nep-cba New Economics Papers
on Central Banking
Issue of 2013‒04‒06
27 papers chosen by
Maria Semenova
Higher School of Economics

  1. Central bank independence: monetary policies in selected jurisdictions (I) By Felix, Ayadi; Marianne, Ojo
  2. Central bank independence: monetary policies in selected jurisdictions (II) By Ayadi, Felix; Ojo, Marianne
  3. Central bank independence: monetary policies in selected jurisdictions (III) By Ojo, Marianne; Ayadi, Felix
  4. Are Public Preferences Reflected in Monetary Policy Reaction Functions? By Matthias Neuenkirch
  5. Central Bank Financial Strength and Credibility: A Simple Dynamic Optimization Model By Atsushi Tanaka
  6. Predicting Bank of England’s Asset Purchase Decisions with MPC Voting Records By Matthias Neuenkirch
  7. Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective By Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric Young
  8. The structure of bank supervision and corruption in lending: a study for transition economies By Zenathan Hasannudin
  9. Commitment vs. discretion in the UK: An empirical investigation of the monetary and fiscal policy regime By Tatiana Kirsanova; Stephanus le Roux
  11. Exchange rates, monetary policy statements, and uncovered interest parity: before and after the zero lower bound By Michael T. Kiley
  12. The Effect of Unconventional Monetary Policy on the Macro Economy: Evidence from Japan's Quantitative Easing Policy Period By Masahiko Shibamoto; Minoru Tachibana
  13. What should we do about (Macro) Pru? Macro Prudential Policy and Credit. By Ray Barrell; Dilruba Karim
  14. The Condition and Problems of the Practical Use of China's Foreign-Exchange Reserves By Zhongling Qi
  15. The response of equity prices to movements in long-term interest rates associated with monetary policy statements: before and after the zero lower bound By Michael T. Kiley
  16. A discrete-choice econometrician's tale of monetary policy identification and predictability. By SIRCHENKO, Andrei
  17. Inefficiency in Survey Exchange Rates Forecasts By Francesca Pancotto; Filippo Maria Pericoli; Marco Pistagnesi
  18. The Potential Instruments of Monetary Policy By C.A.E. Goodhart
  19. The IMF-FSB Early Warning Exercise: Design and Methodological Toolkit By International Monetary Fund
  20. Federal reserve forecasts: asymmetry and state-dependence By Julieta Caunedo; Riccardo DiCecio; Ivana Komunjer; Michael T. Owyang
  21. The Icelandic banking collapse - was the optimal policy path chosen? By Thorsteinn Thorgeirsson; Paul van den Noord
  22. A model for ordinal responses with an application to policy interest rate By Andrei Sirchenko
  23. Interest rate spreads in the Euro area: fundamentals or sentiments? By Maximilian Goedl; Joern Kleinert
  24. Monetary policy statements, Treasury yields, and private yields: before and after the zero lower bound By Michael T. Kiley
