetheless, some borrowers have suffered balance sheet damage due to asset price declines and some are vulnerable to further deteriorations in market conditions. Book leverage estimates suggest that most borrowers have scope to absorb losses on their asset portfolios without encountering acute balance sheet distress. Loan-to-value ratios on bank CRE loans similarly point to balance sheet resilience, though pockets of vulnerability exist, including in the office and retail segments. A further shock, due for example to shifts in interest rate expectations or market dislocation due to fire sales, would test the ability of some borrowers to service and refinance their debts. Measures of borrower distress ticked up in 2023. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:fsnote:4/fs/24 |
| By: | Lee, Jonathan; Nguyen, Duc Duy; Nguyen, Huyen |
| Abstract: | Using the adoption of Zombie Property Law (ZL) across several US states, we show that increased lender accountability in the foreclosure process affects mortgage lending decisions and standards. Difference-in-differences estimations using a state border design show that ZL incentivizes lenders to screen mortgage applications more carefully: they deny more applications and impose higher interest rates on originated loans, especially risky loans. In turn, these loans exhibit higher ex-post performance. ZL also affects lender behavior after borrowers become distressed, causing them to strategically keep delinquent mortgages alive. Our findings inform the debate on policy responses to foreclosure crises. |
| Keywords: | Zombie lending, mortgage screening, mortgage renegotiation |
| JEL: | G21 G28 K25 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:298000 |
| By: | Giovanni Di Bartolomeo; Carolina Serpieri |
| Abstract: | We investigate the behavior of central banks in seven advanced economies, focusing on how observed monetary policies align with optimal ones as determined by model-consistent welfare measures. Our approach stands out by emphasizing the importance of inertia’s impact on the output gap and the dynamics of prices and wages. We incorporate inertia into our model using duration-dependent adjustments. By integrating this aspect into a simple New Keynesian model, our analysis aims to identify shared patterns and distinctive features in the monetary policy approach of central banks across different countries. |
| Keywords: | duration-dependent adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; optimal policy |
| JEL: | E31 E32 C11 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp249 |
| By: | Diouf, Awa; Carreras, Marco; Santoro, Fabrizio |
| Abstract: | Financial inclusion – where individuals and businesses have access to useful and affordable financial products and services that meet their needs, delivered in a responsible and sustainable way – is a critical component of economic development. It is particularly important in sub-Saharan Africa (SSA), where there can be little traditional banking infrastructure. The success of M-PESA in Kenya shows that mobile money is helping financial inclusion in the region. Those in rural or underserved areas can use mobile money to access basic financial services – savings, payments, and credit – through their mobile phones. This is critical for impoverished households, helping them to manage their finances, build resilience, and participate more actively in the economy. Financial inclusion aligns with broader development goals, such as poverty reduction and gender equality, by empowering marginalised groups, including women and small-scale entrepreneurs. However, taxation policies can be a threat to the adoption of mobile money in Africa. This study assesses the short and long-term impact of the Kenyan excise duty on the use of mobile money. Summary of ICTD Working Paper 168. |
| Keywords: | Finance, |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:idq:ictduk:18399 |
| By: | Walter Farkas (University of Zurich - Department Finance; Swiss Finance Institute; ETH Zürich); Patrick Lucescu (University of Zurich - Department of Finance) |
