nep-ban New Economics Papers
on Banking
Issue of 2025–02–10
thirty-two papers chosen by
Sergio Castellanos-Gamboa, Tecnológico de Monterrey


  1. “Time for a Change of Scenery”: Loan Conditions When Firms Switch Bank Branches By Di Gong; Steven Ongena; Shusen Qi
  2. Country-wide protests and financial stability By Ozili, Peterson K
  3. Monetary Evolution: How Societies Shaped Money from Antiquity to Cryptocurrencies By Mahya Karbalaii
  4. A Sraffian Approach to the Relationship Between the Interest Rate and the Profit Rate By Riccardo Zolea
  5. Exchange rate and financial inclusion By Ozili, Peterson K
  6. Commodity prices and monetary policy: old and new challenges By Fernando Avalos; Ryan Niladri Banerjee; Matthias Burgert; Boris Hofmann; Cristina Manea; Matthias Rottner
  7. Are money demand equations still alive and kicking? Historical evidence of cointegration for the UK, using nonlinear techniques By Escribano Saez, Álvaro; Rodríguez, Juan Andrés; Arranz Cuesta, Miguel Angel
  8. How do Retail Investors Adapt to Exchange Rate Shocks? By Martin Brown; Daniel Hoechle; Alejandra Perez; Markus Schmid
  9. The impact of banks’ liability management on large lending volume. Empirical Evidence from US Banks By Tsagkanos, Athanasios; Andriakopoulos, Konstantinos
  10. Monetary policy and real estate asset prices in Morocco By Hassnae HAMMOU OU ALI
  11. Implementation of an Asymmetric Adjusted Activation Function for Class Imbalance Credit Scoring By Xia Li; Hanghang Zheng; Kunpeng Tao; Mao Mao
  12. Development of Islamic Deposit Product Post-Islamic Financial Services Act 2013: A Retrospective Analysis By Abdul Rahim, Mohamad Syafiqe
  13. The Bank of Japan's Finances and Simulations for Profits and Capital By Policy Infrastructure Division, Monetary Affairs Department
  14. Inflation Expectations and Information Selection: Evidence from a Randomized Control Trial By Kento Tango; Junichi Kikuchi; Yoshiyuki Nakazono
  15. Measuring Natural Rate of Interest in Uzbekistan By Islomjon Inkhomiddinov
  16. Forecasting for monetary policy By Laura Coroneo
  17. Liquidity, Collateral Quality and Interest Rate By Jung-Hyun Ahn; Vincent Bignon; Régis Breton
  18. Do Inflation Expectations Become More Anchored During a Disinflation Episode? Evidence for Euro Area Firms By Ursel Baumann; Annalisa Ferrando; Dmitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt
  19. The Gendered Impact of Social Norms on Financial Access and Capital Misallocation By Grover, Arti; Viollaz, Mariana
  20. Phase transitions in debt recycling By Aufiero, Sabrina; Forer, Preben; Vivo, Pierpaolo; Caccioli, Fabio; Bartolucci, Silvia
  21. The Transmission of Monetary Policy to the Cost of Hedging By Matthias R. Fengler; Winfried Koeniger; Stephan Minger
  22. Climate Risks, Just Transition, and Central Bank Policy for Sustainable Economic Growth By Juhro, Solikin M.; Robinson, Irman; Rahadyan, Heru; Rishanty, Arnita
  23. The Monetary Roots of Exploitation By Andini, Corrado
  24. Monetary Transmission Through Community and Noncommunity Bank Lending By Nikolaishvili, Giorgi
  25. Assortative Matching, Interbank Markets, and Monetary Policy By Christian Bittner; Rustam Jamilov; Farzad Saidi
  26. Forecasting Dutch inflation using machine learning methods By Robert-Paul Berben; Rajni Rasiawan; Jasper de Winter
  27. Tech Reluctance: Fostering Empathy for Canadians Facing Challenges with Digital Systems By Sebastian Hernandez; Helena Wang; Badr Omrane; Vera Roberts; David Pereyra
  28. Redistributive Inflation and Optimal Monetary Policy By Yucheng Yang
  29. Shades of inflation targeting: insights from fractional integration By Dąbrowski, Marek A.; Janus, Jakub; Mucha, Krystian
  30. The Distribution of Household Debt in the United States, 1950-2022 By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
  31. Nowcasting Peru's GDP with Machine Learning Methods By Jairo Flores; Bruno Gonzaga; Walter Ruelas-Huanca; Juan Tang
  32. Impact of Digital Literacy on Financial Outcomes – A Cross-Country Analysis By Shakeel, Jovera; Munir, Shehzil; Mirza, Schaff; Abdullah, Khan

  1. By: Di Gong (University of International Business and Economics (UIBE) - School of Banking and Finance); Steven Ongena (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Shusen Qi (Xiamen University)
    Abstract: Firms switching banks initially receive a lower loan rate. But what if firms switch branches within the same bank? Studying the population of corporate loans originated by a large commercial bank in China from 2010 to 2020, we find that when firms switch branches, the switching loans carry a significantly lower spread than the comparable nonswitching loans as well. After switching, the new branch further reduces the loan spreads initially, but ratchets it up afterwards, surprising evidence of the existence of intra-bank holdup ! Importantly, the deployment of FinTech within the bank first mitigates but then intensifies this holdup.
