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on Central Banking |
| By: | Martin F. Hellwig (Max Planck Institute for Research on Collective Goods) |
| Abstract: | The paper gives an overview over issues concerning the role of financial stability in monetary policy and the relation between banking supervision and central banking. Following a brief account of developments in the European Monetary Union since its creation, the systematic treatment contains four parts, first a systematic discussion of how a central bank’s operations differ from those of an administrative authority; second, a discussion of how the shift from convertible currencies to paper currencies has affected our understanding of monetary policy and the role of financial stability; third, a discussion of moral hazard in banking and banking supervision as a threat to monetary dominance and to the effective independence of central bank decision making in an environment in which financial stability is an essential precondition for reaching the central bank’s macroeconomic objective, e.g. price stability; finally, a discussion of the challenges for institution design and policy, with special attention to developments in the euro area. |
| Keywords: | Banking Supervision, financial stability, monetary policy, central banking, bank resolution, independence of central banks and supervisory authorities |
| JEL: | G18 G28 E58 E44 E42 E51 E52 G33 H63 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2014_09&r=cba |
| By: | Jean-Bernard Chatelain (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, UP1 - Université Paris 1, Panthéon-Sorbonne - Université Paris I - Panthéon-Sorbonne - PRES HESAM); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE) |
| Abstract: | This paper investigates the identification, the determinacy and the stability of ad hoc, "quasi-optimal" and optimal policy rules augmented with financial stability indicators (such as asset prices deviations from their fundamental values) and minimizing the volatility of the policy interest rates, when the central bank precommits to financial stability. Firstly, ad hoc and quasi-optimal rules parameters of financial stability indicators cannot be identified. For those rules, non zero policy rule parameters of financial stability indicators are observationally equivalent to rule parameters set to zero in another rule, so that they are unable to inform monetary policy. Secondly, under controllability conditions, optimal policy rules parameters of financial stability indicators can all be identified, along with a bounded solution stabilizing an unstable economy as in Woodford (2003), with determinacy of the initial conditions of non- predetermined variables. |
| Keywords: | Identification; Financial Stability; Optimal Policy under Commitment; Augmented Taylor rule; Monetary Policy. |
| Date: | 2014–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-00978145&r=cba |
| By: | Stephen Hansen; Michael McMahon; Andrea Prat |
| Abstract: | How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process. |
| Keywords: | Monetary policy, deliberation, FOMC, transparency, career concerns |
| JEL: | E52 E58 D78 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1276&r=cba |
| By: | Lukasz Topolewski (Nicolaus Copernicus University) |
| Abstract: | The work concerns the transparency of monetary policy selected central banks. The significance of this issue is growing and has a huge impact on the policy pursued by the central bank. There are also increasing importance of other aspects of quality. This article presents the transparency of monetary policy being carried out by the central bank. During the preparation work is based mainly on the analysis of the literature on a selected topic. The paper cites studies by other authors. Research shows that transparency is determined by many factors, which among others include: applied monetary policy strategy, experience, associated with a history of banking crises, as well as part of the supervision of the banking system. The conducted considerations that the level of transparency of the analyzed banks increased significantly, and this trend will probably continue in the future. Banks completely changed their attitude in this regard and are becoming more open to providing information to the public. It has been shown that among the subjects analyzed, the Czech National Bank and the National Bank of Hungary lead the most transparent monetary policy. |
| Keywords: | monetary policy, central bank, transparency |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2013:no16&r=cba |
| By: | Ansgar Belke |
