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on Central Banking |
| By: | Cihak, Martin; Demirguc-Kunt, Asli; Peria, Maria Soledad Martinez; Mohseni-Cheraghlou, Amin |
| Abstract: | This paper presents the latest update of the World Bank Bank Regulation and Supervision Survey, and explores two questions. First, were there significant differences in regulation and supervision between crisis and non-crisis countries? Second, what aspects of regulation and supervision changed significantly during the crisis period? The paper finds significant differences between crisis and non-crisis countries in several aspects of regulation and supervision. In particular, crisis countries (a) had less stringent definitions of capital and lower actual capital ratios, (b) faced fewer restrictions on non-bank activities, (c) were less strict in the regulatory treatment of bad loans and loan losses, and (d) had weaker incentives for the private sector to monitor banks'risks. Survey results also suggest that the overall regulatory response to the crisis has been slow, and there is room to improve regulation and supervision, as well as private incentives to monitor risk-taking. Specifically, comparing regulatory and supervisory practices before and after the global crisis, the paper finds relatively few changes: capital ratios increased (primarily among non-crisis countries), deposit insurance schemes became more generous, and some reforms were introduced in the area of bank governance and bank resolution. |
| Keywords: | Banks&Banking Reform,Access to Finance,Emerging Markets,Debt Markets,Bankruptcy and Resolution of Financial Distress |
| Date: | 2012–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6286&r=cba |
| By: | Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai |
| Abstract: | This study presents an ANSeR model (asset network systemic risk model) to quantify the risk of financial contagion which manifests itself in a financial crisis. The transmission of financial distress is governed by a heterogeneous bank credit network and an investment portfolio of banks. Bankruptcy reproductive ratio of a financial system is computed as a function of the diversity and risk exposure of an investment portfolio of banks, and the denseness and concentration of a heterogeneous bank credit network. An analytic solution of the bankruptcy reproductive ratio for a small financial system is derived and a numerical solution for a large financial system is obtained. For a large financial system, Large diversity among banks in the investment portfolio makes financial contagion more damaging on the average. But large diversity is essentially effective in eliminating the risk of financial contagion in the worst case of financial crisis scenarios. A bank-unique specialization portfolio is more suitable than a uniform diversification portfolio and a system-wide specialization portfolio in strengthening the robustness of a financial system. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1211.5235&r=cba |
| By: | Chris Kenyon; Andrew Green |
| Abstract: | Basel III introduces new capital charges for CVA. These charges, and the Basel 2.5 default capital charge can be mitigated by CDS. Therefore, to price in the capital relief that CDS contracts provide, we introduce a CDS pricing model with three legs: premium; default protection; and capital relief. If markets are complete, with no CDS bond basis, then CDSs can be replicated by taking short positions in risky floating bonds issued by the reference entity and a riskless bank account. If these conditions do not hold, then it is theoretically possible that the capital relief that CDSs provide may be priced in. Thus our model provides bounds on the CDS-implied hazard rates when markets are incomplete. Under simple assumptions we show that 20% to over 50% of observed CDS spread could be due to priced in capital relief. Given that this is different for IMM and non-IMM banks will we see differential pricing? |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1211.5517&r=cba |
| By: | Andrade, P.; Ghysels, E.; Idier, J. |
| Abstract: | We introduce a new measure called Inflation-at-Risk (I@R) associated with (left and right) tail inflation risk. We estimate I@R using survey-based density forecasts. We show that it contains information not covered by usual inflation risk indicators which focus on inflation uncertainty and do not distinguish between the risks of low or high future inflation outcomes. Not only the extent but also the asymmetry of inflation risks evolve over time. Moreover, changes in this asymmetry have an impact on future inflation realizations as well as on the current interest rate central banks target. |
| Keywords: | inflation expectations, risk, uncertainty, survey data, inflation dynamics, monetary policy. |
| JEL: | E31 E37 E43 E52 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:407&r=cba |
| By: | Christoffer Kleivset (Norges Bank (Central Bank of Norway)) |
| Abstract: | This paper documents Norges Bank’s role in the long transition period from a fixed exchange rate regime to inflation targeting in Norway. It is shown that the Bank’s leadership and influential department leaders wanted more exchange rate flexibility from early on. However, due to the division of responsibility of economic policy in Norway – where a stable exchange rate was important with regards to incomes policy – this was met with resistance. |
| Keywords: | Monetary policy, Inflation targeting, Regime change |
| JEL: | E58 F33 N14 |
| Date: | 2012–12–05 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2012_13&r=cba |
| By: | Simplice A , Asongu |
| Abstract: | Purpose – The purpose of this paper is to examine the effects of policy options in financial dynamics (of money, credit, efficiency and size) on consumer prices. Soaring food prices have marked the geopolitical landscape of African countries in the past decade. Design/methodology/approach – We limit our sample to a panel of African countries for which inflation is non-stationary. VAR models from both error correction and Granger causality perspectives are applied. Analyses of dynamic shocks and responses are also covered. Six batteries of robustness checks are applied to ensure consistency in the results. Findings – (1) There are significant long-run equilibriums between inflation and each financial dynamic. (2) When there is a disequilibrium, while only financial depth and financial size could be significantly used to exert deflationary pressures, inflation is significant in adjusting all financial dynamics. In other words, financial depth and financial size are more significant instruments in fighting inflation than financial efficiency and activity. (3) The financial intermediary dynamic of size appears to be more instrumental in exerting a deflationary tendency than financial intermediary depth. (4) The deflationary tendency from money supply is double that based on liquid liabilities. Practical implications – Monetary policy aimed at fighting inflation only based on bank deposits may not be very effective until other informal and semi-formal