|
on Banking |
| By: | Eichacker, Nina |
| Abstract: | In recent years, cryptocurrencies have become more salient as speculative assets, and as sources of instability for wider swathes of the public. This has occurred at a global level, with both domestic and international spillover effects for core and peripheral economies. At the same time, analysts of cryptocurrency and blockchains have identified some institutional benefits of these innovations, including the ability to process payments outside of traditional business hours and the potential to provide banking services for households and institutions in regions that lack access to a formal banking sector. This paper considers how central banks’ efforts to create formal digital currencies may stabilize financial and monetary conditions. By offering a formal digital currency, central banks have the potential to diminish payment related demand for cryptocurrencies, and decrease the exposure households have to the volatility of cryptocurrency asset markets as well as to fraud endemic to the cryptocurrency markets. Offering a formal digital currency may be seen as a monetary form of public finance; in this case, the public alternative is a country’s own currency that may be usable in the blockchain, rather than forcing households to search for the most reputable or stable cryptocurrency alternatives. As households and businesses adopt CBDCs, they may leave cryptocurrency markets; while this might induce a brief period of instability in those markets, it would likely leave more volatile crypto asset markets to those best suited to managing the risk and potential reward of betting on existing assets, and insulate the risk averse from that volatility. |
| Date: | 2025–01–15 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:8muc4 |
| By: | Brühl, Volker |
| Abstract: | The introduction of central bank digital currencies (CBDCs) in general, and of a digital euro in particular, has attracted growing interest from academic research, central banks and political decision-makers. Most of the existing literature is focused on the impact of a digital euro on monetary policy issues, financial stability - especially the potentially enhanced risk of bank runs - and related questions concerning the design options of a digital euro. However, a digital euro could negatively affect the profitability of the European banking sector. Fees from payment transaction services could decline and refinancing costs could increase, as comparatively cheap financing from retail deposits would have to be replaced in part by more expensive financing instruments such as bonds or open market operations with the ECB. This paper deals with these aspects by estimating the potential impact of a digital euro in a simulation model based on current market data. The analysis demonstrates that the annual fee losses could be in the range of €2.1 billion to €4.2 billion. The associated refinancing need due to replacements of deposits by digital euro holdings could be in the range of €324 billion to €650 billion, translating into additional refinancing costs of around €6.5 billion to €19.5 billion p.a.. Therefore, a fair compensation model for banks and payment service providers is needed to avoid adverse consequences for the profitability and resilience of the European financial sector. The paper also discusses the general need for a retail digital euro in light of the expected benefits and risks as well as implications for design options to mitigate inherent risks. |
| JEL: | E42 E51 G21 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:308806 |
| By: | Abdul Rahim, Mohamad Syafiqe |
| Abstract: | The Malaysia Islamic banking market has expanded rapidly and it continues to embrace innovative structure, as underlined by the launch of Islamic banking products using various Shariah concepts. One of the most popular Shariah concept used by Islamic Banks across all market segment in Malaysia is Tawarruq (Commodity Murabahah). In recent years, Centre Bank of Malaysia has been issuing various Shariah resolutions and Shariah related policies to be complied by Islamic banks. Whilst this initiative is praiseworthy in strengthening and standardising the Shariah compliance culture, there are several issues which may impact the operational aspect of a bank. This paper will focus to discuss on the Shariah and operational concerns in Tawarruq based deposit product where the analysis will focus on the issue of prohibition of Bai` Wa Salaf. In addition, this paper will also provide some example of financial structures which already in Malaysia market as case study and reference. This article is based on qualitative research approach which is purely based on primary data gathered through library research and interview. |
| Keywords: | Bai` Wa Salaf, Tawarruq, Deposit Product, Islamic Banking, Shariah |
| JEL: | G00 G20 G21 |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123099 |
