|
on Central Banking |
| By: | Stefan Laseen; Andrea Pescatori; Jarkko Turunen |
| Abstract: | We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare. We find that an unexpected increase in policy rates reduces output, inflation, and asset prices without fundamentally mitigating financial risks. We also find that while a systematic monetary policy reaction can improve welfare, it is too simplistic: (1) it is highly sensitive to parameters of the model and (2) is detrimental in the presence of falling asset prices. Macroprudential policy, similar to a countercyclical capital requirement, is more robust and leads to higher welfare gains. |
| Keywords: | Monetary policy;Endogenous Financial Risk, DSGE models, Non-Linear Dynamics, Policy Evaluation, financial sector, welfare, prices, equity, |
| Date: | 2015–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/142&r=all |
| By: | Ricardo Lagos; Shengxing Zhang |
| Abstract: | We develop a model of monetary exchange in over-the-counter markets to study the effects of monetary policy on asset prices and standard measures of financial liquidity, such as bid-ask spreads, trade volume, and the incentives of dealers to supply immediacy, both by participating in the market-making activity and by holding asset inventories on their own account. The theory predicts that asset prices carry a speculative premium that reflects the asset's marketability and depends on monetary policy as well as the microstructure of the market where it is traded. These liquidity considerations imply a positive correlation between the real yield on stocks and the nominal yield on Treasury bonds---an empirical observation long regarded anomalous. The theory also exhibits rational expectations equilibria with recurring belief driven events that resemble liquidity crises, i.e., times of sharp persistent declines in asset prices, trade volume, and dealer participation in market-making activity, accompanied by large increases in spreads and abnormally long trading delays. |
| JEL: | D83 E31 E52 E58 G12 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21528&r=all |
| By: | Bernard Laurens; Kelly Eckhold; Darryl King; Nils Øyvind Mæhle; Abdul Naseer; Alain Durré |
| Abstract: | Countries with evolving monetary regimes that decide to embark on “the Journey to inflation targeting†may not be able to adopt a full-fledged inflation targeting regime immediately. Those countries would be better off adopting transitional arrangements that take advantage of the informational content of monetary aggregates, developing an economic analysis capacity, and concentrating on monetay operations aimed at steering money market interest rates. This approach would allow the central bank to buy time for developing the building blocks for effective monetary policy, support transparent central bank communication, and limit the potential for undesirable outcomes along the road. |
| Keywords: | Monetary policy;central bank, exchange rate, interest rates, central banks, General, |
| Date: | 2015–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/136&r=all |
| By: | Benjamin Lester (Federal Reserve Bank of Philadelphia); Roc Armenter (Federal Reserve Bank of Philadelphia) |
| Abstract: | We provide a framework to understand the factors affecting current short-term interest rates in the federal funds market given the presence of excess reserves and liquidity facilities. The key ingredients of our model are as follows. There is a central bank that operates two facilities: one pays interest on excess reserves to qualified depository institutions (DIs), and another provides a positive rate of return for overnight reverse repurchase agreements. The latter (ON RRP) rate is lower than the former (IOER) rate, but is available to financial institutions with excess cash that do not qualify as DIs. Hence, there is an arbitrage opportunity: DIs should be willing to borrow cash at a rate below the IOER rate and pocket the difference. However, there are two potential frictions in this inter-bank market. First, we assume that the market is not perfectly competitive, but rather characterized by search frictions in order to capture the ``over-the-counter'' nature of the fed funds market. The second key friction in our model is that DIs incur balance sheet costs when they accept deposits from lenders; these costs capture both the direct costs of a DI expanding its balance sheet, like FDIC fees, as well as the indirect costs associated with requirements on capital and leverage ratios. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:586&r=all |
| By: | Rafael Portillo; Yulia Ustyugova |