    Keywords: bank lending, hold-up, firm-bank relationship
    JEL: G21 G32 L14
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:chf:rpseri:rp2510
  2. By: Ozili, Peterson K
    Abstract: This paper investigates the effect of country-wide protests on financial stability after controlling for inflation rate and the level of political stability. Country-wide protests may pressure a powerful government to listen and meet the demands of relatively less powerful groups, but country-wide protests can be destructive especially when such protests lead to the destruction of the business assets of the clients of financial institutions thereby making it difficult for them to meet their loan repayment and other obligations to financial institutions, and posing risk to the stability of the financial system. Financial stability and country-wide protests data were analysed for the United Kingdom. The empirical results show that bank non-performing loans are higher in country-wide protests years, implying that country-wide protests have a significant negative impact on financial stability through high non-performing loans in years where there are country-wide protests.
    Keywords: financial stability, United Kingdom, protest, demonstrations, non-performing loans, country-wide protests.
    JEL: G21 G28
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123300
  3. By: Mahya Karbalaii
    Abstract: With the growing popularity and rising value of cryptocurrencies, skepticism surrounding this groundbreaking innovation persists. Many financial and business experts argue that the value created in the cryptocurrency realm resembles the generation of currency from thin air. However, a historical analysis of the fundamental concepts that have shaped money reveals striking parallels with past transformations in human society. This study extends these historical insights to the present era, demonstrating how enduring monetary concepts are once again redefining our understanding of money and reshaping its form. Additionally, we offer novel interpretations of cryptocurrency by linking the intrinsic nature of money, the communities it fosters, and the cryptographic technologies that have provided the infrastructure for this transformative shift.
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2501.10443
  4. By: Riccardo Zolea
    Abstract: : This paper tries to offer a new interpretation of the relationship between interest rate and profit rate, based on the profitability of bank capital and a rethinking of the traditional multi-sectoral depiction of the economy: that is, considering the banking sector as a particular ‘productive’ sector with a specific price equation. The tool of the Sraffian-type price equation is used to study and represent this relationship within the framework of the Sraffian “Marxian” approach of Garegnani. In order to describe the operation of the banking sector with such a tool, a careful analysis of the necessary and normal coefficients of a banking sector price equation is conducted and the compatibility of economic concepts such as input, output and capital with endogenous money theory is discussed. The results of this investigation show the possibility of conceiving a causal relationship between the rate of profit to the rate of interest, with the central bank wielding significant influence. These findings can also reconnect and develop the different cues in Marx's analysis of the financial system, which are apparently contradictory.
    Keywords: : Sraffian price equation; bank profitability; interest rate, endogenous money; Marx Jel Classification: E11; E43; G21
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:usi:wpaper:924
  5. By: Ozili, Peterson K
    Abstract: The relationship between financial inclusion and exchange rate has not received any attention in the literature. This study investigates the effect of the official exchange rate on the level of financial inclusion. A sample of 17 countries were analysed from 2012 to 2020. Four financial inclusion indicators were used in the analysis: the number of ATMs per 100, 000 adults variable, the number of bank accounts (or depositors) per 1, 000 adults variable, the number of commercial bank branches per 100, 000 adults variable, and a financial inclusion index. The correlation result shows that financial inclusion and exchange rate are negatively correlated while the regression result shows that a weakening official exchange rate or currency depreciation has a significant positive impact on financial inclusion through increase in the number of bank depositors (or bank accounts) and increase in the number of commercial bank branches. The findings support the argument that currency depreciation will lead people to take more loans which will increase bank profitability and encourage banks to expand to new locations to acquire new depositors, thereby increasing financial inclusion. The implication of the study is that currency depreciation is beneficial effect for financial inclusion. It is recommended that policymakers should determine the right level of currency depreciation (or devaluation) that is needed to support national financial inclusion efforts and they should manage the exchange rate around that level.
    Keywords: financial inclusion, exchange rate, bank branch, depositors, depreciation, devaluation
    JEL: F13
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123292
  6. By: Fernando Avalos; Ryan Niladri Banerjee; Matthias Burgert; Boris Hofmann; Cristina Manea; Matthias Rottner
    Abstract: Major price increases in energy and food were key drivers of the 2021–22 inflation surge. These large supply-driven commodity price increases, occurring when inflation was already elevated in many countries, increased the risk of moving to a high-inflation regime. Central banks have tended to look through commodity price fluctuations due to their often transitory nature and the implied trade-off between inflation and output stabilisation in the case of supply-driven price shocks. Growing geopolitical disruptions, climate change and a bumpy transition to green energy threaten to make commodity price shifts larger and more frequent going forward. This potentially raises greater risks for price stability, thereby limiting the scope for monetary policy to look through them.
