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on Central Banking |
| By: | Anna Sokolova (National Research University - Higher School of Economics, Myasnitskaya Street, 20, Moscow, Russia, 101000.) |
| Abstract: | In times of fiscal stress, governments fail to adjust fiscal policy in line with the requirements for debt sustainability. Under these circumstances, monetary policy impacts the probability of sovereign default alongside inflation dynamics. Uribe (2006) studies the relationship between inflation and sovereign defaults with a model in which the central bank controls a risky interest rate. He concludes that low inflation can only be maintained if the government sometimes defaults. This paper follows Uribe (2006) by examining monetary policy that controls a risky interest rate. However, it differs by the baseline assumption about the objectives of the central bank. In this paper, monetary policy is not pure inflation targeting: it is assumed that the central bank minimizes the probability of default under the upper restriction on inflation. An advantage of this framework is that it avoids the issue of zero risk premium, which exists in Uribe (2006), while at the same time allowing a study of the relationship between the constraints on monetary pol icy, the equilibrium default rate, and the risk premium. We show that monetary policy that controls the risky interest rate can mitigate default risks only when the upper limit on inflation is sufficiently high. The higher the agents believe the upper limit on inflation to be, the lower the equilibrium risk premium and probability of default are. Under a low default rate, constraints on inflation can only be fulfilled when fiscal shocks are either positive or small. |
| Keywords: | inflation, default, sovereign debt, monetary policy |
| JEL: | E61 E63 E52 F33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:39/ec/2013&r=cba |
| By: | Thomas C. Baxter, Jr. |
| Abstract: | Remarks at the Future of Banking Regulation and Supervision in the EU Conference, Frankfurt, Germany. |
| Keywords: | European Central Bank ; Banks and banking, Central ; Federal Reserve System ; Federal Reserve Act ; Financial institutions - Law and legislation ; Financial Regulatory Reform (Dodd-Frank Act) ; Financial stability ; Financial crises |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:125&r=cba |
| By: | Stefan Behrendt (Friedrich Schiller University Jena, School of Economics and Business Admistration) |
| Abstract: | This paper estimates the effects of unconventional monetary policies on consumer as well as asset price inflation, economic activity and bank lending at the hand of a VAR analysis, covering episodes of balance sheet policies of 9 countries over the last 20 years. While recent episodes of unconventional monetary policies have been extensively analysed, this paper reduces deficiencies about long-run implications following central bank balance sheet policies in Scandinavian countries, Australia in the 1990s and Japan in the early 2000s. Results of this study are that balance sheet policies, in response to a collapse of asset price bubbles, can ensure a short run stabilisation of economic activity but are not able to lift the economy out of the ensuing deflationary slump alone. Additionally, they do not pose severe problems associated with inflation, as laid out in several theories such as the static monetarist interpretation of the quantity theory of money, or towards newly created asset price bubbles. |
| Keywords: | unconventional monetary policy, zero lower bound, money multiplier, VAR |
| JEL: | C32 E31 E44 E51 E52 E58 |
| Date: | 2013–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:hlj:hljwrp:49-2013&r=cba |
| By: | Bindseil, Ulrich |
| Abstract: | This paper analyses the potential roles of bank asset fire sales and recourse to central bank credit to ensure banks' funding liquidity and solvency. Both asset liquidity and central bank haircuts are modelled as power functions within the unit interval. Funding stability is captured as strategic bank run game in pure strategies between depositors. Asset liquidity, the central bank collateral framework and regulation determine jointly the ability of the banking system to deliver maturity transformation and financial stability. The model also explains why banks tend to use the least liquid eligible assets as central bank collateral and why a sudden non-anticipated reduction of asset liquidity, or a tightening of the collateral framework, can destabilize short term liabilities of banks. Finally, the model allows discussing how the collateral framework can be understood, beyond its essential aim to protect the central bank, as financial stability and non-conventional monetary policy instrument. JEL Classification: E42, G21 |
| Keywords: | asset liquidity, bank run, central bank collateral framework, liquidity regulation, Unconventional monetary policy |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131610&r=cba |
| By: | Kok, Christoffer; Schepens, Glenn |