| Abstract: | Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects. |
| Keywords: | Central banks and their policies;Uruguay;Monetary policy;Inflation targeting;Demand for money;Econometric models;Forecasting;Money Targeting, money, inflation, demand, interest rates, Monetary Policy (Targets, Instruments, and Effects), Forecasting and Simulation, Fiscal and Monetary Policy in Development, |
| Date: | 2015–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/170&r=all |
| By: | Sonali Das |
| Abstract: | This paper provides new evidence on the credit channel of monetary policy transmission in India. Using stepwise estimation of vector error correction models, the analysis finds significant, albeit slow, pass-through of policy rate changes to bank interest rates in India. There is evidence of asymmetric adjustment to monetary policy: the lending rate adjusts more quickly to monetary tightening than to loosening. In addition, the speed of adjustment of deposit and lending rates to changes in the policy rate has increased in recent years. |
| Keywords: | India;Lending rates;Monetary policy transmission, deposit rates, monetary policy, interest, interest rates, lending, bank interest rates, Monetary Policy (Targets, Instruments, and Effects), |
| Date: | 2015–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/129&r=all |
| By: | Bindseil, Ulrich; Domnick, Clemens; Zeuner, Jörg |
| Abstract: | In parts of the German media, with the support of a number of German economists, the ECB’s low nominal interest rate policy is criticised as unnecessary, ineffective and as expropriating the German saver. This paper provides a review of the relevant arguments. It is recalled that returns on savings are anchored to the real rate of return on capital. Good monetary policy tries to avoid being a source of disturbance in itself, and may be able to smooth the effects of temporary external shocks, but beyond that cannot structurally improve the real rate of return on capital. Against this general background, the paper critically analyses a number of recent arguments as to why low interest rate policies could actually be counterproductive. Finally, the paper reviews what can be done about the medium to long-term real rate of return on capital, which remains in any case the basic issue for the saver, focusing on the specific case of Germany. The key policies identified relate to demographics, education, labour markets, infrastructure and technology. Low growth dynamics in the coming decades and correspondingly low real rates of return on investments are not inevitable. JEL Classification: E43, E52, O40 |
| Keywords: | growth, natural rate, real interest rate, zero lower bound |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20150161&r=all |
| By: | Ali Alichi; Kevin Clinton; Charles Freedman; Ondra Kamenik; Michel Juillard; Douglas Laxton; Jarkko Turunen; Hou Wang |
| Abstract: | The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation. |
| Keywords: | Central banks and their policies;Monetary policy;Inflation targeting;United States;Optimal Control, inflation, interest, interest rate, central bank, General, |
| Date: | 2015–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/134&r=all |
| By: | Marcin Kolasa (National Bank of Poland); Krzysztof Makarski (National Bank of Poland); Michal Brzoza-Brzezina (National Bank of Poland) |
| Abstract: | This paper checks how international spillovers of shocks and polices are modified when banks are foreign owned. We build a two-country DSGE model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings we find that foreign ownership of banks amplifies spillovers from foreign shocks. Moreover, it also strenghtens the international transmission of monetary and macroprudential policies. Finaly, we replicate the financial crisis in the euro area and show how, by preventing bank capital outflow in 2009 Polish regulatory authorities managed to reduce its spillover to Poland. We also show that under foreign bank ownership such policy is strongly prefered to a recapitalization of domestic banks. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:595&r=all |
| By: | Luca Erzegovesi |