    Date: 2025–01–08
    URL: https://d.repec.org/n?u=RePEc:bis:bisblt:96
  7. By: Escribano Saez, Álvaro; Rodríguez, Juan Andrés; Arranz Cuesta, Miguel Angel
    Abstract: Since the influential works of Friedman and Schwartz (1963, 1982) and Hendry and Ericsson (1991), on the monetary history of the United States of America and the United Kingdom from 1876 to 1975, there has been a great concern in the literature about the instability of money demand functions. This concern together with the results of the New Keynesian´s models (Woodford, 2003), produced the abandon of money as an instrument of monetary policy. Recently, using M1 as the measure of money, Benati, Lucas, Nicolini and Weber (2021) have shown, for a shorter and recent period of time, that there is a stable long-run money demand for a long list of countries. However, to date there are no studies showing that stable long-run and short-run money demand equations exist since the XIX century and how it can be used to inform monetary policy based on the quantitative theory of money. By means of nonlinear cointegration and nonlinear error-correction models, this paper presents evidence of UK stable long-run and short-run money demands of real broad monetary balances from 1874 to 2023. These equations provide with key elements to identify periods of excess money demand generating periods of 6.5% excess inflation, over the historical 2.2% average. Stable Money demand estimates provide useful policy rules and additional cross-check instruments for monetary policy to reach inflation targets. Furthermore, they help identifying spurious transmission channels of monetary policy, when theoretical models impose invalid common factor restrictions.
    Keywords: Money demand stability; Nonlinear cointegration; Nonlinear equilibrium correction; Nonlinear error correction; Opportunity cost of holding money; Role of money in monetary policy
    JEL: E41 E43 E47 E51
    Date: 2025–01–31
    URL: https://d.repec.org/n?u=RePEc:cte:werepe:45845
  8. By: Martin Brown (Swiss National Bank - Study Center Gerzensee; University of St. Gallen); Daniel Hoechle (FHNW School of Business - Institute for Finance; University of Basel - Department of Finance); Alejandra Perez; Markus Schmid (University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI))
    Abstract: We study the impact of monetary policy on household finance in open economies. We examine the response of retail investors to a policy shock which led to (i) a sharp appreciation of the domestic currency, (ii) a significant increase in exchange rate volatility, and (iii) the introduction of a negative policy rate. Our analysis is based on monthly, account-level data covering bank deposits, securities holdings and trades for a large sample of affluent bank clients. The policy shock leads to a shift of assets away from fixed income securities towards domestic currency bank deposits and foreign currency risky securities. Wealthier clients display a stronger portfolio shift towards risky securities in foreign currency as they search for yield. Investor attention, as measured by trading activity and contacts with bank advisors, increases temporarily after the shock.
    Keywords: Household finance, Monetary policy, Financial stability, Exchange rates, Interest rates
    JEL: E41 E52 E58 F31 G11 G21 G51
    Date: 2024–12
    URL: https://d.repec.org/n?u=RePEc:chf:rpseri:rp24108
  9. By: Tsagkanos, Athanasios; Andriakopoulos, Konstantinos
    Abstract: Banks provide credit to large firms either to finance large firms’ investment projects with positive net present values or to lend out SMEs indirectly through the expansion of trade credit by large firms which have Access to bank credit. The aim of the current article is twofold: to provide empirical evidence that time deposits affect the supply of large lending and to study whether the large lending volume differs according to banks’ characteristics. We employ a Heckman’s sample selection model to take into account the latent (unobserved) mechanism that banks use to decide whether to lend out large firms either to finance their goals or to provide trade credit to SMEs. We create a panel of US banks acquired from Statistics on Depository Institutions (SDI) report made by Federal Deposit Insurance Corporation (FDIC) covering the period from 2012 to 2021. The results of this study offer us empirical evidence of positive relationship between large lending volume and time deposits, which means that the availability of long time-term liabilities increases large lending as this flexibility of banks’ liability management implies that banks can aggressively expand their assets obtaining funds (by issuing time deposits) as they were needed.
    Keywords: Banking ; Large Lending; Time Deposits, Sample Selection
    JEL: C23 C51 E5 G2 G21
    Date: 2025
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123323
  10. By: Hassnae HAMMOU OU ALI (Bank Al-Maghrib)
    Abstract: This study investigates the role of housing prices in the Moroccan economy and their response to monetary policy shocks. Using a Structural Vector Autoregression (SVAR) model, we explore the transmission mechanisms of monetary policy through various channels, including interest rates, credit availability, and consumer confidence. The analysis uses a comprehensive dataset spanning the period from 2006 to 2024, focusing on macroeconomic indicators, monetary policy instruments, and the Real Estate Asset Price Index (REPI). Empirical findings reveal that contractionary monetary policy leads to a delayed decline in housing prices, which may reflect structural rigidities in Morocco's real estate market. This study contributes to understanding the interplay between monetary policy and asset markets in emerging economies, providing insights for policymakers seeking to balance growth and stability objectives.
