nep-cba New Economics Papers
on Central Banking
Issue of 2016‒10‒30
25 papers chosen by
Maria Semenova
Higher School of Economics

  1. The Interdependence of Monetary and Macroprudential Policy under the Zero Lower Bound By Vivien Lewis; Stefania Villa
  2. The trade-off between monetary policy and bank stability By Martien Lamers; Frederik Mergaerts; Elien Meuleman; Rudi Vander Vennet
  3. Financial shocks and inflation dynamics By Abbate, Angela; Eickmeier, Sandra; Prieto, Esteban
  4. Optimal monetary policy with heterogeneous agents. By Galo Nuño; Carlos Thomas
  5. Anti-Cyclical Bank Capital Regulation and Monetary Policy By Aliaga-Díaz, Roger; Olivero , María Pía; Powell, Andrew
  6. Heterogeneous Adjustments in Bank Leverage after Deposit Insurance Adoption By Mathias Lé
  7. QE: The Story so far. By Haldane, Andrew; Roberts-Sklar, Matt; Wieladek, Tomasz; Young, Chris
  8. Mending the broken link: heterogeneous bank lending and monetary policy pass-through By Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
  9. How Insurers Differ from Banks: A Primer on Systemic Regulation By Christian Thimann
  10. Rethinking the current inflation target range in South Africa By Bonga-Bonga, Lumengo; Lebese, Ntsakeseni Letitia
  11. The role of bank balance sheets in monetary policy transmission. Evidence from Poland By Mariusz Kapuściński
  12. Forward Guidance, Quantitative Easing, or both? By Ferre De Graeve; Konstantinos Theodoridis
  13. Achieving Price Stability by Manipulating the Central Bank’s Payment on Reserves By Robert E. Hall; Ricardo Reis
  14. The Interplay Between Financial Conditions and Monetary Policy Shocks By Bassetto, Marco; Benzoni, Luca; Serrao, Trevor
  15. Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions By Olivier De Jonghey; Hans Dewachterz; Steven Ongenax
  16. International prudential policy spillovers: a global perspective By Stefan Avdjiev; Catherine Koch; Patrick McGuire; Goetz von Peter
  17. Monetary Policy in the Presence of Random Wage Indexation By Jonathan A. Attey; Casper G. de Vries
  18. The effect of ECB forward guidance on policy expectations By Paul Hubert; Fabien Labondance
  19. Evolution of Exchange Rate Pass-through: Evidence from The Gambia By Jobarteh, Mustapha
  20. Generalized stability of monetary unions under regime switching in monetary and fiscal policies By Dennis Bonam; Bart Hobijn
  21. Forward guidance and heterogenous beliefs By Gaetano Gaballo; Eric Mengus; Benoït Mojon; Philippe Andrade
  22. The levels of application of prudential requirements: a comparative perspective By McPhilemy, Samuel; Vaughan, Rory
  23. Effects of South African Monetary Policy Implementation on the CMA: A Panel Vector Autoregression Approach By Monaheng Seleteng (PhD)
  24. Macroeconomic responses to an independent monetary policy shock: a (more) agnostic identification procedure By Marco Capasso; Alessio Moneta
  25. Macroprudential policies, the long-term interest rate and the exchange rate By Philip Turner

  1. By: Vivien Lewis (Department of Economics, KU Leuven); Stefania Villa (Department of Economics, KU Leuven, Department of Economics, University of Foggia)
    Abstract: This paper considers the interdependence of monetary and macroprudential policy in a New Keynesian business cycle model under the zero lower bound constraint. Entrepreneurs borrow in nominal terms from banks and are subject to idiosyncratic default risk. The realized loan return to the bank varies with aggregate risk, such that bank balance sheets are affected by higher-than-expected rm defaults. Monetary and macroprudential policies are given by an interest rate rule and a capital requirement rule, respectively. We first characterize the model's stability properties under different steady state policies. We then analyze the transmission of a risk shock under the zero lower bound and different macroprudential policies. We finally investigate whether these policies are indeed optimal.