| Abstract: | The aim of this paper is twofold: (1) describe the new prudential regulatory framework on securitisation approved by the Basel Committee on Banking Supervision in December 2014 which will come into force from January 2018; (2) analyse the impact of the new rules on public guarantees to the benefit of securitised portfolios of SME loans, a policy tool which has grown in importance in Italy in programs fostering SME financing in the presence of a credit crunch. The rationale and principles behind the new framework are considered in the introductory sections. In the central section, the regulatory procedures for calculating minimum capital requirements are examined, with a focus on the two approaches that rely upon Òsupervisory formulasÓ, i.e. SECMIRBA (available to banks with an internal rating system approved by bank supervisors) and SECMSA (available to banks adopting the Standard Approach). In the final section, the impact of the new framework on the effectiveness of public guarantee programs is assessed by means of a simulation exercise where the capital absorption for some representative portfolios is computed and compared under the different regimes, old and new. The evidence obtained indicates that the Basel III framework on securitisation strongly reduces, or even eliminates completely, the capital saving effect of current public guarantee programs on SME portfolios. Therefore, banks and policy makers must design innovative guarantee structures which have a risk mitigation effect and, at the same time, make an efficient use of public resources in order to be ready for the phasing in of the new rules. It is also desirable that the planned review of the Basel III rules recognize guarantees on portfolios of loans to SMEs as eligibility granted to simple, transparent and standardized securitizations |
| Keywords: | securitisation framework, Basilea III |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpem:2015/12&r=all |
| By: | Qianying Chen; Andrew Filardo; Dong He; Feng Zhu |
| Abstract: | We study the impact of the US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error-correction model (GVECM) and conducting counterfactual analyses. We focus on the effects of reductions in the US term and corporate spreads. First, US QE measures reducing the US corporate spread appear to be more important than lowering the US term spread. Second, US QE measures might have prevented episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging economies have been diverse but often larger than those recorded in the US and other advanced economies. The heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs. |
| Keywords: | Financial crises;Financial crisis;Spillovers;Monetary policy;Unconventional monetary policy instruments;United States;United States;emerging economies, global VAR, international monetary policy spillovers, quantitative easing, unconventional monetary policy, federal reserve, securities, reserve, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects), Studies of Particular Policy Episodes, International Policy Coordination and Transmission, Forecasting and Simulation, |
| Date: | 2015–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/85&r=all |
| By: | Anh D. M. Nguyen; Jemma Dridi; D. Filiz Unsal; Oral Williams |
| Abstract: | The perception that inflation dynamics in Sub-Saharan Africa (SSA) are driven by supply shocks implies a limited role for monetary policy in influencing inflation in the short run. SSA’s rapid growth, its integration with the global economy, changes in the policy frameworks, among others, in the last decade suggest that the drivers of inflation may have changed. We quantitatively analyze inflation dynamics in SSA using a Global VAR model, which incorporates trade and financial linkages among economies, as well as the role of regional and global demand and inflationary spillovers. We find that in the past 25 years, the main drivers of inflation have been domestic supply shocks and shocks to exchange rate and monetary variables; but that, in recent years, the contribution of these shocks to inflation has fallen. Domestic demand pressures as well as global shocks, and particularly shocks to output, however, have played a larger role in driving inflation over the last decade. We also show that country characteristics matter—the extent of oil and food imports, vulnerability to weather shocks, economic importance of agriculture, trade openness and policy regime, among others, help in explaining the role of shocks. |
| Keywords: | Zambia;Zimbabwe;Supply and demand;Vector autoregression;Congo, Democratic Republic of the;Congo, Republic of;Econometric models;Sub-Saharan Africa;Sudan;Swaziland;Tanzania;Togo;Uganda;Rwanda;Senegal;Seychelles;Sierra Leone;South Africa;Niger;Nigeria;Mozambique;Namibia;Monetary policy;Liberia;Gabon;Gambia, The;Ghana;Guinea;Guinea-Bissau;Inflation;Kenya;Lesotho;Madagascar;Malawi;Mali;Mauritania;Mauritius;Djibouti;External shocks;Equatorial Guinea;Eritrea;Ethiopia;Benin;Angola;Central African Republic;Chad;Comoros;Botswana;Burkina Faso;Burundi;Cameroon;Global VAR (GVAR), supply, supply shocks, demand, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects), General, Sub-Saharan Africa., |