| By: | Pérez Reyna, David (Universidad de los Andes); Rozada-Najar, Angie (Banco de la República); Suaza, Fausto (Universidad de los Andes) |
| Abstract: | Using a unique dataset combining Colombian firm, bank, and credit registry data from 2006 to 2021, we investigate the relationship between bank productivity and the productivity of firms they lend to. We find a positive correlation that strengthened after 2017. We posit a theoretical model to rationalize this finding: more productive banks optimally choose to lend to more productive firms because they can better afford the fixed costs of accessing higher-quality firm profiles. |
| Keywords: | firm productivity; bank productivity; lending relationships; productivity measurement |
| JEL: | D24 E44 G21 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021298 |
| By: | John Echeverri-Gent (University of Virginia); Renuka Sane (TrustBridge Rule of Law Foundation) |
| Abstract: | This essay shows how the sectoral political network in India's banking sector has structured its development from the era of dirigisme beginning under the Nehru government in 1947 to the more liberalized contemporary period starting in 1991. We show that political bargains, or institutionalized agreements among actors in a sectoral political network, are mechanisms through which the legacies of earlier eras shape developments in subsequent periods. Our study of India's banking sector examines two varieties of political bargains. Politicians created an entrenched political bargain during the dirigiste era by nationalizing India's banks to assert control over bank governance. Entrenched bargains limit subsequent reforms to policies that address their negative consequences but not the underlying causes emanating from the interests of powerful actors. Principal-agent relations are the second type of political bargain. Politicians struck this evolving bargain by establishing an asymmetric relationship between the government and India's central bank, the Reserve Bank of India (RBI). We analyze how these entrenched and principal-agent bargains have shaped the development of Indian banking by examining their impact on the banking sector's recurring non-performing asset problem and its dynamic payment system. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bjd:wpaper:8 |
| By: | Koldo Echebarria (Center for Global Development) |
| Abstract: | This paper presents an overview of significant policy, financial, and operational challenges encountered by multilateral development banks (MDBs) in fragile and conflict-affected situations (FCS). The data indicates that MDBs have increased their involvement in financing FCS compared to bilateral and other multilateral donors, with the World Bank playing the most significant role. This is explained by financial and operational comparative advantages inherent in the MDB business model, despite their implicit biases and constraints. The paper reviews the strategies and framework documents adopted by MDBs to address FCS as a distinct development challenge, highlighting the complexity of translating knowledge advancements and lessons learned into operational categories and clear priorities. It also examines how MDBs are placed regarding the recommendations of the "peace-humanitarian-development nexus, " which is central to the international consensus for addressing FCS. The evolution of the financial capacities of MDBs and the criteria for resource allocation in response to the needs of FCS are analyzed. The paper concludes by posing a set of questions that MDBs and their shareholders should consider as they develop reforms to meet FCS-specific requirements and strengthen performance and outcomes. |
| Date: | 2024–12–10 |
| URL: | https://d.repec.org/n?u=RePEc:cgd:ppaper:347 |
| By: | Masashige Hamano; Philip Schnattinger; Mototsugu Shintani; Iichiro Uesugi; Francesco Zanetti |
| Abstract: | We develop a simple model of financial intermediation with search and matching frictions between banks and firms. The model links credit market tightness –encapsulating the abundance of credit– to the search and opportunity costs of credit intermediation. Search costs generate lending to unprofitable firms (i.e., zombies) and the opportunity costs of searching exert countervailing forces on the incentives for banks and firms to participate in zombie lending, generating an inverted U-shaped relationship between credit market tightness and the share of zombie lending. High bargaining power of firms decreases the opportunity cost of firms foregoing credit relationships, reduces the share of zombie firms and increases the efficacy of capital injections to reduce zombie lending. Using data for 31 industries in Japan over the period 2000-2019, we test and corroborate our theoretical predictions by constructing theory-consistent measures of credit market tightness and bargaining power. Consistent with our theory, the findings reveal that capital injections are more effective in industries with higher credit market tightness and greater bargaining power of firms. |