| Abstract: | This paper briefly assesses the effectiveness of the different non-standard monetary policy tools in the Euro Area. Its main focus is on the Outright Monetary Transactions (OMT) Programme which is praised by some as the ECB’s “magic wand”. Moreover, it discloses further possible unintended consequences of these measures in the current context of weak economic activity and subdued growth going forward. For this purpose, it investigates specific risks for price stability and asset price developments in the first main part of the paper. It is not a too remote issue that the Fed does have a “tiger by the tail”, as Hayek (2009) expressed it, i.e. that the bank will finally have to accept either a recession or inflation and that there is no choice in between. Furthermore, it checks on whether the OMT programme really does not impose costs onto the taxpayer. Finally, it comes up with some policy implications from differences in money and credit growth in different individual countries of the Euro Area. The second main part of the paper assesses which other tools the ECB could use in order to stimulate the economy in the Euro Area. It does so by delivering details on whether and how the effectiveness of the ECB’s policies can be improved through more transparency and “forward guidance”. |
| Keywords: | central bank transparency, euro area, forward guidance, non-standard monetary policies, Outright Monetary Transactions, Quantitative Easing, segmentation of credit markets |
| JEL: | E52 E58 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201403&r=cba |
| By: | Fabio Verona (Bank of Finland, Monetary Policy and Research Department, and University of Porto, cef.up); Manuel M. F. Martins (University of Porto, Faculty of Economics and cef.up); Inês Drumond (Banco de Portugal, Financial Stability Department, and University of Porto, cef.up) |
| Abstract: | We assess the performance of optimal Taylor-type interest rate rules, with and without reaction to financial variables, in stabilizing the macroeconomy following financial shocks. We use a DSGE model that comprises both a loan and a bond market, which best suits the contemporary structure of the U.S. financial system and allows for a wide set of financial shocks and transmission mechanisms. Overall, we find that targeting financial stability – in particular credit growth, but in some cases also financial spreads and asset prices – improves macroeconomic stabilization. The specific policy implications depend on the policy regime, and on the origin and the persistence of the financial shock. |
| Keywords: | financial shocks, optimal monetary policy, Taylor rules, DSGE models, bond market, loan market |
| JEL: | E32 E44 E52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:1402&r=cba |
| By: | Samuel Wills (Oxford Centre for the Analysis of Resource Rich Economies (OxCarre), Department of Economics, University of Oxford; Centre for Macroeconomics (CFM); Centre for Applied Macroeconomic Analysis, Australian National University.; Centre for Macroeconomics (CFM)) |
| Abstract: | This paper studies how monetary policy should respond to news about an oil discovery, using a workhorse New Keynesian model. Good news about future production can create a recession today under exchange rate pegs and a simple Taylor rule, as seen in practice. This is explained by forward-looking inflation. Recession is avoided by a Taylor rule that accommodates changes in the natural level of output, which closely approximates optimal policy. Central banks have an incentive to exploit oil revenues by appreciating the terms of trade, creating “Dutch disease” and a deflationary bias which is overcome by committing to future policy. |
| Keywords: | Natural resources, oil, optimal monetary policy, small open economy, news shock |
| JEL: | E52 E62 F41 O13 Q30 Q33 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1408&r=cba |
| By: | Layal Mansour (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | This aim of the present paper is to measure first, the degree of trilemma indexes: exchange rate stability, monetary independence capital account openness while taking into account the increase of hording IR ratio over GDP, over External Debt and over Short Term External Debt. The evolution of the trilemma indexes shows that countries applying de facto flexible Exchange Rate Regime (ERR) take advantage of the IR and become able to adopt a managed ERR that consist of achieving the three trilemma indexes simultaneously without renouncing to anyone of them. We found that different IR ratio could have different interpretations and different directions of monetary policies, where external debt should be taken into consideration in such study while using the IR. As for country that is applying a de facto fixed exchange rate regime, the IR (different ratio) do not play any role in changing the patter of the Mundell trilemma and do not intervene in monetary authority policies. This paper treats as well the normative aspects of the trilemma, relating the policy choices to macroeconomic outcomes such as the volatility of output growth. We found different results from country to another, while taking different ratios of measuring IR, concluding that the impact of IR on the output volatility could change due to the level of external debt and adopted exchange rate regime. |