| Date: | 2015–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/189&r=all |
| By: | Pablo Anaya; Alex Pienkowski |
| Abstract: | This paper presents a novel approach to detail the propagation of shocks to public debt. The modeling technique involves a structural vector auto-regression (SVAR) estimator with an endogenous debt accumulation equation. It explores how the main drivers of sovereign debt dynamics—the primary balance, the interest rate, growth and inflation—interact with each other. Such analysis is particularly useful for debt sustainability analysis. We find that some interactions exacerbate the impact of shocks to the accumulation of debt, while others act to stabilize debt dynamics. Furthermore, the choice of monetary policy regime plays an important role in these debt dynamics – countries with constrained monetary policy are more at risk from changes in market sentiment and must rely much more on fiscal policy to constrain debt. |
| Keywords: | Euro Area;Monetary policy;Fiscal policy;Sovereign debt;Vector autoregression;debt, interest, interest rate, General, Monetary Policy (Targets, Instruments, and Effects), |
| Date: | 2015–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/137&r=all |
| By: | Rym Ayadi; Sami Ben Naceur; Barbara Casu; Barry Quinn |
| Abstract: | The global financial crisis underscored the importance of regulation and supervision to a well-functioning banking system that efficiently channels financial resources into investment. In this paper, we contribute to the ongoing policy debate by assessing whether compliance with international regulatory standards and protocols enchances bank operating efficiency. We focus specifically on the adoption of international capital standards and the Basel Core Principles for Effective Bank Supervision (BCP). The relationship between bank efficiency and regulatory compliance is investigated using the (Simar and Wilson 2007) double bootstrapping approach on an international sample of publicly listed banks. Our results indicate that overall BCP compliance, or indeed compliance with any of its individual chapters, has no association with bank efficiency. |
| Keywords: | Bank supervision;Basel Core Principles;Banks;Bank compliance;Bank regulations;BCP, Efficiency, Regulatory Compliance, bank, bank performance, interest, banking, Truncated and Censored Models, Government Policy and Regulation, |
| Date: | 2015–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/100&r=all |
| By: | Cécile Couharde; Serge Rey; Audrey Sallenave |
| Abstract: | In this paper we revisit medium- to long-run real exchange rate determination within the euro area, focusing on the role of external debt. Accordingly, we rely on the NATREX approach which provides an explicit framework of the external debt-real exchange rates nexus. In particular, given the indebtedness levels reached by the euro area economies, we investigate potential non-linearity in real exchange rates dynamics, according to the level of the external debt. Our results evidence that during the monetary union, gross and net external debt positions of the euro area countries have exerted pressures on real exchange rate dynamics within the area. Moreover, we find that, beyond a threshold reached by the external debt, euro area countries are found to be in a vulnerable position, leading to an unavoidable adjustment process. Nevertheless, the adjustment process, while effective, is found to be low and occurs slowly. |
| Keywords: | Euro area; External debt; NATREX approach; Panel Smooth Transition Regression models; Real exchange rates. |
| JEL: | C23 F31 O47 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2015-20&r=all |
| By: | Michal Andrle; Michael Kumhof; Douglas Laxton; Dirk Muir |
| Abstract: | The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region DSGE model developed by the Economic Modeling Division of the IMF for policy and scenario analysis. This paper compares two versions of GIMF, GIMF with a conventional financial accelerator, where bank balance sheets do not play a prominent role, and GIMF with both a financial accelerator and a fully specified banking sector that can make lending losses, and that is regulated according to Basel-III. We illustrate the comparative macroeconomic properties of both models by presenting their responses to a wide range of fiscal, demand, supply and financial shocks. |
| Keywords: | Macroprudential Policy;Multi-Region DSGE Models, Financial Accelerator, Macro-Financial Linkages, banks, bank, capital, lending, interest, Other, |