| Abstract: | This paper investigates whether European banks have capital targets and how deviations from the target impact their equity composition and activity mix. Using quarterly data for a sample of large European banks between 2004 and 2011, we show that there are notable asymmetries in banks' reactions to deviations from optimal capital levels. Banks prefer to reshuffle risk-weighted assets or increase asset holdings when being above their optimal Tier 1 ratio, whereas they rather try to increase equity levels or reshuffle risk-weighted assets without changing asset holdings when being below target. At the same time, focusing instead on a unweighted equity ratio target, we find evidence of deleveraging and lower loan growth for undercapitalized banks during the recent financial crisis, whereas in the pre-crisis periods banks primarily reacted to deviations from their optimal target by adjusting equity levels. JEL Classification: D22, E44, G20, G21, G28 |
| Keywords: | bank capital optimisation, banking, capital structure, deleveraging, financial regulation |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131611&r=cba |
| By: | Tomasz Łyziak (Narodowy Bank Polski) |
| Abstract: | This note extends the study by Lyziak et al. (2007), providing up-to-date assessment of central bank transparency in Poland. We highlight the role of inflation projections prepared by the staff of the National Bank of Poland in building transparency of monetary policy. The results suggest that central bank inflation projections, published since 2004, have led to improvements in the predictability of interest rate decisions. The note updates also previous estimates of the degree of central bank credibility in Poland, using survey-based measures of inflation expectations formed by consumers, enterprises and financial sector analysts. It is confirmed that inflation expectations of enterprises and – especially – of financial sector analysts display a high degree of anchoring at the NBP inflation target, while consumer inflation expectations are driven mainly by developments in subjectively perceived inflation. |
| Keywords: | Transparency, Credibility, Expectations, Inflation Targeting, Poland. |
| JEL: | D84 E52 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:162&r=cba |
| By: | Andersson, Fredrik N.G. (Department of Economics, Lund University); Li, Yushu (Department of Business and Management Science, Norwegian School of Economics) |
| Abstract: | Several central banks have adopted inflation targets. The implementation of these targets is flexible; the central banks aim to meet the target over the long term but allow inflation to deviate from the target in the short-term in order to avoid unnecessary volatility in the real economy. In this paper, we propose modeling the degree of flexibility using an AFRIMA model. Under the assumption that the central bankers control the long-run inflation rates, the fractional integration order captures the flexibility of the inflation targets. A higher integration order is associated with a more flexible target. Several estimators of the fractional integration order have been proposed in the literature. Grassi and Magistris (2011) show that a state-based maximum likelihood estimator is superior to other estimators, but our simulations show that their finding is over-biased for a nearly non-stationary time series. We resolve this issue by using a Bayesian Monte Carlo Markov Chain (MCMC) estimator. Applying this estimator to inflation from six inflation-targeting countries for the period 1999M1 to 2013M3, we find that inflation is integrated of order 0.8 to 0.9 depending on the country. The inflation targets are thus implemented with a high degree of flexibility. |
| Keywords: | fractional integration; inflation-targeting; state space model |
| JEL: | C32 E52 |
| Date: | 2013–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2013_038&r=cba |
| By: | Pessarossi , Pierre (BOFIT); Weill , Laurent (BOFIT) |
| Abstract: | This paper contributes to the debate on the effect of capital requirements on bank efficiency. We study the relation between capital ratio and bank efficiency for Chinese banks over the period 2004-2009, taking advantage of the profound regulatory changes in capital requirements that occurred during this period to measure the exogenous impact of an in-crease in the capital ratio on banks’ cost efficiency. We find that such an increase has a positive effect on cost efficiency, the size of which depends to an extent on the bank’s ownership type. Our results therefore suggest that capital requirements can improve bank efficiency. |
| Keywords: | bank; capital requirements; efficiency; China |
| JEL: | G21 G28 |
| Date: | 2013–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_028&r=cba |
| By: | Owen F. Humpage; Sanchita Mukherjee |