| Abstract: | This paper develops a simplified agent-based model to investigate the dynamics of risk transfer and its implications for systemic risk within financial networks, focusing specifically on Credit Default Swaps (CDSs) as instruments of risk allocation among banks and firms. Unlike broader models that incorporate multiple types of economic agents, our approach explicitly targets the interactions between banks and firms across three markets: credit, interbank loans, and CDSs. This model diverges from the frameworks established by Leduc, Poledna, and Thurner (2016) and Poledna and Thurner (2016) by simplifying the agent structure, which allows for more focused calibration to empirical data—specifically, a sample of Swiss banks—and enhances interpretability for regulatory use. Our analysis centers around two control variables, CDSc and CDSn, which modulate the likelihood of institutions participating in covered and naked CDS transactions, respectively. This approach allows us to explore the network’s behavior under varying levels of interconnectedness and differing magnitudes of deposit shocks. Our results indicate that the network can withstand minor shocks, but higher levels of CDS engagement significantly increase variance and kurtosis in equity returns, signaling heightened instability. This effect is amplified during severe shocks, suggesting that CDSs, instead of mitigating risk, propagate systemic risk, particularly in highly interconnected networks. These findings underscore the need for regulatory oversight to manage risk concentration and ensure financial stability. |
| Keywords: | Systemic Risk, Agent-Based Modeling, Financial Networks, Risk Transfer, Network Interconnectedness, Credit Default Swaps |
| JEL: | C63 D85 G01 G21 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2432 |
| By: | Victor Cardenas |
| Abstract: | The document discusses the financial climate risk in the context of the banking industry, emphasizing the need for a comprehensive understanding of climate change across different spatial and temporal scales. It highlights the challenges in estimating physical and transition risks, specifically extreme events and limitations of current climate models. The document also reviews current gaps in assessing physical and transition risks, including the development, improvement of modeling frameworks, highlighting the need for detailed databases of exposed physical assets and climatic hazard modeling. It also emphasizes the importance of integrating financial climate risks into financial risk management practices, particularly in smaller banks and lending organizations. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.17682 |
| By: | Arnone, Massimo; Leogrande, Angelo |
| Abstract: | In the following article, we analyse the relationships among banking stability, the efficiency of the energy system and climate risks at a global level. We present a detailed analysis of the literature relating to the relationship between the banking system and Environmental, Social and Governance-ESG models. In our research, we try to verify whether it is possible to achieve energy efficiency, stability of the banking system and reduction of climate risk together i.e. the “Green Trilemma”. The econometric analysis is conducted through the following models: Panel Data with Random Effects, Panel Data with Fixed Effects, Pooled Ordinary Least Squared and Weighted Least Squared-WLS. To estimate the variables we used World Bank data. The analysis shows that ESG growth is negatively associated with energy efficiency and positively associated with banking stability and climate risk. It therefore follows that the Green Trilemma hypothesis is rejected. Countries can only target banking stability and climate risk through ESG models. |
| Keywords: | Banks, Energy and the Macroeconomy, Energy Forecasting, Valuation of Environmental Effects, Climate, |
| JEL: | G21 Q43 Q47 Q51 Q54 |
| Date: | 2024–06–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121169 |
| By: | Olivier Armantier |
| Abstract: | One of the core responsibilities of central banks is to act as “lender of last resort” to the financial system. In the U.S., the Federal Reserve has been operating as a lender of last resort through its “discount window” (DW) for more than a century. Historically, however, the DW has been plagued by stigma—banks’ reluctance to use the DW, even for benign reasons, out of concerns that it could be interpreted as a sign of financial weakness. In this post, we report on new research showing that once a DW facility is stigmatized, removing that stigma is difficult. |
| Keywords: | lender of last resort; discount window; stigma; laboratory experiments |
| JEL: | E58 G01 C92 |
| Date: | 2024–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:98372 |
| By: | James Graham; Avish Sharma |
| Abstract: | How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling in-comes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage ï¬ nance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the medium term given falling house prices. We also show that differences in mortgage credit conditions, mortgage flexibility, and household expectations formation can amplify homeownership dynamics following a shock. |
| Keywords: | homeownership, monetary policy, interest rates, house prices, heterogeneous households |
| JEL: | E52 E20 R21 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-43 |
| By: | Daniela Balutel; Christopher Henry; Jorge Vásquez; Marcel Voia |