    Keywords: Real estate prices; Monetary policy; Interest rate; transmission channels
    JEL: E52 E40 R32 C32
    Date: 2025–02–03
    URL: https://d.repec.org/n?u=RePEc:gii:giihei:heidwp03-2025
  11. By: Xia Li; Hanghang Zheng; Kunpeng Tao; Mao Mao
    Abstract: Credit scoring is a systematic approach to evaluate a borrower's probability of default (PD) on a bank loan. The data associated with such scenarios are characteristically imbalanced, complicating binary classification owing to the often-underestimated cost of misclassification during the classifier's learning process. Considering the high imbalance ratio (IR) of these datasets, we introduce an innovative yet straightforward optimized activation function by incorporating an IR-dependent asymmetric adjusted factor embedded Sigmoid activation function (ASIG). The embedding of ASIG makes the sensitive margin of the Sigmoid function auto-adjustable, depending on the imbalance nature of the datasets distributed, thereby giving the activation function an asymmetric characteristic that prevents the underrepresentation of the minority class (positive samples) during the classifier's learning process. The experimental results show that the ASIG-embedded-classifier outperforms traditional classifiers on datasets across wide-ranging IRs in the downstream credit-scoring task. The algorithm also shows robustness and stability, even when the IR is ultra-high. Therefore, the algorithm provides a competitive alternative in the financial industry, especially in credit scoring, possessing the ability to effectively process highly imbalanced distribution data.
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2501.12285
  12. By: Abdul Rahim, Mohamad Syafiqe
    Abstract: The Islamic Financial Services Act 2013 (IFSA) came into force on 30 June 2013 with the objective to pave way for the development of an end-to-end Shariah compliant regulatory framework for the conduct of Islamic financial operation in Malaysia. A key concern among Islamic banks is regarding the reclassification and requirements in differentiating between Islamic deposit and investment account. IFSA has introduced two major classifications of products for the acceptance of money from customers by the Islamic banks, namely Islamic deposits and investment accounts. This paper retrospectively analyses the development of Islamic deposit products following the enforcement of the IFSA. This paper explores the industry's response to these requirements and outlines the prevailing structures of Islamic deposit products used by Malaysian Islamic banks. It also assesses the impact of IFSA regulations on these structures. This study is based on qualitative research approach which is purely based on primary data gathered through library research and interview. The paper highlights that, while the reclassification requirement under IFSA 2013 necessitates additional efforts from Islamic banks, it aligns Islamic banking more closely with the objective of underlying Shariah contract (maqasid al-aqd). This initiative, though still in its early stages, represents a departure from conventional banking practices and emphasizes the significance of ijtihad in the development of novel financial products.
    Keywords: Islamic Financial Services Act, Transition, Islamic Deposit, Investment Account, Shariah contract
    JEL: G21 K1 K10 K20
    Date: 2025–01–15
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123343
  13. By: Policy Infrastructure Division, Monetary Affairs Department (Bank of Japan)
    Abstract: The Bank of Japan deems it important to gain a broad understanding of its thinking on central bank finances and monetary policy conduct, and has thus been releasing various communications with regard to how monetary policy conduct affects central bank finances. This paper restates this mechanism and presents simulations for the Bank's future profits and capital by using certain assumptions based on interviews with market participants, taking into account recent changes in monetary policy conduct, including the change of its monetary policy framework and policy interest rate hikes. The results show that, in a scenario in which interest rates are priced in by the market rate, the negative impact on the Bank's finances is limited. Under more severe assumptions, on the other hand, a certain level of financial risk was indicated. The Bank of Japan will continue to ensure its financial soundness in light of the simulation results.
    Date: 2025–01–31
    URL: https://d.repec.org/n?u=RePEc:boj:bojrev:rev25e01
  14. By: Kento Tango; Junichi Kikuchi; Yoshiyuki Nakazono
    Abstract: This study employs randomized control trial methods to explore how information selection and processing contribute to the heterogeneity in consumers’ inflation expectations. We find that, first, respondents vary in their preferences for inflation forecasts from established institutions. Second, providing credible information about future inflation helps stabilize expectations, with follow-up surveys indicating that this effect persists for at least one month. Third, respondents revise their expectations more extensively when provided with additional information. Fourth, respondents incorporate information more fully when they can choose the information they view. Individuals with exposure to interest rate risk are more likely to focus on relevant signals.