| Abstract: | Using IV-GMM techniques and real-time data, we estimate a forward looking, Taylor-type reaction function incorporating dummy variables for even-keel operations and a variable for foreign official pressures on the U.S. gold stock during the Great Inflation.We show that when the Federal Reserve undertook even-keel operations to assist U.S. Treasury security sales, the FOMC tended to delay monetary-policy adjustments and to inject small amounts of reserves into the banking system.The operations, however, did not contribute significantly to the Great Inflation, because they occurred during periods of both monetary ease and monetary tightness, at least in the FOMC’s view.Consequently, the average federal funds rate during months containing even-keel events was no different than the average federal funds rate in other months, suggesting that even keel had no effect on the thrust of monetary policy.We also show that prospective gold losses had no effect on the FOMC’s monetary-policy decisions in the 1960s and early 1970s. |
| Keywords: | Inflation (Finance) |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1315&r=cba |
| By: | Mathias Lé (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, ACPR - Autorité de Contrôle Prudentiel et de Résolution - Autorité de Contrôle Prudentiel et de Résolution) |
| Abstract: | Explicit deposit insurance is a crucial ingredient of modern financial safety nets. This paper investigates the effect of deposit insurance adoption on individual bank leverage. Using a panel of banks across 117 countries during the period 1986-2011, I show that deposit insurance adoption pushes banks to increase significantly their leverage by reducing their capital buffer. This increase in bank leverage then translates into higher probability of insolvency. Most importantly, I bring evidence that deposit insurance adoption has important competitive effects: I show that large, systemic and highly leveraged banks are unresponsive to deposit insurance adoption. |
| Keywords: | Deposit Insurance; Bank Risk-Taking; Leverage; Systemic Bank; Capital Buffer |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00911415&r=cba |
| By: | Saroj Bhattarai; Jae Won Lee; Woong Yong Park |
| Abstract: | We investigate the roles of a time-varying inflation target and monetary and fiscal policy stances on the dynamics of inflation in a DSGE model. Under an active monetary and passive fiscal policy regime, inflation closely follows the path of the inflation target and a stronger reaction of monetary policy to inflation decreases the response of inflation to non-policy shocks. In sharp contrast, under an active fiscal and passive monetary policy regime, inflation moves in an opposite direction from the inflation target and a stronger reaction of monetary policy to inflation increases the response of inflation to non-policy shocks. Moreover, a higher level of government debt leads to a greater response of inflation while a weaker response of fiscal policy to debt decreases the response of inflation to non-policy shocks. These results are due to variation in the value of public debt that leads to wealth effects on households. Finally, under a passive monetary and passive fiscal policy regime, both monetary and fiscal policy parameters matter for inflation dynamics, but because of equilibrium indeterminacy, theory provides no clear answer on the overall behavior of inflation. We characterize these results analytically in a simple model and numerically in a quantitative model. |
| Keywords: | Time-varying inflation target, Inflation response, Public debt, Monetary and fiscal policy regimes, Monetary and fiscal policy stances, DSGE model |
| JEL: | E31 E52 E63 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-75&r=cba |
| By: | Oleksiy Kryvtsov; Luba Petersen |
| Abstract: | The effectiveness of monetary policy depends, to a large extent, on market expectations of its future actions. In a standard New Keynesian business-cycle model with rational expectations, systematic monetary policy reduces the variance of inflation and the output gap by at least two-thirds. These stabilization benefits can be substantially smaller if expectations are non-rational. We design an economic experiment that identifies the contribution of expectations to macroeconomic stabilization achieved by systematic monetary policy. We find that, despite some non-rational component in expectations formed by experiment participants, monetary policy is quite potent in providing stabilization, reducing macroeconomic variance by roughly half. |
| Keywords: | Business fluctuations and cycles; Monetary policy implementation; Transmission of monetary policy |
| JEL: | C9 D84 E3 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-44&r=cba |
| By: | William C. Dudley |
| Abstract: | Remarks at the Global Economic Policy Forum, New York City. |
| Keywords: | Bank failures ; Business failures ; Bank size ; Systemic risk ; Bank capital ; Bank liquidity ; Financial stability ; Bank competition ; Federal Deposit Insurance Corporation ; Financial Regulatory Reform (Dodd-Frank Act) |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:123&r=cba |
| By: | Bianca De Paoli; Matthias Paustian |