| Abstract: | Cryptoassets, such as Bitcoin, represent a new type of financial technology that has grown substantially in recent years in terms of market size. Previous research has documented the characteristics and motivations of early Bitcoin adopters, but less work has been done studying those who choose to exit the Bitcoin market. We develop a theoretical model of both entry and exit to the Bitcoin market, the dynamics of which are driven by agents’ beliefs about Bitcoin’s survival. We connect the model to micro-level data from Canada, allowing us to empirically test the role of beliefs in transitioning to past ownership. Using a control function approach with appropriate exclusion restrictions, we estimate the effects of beliefs while controlling both for selection into or out of Bitcoin ownership and for possible simultaneity. We find evidence that beliefs are significant predictors of exit, while the size and direction of these effects differ across time and ownership status. |
| Keywords: | Bank notes; Central bank research; Coronavirus disease (COVID-19); Financial services; International topics |
| JEL: | E41 E42 E58 F22 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-22 |
| By: | Olivier J. Blanchard; Ben S. Bernanke |
| Abstract: | In a collaborative project with ten central banks, we have investigated the causes of the post-pandemic global inflation, building on our earlier work for the United States. Globally, as in the United States, pandemic-era inflation was due primarily to supply disruptions and sharp increases in the prices of food and energy; however, and in sharp contrast to the 1970s, the inflationary effects of these supply shocks have not been persistent, in part due to the credibility of central bank inflation targets. As the effects of supply shocks have subsided, tight labor markets, and the rises in nominal wages, have become relatively more important sources of inflation in many countries. In several countries, including the United States, curbing wage inflation and returning price inflation to target may require a period of modestly higher unemployment. |
| JEL: | E30 E31 E32 E52 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32532 |
| By: | Maximilian Schr\"oder |
| Abstract: | Assessing the contribution of various risk factors to future inflation risks was crucial for guiding monetary policy during the recent high inflation period. However, existing methodologies often provide limited insights by focusing solely on specific percentiles of the forecast distribution. In contrast, this paper introduces a comprehensive framework that examines how economic indicators impact the entire forecast distribution of macroeconomic variables, facilitating the decomposition of the overall risk outlook into its underlying drivers. Additionally, the framework allows for the construction of risk measures that align with central bank preferences, serving as valuable summary statistics. Applied to the recent inflation surge, the framework reveals that U.S. inflation risk was primarily influenced by the recovery of the U.S. business cycle and surging commodity prices, partially mitigated by adjustments in monetary policy and credit spreads. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.17237 |
| By: | Bilbiie, F. O.; Monacelli, T.; Perotti, R. |
| Abstract: | Stabilization and redistribution are intertwined in a model with heterogeneity, imperfect insurance, and nominal rigidity-making fiscal and monetary policy inextricably linked for aggregate-demand management. Movements in inequality induced by fiscal transfers make the flexible-price equilibrium suboptimal, thus triggering a stabilization vs redistribution tradeoff. Likewise, changes in government spending that are associated with changes in the distribution of taxes (progressive vs. regressive) induce a tradeoff for monetary policy: the central bank cannot stabilize real activity at its efficient level (including insurance) and simultaneously avoid inflation. Fiscal policy can be used in conjunction to monetary policy to strike the optimal balance between stabilization and insurance (redistribution) motives. |
| Keywords: | Inequality, Redistribution, Aggregate Demand, Fiscal Transfers, Optimal Monetary-Fiscal Policy, TANK |
| JEL: | D91 E21 E62 |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camjip:2421 |
| By: | Fabian Alex |
| Abstract: | Using the modelling framework of Stiglitz & Weiss (1981), we show that – perhaps surprisingly – there is no influence of projects’ riskiness on the capital market equilibrium. The savings interest rate fully determines the amount of credit rationing and the nature of an equilibrium (adverse selection, two-prices etc.). This rate is, in turn, fully determined by the relative probabilities of success of firms’ projects (and, thus, repayment of their debt). Hence, making capital markets overall “less risky†, which may for example be the case when financial markets become greener, does not alle- viate concerns of asymmetric information. The result holds both for cases of hidden information and for those of hidden actions. |