| Keywords: | Monetary policy, International Reserve, External Debts, Impossible Trinity, Managed Exchange Rate, Quadrilemma, Output Volatilily |
| JEL: | E52 E58 F31 F34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1420&r=cba |
| By: | Ennis, Huberto M. (Federal Reserve Bank of Richmond) |
| Abstract: | I study a non-stochastic, perfect foresight, general equilibrium model with a banking system that may hold large excess reserves when the central bank pays interest on reserves. The banking system also faces a capital constraint that may or may not be binding. When the rate of interest on reserves equals the market rate, if the quantity of reserves is large and bank capital is not scarce, the price level is indeterminate. However, for a large enough level of reserves, the bank capital constraint becomes binding and the price level moves one to one with the quantity of reserves. |
| JEL: | G21 |
| Date: | 2014–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:14-14&r=cba |
| By: | Anton Korinek; Alp Simsek |
| Abstract: | We investigate the role of macroprudential policies in mitigating liquidity traps driven by deleveraging, using a simple Keynesian model. When constrained agents engage in deleveraging, the interest rate needs to fall to induce unconstrained agents to pick up the decline in aggregate demand. However, if the fall in the interest rate is limited by the zero lower bound, aggregate demand is insufficient and the economy enters a liquidity trap. In such an environment, agents' exante leverage and insurance decisions are associated with aggregate demand externalities. The competitive equilibrium allocation is constrained inefficient. Welfare can be improved by ex-ante macroprudential policies such as debt limits and mandatory insurance requirements. The size of the required intervention depends on the differences in marginal propensity to consume between borrowers and lenders during the deleveraging episode. In our model, contractionary monetary policy is inferior to macroprudential policy in addressing excessive leverage, and it can even have the unintended consequence of increasing leverage. |
| Keywords: | Macroprudential Policy;Monetary policy;Liquidity;Demand;Borrowing;Debt markets;Economic recession;Equilibrium. Econometric models;Leverage, liquidity trap, zero lower bound, aggregate demand externality, efficiency, macroprudential policy, insurance |
| Date: | 2014–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/129&r=cba |
| By: | Pierre-Richard Agénor; K. Alper; L. Pereira da Silva |
| Abstract: | A dynamic stochastic model of a small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility is developed. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both cases subject to a premium. A sudden flood in capital flows generates an expansion in credit and activity, as well as asset price pressures. Countercyclical capital regulation, in the form of a Basel III-type rule based on credit gaps, is effective at promoting macro stability (defined in terms of the volatility of a weighted average of inflation and the output gap) and financial stability (defined in terms of three measures based on asset prices, the credit-to-GDP ratio, and the ratio of bank foreign borrowing to GDP). However, because the gain in terms of reduced economic volatility exhibit diminishing returns, in practice a countercyclical regulatory capital rule may need to be supplemented by other, more targeted macroprudential instruments when shocks are large and persistent. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:191&r=cba |
| By: | Kari Heimonen (School of Business and Economics, University of Jyvaskyla); Aleksandra Maslowska-Jokinen (Department of Economics, University of Turku) |
| Abstract: | In this paper we ask if central bank independence could lead to a bad fiscal position of some countries. Introducing autonomous central bank without changing other policy habits could expose the country to greater temptation to borrow money. We think that introducing high degree of CBI creates illusion that these countries are of similar credibility as a borrower. It opens new possibilities to borrow money and to increase consumption, thus leading to greater indebtedness. We analyse if the size of improvement in CBI was connected with country's increase in debt. We hypothesise that some countries could misuse the benefits coming from CBI, would not introduce discipline in other parts of economic policy and not only continue spending but also increase their volumes thanks to wider options for borrowing. Panel data estimations results using EMU-14 confirm our hypotheses. Greater increase in CBI was related to greater increase in debt, both public and private. These results are confirmed with alternative models and varying definitions of central bank independence. |