financial sectors are taken into account. It could be inferred that, tight monetary policy targeting the ability of banks to grant credit (in relation to central bank credits) is more effective in tackling consumer price inflation than that, targeting the ability of banks to receive deposits. In the same vein, adjusting the lending rate could be more effective than adjusting the deposit rate. The insignificance of financial allocation efficiency and financial activity as policy tools in the battle against inflation could be explained by the (well documented) surplus liquidity issues experienced by the African banking sector. Social implications – This paper helps in providing monetary policy options in the fight against soaring consumer prices. By keeping inflationary pressures on food prices in check, sustained campaigns involving strikes, demonstrations, marches, rallies and political crises that seriously disrupt economic performance could be mitigated. Originality/value – As far as we have perused, there is yet no study that assesses monetary policy options that could be relevant in addressing the dramatic surge in the price of consumer commodities. |
| Keywords: | Banks; Inflation; Development; Panel; Africa |
| JEL: | O55 E31 O10 G20 P50 |
| Date: | 2012–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41553&r=cba |
| By: | Manoel Bittencourt (Department of Economics, University of Pretoria); Chance Mwabutwa (Department of Economics, University of Pretoria); Nicola Viegi (Department of Economics, University of Pretoria) |
| Abstract: | This paper estimates the Bayesian dynamic stochastic general equilibrium (DSGE) model and uses the model to account for the short-run monetary policy response to increased aid inflows in Malawi. The estimates reveal that the monetary authorities reacted to increased foreign aid inflows the same way as was experienced in other African countries. The model also suggests that there was non-existence of the threats of the ‘Dutch Disease’ in contrast to what was found in Mozambique. The country can continue to receive aid by targeting the supply side of the economy with an aim of improving the competiveness of the export sector. Evidently, the conduct of monetary policy performs better under the assumption of full accessibility of financial assets. In addition, the impact of aid inflows on depreciation and inflation are much smaller when monetary authorities indulge in money targeting other than following the Taylor rule and incomplete sterilisation. On the small note, the study suggests that actual spending of aid should be aligned with the actual absorption of increased aid. Nevertheless, the outcome of the aid effects has been clouded out by the limitation of the exchange rate management in Malawi. |
| Keywords: | Taylor Rule, DSGE Model, Rule-of-Thumb, Spending, Absorption, Foreign Exchange Rate, Bayesian Methods |
| JEL: | C11 C13 E52 E62 F31 F35 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201232&r=cba |
| By: | Agnès Bénassy-Quéré (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Guillaume Roussellet (ENSAE - École Nationale de la Statistique et de l'Administration Économique - ENSAE ParisTech) |
| Abstract: | We provide a first attempt to include off-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative measures of implicit off-balance sheet liabilities related to the risk of a systemic bank crisis. The first one relies of microeconomic data at the bank level. The second one relies on econometric estimations of the probability and the cost of a systemic banking crisis, based on historical data. The former approach provides an upper evaluation of the fiscal cost of systemic banking crises, whereas the latter one provides a lower one. Hence, we believe that the combined use of these two methodologies helps to gauge the range of fiscal risk. |
| Keywords: | Fiscal sustainability; tax gap; systemic banking risk; off-balance sheet liabilities |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00755705&r=cba |
| By: | Antonakakis, Nikolaos |
| Abstract: | The European debt crisis that followed the global financial crisis, erupting first with Greece, then Ireland, Portugal, Italy and Spain, has threatened the very existence of the Euro zone. In this paper we examine the evolution of dynamic co-movements of sovereign bond yield spreads (BYS) in the Euro zone and the role of credit rating agency downgrades on those co-movements. Estimation results from a multivariate DCC-GARCH model on daily BYS data for nine Euro zone countries over the period 2007-2012 suggest an inverted U-shaped curve of BYS co-movements during the period of the financial and debt crisis. Credit rating downgrades by major rating agencies indicate rather idiosyncratic patterns of government bond yield spreads co-movements within and between the Euro zone periphery and the core. |
| Keywords: | Government bond yield spreads; credit rating agencies; dynamic conditional correlations; Euro zone sovereign debt crisis |
| JEL: | C32 E43 G12 G24 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43013&r=cba |
| By: | Lengnick, Matthias; Krug, Sebastian; Wohltmann, Hans-Werner |
| Abstract: | We pick up the standard textbook approach of money creation and develop a simple agent-based alternative. We show that our model is well suited to explain the endogenous creation of money. Although more general, our model still contains the standard results as a limiting case. We also uncover a potential instability that is hidden in the standard approach but easily recognized within a strict individual-based and stock-flow consistent version. We show in detail how individual interactions build up systemic risk and how banking crises are triggered by the maturity mismatch of different cash-flows and spread by the depreciation of non-performing loans (e.g. interbank- or government debt). -- |
| Keywords: | financial instability,endogenous money,agent-based macroeconomics,stock-flow consistency,disequilibrium analysis |
| JEL: | C63 E42 E51 G01 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201215&r=cba |
| By: | Mulaj, Florentina; Jack, William |
| Abstract: | Mass media and social marketing programs are cheap, scalable, and potentially effective means of influencing consumers'financial behavior and decisions. In light of this potential, and in order to provide clear policy direction, this paper provides an overview of the existing and ongoing research efforts in this domain, and highlights the importance of expanding the evidence base by conducting rigorous impact assessments in this field. Exploring four case studies, it provides lessons in designing effective evaluations specifically targeting mass media and social marketing programs on consumer financial management, highlights the value of incorporating insights from behavioral psychology in program design, and suggests avenues for future research. |
| Keywords: | Financial Literacy,Access to Finance,Health Monitoring&Evaluation,Education For All,Banks&Banking Reform |
| Date: | 2012–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:hdnspu:73924&r=cba |