| Abstract: | The financial crisis has prompted macroeconomists to think of new policy instruments that could help ensure financial stability. Policymakers are interested in understanding how these should be set in conjunction with monetary policy. We contribute to this debate by analyzing how monetary and macroprudential policy should be conducted to reduce the costs of macroeconomic fluctuations. We do so in a model in which such costs are driven by nominal rigidities and credit constraints. We find that, if faced with cost-push shocks, policy authorities should cooperate and commit to a given course of action. In a world in which monetary and macroprudential tools are set independently and under discretion, our findings suggest that assigning conservative mandates (á la Rogoff [1985]) and having one of the authorities act as a leader can mitigate coordination problems. At the same time, choosing monetary and macroprudential tools that work in a similar fashion can increase such problems. |
| Keywords: | Monetary policy ; Financial stability ; Macroeconomics ; Financial market regulatory reform |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:653&r=cba |
| By: | S.Chatterji; S.Ghosal |
| Abstract: | Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of nes or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises. |
| Keywords: | bank runs, contagion, moral hazard, liquidity, random, contracts, monitoring. |
| JEL: | G21 D82 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2013_21&r=cba |
| By: | Lena Dräger (University of Hamburg); Ulrich Fritsche (University of Hamburg) |
| Abstract: | We compare the formation of quantitative infl ation perceptions and expectations from questions asked either in terms of price changes or in terms of the in flation rate in a new socio-economic household survey established at the University of Hamburg. In addition to socio-demographic characteristics, we evaluate effects of happiness, trust in people and the central bank, risk attitudes as well as news heard on monetary policy or in flation. We find that the upwards bias of reported perceptions and expectations is higher under the price wording and responses are more heterogeneous, but non-response rates are higher in the infl ation wording. Generally, consumers have lower perceptions or expectations with a higher level of education, which also significantly lowers the probability of non-response. Consumers that perceived positive news on monetary policy or infl ation also tend to give lower infl ation estimates and vice versa. Additionally, our results suggest that happier individuals have significantly lower perceptions and expectations under the price wording, while more risk-averse consumers give significantly higher in flation estimates under the inflation wording. |
| Keywords: | in flation perceptions, in flation expectations, survey design; mental representations, economic beliefs |
| JEL: | E31 D84 C83 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201308&r=cba |
| By: | Levine, P.; Pearlman, J.; Yang, B. |
| Abstract: | This paper examines the implications of imperfect information (II) for optimal monetary policy with a consistent set of informational assumptions for the modeller and the private sector an assumption we term the informational consistency. We use an estimated simple NK model from Levine et al. (2012), where the assumption of symmetric II significantly improves the fit of the model to US data to assess the welfare costs of II under commitment, discretion and simple Taylor-type rules. Our main results are: first, common to all information sets we find significant welfare gains from commitment only with a zero-lower bound constraint on the interest rate. Second, optimized rules take the form of a price level rule, or something very close across all information cases. Third, the combination of limited information and a lack of commitment can be particularly serious for welfare. At the same time we find that II with lags introduces a ‘tying ones hands’ effect on the policymaker that may improve welfare under discretion. Finally, the impulse response functions under our most extreme imperfect information assumption (output and inflation observed with a two-quarter delay) exhibit hump-shaped behaviour and the fiscal multiplier is significantly enhanced in this case. |
| Keywords: | Imperfect Information; DSGE Model; Optimal Monetary Policy; Bayesian Estimation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:13/13&r=cba |
| By: | Henry Penikas (National Research University Higher School of Economics (Moscow, Russia). International Laboratory of Decision Choice and Analysis); Travis Selmier (Indiana University, Department of Political Science (Bloomington, US)) |
| Abstract: | This essay aims at highlighting the linkage between current international banking regulation (namely, that produced by the Basel Committee on Banking Supervision) and economic activity, which is proxied by the S&P500 stock market index. It is revealed that the amount of regulatory documents published per year affects stock market performance, but only for the next two years. Discussion on the probable reasons for this is included |
| Keywords: | Basel Committee, Banking Regulation, Standard and Poor’s 500 Index, Granger Causality Test |
| JEL: | E58 G20 G32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:15/fe/2013&r=cba |
| By: | Maria Grazia Miele |