    Date: 2025–01–23
    URL: https://d.repec.org/n?u=RePEc:toh:tupdaa:62
  15. By: Islomjon Inkhomiddinov (The Central Bank of Uzbekistan)
    Abstract: The natural rate of interest, often interpreted as the equilibrium real interest rate, serves as a critical benchmark for evaluating the stance of monetary policy. This paper investigates the natural rate of interest in Uzbekistan using three econometric approaches: the HLW-type model (1), a modified HLW-type model, and the Central Bank of Uzbekistan's Quarterly Projection Model (QPM), semi-structural framework. The semi-structural HLW-type and modified HLW-type models estimate the real interest rate using core inflation, while the QPM relies on headline inflation. The results indicate that the natural rate was relatively stable across the models. The semi-structural HLW-type and modified HLW-type models produced average natural rate estimates of 4.5 percent and 4.1 percent, respectively, while the QPM estimated a slightly lower average rate of 3.4 percent. On average, the natural rate across all models was approximately 4.0 percent. In contrast, the real interest rate exhibited significant variability, reflecting periods of accommodative monetary policy before the adoption of the inflation targeting regime and restrictive policies during the IT regime’s active implementation. These findings emphasize the critical role of accurately estimating the natural rate to guide monetary policy and ensure macroeconomic stability effectively. (1) Holston-Laubach-Williams (2016)
    Keywords: Natural level of Real Interest Rate; Core Inflation; Kalman Filter; Bayesian Estimation
    JEL: E42 E43 E52 E59
    Date: 2025–02–03
    URL: https://d.repec.org/n?u=RePEc:gii:giihei:heidwp02-2025
  16. By: Laura Coroneo
    Abstract: This paper discusses three key themes in forecasting for monetary policy highlighted in the Bernanke (2024) review: the challenges in economic forecasting, the conditional nature of central bank forecasts, and the importance of forecast evaluation. In addition, a formal evaluation of the Bank of England's inflation forecasts indicates that, despite the large forecast errors in recent years, they were still accurate relative to common benchmarks.
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:arx:papers:2501.07386
  17. By: Jung-Hyun Ahn (NEOMA Business School); Vincent Bignon (AMSE, Banque de France; Banque de France); Régis Breton (Banque de France)
    Abstract: This paper analyzes how collateral quality shocks affect banks’ liquidity management and the risk-free rate. We develop a model where banks manage liquidity through near-cash assets and marketable securities subject to idiosyncratic and/or aggregate shocks. Collateral quality deterioration leads to non-monotonic changes in liquidity holdings: moderate declines reduce cash holdings via lower market returns, while severe declines cause precautionary hoarding and market freezes. Reduced collateral quality depresses the risk-free rate. Policy interventions, including liquidity regulation and negative interest rate policies can mitigate these effects. Our findings highlight the risks of collateral quality shocks and the importance of policy complementarities in addressing liquidity issues.
    Keywords: interbank market, risk-free rate, collateral, liquidity regulation, negative interest rate, cash-hoarding.
    JEL: E58 G28 G21
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:aim:wpaimx:2502
  18. By: Ursel Baumann; Annalisa Ferrando; Dmitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt
    Abstract: Does a successful disinflation contribute to the anchoring of inflation expectations? We provide novel survey evidence on the dynamics of euro area firms’ inflation expectations during the disinflation episode since 2022. We show that firms’ short-term inflation expectations declined steadily towards the inflation target as the disinflation progressed. However, we also document a thick tail in longer-term inflation expectations, substantial disagreement about the inflation outlook, and an increased sensitivity of longer-term inflation expectations to short-term inflation expectations. These findings suggest that it may take more time to bring inflation expectations fully in line with central bank objectives.
    Keywords: inflation expectations; firms; surveys; anchoring
    JEL: E31 E52
    Date: 2025–01–31
    URL: https://d.repec.org/n?u=RePEc:fip:fedfwp:99484
  19. By: Grover, Arti (World Bank); Viollaz, Mariana (CEDLAS-UNLP)
    Abstract: This paper provides evidence on the nature of financial constraints faced by women entrepreneurs, especially in contexts of stringent social norms. Using micro-data from the World Bank Enterprise Surveys for 61 countries, the analysis shows that formal firms managed by women do not face credit constraints on the extensive margin. They are equally likely to apply for credit as their male counterparts and experience lower rates of credit rejection, with a higher likelihood of opening credit lines. However, on the intensive margin, firms managed by women receive lower credit amounts, indicating signs of credit constraints. This disparity in access to credit cannot be explained by gender differences in risk profiles, profitability, or productivity. However, firms managed by women have lower sales per worker, suggesting challenges in accessing product and labor markets. The paper finds suggestive evidence of capital misallocation based on gender, particularly in countries with more restrictive gender and cultural norms. Firms managed by women demonstrate a 15 percent higher average return on capital compared to firms managed by men, indicating the potential benefits of increased access to credit for women-led businesses. These findings emphasize the importance of addressing gender-specific constraints to accessing finance and promoting gender-inclusive policies to enhance firm growth and reduce capital misallocation.