| Date: | 2015–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/150&r=all |
| By: | Simon Gray; Runchana Pongsaparn |
| Abstract: | The paper discusses the reasons for central bank (CB) issuance of securities, and reasons for choosing different approaches e.g. in maturities and target market. It provides evidence on the range of different approaches taken by those CBs which do issue, as well as suggesting reasons why some CBs do not; and provides operational guidelines on the major building blocks of the issuance of CB securities. |
| Keywords: | Central banks and their policies;Liquidity management;central bank securities, securities market development, securities, central bank, issuance, central banks, securities issuance, General, |
| Date: | 2015–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/106&r=all |
| By: | Gründl, Helmut; Niedrig, Tobias |
| Abstract: | The Liikanen Group proposes contingent convertible (CoCo) bonds as instruments to enhance financial stability in the banking industry. Especially life insurance companies could serve as CoCo bond holders as they are already the largest purchasers of bank bonds in Europe. The growing number of banks issuing CoCo bonds leads to a rising awareness of these hybrid securities among life insurers as they are increasingly looking for higher-yielding investments into bond-like asset classes during the current low interest rate period. Our contribution provides an insight for life insurance companies to understand the effects of holding CoCo bonds as implied by the Solvency II standards that will become effective by 2016. |
| Keywords: | Life insurance companies,Coco bonds,Solvency II |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:45&r=all |
| By: | Salim M. Darbar; Xiaoyong Wu |
| Abstract: | This paper presents case studies of macroprudential policy in five jurisdictions (Hong Kong SAR, the Netherlands, New Zealand, Singapore, and Sweden). The case studies describe the institutional framework, its evolution, the use of macroprudential tools, and the circumstances under which the tools have been used. The paper shows how macroprudential policy is conducted under a heterogeneous set of institutional frameworks. In all cases macroprudential tools have been used to address risks in the housing market. In addition, some of them have moved to enhance the resilience of their banks to more general cyclical and structural risks. |
| Keywords: | Central banks and their policies;Cross country analysis;Credit;Hong Kong SAR;Hong Kong Special Administrative Region of China;Macroprudential Policy;New Zealand;Netherlands;Singapore;Sweden;macroprudential, instruments, tools, mortgage, central bank, property, markets, debt, Financial Markets and the Macroeconomy, Government Policy and Regulation, |
| Date: | 2015–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/123&r=all |
| By: | Schlake, Maximilian |
| Abstract: | Im Dezember 2010 veröffentlichte der Basler Ausschuss für Bankenaufsicht sein drittes Reformpaket, welches die Eigenkapitalausstattung und Liquiditätsvorsorge im Bankensektor verbessern und so künftige Bankenpleiten verhindern soll. Das Basel III-Rahmenwerk stellt damit ein zentrales Element in der globalen Regulierungsarchitektur nach der Finanzkrise dar, dessen spezifische Umsetzung die Wettbewerbsfähigkeit der jeweiligen Bankensektoren maßgeblich beeinflusst. Die EU implementierte die neuen Standards mit dem sogenannten CRD IV-Paket vom 26. Juni 2013, welches aus einer Richtlinie und einer Verordnung besteht. Die vorliegende Arbeit wird dieses Paket in einem ersten Schritt untersuchen und die europäischen Besonderheiten hervorheben. Anschließend werden die Befunde mit der Theorie der komparativen institutionellen Vorteile aus dem Varieties of Capitalism (VoC)-Ansatz erklärt, wobei sich die Analyse auf Deutschland, Frankreich und Großbritannien beschränkt. Die Arbeit zeigt, dass sich die deutschen Forderungen nach Ausnahmen für Sparkassen und Genossenschaften, Vergünstigungen von Mittelstandskrediten und dem Schutz von stillen Einlagen auf die bankbasierte Unternehmensfinanzierung der Volkswirtschaft zurückführen lassen. In Frankreichs state-enhanced capitalism offenbart sich dagegen eine National Champions-Strategie zum Schutze der Großbanken und ihrer Versicherungsbeteiligungen. Der Fall Großbritannien bringt den gewählten Theorieansatz schließlich an seine Grenzen, da er dessen Konzept von relativ konstanten und unzweideutigen nationalen Wirtschaftsinteressen in Frage stellt: Höhere Kapitalanforderungen in Form von Leverage Ratio und Systemrisikopuffer mussten hier gegen die eigene Finanzindustrie durchgesetzt werden. Diese warb zusammen mit der deutschen und französischen Regierung für eine Maximum Harmonisation und definierte das nationale Interesse damit auf eine ganz andere Art. |