| Abstract: | This paper addresses the following questions: which was the contribution of banks’ assets to the US’ expansion in the period until the financial crisis? Did commercial banks respect capital requirements? The two questions are strictly interrelated as, according to a recent literature, business cycle is directly related to banks’ capital requirements for market and credit risk. The analysis highlight that US commercial banks actually respected capital requirements but these were not relevant in the explanation of US growth; it confirms that most of the growth can instead be explained by the rise in productivity. Nevertheless, the analysis does not consider the role of the non banking intermediation (investment banks, broker dealers, mutual funds, etc.) that steadily increased until the crisis. Its effects over real economy could be investigated in further work. |
| Keywords: | commercial banks, crisis, capital requirements, business cycle |
| JEL: | E44 E32 G21 G01 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp163&r=cba |
| By: | Scott Fulford; Felipe Schwartzman |
| Abstract: | We examine a period during the prevalence of the gold standard in the United States to provide evidence that speculation about a currency peg can have damaging effects on bank balance sheets. In particular, the defeat of the pro-silver candidate in the 1896 presidential election was associated with a large and permanent increase in bank leverage, with the initial impact most pronounced among states where banks held more specie in proportion to their assets and were, therefore, also more committed to paying out deposits in specie. Based on the cross-sectional pattern of changes in leverage observed in 1896, we construct a measure of the credibility of the gold standard spanning the entire sample period. Changes in this measure correlate with changes in aggregate bank leverage, suggesting that uncertainty about the monetary standard played an important role in the 1893 banking panic and its aftermath. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:13-18&r=cba |
| By: | Eric M. Leeper; Xuan Zhou |
| Abstract: | We study how the maturity structure of nominal government debt affects optimal monetary and fiscal policy decisions and equilibrium outcomes in the presence of distortionary taxes and sticky prices. Key findings are: (1) there is always a role for current and future inflation innovations to revalue government debt, reducing reliance on distorting taxes; (2) the role of inflation in optimal fiscal financing increases with the average maturity of government debt; (3) as average maturity rises, it is optimal to tradeoff inflation for output stabilization; (4) inflation is relatively more important as a fiscal shock absorber in high-debt than in low-debt economies; (5) in some calibrations that are relevant to U.S. data, welfare under the fully optimal monetary and fiscal policies can be made equivalent to the welfare under the conventional optimal monetary policy with passively adjusting lump-sum taxes by extending the average maturity of bond. |
| JEL: | E31 E52 E62 E63 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19686&r=cba |
| By: | Nikolay Gospodinov; Ibrahim Jamali |
| Abstract: | Using futures data for the period 1990–2008, this paper finds evidence that expansionary monetary policy surprises tend to increase crude and heating oil prices, and contractionary monetary policy shocks increase gold and platinum prices. Our analysis uncovers substantial heterogeneity in the magnitude of this response to positive and negative surprises across different commodities and commodity groups. The results also suggest that the positions of futures traders for the metals and energy commodities strongly respond to monetary policy shocks. The adjustment of the net long positions of hedgers and speculators appears to be a channel through which the monetary policy shocks are propagated to commodity price changes. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2013-12&r=cba |
| By: | Perry Mehrling (Barnard College, Columbia University) |
| Abstract: | The Treasury-Fed Accord of 1951 and the subsequent rebuilding of private capital markets, first domestically and then globally, provided the shifting institutional background against which thinking about money and monetary policy evolved within the MIT economics department. Throughout that evolution, a constant, and a constraint, was the conception of monetary economics that Paul Samuelson had himself developed as early as 1937, a conception that informed the decision to bring in Modigliani in 1962, as well as Foley and Sidrauski in 1965. |
| Keywords: | MIT, monetary economics, Paul Samuelson |
| JEL: | B22 E50 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2013-44&r=cba |
| By: | Mathis Schröder; Denise Sassenroth; John Körtner; Martin Kroh; Jürgen Schupp |