| Keywords: | Asymmetric Information, Financial Markets, Green Loans, Hidden Information, Hidden Action, Project Risk |
| JEL: | D82 G14 G21 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:235_fabian_alex |
| By: | Bilbiie, F. O. |
| Abstract: | THANK is a tractable heterogeneous-agent New-Keynesian model that captures analytically core micro heterogeneity channels of quantitative-HANK: cyclical inequality and risk; self-insurance, pre-cautionary saving, and realistic intertemporal marginal propensities to consume. I use it to elucidate key transmission mechanisms and dynamic properties of HANK models. Countercyclical inequality yields aggregate-demand amplification and makes determinacy with Taylor rules more stringent; but solving the forward guidance puzzle requires procyclical inequality: a Catch-22. Solutions include combining inequality with a distinct risk channel, with compensating cyclicalities; I provide evidence that disposable income inequality was procyclical in the last two, Great and COVID recessions, while risk is countercyclical. Alternative policy rules also solve the Catch-22, e.g. price-level-targeting or, in the model version with liquidity, setting nominal public debt. Optimal policy with heterogeneity features a novel inequality-stabilization motive generating higher inflation volatility—but is unaffected by risk, insofar as the target efficient equilibrium entails no inequality. |
| Keywords: | Determinacy, Forward Guidance Puzzle, Heterogeneity, Inequality, Interest Rate Rules, Liquidity, Multipliers, Optimal Monetary Policy, Risk |
| JEL: | E21 E31 E40 E44 E50 E52 E58 E60 E62 |
| Date: | 2024–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camjip:2420 |
| By: | Michael M. Chernousov; Jessica N. Flagg; Simona Hannon; Alice Henriques Volz; Virginia Lewis; Suzanna Stephens |
| Abstract: | Revolving credit represents a notable share of consumer debt and is an important part of house- hold balance sheets. At the end of 2023, revolving credit was measured at over $1.3 trillion in the Z.1 Statistical Release, "Financial Accounts of the United States, " and accounted for more than 25 per- cent of total consumer credit. |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-06-14-1 |
| By: | Jonas Grangeray (CEPN - Centre d'Economie de l'Université Paris Nord - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité - Université Sorbonne Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord) |
| Abstract: | During the Great Depression, the 100% reserve banking proposal was put forward by several leading economists, including Henry Simons and Irving Fisher. The central idea of 100% reserve is to make money exogenous, under the control of the State. This article demonstrate, by comparing his writings with those of Fisher, that Simons understood the fundamental limit to 100% reserves : money is and will remain endogenous even after the reform. |
| Abstract: | Durant la Grande Dépression, la proposition de 100% réserves est mise en avant par une série d'économistes de premier plan, dont Henry Simons et Irving Fisher. L'idée centrale du 100% réserves est de rendre la monnaie exogène, sous le contrôle de l'État. On montre dans cet article, en confrontant ses écrits avec ceux de Fisher, que Simons avait compris la limite fondamentale posée au 100% réserves : la monnaie est et restera endogène même une fois la réforme mise en œuvre. |
| Keywords: | Henry Simons, Irving Fisher, 100% reserve banking, fractional-reserve banking, exogenous money, endogenous money, near money, velocity of money, 100% réserves, système bancaire à réserves fractionnaires, monnaie exogène, monnaie endogène, quasi-monnaies, vélocité de la monnaie, Henry Simons Irving Fisher 100% réserves système bancaire à réserves fractionnaires monnaie exogène monnaie endogène quasi-monnaie vélocité de la monnaie Henry Simons Irving Fisher 100% reserve banking fractional-reserve banking exogenous money endogenous money near money velocity of money JEL, quasi-monnaie, vélocité de la monnaie Henry Simons, velocity of money JEL |
| Date: | 2024–06–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04611718 |
| By: | Helen Dempster (Center for Global Development); Martha Guerrero Ble (Refugees International); Stéphanie López Villamil (Independent consultant) |