| Keywords: | central bank independence, sovereign debt, private debt, sound money, panel data |
| JEL: | C33 E02 E58 E61 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:tkk:dpaper:dp93&r=cba |
| By: | Alessi, Luci (Federal Reserve Bank of New York); Ghysels, Eric (Federal Reserve Bank of New York); Onorante, Luca (Federal Reserve Bank of New York); Peach, Richard (Federal Reserve Bank of New York); Potter, Simon M. (Federal Reserve Bank of New York) |
| Abstract: | This paper documents macroeconomic forecasting during the global financial crisis by two key central banks: the European Central Bank and the Federal Reserve Bank of New York. The paper is the result of a collaborative effort between the two institutions, allowing us to study the time-stamped forecasts as they were made throughout the crisis. The analysis does not focus exclusively on point forecast performance. It also examines density forecasts, as well as methodological contributions, including how financial market data could have been incorporated into the forecasting process. |
| Keywords: | macro forecasting; financial crisis |
| JEL: | B41 E32 G01 N20 |
| Date: | 2014–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:680&r=cba |
| By: | Guangling Liu |
| Abstract: | This paper develops a dynamic general equilibrium model with endogenous default on entrepreneur loans and funds borrowed from the central bank (liquidity injections) and investigates the welfare cost of sovereign default. The results show that sovereign default affects production through households' investment decisions and the bank's asset portfolio adjustment. The effect of sovereign default on entrepreneurs tends to be in favor of production. Sovereign default reduces the variability of the output gap and hence the welfare loss. Liquidity injections reduce the variability of the output gap and improve price stability during the period of sovereign debt crisis, resulting in an increase in households' welfare. |
| Keywords: | sovereign default, welfare cost, debt crisis, rollover risk, liquidity |
| JEL: | E50 E58 E63 G18 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:439&r=cba |
| By: | Camille Cornand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Pauline Gandré (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Céline Gimet (, Institute of Political Studies, CHERPA, EA 4261, Aix-en-Provence, France and GATE Lyon Saint-Etienne, Ecully, F-69130, France) |
| Abstract: | One of the most striking consequences of the recent episode of sovereign debt market stress in the Eurozone has been the increase in the share of public debt held by the domestic sector in fragile economies. First, we identify the shocks that explain most of the variation in this share in an S-VAR model on a sample of 7 Eurozone countries between 2007 and 2012. Home bias in sovereign debt responds positively to fundamentals and expectations shocks but we find no evidence that the increase in home bias is destabilizing per se. Second, we theoretically model the impact of the previous shocks in a second-generation model of crisis with endogenous home bias in sovereign debt. We derive conditions under which a higher home bias is associated with a change in the government’s decision. Finally, we discuss which case of the model best applies to the distinct countries in our sample during the recent sovereign debt crisis in the Eurozone. |
| Keywords: | Eurozone, Sovereign debt crises, Home bias, Bayesian panel S-VAR, Second-generation model |
| JEL: | E4 E5 F3 G15 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1419&r=cba |
| By: | Eduardo Olaberria |
| Abstract: | Following Chairman Ben Bernanke’s comments before Congress that the FOMC may ‘take a step down in the pace of asset purchases if economic improvement appears to be sustained’, US 10-year interest rates picked up sharply and gross capital flows to emerging market economies (EMEs) reversed. These events raised concerns that further increases in US interest rates could trigger sharp changes of capital flows that would be followed by financial crises in EMEs. To assess this possibility, this paper studies the association between US long term interest rates and cycles of capital flows to EMEs. It finds that, indeed, cycles in capital flows to EMEs are linked to global conditions, including global risk aversion and long term interest rates in the United States. In particular, higher US long term interest rates are associated with lower levels of gross capital flows to EMEs, and to a higher probability of observing sharp reversals in those flows. Episodes of net capital inflows, on the other hand, are mostly associated with domestic macroeconomic conditions. In particular, economies