  25. The Financial Implications of a Banking Union. By ALLEN, Franklin; CARLETTI, Elena; GIMBER, Andrew
  26. To what extent are financial crises comparable and thus predictable? By Diamondopoulos, John
  27. The Cyprus crisis in the mirror: the ‘small deposit tax’ as historical faux-pas By Fischer, Justina A.V.

  1. By: Felix, Ayadi; Marianne, Ojo
    Abstract: Even though the Congress and the Administration are responsible for determining fiscal policy measures, these measures impact the Fed Reserve's monetary policy decisons. The indirect effect of fiscal policy on the conduct of monetary policy through its influence on the overall economy and the economic outlook and the impact of federal tax and spending programs on the Fed Reserve' s key macroeconomic objectives - maximum employment and price stability, is notable in several situations and instances. Hence, how independent is the Fed Reserve really from government and fiscal policy influences? Could it not be said that the Government really has a dual role in fiscal and monetary policy setting?Would it really be in the interest of accountability to delegate more powers to an already relatively powerful Fed Reserve? Recent changes in the delegation of supervisory responsibilities in the UK, namely the transfer of bank supervision from the Financial Services Authority back to the Bank of England, and the resulting increased scope of the Bank of England's powers, would appear to suggest that in certain cases, regulatory bodies as well as central banks, should assume greater functions in certain capacities. Accordingly, jurisdiction specific cases have to be viewed individually and based on prevailing circumstances. Whilst it is argued by some, that a reduction in central bank autonomy by subjecting its actions and decisions to legislative procedures and approvals, could result in more serious problems which would aggravate the stability of the economy and financial system, consequences of lack of close collaboration, coordination and timely exchange of information between tripartite authorities such as the relationship which exists between the UK's Financial Services Authority, the Bank of England and the Treasury were witnessed during the Northern Rock Crisis. Hence it could be argued that the problem does not necessarily relate to a subjection of actions and decisions for approvals, but how well the authorities involved are able to communicate and coordinate information between them effectively. Subjecting actions and decisions of the central bank to other authorities could actually incorporate greater accountability and transparency into the supervisory and regulatory framework. Through an investigation of selected jurisdictions, this paper aims to contribute to the extant literature in investigating the relationship between central bank independence and price stability, as well as how such a relationship varies between different jurisdictions – even though it is widely argued that political and legislative interference is often contributory to price instability.
    Keywords: central banks; stability; regulation; financial crises; macro prudential; Basel III; systemic risk; supervision; liquidity; monetary policy
    JEL: E52 E58 E6 K2
    Date: 2013–03–30
  2. By: Ayadi, Felix; Ojo, Marianne
    Abstract: Through an investigation of selected jurisdictions, this paper aims to contribute to the extant literature in investigating the relationship between central bank independence and price stability, as well as how such a relationship varies between different jurisdictions – even though it is widely argued that political and legislative interference is often contributory to price instability. This paper employs times series data to study the dynamics of central bank independence. It also employs bivariate cointegration methodology to examine the long-term relationship between inflation index and the different measures of financial development.
    Keywords: inflation; price stability; central bank independence; monetary policy; financial stability
    JEL: E5 E52 E58 K2
    Date: 2013–03–31
  3. By: Ojo, Marianne; Ayadi, Felix
    Abstract: A sufficient and appropriate degree of central bank independence is widely acknowledged to be necessary for the goal of achieving price stability. However, despite the levels of independence claimed to be enjoyed by several central banks, recent events indicate shifts in focus of monetary policy objectives by various prominent central banks. The impact of political and government influences on central banks' monetary policies has been evidenced from the recent financial crisis – and in several jurisdictions. Many central banks have adjusted monetary policies having been influenced by political pressures which have built up as a result of the recent crises. However such lack of absolute independence (from political spheres) could prove symbiotic in the sense that, despite the need for a certain degree of independence from political interference, certain events which are capable of devastating consequences, namely, a drastic disruption of the system's financial stability, need to be responded to as quickly and promptly as possible. Is it possible for a central bank with absolute independence to operate effectively – particularly given the close links between many central banks and their Treasury in several countries? It may be inferred that central banks' crucial roles in establishing a macro prudential framework provide the key to bridging the gap between macro economic policy and the regulation of individual financial institutions. This however, on its own, is insufficient – close collaboration and effective information sharing between central banks and regulatory authorities is paramount.
    Keywords: central banks; stability; regulation; financial crises; macro prudential; Basel III; systemic risk; supervision; liquidity; monetary policy; inflation targeting
    JEL: E52 E58 E6 K2
    Date: 2013–04–02
  4. By: Matthias Neuenkirch (University of Aachen)
    Abstract: In this paper, we test whether public preferences for price stability (obtained from the Eurobarometer survey) are actually reflected in the interest rates set by eight central banks. We estimate augmented Taylor (1993) rules for the period 1976-1993 using the dynamic GMM estimator. We find, first, that interest rates do reflect society's preferences since the central banks raise rates when society's inflation aversion is above its long-run trend. Second, the reaction to inflation is non-linearly increasing in the degree of inflation aversion. Third, this emphasis on fighting inflation does not have a detrimental effect on output stabilization. We conclude with some implications concerning the democratic legitimation of central banks.