| Abstract: | Economic migrants and refugees can bring both benefits and costs to their hosting countries. If well-integrated, they can support themselves, their families, and their hosting countries as producers and consumers. Both economic migration and forced displacement are therefore integrally linked with development outcomes. Recognizing this, multilateral development banks (MDBs) are supporting their beneficiary member countries to improve outcomes for economic migrants and refugees, in the form of billions of dollars in grants and loans, as well as technical assistance, policy dialogues, and knowledge exchanges. This paper provides an introductory snapshot of some of the financing instruments, projects, and strategies used; particularly innovative approaches; and challenges MDBs face in expanding their engagement. It is hoped this paper will be useful to anyone who engages with MDBs and wants to understand how they engage on economic migration and forced displacement, particularly as these issues continue to grow in importance. |
| Date: | 2024–05–09 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:328 |
| By: | Höfmann, Michelle; Pott, Christiane; Quick, Reiner |
| Abstract: | This study investigates the impact of two changes to the auditor's report — a separate section addressing going concern uncertainties (GCU section [GCUsec]) and information on management and auditor responsibilities — and the characteristics of the audit committee on bank directors' perceptions and decisions. In a 2 × 2 × 2 between‐subjects experimental design with 85 German bank directors, we observe that a GCUsec in the auditor's report leads to more unfavourable decisions. Contrarily, explanations of responsibilities and different characteristics of the audit committee do not significantly impact on bank directors' perceptions and decisions. We thus confirm the effectiveness of the International Auditing and Assurance Standards Board (IAASB)'s revision of the International Standard on Auditing (ISA) 570 to enhance the informational value and decision usefulness of the auditor's report. |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:146062 |
| By: | Fabian Alex |
| Abstract: | This paper investigates the determinants of the probability that a cen- tral bank chooses to make its financial sector green. We derive a mixed- strategy Nash equilibrium from a strategic setting of two monetary au- thorities choosing simultaneously between the alternatives of greening and conducting business as usual. Using a very general setup, we obtain a model that nests most of the usual 2×2-situations in game theory. “Green†avoids a country’s contribution to an externality experienced by both, but also encompasses a sacrifice of slowing down economic performance. The prob- ability of greening is found to decrease whenever “greening†means a larger sacrifice for the other country, while it increases with the size of at least one of the two countries, the rate of internalization applied to the externality as well as the severity of this externality. Unlike the typical (pure) free-riding approach to international coordination on environmental issues, we find some willingness of countries to sacrifice wealth for the sake of avoiding a worst case. In a repeated setting, cooperative solutions can be estab- lished. The influence of discounting on the stability of these solutions is ambiguous. Finally, the model allows us to sketch the path along which the structure of our world’s climate game may evolve over time. |
| Keywords: | Environment, Environmental Economics, Green Economics, Game Theoretic, Game Theory, Games, Mixed Strategy, Two Player, Pub- lic Goods Game, Strategic Game |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:234_fabian_alex |
| By: | Colleen Faherty; Wayne Passmore |
| Abstract: | Financial institutions that are "Too-Big-to-Fail" impede proper market functioning in financial services. These firms can undermine the disciplining effects of capital markets should their failure have substantial "knock-on" effects on the real economy. |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-06-14-2 |
| By: | Randrianarisoa, Radoniaina |
| Abstract: | This paper seeks to determine the existence of a stable demand for money relation for the case of Madagascar. We use an Engle-Granger error correction model to be able to demonstrate that in the long-run, the demand for money is negatively explained by the opportunity cost and positively by real income and the proxy for financial innovation. The latter, when taken into account, produces a less stable demand than when real income and opportunity cost are only used. Hence, the real demand for money in Madagascar is considered as stable, but fragile. This situation justified the migration to a more forward-looking monetary policy regime. |
| Keywords: | money demand, financial innovation, cointegration, vector error-correction model |
| JEL: | E41 |
| Date: | 2024–06–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121170 |