| Keywords: | zombie firms, bank lending, credit market tightness |
| JEL: | E22 E23 E32 E44 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-05 |
| By: | Georgios Bampinas (UoM - University of Macedonia [Thessaloniki]); Magnus Blomkvist (EDHEC - EDHEC Business School - UCL - Université catholique de Lille); Elias Demetriades (Audencia Business School); Panagiotis Politsidis (Audencia Business School) |
| Abstract: | This paper provides evidence of a flight home effect in the syndicated loan market during the COVID-19 pandemic, where lenders rebalance their loan portfolios towards domestic borrowers. Specifically, a one standard deviation increase in COVID exposure in the lenders' home country is associated with a 4.1 percentage point decrease in lenders' share of foreign loans. This home bias eases with the intensity of government restrictions during the pandemic and strengthens with expansionary monetary policy. We further pinpoint an operative supply-side mechanism, where smaller, less capitalized banks with a higher proportion of non-performing loans are more likely to rebalance towards domestic borrowers. Although different forms of asymmetric information exert a material – yet not uniform – effect on the lenders' rebalancing decisions, the flight home effect emerges independently of the existence of these information asymmetries. |
| Keywords: | Home bias, Syndicated loans, COVID-19 pandemic, Flight to quality, Information asymmetry |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04860105 |
| By: | Deb Narayan Barik; Siddhartha P. Chakrabarty |
| Abstract: | This paper studies the bank dynamic decision problem in the intermediate time step for a discrete-time setup. We have considered a three-time-step model. Initially, the banks raise money through debt and equity and invest in different types of loans. It liquidates its assets and raises new funds at the intermediate-time step to meet the short-term debt holders claim. Further, it has to meet specific capital requirements given by the regulators. In this work, we have theoretically studied the effect of raising new equity and debt. We show that in some cases, raising equity and debt may increase the return on equity, and in some cases, it may decrease the return on equity. We have discussed several cases and given a bound on the capital that can be raised. We have added an equity holders constraint, which ensures the return on equity and desists the bank from defaulting at the final time point. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07856 |
| By: | Schnorpfeil, Philip; Weber, Michael; Hackethal, Andreas |
| Abstract: | We study households' response to the redistributive effects of inflation combining bank data with an information experiment during historic inflation. Households are generally well-informed about inflation and concerned about its wealth impact; yet, while knowledge about inflation eroding nominal assets is widespread, most households are unaware of nominal-debt erosion. When informed about the latter, households view nominal debt more positively and increase estimates of their real net wealth. These changes causally affect actual consumption and hypothetical debt decisions. Our findings suggest real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation. |
| Keywords: | Inflation Beliefs, Information Treatment, Consumption, Monetary Policy |
| JEL: | D12 D14 D83 D84 E21 E31 E52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:308805 |
| By: | Bock, Carolin; Siebeneicher, Sven; Rockel, Jens |
| Abstract: | We explore the potentials of participative co-financing as a means for regional banks to integrate an innovative financing technique that enhances their strengths. Our goal is to interest platform operators, decision-makers of regional banks, and researchers in the potentials of participative co-financing. We define participative co-financing as capital provision, where professional financing sources provide one part, and the other is supplied via participative crowdfunding. We claim that crowdfunding and regional banks are compatible by common interests. We explore potentials emanating at the intersection of both fields by drawing on entrepreneurship and finance literature. Eventually, we bridge the gap between both fields of research. To guide our research, we develop a framework featuring the intersection of crowdfunding and regional banks. We ask: Which potentials affect the intentions of decision-makers in regional banks to offer participative co-financing? The technology acceptance model (TAM) provides a theoretical foundation for our analysis. We conduct a twofold analysis by looking at the direct effects of potentials first and acceptance according to the TAM second. Thereby we consider the intention to offer lending- and equity-based co-financing. We surveyed decision-makers from an association of German savings banks and derived 108 answers. We show that regional banks generally accept participative co-financing as an innovative financing technique. The most likely model is lending-based co-financing, with individual persons, startups, and SMEs as target groups. Decision-makers hope to profit from cross-selling and being perceived as innovative. Nevertheless, further research and trials are necessary to advance participative co-financing. |