    Keywords: Central Bank, Democratic Legitimation, Eurobarometer, Inflation Aversion, Monetary Policy, Public Preferences, Taylor Rules.
    JEL: D71 E31 E43 E52 E58
    Date: 2013
  5. By: Atsushi Tanaka (School of Economics, Kwansei Gakuin University)
    Abstract: In this paper, we develop a simple dynamic optimization model of a central bank, in which the bank’s profit affects its balance sheet. The model derives the transversality condition that is necessary for a central bank to be sustainable and to conduct an optimal monetary policy. In this sense, the transversality condition needs to be satisfied to maintain central bank credibility. We discuss some factors affecting the transversality condition and show that what is important to satisfy the condition and thus to maintain central bank credibility is not capital alone but the financial strength that generates no sustained loss.
    Keywords: central bank, capital, financial strength, credibility, monetary policy
    JEL: E5
    Date: 2013–03
  6. By: Matthias Neuenkirch (University of Aachen)
    Abstract: We use MPC voting records to predict changes in the volume of asset purchases. We find, first, that minority voting favoring an increase in the volume of asset purchases raises the probability of an actual increase at the next meeting. Second, minority voting supporting a higher Bank Rate decreases the likelihood of further asset purchases.
    Keywords: Asset Purchases, Bank of England, Monetary Policy, Monetary Policy Committee, Predictability, Voting Records
    JEL: E43 E52 E58
    Date: 2013
  7. By: Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric Young
    Abstract: In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy tool kit (so called macro- prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, this paper shows that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls, as it can achieve unconstrained allocation.
    JEL: E52 F37 F41
    Date: 2013–03
  8. By: Zenathan Hasannudin (UP1 UFR02 - Université Paris 1, Panthéon-Sorbonne - UFR d'Économie - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper try to examine the relation between the structure of bank supervision and corruption in lending based on the data from 21 transition economies in Eastern Europe and Central Asia. We support Beck, Kunt, and Levine (2006) that higher supervisory power will increase the degree of corruption in lending while supervisory policies which promote private monitoring by pushing banks to disclose accurate information and give incentives to private agents to monitor bank will reduce the degree of corruption in lending. As the main finding in this paper, we prove that the structure of bank supervision has significant effect to corruption in lending. More specifically, we found that the degree of corruption in lending will increase when the bank supervisor function is not in the central bank. We also have found that after we control our model with various country-level variables, the higher independency of bank supervisor will decrease the degree of corruption in lending.
    Keywords: banques, pratiques déloyales
    Date: 2012
  9. By: Tatiana Kirsanova; Stephanus le Roux
    Abstract: This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime.
    JEL: E52 E61 E63
    Date: 2013–03
  10. By: KARL-THEODOR EISELE (LaRGE Research Center, Université de Strasbourg); PHILIPPE ARTZNER (LaRGE Research Center, Université de Strasbourg)
    Abstract: This paper is based on a general method for multiperiod prudential supervision of companies submitted to hedgeable and non-hedgeable risks. Having treated the case of insurance in an earlier paper, we now consider a quantitative approach to supervision of commercial banks. The various elements under supervision are the bank’s current amount of tradeable assets, the deposit amount, and four flow processes: future trading risk exposures, deposit flows, flows of loan repayments and of deposit remunerations. The approach uses a multiperiod risk assessment supposed not to allow supervisory arbitrage. Coherent and non-coherent examples of such risk assessments are given. The risk assessment is applied to the risk bearing capital process composed out of the amounts of assets and deposits, and the four flow processes mentioned above. We give a general definition of a supervisory margin which uses the risk assessment under the assumption of optimal trading risk exposures. The transfer principle together with a cost-of-capital ratio gives quantitative definitions of the risk margin and of the non-hedgeable equity capital requirement. The hedgeable equity capital requirement measures the inadequacy of the bank’s portfolio of tradeable assets with respect to the optimal trading risk exposures. The hierarchy of different interferences of a supervisor is related to these quantities. Finally, a simple allocation principle for margins and the equity capital requirements is derived.