    Keywords: firms, credit, capital misallocation, gender, social and cultural norms
    JEL: D22 D24 J16
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:iza:izadps:dp17630
  20. By: Aufiero, Sabrina; Forer, Preben; Vivo, Pierpaolo; Caccioli, Fabio; Bartolucci, Silvia
    Abstract: Debt recycling is an aggressive equity extraction strategy that potentially permits faster repayment of a mortgage. While equity progressively builds up as the mortgage is repaid monthly, mortgage holders may obtain another loan they could use to invest on a risky asset. The wealth produced by a successful investment is then used to repay the mortgage faster. The strategy is riskier than a standard mortgage-repayment plan since fluctuations in the house market and investment's volatility may also lead to a fast default, as both the mortgage and the liquidity loan are secured against the same good. The general conditions of the mortgage holder and the outside market under which debt recycling may be recommended or discouraged have not been fully investigated. In this paper, in order to evaluate the effectiveness of traditional monthly mortgage repayment versus debt recycling strategies, we build a dynamical model of debt recycling and study the time evolution of equity and mortgage balance as a function of loan-to-value ratio, house market performance, and return of the risky investment. We find that the model has a rich behavior as a function of its main parameters, showing strongly and weakly successful phases – where the mortgage is eventually repaid faster and slower than the standard monthly repayment strategy, respectively – a default phase where the equity locked in the house vanishes before the mortgage is repaid, signaling a failure of the debt recycling strategy, and a permanent re-mortgaging phase – where further investment funds from the lender are continuously secured, but the mortgage is never fully repaid. The strategy's effectiveness is found to be highly sensitive to the initial mortgage-to-equity ratio, the monthly amount of scheduled repayments, and the economic parameters at the outset. The analytical results are corroborated with numerical simulations with excellent agreement.
    Keywords: debt recycling; equity release; household finance; loan-to-value ratio; mortgage affordability
    JEL: G11 G21 D14 R31 C63
    Date: 2025–02
    URL: https://d.repec.org/n?u=RePEc:ehl:lserod:127108
  21. By: Matthias R. Fengler (University of St. Gallen - SEPS: Economics and Political Sciences; Swiss Finance Institute); Winfried Koeniger (University of St. Gallen; CESifo (Center for Economic Studies and Ifo Institute); Center for Financial Studies (CFS); IZA Institute of Labor Economics; Swiss Finance Institute); Stephan Minger (University of St. Gallen)
    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: 2025–01
    URL: https://d.repec.org/n?u=RePEc:chf:rpseri:rp2503
  22. By: Juhro, Solikin M.; Robinson, Irman; Rahadyan, Heru; Rishanty, Arnita
    Abstract: Climate change poses major challenges to the global economy and society, requiring coordinated efforts to alleviate its impacts. Given the nature of climate change, the adoption of central bank policies offers a more holistic strategy for managing and mitigating climate risks, thereby bolstering the resilience of the financial system and the economy. This paper aims to explore the critical tasks of coping with climate risks and proposes an integrated central bank climate regulatory framework to foster sustainable economic growth, by exploring the transmission mechanisms of central bank policies to support the establishment of just transition targets. The framework delineates three essential strategies, namely: (i) data, tools, and research, (ii) regulation and supervision, and (iii) climate transition policy. This paper shows that the central bank’s climate policies to manage transition risks can navigate just transition and support the achievement of sustainable economic growth. The operationalization of these strategies extends beyond the traditional purview of central bank activities, necessitating a collaborative and synergistic approach among regulators and industry stakeholders to guide the global economy toward sustainability.
    Keywords: climate risks, just transition target, sustainability, sustainable finance, sustainable economic growth, central bank policy.
    JEL: O13 Q52 Q54 Q56 Q58
    Date: 2024–12–15
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123324
  23. By: Andini, Corrado (University of Madeira)
    Abstract: This paper proposes a theory of the mark-up that is embedded in a circuit model of the capitalist mode of production. The model and the theory are built on Keynes's principle of effective demand, Graziani's monetary theory of production and Pivetti's monetary theory of distribution. The price-setting mechanism is conceived as driven by a Kaleckian rule. The rate of interest on bank loans and the propensities to save of different macro-players are shown to affect the level of the mark-up, thus contributing to explain "labour exploitation" as measured by the average gap between worker's pay and productivity. In other words, "labour exploitation" is seen as being in part originated by monetary phenomena, such as the rentability of bank credit and the macro-players' propensities to accumulate money in a bank account.