| Abstract: | The paper gives an overview of two experiments implemented in the German Socio-Economic Panel (SOEP) considering the effect of monetary incentives on cross-sectional and longitudinal response propensities. We conclude that the overall effects of monetary incentives on response rates are positive compared to the "classic" SOEP setting, where a charity lottery ticket is offered as an incentive. In the cross-section, cash incentives are associated with a higher response rate as well as a lower rate of partial unit non-response (PUNR) and fewer noncontacts on the household level. Separate analyses for German and immigrant households show that a monetary incentive has a positive effect on immigrant households’ participation in subsequent waves. Regarding the regions where the households are located, the high cash incentive has a positive effect on response rates in provincial towns and rural areas. The incentive treatment decreases the likelihood of PUNR in the longitudinal setting by motivating members of participating households who had refused to participate in previous waves to respond in subsequent waves. |
| Keywords: | Incentive experiment, response rates, partial unit nonresponse, nonresponse bias, conditional incentives |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp603&r=cba |
| By: | N. H. Dimsdale (The Queens College, University of Oxford) |
| Abstract: | The paper examines the behavior of the British economy 1890-1913 by using a newly assembled quarterly data set. This provides a basis for estimating a small macroeconomic model, which can be used to explore the relationship between the policy responses of the Bank of England and the course of the economy. It is one of the few papers to make use of UK quarterly data and seeks to extend the earlier work of Goodhart (1972). The paper goes on to look into the determinants of external and internal gold flows and relates these to an extensive historical literature. The outcome is compared with the traditional representation of the working of the gold standard, as set out in the well-known Interim Report of the Cunliffe Committee (1918). It is found that operation of the model accords in general with the view of the Committee. The views of the Committee were applicable to the pre 1914 gold standard, but less so to the restored interwar gold standard. The next question to be considered is how far the Bank observed ‘The Rules of the Game’ in the sense of relating the reserves of the commercial banks to the gold reserves held at the Bank. It is shown that the relationship between the Bank’s reserves and the reserves of the commercial banks was severely distorted by the massive gold movements of 1895-6. These flows were associated with US political conflicts over the monetization of silver. With the exception of this episode, the Bank is shown to have had a limited measure of discretion in operating the gold standard. The final question to be considered is whether a similar model can be estimated from US data and related to the views of Friedman and Schwartz. |
| Date: | 2013–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:nuf:esohwp:_123&r=cba |
| By: | Prasad, Eswar (Cornell University) |
| Abstract: | Distributional consequences typically receive limited attention in economic models that analyze the effects of monetary and financial sector policies. These consequences deserve more attention since financial markets are incomplete, imperfect, and economic agents' access to them is often limited. This limits households' ability to insure against household-specific (or sector-specific) shocks and magnifies the distributional effects of aggregate macroeconomic fluctuations and associated policy responses. These effects are likely to be even larger in emerging market and low-income economies beset by financial frictions. The political economy surrounding distributional consequences can sometimes lead to policy measures that reduce aggregate welfare. I argue that it is important to take better account of distributional rather than just aggregate consequences when evaluating specific policy interventions as well as the mix of different policies. |
| Keywords: | income and wealth distribution, inequality, emerging markets, financial frictions, monetary policy, macroeconomic policies |
| JEL: | E5 E6 F4 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7777&r=cba |
| By: | Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Anna Samarina (University of Groningen, Netherlands) |
| Abstract: | This paper examines how the analysis of inflation targeting (IT) adoption is affected by allowing for a structural change after adoption, using panel probit models for 60 countries over the period 1985-2008. Our findings suggest that there is a structural change after IT adoption. Including the post-adoption period when estimating the factors of IT adoption leads to biased results when interested in the question as of what drives countries’ decision to adopt IT. |
| Keywords: | inflation targeting, panel probit |
| JEL: | E42 E52 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-346&r=cba |
| By: | Kappler, Marcus; Schleer, Frauke |