    Keywords: equity capital requirements, hierarchy of supervisor’s interferences, multiperiod risk assessment, optimal trading risk exposures, supervisory margin.
    JEL: G18 G21 G32
    Date: 2013
  11. By: Michael T. Kiley
    Abstract: While uncovered interest parity (UIP) fails unconditionally, UIP conditional on monetary policy actions remains a cornerstone of macroeconomic models used for monetary policy analysis. We posit that monetary policy actions are partially revealed by FOMC statements and propose a new identification strategy to uncover the degree to which such policy actions induce comovement in exchange rates and long-term interest rates consistent with uncovered interest parity. We reach three conclusions. First, there is evidence in favor of UIP at long horizons, conditional on monetary policy actions, for Dollar/Euro and Dollar/Yen exchange rates. Second, short-run movements in exchange rates following monetary policy surprises are consistent with the overshooting prediction of Dornbusch (1976), although our approach cannot test UIP at short horizons. Finally, we examine the degree to which monetary policy statements since the onset of the zero-lower bound (ZLB) on the short-term interest rate in the United States have engendered different comovement between long-term interest rates and exchange rates and find little evidence for a change in relationships.
    Date: 2013
  12. By: Masahiko Shibamoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Minoru Tachibana (School of Economics, Osaka Prefecture University, Japan)
    Abstract: This paper assesses the effectiveness of unonventional monetary policy on the macro ecnomy. It focuses on the Japanese economy during the Bank of Japan's quantitative easing policy period, and analyzes the effects of monetary policy shocks and systematic monetary policy using the vector autoregression model with simultaneous interaction between stock prices and policy decisions. The main finding is that unconventional monetary policy has a significant effect on the macro economy, which is closely in line with the existing evidence under the conventional monetary policy setting. The output effects work through the transmission linking the stock market and the real economy, while it plays a limited role in terms of the price effects. The analysis also suggests that the Bank of Japan's systematic policy responses mitigate severe downward pressure on the real economy generated from the stock market.
    Keywords: Unconventional monetary policy, Vector autoregression model, Interaction between monetary policy and stock market, Effects of monetary policy shocks, Systematic monetary policy responses
    JEL: E52 E58
    Date: 2013–04
  13. By: Ray Barrell; Dilruba Karim
    Abstract: Credit growth is widely used as an indicator of potential financial stress, and it plays a role in the new Basel III framework. However, it is not clear how good an indicator it is in markets that have been financially liberalised. We take a sample of 14 OECD countries and 14 Latin American and East Asian countries and investigate early warning systems for crises in the post Bretton Woods period. We show that there is a limited role for credit in an early warning system, and hence little reason for the Basel III structure. We argue that the choice of model for predicting crises depends upon both statistical criteria and on the use to which the model is to be put.
    Date: 2012
  14. By: Zhongling Qi (Advanced Research Centers, Keio University)
    Abstract: Although it controls monetary policies, a central bank can occasionally experience a situation where its financial situation worsens and excessive liabilities occur. In such instances, the central bank may be unable to fulfill its policy objectives. This study focuses on the People's Bank of China (PBC), which is the central bank of China and possesses large foreign reserves, and investigates whether the costs it has incurred during its intervention in the foreign exchange market have contributed to its present financial situation. We then discuss future estimated PBC results. Against the background of an expanding international balance of payments surplus, the PBC continued intervention in the foreign exchange market to ensure Renminbi exchange rate stability. This intervention rapidly increased foreign reserves. This study examines the PBC balance sheet to estimate the costs of its foreign exchange market intervention after January 2002 using several assumptions. The results show that the losses experienced through its intervention policy are expansionary, and were 18.5% of its overseas assets by the end of 2011. Analyzing the factors affecting intervention costs individually, we see that exchange rate changes have a higher impact than interest rate fluctuations on intervention costs, and this effect can be identified at an earlier stage. The study concludes that the improvement of its financial situation, whilst still fulfilling its monetary policies, will be a significant challenge for the PBC.