| Date: | 2025–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:dar:wpaper:152425 |
| By: | Arnone, Massimo; Costantiello, Alberto; Leogrande, Angelo |
| Abstract: | The paper deals only with the identification of the determinants of total risk exposure amount within the European banking system, while the importance of TREA within Basel III regulatory regimes is focused. The research provides the integration of an econometric investigation with high-end machine learning techniques for the identification of the influential financial variables of TREA. The most relevant financial determinants of TREA were identified as LCR, CRWEA, LA, and OREA. These also reflect complex interdependencies-for instance, the negative value of TREA and LCR would suggest that there were trade-offs made between risk-taking and liquidity management. Thus, the positive relationship with CRWEA, and even more so with derivatives over assets, underlines intrinsic risks from credit exposures and related to financial instruments' complexity. The report further iterates that there should be mechanisms for appropriate risk-weighting, adequate liquidity buffers, and proper operational controls so that the financial system can become significantly more stable and resilient. This work will put forward actionable recommendations to policy makers, regulators, and financial institutions on mitigating systemic vulnerabilities and further optimizing their strategies for compliance in view of an increasingly volatile financial landscape, leveraging from traditional econometric modeling insights with machine learning. |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:2u4jb |
| By: | Alessia De Stefani; Rui Mano |
| Abstract: | We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stock by type of rate-fixation and monetary policy shocks cleaned of information effects. Using instrumental-variablel local projections, we find both path- and state-dependency in monetary transmission. Monetary policy shapes mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank's ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to key macro-variables. |
| Keywords: | Monetary Policy; Mortgage Markets |
| Date: | 2025–01–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/024 |
| By: | Martijn Boermans; Tomás Carrera de Souza; Robert Vermeulen |
| Abstract: | In this study, we analyze the impact of the European Central Bank’s (ECB) sovereign bond purchases on bond demand among euro area investors from 2015 to 2022. By employing a novel demand setup, using ownership shares of individual bonds, we separately estimate investor reactions to (i) ECB bond purchases and (ii) new bond issuances. Utilizing bond level data on securities holdings of euro area investors and the ECB, we show that insurance companies and pension funds act as preferred habitat investors and are reluctant to sell the bonds the ECB is buying. Conversely, non-euro area investors from the private sector primarily serve as counterparties for ECB purchases. Our findings indicate significant differences across bond maturities and credit ratings, but minimal differences across the different stages of the quantitative easing (QE) implementation periods and between domestic and non-domestic euro area bonds. |
| Keywords: | quantitative easing; sovereign bonds; European Central Bank; PSPP; securities holdings statistics; bond demand |
| JEL: | E58 F42 G11 G15 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:826 |
| By: | Marco Bonomo; Tiago Cavalcanti; Fernando Chertman; Amanda Fantinatti; Andrew Hannon; Cezar Santos |
| Abstract: | Consumer loans are key for consumption smoothing. But what if individuals who need them the most find it harder to access these loans? We examine this question empirically and quantitatively, using Brazilian credit registry and matched employer-employee data. Low-income individuals face higher interest rates, even after controlling for several risk factors and characteristics. Our model includes life-cycle dynamics, different credit types, occupations, and income shocks with endogenous default. According to the calibrated model, reforms reducing loan interest rate spreads could significantly benefit individuals, especially young and poor informal workers. The pro-competition 2013 Loan Portability reform increased welfare by 0.2% of annual consumption. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:614 |
| By: | Christopher M. Hair; Sabrina T. Howell; Mark J. Johnson; Siena Matsumoto |