    Keywords: profit, wage, money, finance, capitalism
    JEL: B22 E11 E12 E40
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:iza:izadps:dp17609
  24. By: Nikolaishvili, Giorgi (Wake Forest University, Economics Department)
    Abstract: This paper examines the dynamic macroeconomic effects of monetary transmission through community and noncommunity bank lending in the United States. I find that while both types of banks amplify the impact of monetary policy shocks on output, community banks exhibit a more delayed and persistent amplificatory influence than their noncommunity counterparts. These results suggest that continued decline in community banks' market share may dampen the efficacy of monetary policy over longer horizons. Moreover, the adverse real effects of monetary tightening are likely to be longer-lasting for small business borrowers who depend on community banks for funding.
    Keywords: Community banks; FAVAR; lending channel; monetary policy; relationship lending
    JEL: E51 E52 G21
    Date: 2025–01–29
    URL: https://d.repec.org/n?u=RePEc:ris:wfuewp:0123
  25. By: Christian Bittner (Deutsche Bundesbank & Goethe University Frankfurt); Rustam Jamilov (University of Oxford); Farzad Saidi (University of Bonn & CEPR)
    Abstract: We develop a quantitative macroeconomic framework with heterogeneous financial intermediaries and active liquidity management. In the model, banks manage uninsured, idiosyncratic deposit withdrawal risk through an iterative over-the-counter interbank market with endogenous intensive and extensive margins and equilibrium assortative matching based on balance sheet size. We validate our framework using administrative data from Germany encompassing the universe of bank-to-bank exposures. Our findings strongly support the presence of assortative matching in the data, thereby confirming the model's key mechanism. We show that assortative matching can inefficiently lead to reduced trading volumes and a broader region of inaction in the interbank market, a smaller and riskier banking sector, and a macroeconomy characterized by lower aggregate output. Using our empirically validated framework, we explore secular trends in interbank trading, the roles of liquidity and interest rate corridor policies, and the impact of deposit market power.
    Keywords: Heterogeneous banks, interbank markets, monetary policy, liquidity policy
    JEL: E44 E52 G20 G21
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:ajk:ajkdps:353
  26. By: Robert-Paul Berben; Rajni Rasiawan; Jasper de Winter
    Abstract: This paper examines the performance of machine learning models in forecasting Dutch inflation over the period 2010 to 2023, leveraging a large dataset and a range of machine learning techniques. The findings indicate that certain machine learning models outperform simple benchmarks, particularly in forecasting core inflation and services inflation. However, these models face challenges in consistently outperforming the primary inflation forecast of De Nederlandsche Bank for headline inflation, though they show promise in improving the forecast for non-energy industrial goods inflation. Models employing path averages rather than direct forecasting achieve greater accuracy, while the inclusion of non-linearities, factors, or targeted predictors provides minimal or no improvement in forecasting performance. Overall, Ridge regression has the best forecasting performance in our study.
    Keywords: Inflation forecasting; Big data; Machine learning; Random Forest; Ridge regression
    JEL: C22 C53 C55 E17 E31
    Date: 2025–02
    URL: https://d.repec.org/n?u=RePEc:dnb:dnbwpp:828
  27. By: Sebastian Hernandez; Helena Wang; Badr Omrane; Vera Roberts; David Pereyra
    Abstract: Designing inclusive and user-friendly digital payment systems is crucial to eliminate barriers faced by users. This research focuses on fostering empathy for and identifying the needs of users who exhibit behaviours that indicate they encounter accessibility or usability barriers in digital systems. Specifically, we examine two types of users based on two common behaviours: users who rely on others to perform tasks and those who avoid interacting with technology. The Bank of Canada partnered with the Inclusive Design Research Centre at OCAD University to gain a deeper understanding of these groups. Co-design sessions with end users were used to identify scenarios when cooperative efforts are needed, system features that facilitate supported banking and pain points customers and their support people encounter. The findings show that individuals in the two groups avoid systems they expect lack usability. Addressing these issues through standard accessibility practices, live assistance and thoughtful interface design can enhance user interaction and trust. For accessibility issues that cannot realistically be eliminated, technology that enhances cooperative relationships and allows account owners to control information sharing is key. Classification-JEL: A14 C90 D83 O33 Y80
    Keywords: Accessibility; Bank notes; Central bank research; Digital currencies and fintech; Digitalization; Financial services
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:bca:bocadp:25-02
  28. By: Yucheng Yang (University of Zurich; Swiss Finance Institute)
    Abstract: Inflation has heterogeneous impacts on households, which then affects optimal monetary policy design. I study optimal monetary policy rules in a quantitative heterogeneous agent New Keynesian (HANK) model where inflation has redistributive effects on households through their different (1) consumption baskets, (2) nominal wealth positions, and (3) earnings elasticities to business cycles. I parameterize the model based on the empirical analysis of these channels using the most recent data. Unlike in representative agent models, a utilitarian central bank should adopt an asymmetric monetary policy rule that is accommodative towards inflation and aggressive towards deflation. Specifically, by accommodating stronger demand and higher inflation, the central bank benefits low-income and low-wealth households through nominal debt devaluation and higher earnings growth.