    Date: 2013–03
  15. By: Michael T. Kiley
    Abstract: Monetary policy actions since 2008 have influenced long-term interest rates through forward guidance and quantitative easing. We propose a strategy to identify the comovement between interest rate and equity price movements induced by monetary policy when an observable representing policy changes, such as changes in the interbank rate, is not available. A decline in long-term interest rates induced by monetary policy statements prior to 2009 is accompanied by a 6- to 9-percent increase in equity prices. This association is substantially attenuated in the period since the zero-lower bound has been binding - with a policy-induced 100 basis-point decline in 10-year Treasury yields associated with a 1½- to 3-percent increase in equity prices. Empirical analysis suggests this attenuation does not represent a change in responses to monetary-policy induced movements in interest rates, but reflects the importance of both short- and long-term interest rates.
    Date: 2013
  16. By: SIRCHENKO, Andrei
    Abstract: This thesis studies the econometric identification and predictability of monetary policy. It addresses the discrete and collective nature of policy decisions, and the use of the real-time versus currently available revised data. The first chapter combines the ordered probit model, novel real-time data set and policy-making meetings as a unit of observation to estimate highly systematic reaction patterns between policy rate decisions and incoming economic data. The paper measures the empirical significance of the rate discreteness and demonstrates that both the discrete-choice approach and real-time "policy-meeting" data do matter in the econometric identification of monetary policy. The estimated rules surpass the market anticipation made one day prior to a policy meeting, both in and out of sample. The second chapter provides empirical evidence that a prompter release of policy- makers’ votes could improve the predictability of policy decisions. The voting patterns reveal strong and robust predictive content even after controlling for policy bias and responses to inflation, real activity, exchange rates and financial market indicators. They contain information not embedded in the spreads and moves in the market interest rates, nor in the explicit forecasts of the next policy decision made by market analysts. Moreover, the direction of policymakers’ dissent explains the direction of analysts’ forecast bias. The third chapter develops a two-stage model for ordinal outcomes (such as discrete changes to the policy interest rates) that are characterized by abundant observations, potentially generated by different processes, in the middle neutral category (no change to the rate). In the context of policy rate setting, the first stage, a policy inclination decision, determines policy stance (loose, neutral or tight) as a reaction to economic conditions, whereas two amount decisions at the second stage are driven mostly by the institutional features. There are three types of zeros: "neutral" zeros, generated directly by the neutral policy stance, and two kinds of "offset" zeros, "loose" and "tight" zeros, generated by the loose or tight stance, offset at the second stage. The model is applied to the individual policymakers’ votes for the interest rate. Both the empirical applications and simulations demonstrate superiority with respect to the conventional models.