| Abstract: | Younger entrepreneurs are disadvantaged by traditional loan underwriting, which relies heavily on personal credit scores. With data from three fintech companies, we show that incorporating timely information about ability to repay from business checking account statements particularly improves default prediction performance for younger business owners. We develop a novel method to compare model predictions across subgroups—Tail Analysis for Comparative Outcomes (TACO)—which finds that switching from a Baseline (FICO-driven) model to a Cash Flow-enhanced model benefits younger entrepreneurs. We confirm this in causal analysis of approval decisions, showing that access to cash flow-intensive underwriting increases approval rates for younger vs. older entrepreneurs. |
| JEL: | G21 G23 G32 J14 J16 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33367 |
| By: | Justin C. Contat (Federal Housing Finance Agency); William M. Doerner (Federal Housing Finance Agency); Michael J. Seiler (Federal Housing Finance Agency); Scott Weiner (Federal Housing Finance Agency) |
| Abstract: | Borrower perceptions and beliefs about the future influence mortgage forbearance decisions. Using a proprietary dataset combining administrative mortgage records with borrower surveys, we find subjective expectations regarding forbearance uncertainty and financial knowledge help predict forbearance participation under the CARES Act alongside traditional underwriting variables. While precautionary motives seemingly drive decisions, a closer look reveals the importance of realized work and personal changes. Additionally, actual need and uncertainty about resolution options cause greater difficulty resuming payments when exiting forbearance. These findings highlight the benefits of using contemporaneous, subjective information during crises and emphasize the need for behavioral insights in policy design. |
| Keywords: | behavioral, consumer finance, forbearance, mortgage, policy |
| JEL: | C35 D10 G01 G18 G28 H12 R20 R30 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:24-11 |
| By: | Grubb, Michael D.; Kelly, Darragh; Nieboer, Jeroen; Osborne, Matthew; Shaw, Jonathan |
| Abstract: | At-scale field experiments at major U.K. banks show that automatic enrollment into “just-in-time” text alerts reduces unarranged overdraft and unpaid item charges 17% to 19% and arranged overdraft charges 4% to 8%, implying annual market-wide savings of £170 million to £240 million. Incremental benefits from “early-warning” alerts are statistically insignificant, although economically significant effects are not ruled out. Prior to the experiments, over half of overdrafts could have been avoided by using lower-cost liquidity available in savings and credit card accounts. Alerts help consumers achieve less than half of these potential savings. |
| JEL: | F3 G3 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126884 |
| By: | Sebastian Dragoe; Camelia Oprean-Stan |
| Abstract: | The monetary transmission channel is disrupted by many factors, especially securitization and liquidity traps. In our study we try to estimate the effect of securitization on the interest elasticity and to identify if a liquidity trap occurred during 1954Q3-2019Q3. The yield curve inversion mechanism shows us that economic cycles are very sensitive to decreasing profitability of banks. However there is no evidence that restoring their profits will ensure a strong recovery. In this regard, we research the low effect of Quantitative Easing (QE) upon economic growth and analyze whether securitization and liquidity traps posed challenges to QE or is it the mainstream theory flawed. In this regard we will examine the main weaknesses of QE, respectively the speculative behavior induced by artificial low rates and its unequal distribution. We propose a new form of QE that will relief households and not reward banks for their risky behavior before recession. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.06575 |
| By: | Joshua Bosshardt (Federal Housing Finance Agency); Simi Kedia (Rutgers University); Tim Zhang (University of Texas at San Antonio) |
| Abstract: | Using 24 million appraisals for refinance mortgages over the January 2013 to March 2024 period and comparing homes in the same census tract and year-quarter, we find that homes of single female households are appraised for 2.4% less than those of single men. Appraisers make lower adjustments to comparable properties and give worse house condition ratings for single female homes. The disparity is less pronounced when borrowers have unisex names and when appraisers have greater exposure to single female homeowners. The lower appraisal values of single female households are associated with higher interest rates, lower loan amounts and lower cash-out amounts in the refinancing. Our findings indicate that disparities in appraisals may be one reason for (female) homeowners’ sluggish refinancing activity and disparities in household wealth. |
| Keywords: | male and female disparities, home appraisals, mortgage refinance |
| JEL: | G21 J16 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:25-01 |
| By: | Ndegwa, Michael K.; Shee, Apurba; Ward, Patrick S.; Liu, Yanyan; Turvey, Calum G.; You, Liangzhi |