| Abstract: | The aim of this paper is to assess the dimension of factors and shocks that drive financial conditions, and in particular financial stress in the euro area. A second aim is to construct summary indices on the conditions and level of stress in financial markets with the aid of a dynamic factor model. By analysing 149 newly compiled monthly time series on financial market conditions in the euro area, our results suggest that the data respond quite differently to fundamental shocks to financial markets but the dimension of these shocks is rather limited. Consequently, countries or segments of the financial sector in the euro area react fairly heterogonously to such shocks. We estimate several common factors and by means of an exploratory analysis we give them an economic interpretation. We find that the existence of a Periphery Banking Crisis factor, a Stress factor and a Yield Curve factor explains the bulk of variation in recent euro area financial sector data. -- |
| Keywords: | Financial Stress,Dynamic Factor Models,Financial Crisis,Euro Area |
| JEL: | C38 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:13100&r=cba |
| By: | Polina Savchenko (Research Assistant, Center for Institutional Studies, National Research University ‘Higher School of Economics’, Moscow, Russia); Maria Semenova (Research fellow, Associate Professor, Center for Institutional Studies, National Research University ‘Higher School of Economics’, Moscow, Russia) |
| Abstract: | This paper investigates how combining positions between the board of directors and top-management affects bank profitability. We use 2010 bank-level data from 112 countries. Our results suggest that combining positions reduces both ROE and ROA of banks. However, for banks in developing countries, the influence proves to be positive. We also show that the higher the proportion of the board members who simultaneously hold a managerial position, the lower the profitability of the bank. This effect is observed both for developed and developing countries |
| Keywords: | corporate governance, banks, profitability |
| JEL: | G21 G34 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:16/fe/2013&r=cba |
| By: | Silvia Del Prete (Bank of Italy); Maria Lucia Stefani (Bank of Italy) |
| Abstract: | Italy ranks among EU countries with the fewest women on bank boards. Using a rich dataset on Italian banks that combines individual data on bank governance with different measures of performance and risk, this paper analyses the determinants of the gender gap in top positions. Econometric results suggest that there is a “second glass ceiling” as they confirm a significantly lower probability of women holding top decision-making positions (Chairman, CEO, General Manager), other individual characteristics and bank features being equal. Moreover, results show that the number of women at the top is greater a) in banks belonging to the major banking groups, with larger and younger boards; and b) in banks that are more cost efficient or in those with a larger share of risky loans in the past (in need of restructuring). Preliminary evidence from performance equations suggests that the presence of women is negatively correlated with indicators of ex post riskiness, implying that credit policies are more stringent when women are on the board, possibly due to their higher risk aversion. |
| Keywords: | banking, corporate governance, gender diversity, board of directors. |
| JEL: | G21 G34 J16 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_175_13&r=cba |
| By: | Christopher Gandrud; Mark Hallerberg |
| Abstract: | As the basis for a European regime for resolving failing and failed banks, the European Commission has proposed the Bank Resolution and Recovery Directive (BRRD) and a regulation establishing a European Single Resolution Mechanism (SRM) and a Single Bank Resolution Fund (SBRF). There is a debate about which parts of the proposed SRM-SBRF to add to the BRRD. The BRRD sets out a resolution toolkit that can be used by national resolution authorities. The SRM would involve European institutions more at the expense of national resolution authorities. This change could affect resolution outcomes. Domestic resolution authorities might be more generous than supranational authorities in providing assistance to banks. A supranational approach might be more effective in minimising costs for taxpayers. But regardless of the final design, more attention is needed to ensure that resolution authorities are politically independent from governments. When public support is provided to failed institutions it should come from a bankfunded resolution fund. This would reduce taxpayersâ?? direct costs, and would make banks less likely to take risks and advocate for bailouts |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:803&r=cba |
| By: | Monica Jain |
| Abstract: | The Survey of Professional Forecasters (SPF) has had vast influence on research related to better understanding expectation formation and the behaviour of macroeconomic agents. Inflation expectations, in particular, have received a great deal of attention, since they play a crucial role in determining real interest rates, the expectations-augmented Phillips curve and monetary policy. One feature of the SPF that has surprisingly not been explored is the natural way in which it can be used to extract useful measures of inflation persistence. This paper presents a new measure of U.S. inflation persistence from the point of view of a professional forecaster, referred to as perceived inflation persistence. It is built via the implied autocorrelation function that follows from the estimates obtained using a forecaster-specific state-space model. Findings indicate that perceived inflation persistence has changed over time and that forecasters are more likely to view unexpected shocks to inflation as transitory, particularly since the mid-1990s. When compared to the autocorrelation function for actual inflation, forecasters react less to shocks than the actual inflation data would suggest, since they may engage in forecast smoothing. |