    Date: 2012
  17. By: Francesca Pancotto; Filippo Maria Pericoli; Marco Pistagnesi
    Abstract: We use a novel database of a panel of quarterly survey of exchange rates forecasts available on the Bloomberg platform, for the following .ve bilateral exchange rates: EUR/GBP, EUR/JPY, EUR/USD, GBP/USD and USD/JPY, for the timespan ranging from the third quarter 2006 up to the fourth quarter of 2011. We .nd that forecasters are on average irrational, failing to identify the true data generating process of bilateral exchange rates and generally overreacting to past observed information. Moreover, exploring individual performance, we can state that .nancial analysts irrationally do not look at their past forecast errors to improve the quality of their later forecasts
    Keywords: survey forecasts, exchange rates, overreaction;
    JEL: F31
    Date: 2013–03
  18. By: C.A.E. Goodhart
    Abstract: None
    Date: 2012
  19. By: International Monetary Fund
    Abstract: One of the G-20's first reactions to the financial crisis that erupted by late 2008 was to task the IMF and the Financial Stability Board (FSB) with establishing a joint Early Warning Exercise (EWE). This Occasional Paper presents an overview of the IMF's contributions to the EWE. Part I sets out the process, analytical framework, outputs, and dissemination of the EWE, as well as the collaboration with the FSB. Part II describes the main analytical tools deployed in the exercise as of September 2010. As new tools are developed (or become available), they are being added to the EWE or substituted for other models. Once the global economy returns to more stable conditions, the EWE is likely to become the more forward-looking exercise it was initially meant to be, focusing primarily on low-probability, high-impact events (e.g., tail risks). Over time, as new sources of systemic risks emerge and new analytical tools become available, the EWE framework will continue to adapt.
    Date: 2012–07–31
  20. By: Julieta Caunedo; Riccardo DiCecio; Ivana Komunjer; Michael T. Owyang
    Abstract: We jointly test the rationality of the Federal Reserve’s Greenbook forecasts of infiation, unemployment, and output growth using a multivariate nonseparable asymmetric loss function. We find that the forecasts are rationalizable and exhibit directional asymmetry. The degree of asymmetry depends on the phase of the business cycle: The Greenbook forecasts of output growth are too pessimistic in recessions and too optimistic in expansions. The change in monetary policy that occured in the late 1970s has been attributed in the literature to the Fed coming to terms with the difficulties in predicting real variables. Our results offer an alternative explanation: A combination of different preferences over expansions and recessions and less frequent recessions in the latter part of the sample.
    Keywords: Forecasting ; Rational expectations (Economic theory)
    Date: 2013
  21. By: Thorsteinn Thorgeirsson; Paul van den Noord
    Abstract: This study examines the economic policies of the Icelandic government in the wake of the banking collapse of 2008 in terms of counter-factual policy options. The path chosen was important for the recovery but policy makers faced alternative policy options for handling the many difficult situations that arose, with potential implications for government finances and economic growth. We utilize two complementary macroeconomic models to assess the decisions taken and the recovery and on that basis develop counter-factual scenarios of how the crisis could have played out if the decisions had been different. Four alternative scenarios are considered involving different ways to deal with the collapse: i) adopt a more pro-cyclical fiscal policy, ii) allow the ISK exchange rate to drop without imposing capital controls, iii) pay the interest expense on the initial Icesave agreement, or iv) rescue the banks as Ireland did. Macroeconomic model simulations are performed to assess the impact of different decisions involving public finances on economic growth, unemployment and other macroeconomic variables over the period 2008-2025. The results are compared to the actual path taken. Addressing this question is potentially interesting in its own right and also from the point of view of other countries that have experienced similar crises but have responded differently.
    Date: 2013–03
  22. By: Andrei Sirchenko (European University Institute, Florence, Italy)
    Abstract: The decisions to reduce, leave unchanged, or increase (the price, rating, policy interest rate, etc.) are often characterized by abundant no-change outcomes that are generated by di¤erent processes. Moreover, the positive and negative responses can also be driven by distinct forces. To capture the unobserved heterogeneity this paper develops a two- stage cross-nested model, combining three ordered probit equations. In the policy rate setting context, the …rst stage, a policy inclination decision, determines a latent policy stance (loose, neutral or tight), whereas the two latent amount decisions, conditional on a loose or tight stance, …ne-tune the rate at the second stage. The model allows for the possible correlation among the three latent decisions. This approach identi…es the driving factors and probabilities of three types of zeros: the ”neutral” zeros, generated directly by the neutral policy stance, and two kinds of ”o¤set” zeros, the ”loose” and ”tight” zeros, generated by the loose or tight stance, o¤set at the second stage. Monte Carlo experiments show good performance in small samples. Both the simulations and empirical applications to the panel data on individual policymakers’ votes for the interest rate demonstrate the superiority with respect to the conventional and two-part models. Only a quarter of observed zeros appears to be generated by the neutral policy stance, suggesting a high degree of deliberate interest-rate smoothing by the central bank.