| Abstract: | We use a multiyear, multi-arm randomized controlled trial implemented among 1, 053 smallholders in Kenya to evaluate ex-ante investment and ex-post productivity and welfare benefits of two competing lending models: risk-contingent credit (RCC)—which embeds crop insurance with a loan product—and traditional credit (TC). We rely on local average treatment effects to demonstrate the effects of these alternative credit products on borrowers but report the intention-to-treat effects for their broader policy significance. Uptake of RCC increased treated households’ farm investments—specifically, adoption of chemical fertilizers—by up to 14 percent along the extensive margins and by more than 100 percent along the intensive margins, while TC’s effects were less in both magnitude and statistical significance. Neither type of credit product had a significant effect on the overall area cultivated under maize, hence enhancing agricultural intensification but not extensification. Ex-post, neither type of credit product had a strong direct effect on households’ productivity. We conclude that access to credit has potential to increase investment and productivity among smallholders, although improved productivity needs better measurement and extended intervention to be realized. To scale the potential effects of credit, derisking access to credit should be considered to expand access to credit. |
| Keywords: | credit; productivity; investment; smallholders; welfare; risk; Africa; Eastern Africa; Sub-Saharan Africa; Kenya |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:ifprid:2303 |
| By: | Kim, Cholwoo (Department of Economics, University of Warwick) |
| Abstract: | This paper examines Ramsey-type optimal monetary policy in an open economy with a two-country dynamic general equilibrium model where search and matching frictions exist in labor markets along with the limited participation in the financial markets. Monetary policy affects the decision of firms in labor markets because firms finance their wage bills with loans from domestic financial intermediaries in advance. There are two main results associated with optimal monetary policy. The long-term optimal nominal interest rate could be zero suggesting negative optimal inflation rate in the long run because the terms of trade effect on consumption could be weaken by search frictions. As a result of Ramsey optimal monetary policy, dynamics of business cycles in both countries show similar patterns in response to a productivity shock and, in turn, higher cross-country correlations of real variables. |
| Keywords: | labor market frictions ; search and matching ; working capital ; optimal monetary policy JEL Codes: E24 ; E52 ; F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1539 |
| By: | Heng-fu Zou (The World Bank) |
| Abstract: | By the 13th century, England had developed a market-oriented, legally sophisticated, and proto-capitalist system that set it apart from continental Europe. This economy, characterized by widespread market activity, financial innovation, and a mobile labor force, integrated tools like mortgages, loans, and banking, supported by institutions such as the stock exchange and robust property rights. Unlike subsistence-based economies, England's dynamic system encouraged growth, productivity, and innovation. These long-standing financial and legal structures laid the groundwork for England's industrialization and global economic leadership, showcasing that its rise to dominance was the result of centuries of gradual evolution and strategic development. |
| Date: | 2025–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:719 |
| By: | William M. Doerner (Federal Housing Finance Agency); Michael J. Seiler (Federal Housing Finance Agency); Matthew Suandi (Federal Housing Finance Agency) |
| Abstract: | We find a puzzling increase in home valuations following the adoption of stricter flood standards. At the same time, we are observing shifts in appraisers' valuation practices. Specifically, appraisers reduce negative language, use fewer flood-zone comparables, and apply smaller adjustments to comparable sales, suggesting a behavioral adaptation rather than a market mispricing. Experienced appraisers are more likely to underappraise properties, yet appraisal values still generally match or exceed contract prices 89.2% of the time. These aforementioned changes and the underlying market dynamics are unlikely to be driven by changes in underlying flood risk. Future research on this topic is warranted. |
| Keywords: | appraisal, disclosure, flood, mortgage, real estate |
| JEL: | D84 G18 G21 K32 Q54 R31 R38 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:hfa:wpaper:25-02 |
| By: | Fengler, Matthias; Koeniger, Winfried; Minger, Stephan |