| By: | Arvidsson, Niklas (KTH Royal Institute of Technology); Harahap, Fumi (KTH Royal Institute of Technology); Urban, Frauke (KTH Royal Institute of Technology); Nurdiawati , Anissa (KTH Royal Institute of Technology) |
| Abstract: | The expansion of digital payment services like retail Central Bank Digital Currencies (rCBDCs) built on innovative ICT infrastructure, notably datacenters, raises questions regarding potential environmental consequences due to electricity consumption. The design of such systems is critical for environmental impact as it scales with multiple actors and complex protocols as well as being influenced by server location and energy sources. In addition to other critical issues related to rCBDCs, understanding its environmental impact is therefore crucial for policymakers if they are to ensure sustainability. This study analyses one potential rCBDC, the Swedish e-krona project, by focusing on design choices and electricity consumption by comparing to existing retail payment services. Findings indicate that the energy use per transaction of the e-krona is comparable to that of card payments. There are, at the same time, significant differences in energy use depending on whether the design of the infrastructure for the e-krona is centralized or decentralized, where a centralized solution tend to be less energy consuming than a decentralized solution. The study has deployed a lifecycle perspective to explore energy consumption scenarios across various ledger infrastructures enabling a comprehensive assessment. |
| Keywords: | Energy Consumption; Climate Impact; Digital Payment; E-krona; rCBDC |
| JEL: | E58 O38 P44 Q58 |
| Date: | 2024–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0437 |
| By: | Eriksson, Kent (Department of Real Estate and Construction Management, Royal Institute of Technology); Segerlind, Carin (Department of Real Estate and Construction Management, Royal Institute of Technology) |
| Abstract: | This paper aims to investigate whether the effect of customer satisfaction on changes in bank customer revenue exhibits a time lag, and if this time lag effect differs among customer groups with varying levels of customer satisfaction. The empirical analysis is based on a dataset comprising combined survey and bank record data of 19, 060 weighted customers from a bank in Sweden over a four-year period. The data is analyzed using ordinary least squares (OLS). The authors find that at the individual level, customer satisfaction leads to changes in customer revenue, and this effect persists over several years. The results are demonstrated when breaking down the results for customers with different levels of satisfaction. Additionally, the results reveal a non-linear effect, which yields differences in both short- and long-term impacts on changes in customer revenue between higher levels of customer satisfaction and those with lower satisfaction levels. The conclusion drawn is that to gain a comprehensive understanding of the impact of customer satisfaction on revenue change, it is necessary for the analysis to consider customers' varying satisfaction levels. This paper underscores the economic importance of identifying customers with lower levels of satisfaction and the significance of implementing efforts to increase their satisfaction levels. |
| Keywords: | Bank; Customer satisfaction; Customer revenue; Individual level; Longitudinal |
| JEL: | D10 D14 G21 M21 |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:kthrec:2024_005 |
| By: | Alessandra Amendola; Vincenzo Candila; Antonio Naimoli; Giuseppe Storti |
| Abstract: | In order to meet the increasingly stringent global standards of banking management and regulation, several methods have been proposed in the literature for forecasting tail risk measures such as the Value-at-Risk (VaR) and Expected Shortfall (ES). However, regardless of the approach used, there are several sources of uncertainty, including model specifications, data-related issues and the estimation procedure, which can significantly affect the accuracy of VaR and ES measures. Aiming to mitigate the influence of these sources of uncertainty and improve the predictive performance of individual models, we propose novel forecast combination strategies based on the Model Confidence Set (MCS). In particular, consistent joint VaR and ES loss functions within the MCS framework are used to adaptively combine forecasts generated by a wide range of parametric, semi-parametric, and non-parametric models. Our results reveal that the proposed combined predictors provide a suitable alternative for forecasting risk measures, passing the usual backtests, entering the set of superior models of the MCS, and usually exhibiting lower standard deviations than other model specifications. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.06235 |