with relatively low levels of gross outflows, with a high ratio of short-term debt to international reserves or with weak domestic fundamentals are more vulnerable to the risk of a classic sudden stop à la Calvo. This Working Paper relates to the OECD Economic Survey of the United States 2014 (www.oecd.org/eco/surveys/economic-survey-unitedstates. htm) Taux d'intérêt à long-terme des États-Unis et flux de capitaux vers les pays émergents Après les commentaires de Ben Bernanke devant le Congrès que le FOMC pourrait "ralentir dans le rythme des achats d'actifs si l'amélioration économique semble se maintenir», les taux d'intérêt américains à 10 ans ont fortement remontés et les flux de capital brut vers les économies émergentes (EME) se sont inversés. Ces événements ont soulevé des préoccupations que de nouvelles hausses des taux d'intérêt américains pourraient déclencher des changements brusques de flux de capitaux qui seraient suivies par des crises financières dans les pays émergents. Pour évaluer cette possibilité, ce document étudie l'association entre les taux d'intérêt à long terme des États-Unis et les cycles de flux de capitaux vers les pays émergents. Il constate que, en effet, les cycles des flux de capitaux vers des pays émergents sont liés à la conjoncture mondiale, y compris l'aversion au risque global et les taux d'intérêt à long terme aux États-Unis. En particulier, la hausse des taux d'intérêt à long terme américains sont associés à des niveaux plus bas de capital flux bruts de pays émergents, et à une plus grande probabilité d'observer des inversions brutales des flux de capitaux. Cependant, cette association ne vaut que pour les flux de capitaux mesurées en termes bruts. En outre, l’étude ne trouve aucune preuve d'un lien entre les taux d'intérêt à long terme des États-Unis et les flux de capitaux, mesurée en termes nets. Les principaux facteurs associés aux flux nets de capitaux sont les conditions macro-économiques nationales. Ce Document de travail se rapporte à l’Étude économique de l’OCDE des Etats-Unis 2014 (www.oecd.org/fr/eco/etudes/etats-unis.h tm). |
| Keywords: | capital inflows, asset prices, exchange rate regimes, sudden stops, interest rate, taux d'intérêt, prix d’actifs, déséquilibres financiers, régime de taux de change, flux de capitaux |
| JEL: | E32 F32 F41 G10 G12 G15 |
| Date: | 2014–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1155-en&r=cba |
| By: | C.A.E. Goodhart |
| Abstract: | The Bank of England’s ‘consultative document’ on Competition and Credit Control was published on May 14th, 1971. It was a landmark occasion, representing a decisive break with the prior system of maintaining direct controls over the, main components of the, UK banking system; the intention was now to achieve the monetary authorities’ objectives of policy via the operation of market mechanisms, notably adjustments in interest rates and open market operations. Although the ‘credit control’ aspect was, over the next few years, notably less successful than the encouragement of competition amongst the banks, (where the London Clearing Banks previously had maintained a restrictive cartel with the support of the authorities), nevertheless the direction of travel towards a more liberal, market based system, remained, despite a partial reversion towards a partial direct control system in the guise of the ‘corset’, introduced at the end of 1973, and finally laid to rest in June 1980. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp229&r=cba |
| By: | Francis, Neville (University of North Carolina, Chapel Hill); Jackson, Laura E. (University of North Carolina, Chapel Hill); Owyang, Michael T. (Federal Reserve Bank of St. Louis) |
| Abstract: | In the wake of the Great Recession, the Federal Reserve lowered the federal funds rate target essentially to zero and resorted to unconventional monetary policy. With the nominal FFR constrained by the zero lower bound (ZLB) for an extended period, empirical monetary models cannot be estimated as usual. In this paper, we consider whether the standard empirical model of monetary policy can be preserved without breaks. We consider whether alternative policy instruments (e.g., the size of the balance sheet) can be considered substitutes for the FFR over the ZLB period. Furthermore, we construct a shadow rate via the method proposed in Krippner [2012] to represent an alternative measure of the stance of monetary policy and compare this with the shadow rate of Wu and Xia [2014]. We ask whether the shadow rate is a sufficient representation of the policy instrument or if the financial crisis requires other modifications. We find that, if using a dataset that spans the pre-ZLB period throughout the ZLB environment, the shadow rate acts as a fairly good proxy for monetary policy by producing impulse responses of macro indicators similar to what we’d expect based on the post-WWII, non-ZLB benchmark. However, the linear model exhibits a significant structural break at the onset of the ZLB and the shadow rate may still be insufficient for examining the ZLB period in isolation. |