| Abstract: | We analyze the transmission of monetary policy to the costs of hedging using options order book data. Monetary policy transmits to hedging costs both by changing the relevant state variables, such as the value of the underlying, its volatility and tail risk, and by affecting option market liquidity, including the bid-ask spread and market depth. Our estimates suggest that during the peak of the pandemic crisis in March 2020, monetary policy decisions resulted in substantial changes in hedging costs even within short intraday time windows around the decisions, amounting approximately to the annual expenses of a typical equity mutual fund. |
| Keywords: | Liquidity, Monetary policy, Option order books, Option markets, COVID-19 pandemic |
| JEL: | G13 G14 D52 E52 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:308803 |
| By: | Abdul Rahim, Mohamad Syafiqe |
| Abstract: | In current Islamic banking products particularly in financing facility, the purpose of financing could be for asset acquisition or to obtain cash. In addition, financing may be given on secured or clean basis. For financing with secured asset, normally the value of security asset will match the financing amount whereas for unsecured facility, the underlying asset is merely to facilitate the transaction in which the value may not match the financing amount. In other words, the contracting parties may enter into transaction using an asset in which the price may be higher or lower than the actual market value. Such arrangement may lead to the issue on the permissibility to transact asset at different price than the actual cost or market value. This paper discusses on the Shariah and operational concerns in relation to possible benchmark on underlying asset value for Islamic banking transaction. This article is based on qualitative research approach which is purely based on primary data gathered through library research and observation from practitioner perspective. The outcome from the literature review can be applied as the possible asset value benchmark. |
| Keywords: | Benchmark, Underlying Asset Value, Islamic Banking product, Shariah |
| JEL: | G12 G2 |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123098 |
| By: | Maxted, Peter; Laibson, David; Moll, Ben |
| Abstract: | We study the effect of monetary and fiscal policy in a heterogeneous-agent model where households have present-biased time preferences and naive beliefs. The model features a liquid asset and illiquid home equity, which households can use as collateral for borrowing. Because present bias substantially increases households’ marginal propensity to consume (MPC), present bias increases the effect of fiscal policy. Present bias also amplifies the effect of monetary policy, but at the same time, slows down the speed of monetary transmission. Interest rate cuts incentivize households to conduct cash-out refinances, which become targeted liquidity injections to high-MPC households. Present bias also introduces a motive for households to procrastinate refinancing their mortgages, which slows down the speed with which this monetary channel operates. |
| JEL: | E21 E60 |
| Date: | 2025–02–28 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:123935 |
| By: | Winnie Coleman; Dieter Nautz |
| Abstract: | This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB’s inflation target. Containing over 200, 000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB’s inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap. |
| Keywords: | Credibility of Inflation Targets, Consumer Inflation Expectations, Expectation Formation |
| JEL: | D84 E31 E52 E58 |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0060 |
| By: | Robert Novy-Marx; Mihail Z. Velikov |
| Abstract: | This paper describes a process for automatically generating academic finance papers using large language models (LLMs). It demonstrates the process’ efficacy by producing hundreds of complete papers on stock return predictability, a topic particularly well-suited for our illustration. We first mine over 30, 000 potential stock return predictor signals from accounting data, and apply the Novy-Marx and Velikov (2024) “Assaying Anomalies” protocol to generate standardized “template reports” for 96 signals that pass the protocol’s rigorous criteria. Each report details a signal’s performance predicting stock returns using a wide array of tests and benchmarks it to more than 200 other known anomalies. Finally, we use state-of-the-art LLMs to generate three distinct complete versions of academic papers for each signal. The different versions include creative names for the signals, contain custom introductions providing different theoretical justifications for the observed predictability patterns, and incorporate citations to existing (and, on occasion, imagined) literature supporting their respective claims. This experiment illustrates AI’s potential for enhancing financial research efficiency, but also serves as a cautionary tale, illustrating how it can be abused to industrialize HARKing (Hypothesizing After Results are Known). |
| JEL: | A12 C12 C18 C45 G11 G12 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33363 |