| Keywords: | Inflation and prices; Econometric and statistical methods |
| JEL: | E31 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-43&r=cba |
| By: | Martin Brown (Swiss Institute of Banking and Finance, University of St.Gallen); Ralph De Haas (EBRD); Vladimir Sokolov (Higher School of Economics) |
| Abstract: | In this paper, we exploit variation in consumer price inflation across 71 Russian regions to examine the relationship between the perceived stability of the local currency and financial dollarisation. Our results show that regions with higher inflation experience an increase in the dollarisation of household deposits and a decrease in the dollarisation of (long-term) household credit. The negative impact of inflation on credit dollarisation is weaker in regions with less integrated banking markets, suggesting that the asset-liability management of banks constrains the currency-portfolio choices of households. |
| Keywords: | Financial dollarisation, financial integration, regional inflation |
| JEL: | E31 E42 E44 F36 G21 P22 P24 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ebd:wpaper:163&r=cba |
| By: | Linda S. Goldberg; Christian Grisse |
| Abstract: | Although the effects of economic news announcements on asset prices are well established, these relationships are unlikely to be stable. This paper documents the time variation in the responses of yield curves and exchange rates using high frequency data from January 2000 through August 2011. Significant time variation in news effects is present for those announcements that have the largest effects on asset prices. The time variation in effects is explained by economic conditions, including the level of policy rates at the time of the release, and risk conditions: government bond yields increase in response to "good news", but less so when risk is elevated. Risk conditions matter since they can capture the effects of uncertainty on the information content of news announcements, the interaction of monetary policy and financial stability objectives of central banks, and the effect of news announcements on the risk premium. |
| Keywords: | macroeconomic news announcements, high-frequency data, bond yields, exchange rates, monetary policy, risk |
| JEL: | E43 E44 E52 F31 G12 G14 G15 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2013-11&r=cba |
| By: | Bulat Gafarov (Higher School of Economics (Moscow, Russia). Laboratory for Inflation Problems and Economic Growth Research.) |
| Abstract: | I apply the model with unobserved components and stochastic volatility (UC-SV) to forecast the Russian consumer price index. I extend the model which was previously suggested as a model for inflation forecasting in the USA to take into account a possible difference in model parameters and seasonal factor. Comparison of the out-of-sample forecasting performance of the linear AR model and the UC-SV model by mean squared error of prediction shows better results for the latter model. Relatively small absolute value of the standard error of the forecasts calculated by the UC-SV model makes it a reasonable candidate for a real time forecasting method for the Russian CPI. |
| Keywords: | Stochastic volatility, MCMC, Russia, CPI, forecasting. |
| JEL: | C53 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:35/ec/2013&r=cba |
| By: | Michael Hatcher |
| Abstract: | This paper presents a general equilibrium model in which nominal government debt pays an inflation risk premium. The model predicts that the inflation risk premium will be higher in economies which are exposed to unanticipated inflation through nominal asset holdings. In particular, the inflation risk premium is higher when government debt is primarily nominal, steady-state inflation is low, and when cash and nominal debt account for a large fraction of consumers’ retirement portfolios. These channels do not appear to have been highlighted in previous models or tested empirically. Numerical results suggest that the inflation risk premium is comparable in magnitude to standard representative agent models. These findings have implications for management of government debt, since the inflation risk premium makes it more costly for governments to borrow using nominal rather than indexed debt. Simulations of an extended model with Epstein-Zin preferences suggest that increasing the share of indexed debt would enable governments to permanently lower taxes by an amount that is quantitatively non-trivial. |
| Keywords: | government debt; inflation risk premium; overlapping generations |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2013_17&r=cba |