| Keywords: | zero lower bound; affine term structure |
| JEL: | C32 E44 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-019&r=cba |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper discusses Japan’s strategy for Asian monetary integration. It argues that Japan faces three major policy challenges when promoting intraregional exchange rate stability. First, there must be some convergence of exchange rate regimes in East Asia, and the most realistic option is for the region’s emerging economies to adopt similar managed floating regimes—rather than a peg to an external currency. This requires major emerging economies—particularly the People’s Republic of China (PRC)—to move to a more flexible regime vis-à -vis the US dollar. Second, given the limited degree of the yen’s internationalization and the lack of the renminbi’s (or the prospect of its rapid) full convertibility, it is in the interest of East Asia to create a regional monetary anchor through a combination of some form of national inflation targeting and a currency basket system. Emerging economies in the region need to find a suitable currency basket for their exchange rate target, such as a special drawing rights-plus (SDR+) currency basket—i.e., a basket of the SDR and emerging East Asian currencies. Third, if the creation of a stable regional monetary zone is desirable, the region must have a country or countries assuming a leadership role in this endeavor. There is no question that Japan and the PRC are such potential leaders, and the two countries need to collaborate closely with each other. To assume a leadership role, together with the PRC, in creating a stable monetary zone in Asia, Japan needs to make significant efforts at the national and regional levels and further strengthen financial cooperation. Practical steps that Japan could take include (i) restoring sustained economic growth through Abenomics; (ii) transforming Tokyo into a globally competitive international financial center; (iii) further strengthening regional economic and financial surveillance (Economic Review and Policy Dialogue and ASEAN+3 Macroeconomic Research Office) and regional financial safety nets (Chiang Mai Initiative Multilateralization) and creation of an Asian currency unit index; and (iv) launching serious policy discussions focusing on exchange rate issues to achieve intraregional exchange rate stability. |
| Keywords: | Asian monetary integration, Japan, currency, exchange rate regime, East Asia, SDR, currency basket, monetary zone, PRC, Chiang Mai |
| JEL: | F31 F32 F33 F42 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:24158&r=cba |
| By: | Peter Spahn |
| Abstract: | Böhm-Bawerk defines the rate of interest as the ratio of intertemporal goods prices, but cannot show the emergence of interest as a financial market price. The alleged efficiency ofroundabout production methods is ill-suited to derive a uniform rate of return of capital. Time preference may affect the allocation of income flows and the decision to build up individual wealth, but credit supply follows from a portfolio decision on the structure of the stock of assets. Here, liquidity preference and monetary policy operations have a decisive influence, whereas changes of productivity and time preference are poor predictors of even the sign of market interest changes. A 'natural' rate of interest, determined by 'deep' parameters of capital, production and time, does not exist; it turns out to be a mere estimated value of the bank rate, as a proxy for goods market equilibrium conditions. |
| Keywords: | interest rate theory, capital goods and capital value, time preference, liquidity preference |
| JEL: | B13 E43 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201404&r=cba |
| By: | Johannes Stroebel (New York University) |
| Abstract: | Card Accountability Responsibility and Disclosure (CARD) Act in the United States. Using a unique panel data set covering over 150 million credit card accounts, we find that regulatory limits on credit card fees reduced overall borrowing costs to consumers by an annualized 2.8% of average daily balances, with a decline of more than 10% for consumers with the lowest FICO scores. Consistent with a model of low fee salience and limited market competition, we find no evidence of an offsetting increase in interest charges or a reduction in access to credit. Taken together, we estimate that the CARD Act fee reductions have saved U.S. consumers $20.8 billion per year. We also analyze the CARD Act requirement to disclose the interest savings from paying off balances in 36 months rather than only making minimum payments. We find that this “nudge†increased the number of account holders making the 36-month payment value by 0.5 percentage points, with a similarly sized decrease in the number of account holders paying less than this amount. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:126&r=cba |