    Keywords: ordinal responses; zero-in‡ated outcomes; three-part model; cross- nested model; policy interest rate; MPC votes; real-time data; panel data.
    JEL: C33 C35 E52
    Date: 2013
  23. By: Maximilian Goedl (Karl-Franzens University of Graz); Joern Kleinert (Karl-Franzens University of Graz)
    Abstract: We analyze the determinants of interest rates on long-term government bonds within the Eurozone to assess whether the recent divergence in interest rates is attributable to changes in common economic fundamentals. First, we show that the panel approach, mostly employed by existing literature on this issue, has conceptual as well as empirical problems. Therefore we harness an event study approach using high-frequency (daily) data to investigate the impact of three categories of events on EMU government bond yields. Our results indicate that yields react to forecasts on key economic indicators such as growth and future budget deficits. In contrast, we do not find evidence that investors react to announcement of fiscal "bailouts" or austerity measures.
    Keywords: Product differentiation, Gravity Equation, Cross-border bank lending
    JEL: L14 F34 G21
    Date: 2013–03
  24. By: Michael T. Kiley
    Abstract: Monetary policy actions since 2008 have influenced long-term interest rates through forward guidance and quantitative easing - both "unconventional" strategies. We examine whether the effect of such actions on Treasury yields have passed through to private yields to a degree comparable to experience before 2008. In order to perform this examination, we propose a strategy to identify the comovement between Treasury yields and private yields induced by monetary policy when an observable representing policy changes, such as changes in the interbank rate, is not available, or when other systematic factors may be important. Our strategy implies that least squares regressions, even within an event window, can be misleading, and our empirical results find evidence for such misleading effects. Implementation of our instrumental variables strategy suggests that the movements in Treasury yields induced by monetary policy statements have passed through to private yields, but to a smaller degree than typical prior to the end of 2008. This may suggest that the effectiveness of unconventional policy actions in stimulating activity are attenuated relative to conventional policy actions.
    Date: 2013
  25. By: ALLEN, Franklin; CARLETTI, Elena; GIMBER, Andrew
    Abstract: With calls for a banking union to resolve the issue of banking interdependence within the Eurozone, this paper explores the reasons behind such a policy, how it should be implemented and the possible ramifications.
    Date: 2012
  26. By: Diamondopoulos, John
    Abstract: This paper critically examines the quantitative approach to financial crises from two perspectives. First, the assumption of comparability of financial crises is analyzed. The key question here is: how comparable are crises? An important consideration here is the context – social and political. Second, if financial crises are comparable to a certain extent, then we should be able to make predictions. Thus, the second key question is: how predictable are crises? The results have implications for the development of a theory of financial crises and government policies on crisis management.
    Keywords: Financial crises, Crisis, Crisis Models, Crisis Management
    JEL: G01 G17 G18 H12
    Date: 2012–10–16
  27. By: Fischer, Justina A.V.
    Abstract: Taxing small deposits used to be a taboo in European politics – but why? This contribution re-assesses the protection of small deposits from an angle that has not received much attention in the current debate: the politico-philosophical, ordo-liberal, and social-political perspectives, arguing that protection of the ordinary saver is a fundament of our civil societies.
    Keywords: Eurocrisis; Cyprus; financial markets; banking sector; market power; market failure; Hobbes; Locke; Rawls; social contract; trust; rule of law; social capital; democracy
    JEL: F42 G18 Z1
    Date: 2013–03–28

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