| Abstract: | In December 2010 the Basel Committee on Banking Supervision published its third reform package which was designed to improve the equity base and liquidity provision in the banking sector, thus preventing future bank failures. The Basel III framework thereby constitutes an essential new element in the global regulatory architecture whose specific implementation crucially affects the competitiveness of the respective banking sectors. The new standards were implemented by the EU in the form of the so-called CRD IV package on 26th June 2013. In a first step this paper examines the package and highlights the European features. Subsequently, the findings will be explained by the Theory of Comparative Institutional Advantage from the Varieties of Capitalism (VoC) approach limiting the analysis to Germany, France and Great Britain. The paper reveals that the German demands for exemptions clauses and benefits regarding its savings and cooperative banks, SME loans and silent participations result from its bank-based corporate finance. By contrast, in the French state-enhanced capitalism a National Champions strategy for the protection of the major banks and its insurance subsidiaries becomes apparent. In the case of Great Britain the VoC approach finally reaches its limits as its concept of relatively constant and unambiguous national economic interest is questioned: Higher capital requirements in form of the Leverage Ratio and the Systemic Risk Buffer had to be asserted against the financial industry which campaigned for a Maximum Harmonisation with Germany and France, thus defining the national interest in a completely different way. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubipe:242015&r=all |
| By: | Daniela Marchettini; Rodolfo Maino |
| Abstract: | We propose a toolkit for the assessment of systemic risk buildup in low income countries. We show that, due to non-linearity in the relationship between credit and financial stability, the assessment should be conducted with different tools at different stages of financial development. In particular, when the level of financial depth is low, traditional leading indicators of banking crises have poor predictive performance and the analysis should be based on indicators that account for financial deepening while taking into consideration countries’ structural limits. By using this framework, we provide a preliminary assessment of systemic risk buildup in individual SSA countries. |
| Keywords: | Development;Banking crisis;Financial stability;Financial sector;Credit booms;Financial crises;Systemic risk;Systemic risk assessment;Low income countries;Sub-Saharan Africa;Early Warning Indicators, Financial Deepening, credit, bis, risk, banking, Financial Markets and the Macroeconomy, Financial Forecasting and Simulation, |
| Date: | 2015–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/190&r=all |
| By: | International Monetary Fund. European Dept. |
| Abstract: | Euro Area Policies: Selected Issues |
| Keywords: | Monetary policy;Economic growth;Inflation;Banking sector;Loans;Bank supervision;Fiscal reforms;Selected Issues Papers;Euro Area;debt, investment, unemployment, productivity |
| Date: | 2015–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/205&r=all |
| By: | Nicolas End; Sampawende J.-A. Tapsoba; G. Terrier; Renaud Duplay |
| Abstract: | This paper examines the impact of deflation on fiscal aggregates. With deflation relatively rare in modern history, it relies mostly on the historical records, using a dataset panel covering 150 years and 21 advanced economies. Empirical evidence shows that deflation affects public finances mostly through increases in public debt ratios, reflecting a worsening in interest rate–growth differentials. On average, a mild rate of deflation increases public debt ratios by almost 2 percent of GDP a year, this impact being larger during recessionary deflations. Using a simulation model that accounts for composition effects and price expectations, we also find that, for European countries, a 2 percentage point deflationary shock in both 2015 and 2016 would lead to a deterioration in the primary balance of as much as 1 percent of GDP by 2019. |
| Keywords: | Deflation;Public finance;Fiscal policy;Fiscal analysis;Developed countries;Panel analysis;Fiscal policy, Deflation, Low inflation, Inflation, Public finances |
| Date: | 2015–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/176&r=all |