    Keywords: Redistributive Inflation, Optimal Monetary Policy, Heterogeneous Agent, Expenditure Channel, Revaluation Channel, Earnings Channel
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:chf:rpseri:rp2507
  29. By: Dąbrowski, Marek A.; Janus, Jakub; Mucha, Krystian
    Abstract: In this paper, we propose a novel approach to classifying inflation-targeting (IT) economies based on fractionally integrated processes. Motivated by the rising prevalence and diversity of IT strategies, we leverage variation in the persistence of inflation rate series to identify four de facto IT strategies, or ‘shades’ of IT. Moving from negative orders of fractional integration, indicating anti-persistent behaviour, to more persistent long-memory processes, often associated with less credible policy frameworks, we classify countries into average IT, strict IT, flexible IT, and uncommitted IT categories. This framework sheds light on the differences between declarative and actual monetary policy strategies across 36 advanced and emerging market economies. Notably, we demonstrate that while most economies fall into the flexible IT category, extreme cases, including the uncommitted IT category, occur with marked frequency. Furthermore, we link our IT classification to institutional features of national monetary frameworks using ordinal probit models. The results suggest that differences across IT categories are related to variations in the maturity and stability of IT frameworks, with less pronounced connections to central bank independence and transparency.
    Keywords: inflation targeting, monetary policy strategy, central banking, inflation persistence, fractional integration
    JEL: C22 E31 E52 E58
    Date: 2025–01–09
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123455
  30. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
    Abstract: Using new household-level data, we study the secular increase in U.S. household debt and its distribution since 1950. Most of the debt were mortgages, which initially grew because more households borrowed. Yet after 1980, debt mostly grew because households borrowed more. We uncover home equity extraction, concentrated in the white middle class, as the largest cause, strongly affecting intergenerational inequality and life-cycle debt profiles. Remarkably, the additional debt did not lower households’ net worth because of rising house prices. We conclude that asset-price-based borrowing became an integral part of households’ consumptionsaving decisions, yet at the cost of higher financial fragility.
    Keywords: household debt, home equity extraction, inequality, household portfolios, financial fragility
    JEL: G51 E21 E44 D14 D31
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_634
  31. By: Jairo Flores (Central Reserve Bank of Peru); Bruno Gonzaga (Central Reserve Bank of Peru); Walter Ruelas-Huanca (Central Reserve Bank of Peru); Juan Tang (Central Reserve Bank of Peru)
    Abstract: This paper explores the application of machine learning (ML) techniques to nowcast the monthly year-over-year growth rate of both total and non-primary GDP in Peru. Using a comprehensive dataset that includes over 170 domestic and international predictors, we assess the predictive performance of 12 ML models. The study compares these ML approaches against the traditional Dynamic Factor Model (DFM), which serves as the benchmark for nowcasting in economic research. We treat specific configurations, such as the feature matrix rotations and the dimensionality reduction technique, as hyperparameters that are optimized iteratively by the Tree-Structured Parzen Estimator. Our results show that ML models outperformed DFM in nowcasting total GDP, and that they achieve similar performance to this benchmark in nowcasting non-primary GDP. Furthermore, the bottom-up approach appears to be the most effective practice for nowcasting economic activity, as aggregating sectoral predictions improves the precision of ML methods. The findings indicate that ML models offer a viable and competitive alternative to traditional nowcasting methods.
    Keywords: GDP; Machine Learning; nowcasting
    JEL: C14 C32 E32 E52
    Date: 2025–02–03
    URL: https://d.repec.org/n?u=RePEc:gii:giihei:heidwp01-2025
  32. By: Shakeel, Jovera; Munir, Shehzil; Mirza, Schaff; Abdullah, Khan
    Abstract: The impact of digital literacy on financial outcomes has been well-explored. However, the onset of AI necessitates a pressing need for more granular, cross-country analyses that incorporate local variations in digital infrastructure and socioeconomic conditions. Using data from three sources in 82 countries, we employ a Directed Acyclic Graph (DAG) to examine both the direct and indirect effects of digital literacy on financial well-being. Our study uses two econometrics models, Ordinary Least Squares Regression (OLS) and Structural Equation Model (SEM), along with the machine learning approach of Random Forests. Our results confirm our initial hypothesis that digital literacy has a positive impact on financial well-being through financial inclusion. Through our models, we find that the indirect link through financial inclusion dominates the direct impact of digital literacy on financial well-being, as it accounts for socioeconomic, institutional, and individual factors.
    Keywords: Digital literacy; Financial access; Economic outcomes; Human capital; Income distribution; Financial inclusion; Financial literacy; Economic development; Technological change; Data analysis
    JEL: C13 C38 C45 D31 D83 G21 G23 J24 O15 O16 O33
    Date: 2024–12–26
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123374

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