| By: | Lucca, David O. (Federal Reserve Bank of New York); Seru, Amit (Federal Reserve Bank of New York); Trebbi, Francesco (Federal Reserve Bank of New York) |
| Abstract: | Drawing on a large sample of publicly available curricula vitae, this paper traces the career transitions of federal and state U.S. banking regulators and provides basic facts on worker flows between the regulatory and private sectors resulting from the revolving door. We find strong countercyclical net worker flows into regulatory jobs, driven largely by higher gross outflows into the private sector during booms. These worker flows are also driven by state-specific banking conditions as measured by local banks’ profitability, asset quality, and failure rates. The regulatory sector seems to experience a retention challenge over time, with shorter regulatory spells for workers, and especially those with higher education. Evidence from cross-state enforcement actions of regulators shows that gross inflows into regulation and gross outflows from regulation are both higher during periods of intense enforcement, though gross outflows are significantly smaller in magnitude. These results appear inconsistent with a “quid pro quo” explanation of the revolving door but consistent with a “regulatory schooling” hypothesis. |
| Keywords: | banking regulation; revolving door; inter-industry worker flows |
| JEL: | G21 G28 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:678&r=cba |
| By: | Marie Briere; Ombretta Signori |
| Abstract: | Inflation shocks are one of the pitfalls of developing economies and are usually difficult to hedge. This paper examines the optimal strategic asset allocation for a Brazilian investor seeking to hedge inflation risk at different horizons, ranging from one to 30 years. Using a vector-autoregressive specification to model inter-temporal dependency across variables, we measure the inflation hedging properties of domestic and foreign investments and carry out a portfolio optimisation. Our results show that foreign currencies complement traditional assets very efficiently when hedging a portfolio against inflation: around 70% of the portfolio should be dedicated to domestic assets (equities, inflation-linked (IL) bonds and nominal bonds), whereas 30% should be invested in foreign currencies, especially the US dollar and the euro. © 2012 Elsevier B.V. |
| Keywords: | Inflation hedge; Pension finance; Portfolio optimisation; Shortfall risk |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/167772&r=cba |
| By: | Andreas A. Jobst; Nobuyasu Sugimoto; Timo Broszeit |
| Abstract: | Over the last decade, stress testing has become a central aspect of the Fund’s bilateral and multilateral surveillance work. Recently, more emphasis has also been placed on the role of insurance for financial stability analysis. This paper reviews the current state of system-wide solvency stress tests for insurance based on a comparative review of national practices and the experiences from Fund’s FSAP program with the aim of providing practical guidelines for the coherent and consistent implementation of such exercises. The paper also offers recommendations on improving the current insurance stress testing approaches and presentation of results. |
| Date: | 2014–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:14/133&r=cba |
| By: | Jörg Bibow |
| Abstract: | The euro crisis remains unresolved even as financial markets may seem calm for now. The current euro regime is inherently flawed. Recent reforms have failed to turn the dysfunctional euro regime into a viable one. The investigation is informed by the “cartalist” critique of traditional “optimum currency area” theory (Goodhart 1998). Various proposals to rescue the euro are assessed and found lacking. A Euro Treasury scheme operating on a strict rule and specifically designed not to be a transfer union is proposed here as condition sine qua non for healing the euro’s potentially fatal birth defects. The Euro Treasury proposed here is the missing element that renders sense to the current fiscal regime that is unworkable without it. The proposed Euro Treasury scheme would end the currently unfolding euro calamity by switching policy from a public thrift campaign that can only impoverish Europe to a public investment campaign designed to secure Europe’s future. No mutualization of existing national public debts is involved. Instead, the Euro Treasury is established as a means to pool eurozone public investment spending and have it funded by proper eurozone treasury securities. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp227&r=cba |