    Keywords: Triffin, European Payments Union (EPU), international monetary system (IMS)
    JEL: A11 B31 F02 F33 F36 N24
    Date: 2016–09
  2. By: Martien Lamers (University of Groningen, Netherlands); Frederik Mergaerts (Ghent University, Belgium); Elien Meuleman (Ghent University, Belgium); Rudi Vander Vennet (Ghent University, Belgium)
    Abstract: This paper investigates how monetary policy interventions by the European Central Bank and the Federal Reserve affect the stock market perception of bank systemic risk. In a first step, we identify monetary policy shocks using a structural VAR approach by exploiting the changes of the volatility of these shocks on days on which there are monetary policy announcements. The second step consists of a panel regression analysis, in which we relate monetary policy shocks to market-based measures of bank systemic risk. Our sample includes information on both Euro Area and U.S. listed banks, covering a sample period from October 2008 to December 2015. We condition the impact of the monetary policy shocks on a set of bank-specific variables, thereby allowing for a heterogeneous transmission of monetary policy. We furthermore use the differences between Euro Area core and periphery countries and the additional granularity of U.S. accounting data to assess which channels determine the transmission of monetary policy. Our results indicate that by supporting weaker banks and allowing banks to delay recognizing bad loans, accommodative monetary policy may contribute to the buildup of vulnerabilities in the banking sector and may make an eventual policy tightening more difficult. On the other hand, a continuation of expansionary monetary policy may increase risk-taking incentives by further compressing banks’ net interest margins.
    Keywords: Triffin, European Payments Union (EPU), international monetary system (IMS)
    JEL: G21 G32 E52
    Date: 2016–09
  3. By: Abbate, Angela; Eickmeier, Sandra; Prieto, Esteban
    Abstract: We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a vector autoregressive model to US data and identify financial shocks through sign restrictions. Our main finding is that expansionary financial shocks temporarily lower inflation. This result withstands a large battery of robustness checks. Moreover, negative financial shocks helped preventing a deflation during the latest financial crisis. We then explore the transmission channels of financial shocks relevant for inflation, and find that the cost channel can explain the inflation response. A policy implication is that financial shocks that move output and inflation in opposite directions may worsen the trade-off for a central bank with a dual mandate.
    Keywords: financial shocks,inflation dynamics,monetary policy,financial frictions,cost channel,sign restrictions
    JEL: E31 E44 E58
    Date: 2016
  4. By: Galo Nuño (Banco de España); Carlos Thomas (Banco de España)
    Abstract: Incomplete markets models with heterogeneous agents are increasingly used for policy analysis. We propose a novel methodology for solving fully dynamic optimal policy problems in models of this kind, both under discretion and commitment. We illustrate our methodology by studying optimal monetary policy in an incomplete-markets model with non-contingent nominal assets and costly inflation. Under discretion, an inflationary bias arises from the central bank’s attempt to redistribute wealth towards debtor households, which have a higher marginal utility of net wealth. Under commitment, this inflationary force is countered over time by the incentive to prevent expectations of future inflation from being priced into new bond issuances; under certain conditions, long run inflation is zero as both effects cancel out asymptotically. For a plausible calibration, we find that the optimal commitment features first-order initial inflation followed by a gradual decline towards its (near zero) long-run value. Welfare losses from discretionary policy are first-order in magnitude, affecting both debtors and creditors.
    Keywords: optimal monetary policy, commitment and discretion, incomplete markets, nominal debt, inflation, redistributive effects, continuous time
    JEL: E5 E62 F34
    Date: 2016–10
  5. By: Aliaga-Díaz, Roger (The Vanguard Group, Inc); Olivero , María Pía (Drexel University); Powell, Andrew (Research Department Inter-American Development Bank and Universidad Torcuato di Tella)
    Abstract: The financial crisis of 2008/09 revived attention given to credit booms and busts and bank credit pro-cyclicality. The regulation guidelines of Basel III attempt to improve the quality of bank capital and explicitly includes a capital buffer to address cyclicality. In this paper we study the interaction between cyclical capital rules and alternative types of monetary policy in the context of a dynamic stochastic general equilibrium model. We find that: First, capital requirements amplify the effects of various exogenous shocks. Second, anti-cyclical requirements (as in Basel III) indeed, and as intended by the regulation, have important stabilization properties relative to the case of constant requirements (as in Basel I). This is true for all types of fluctuations that we study, which include those caused by productivity, demand-side, preference and monetary shocks. The quantitative results are sensitive to the size of the capital buffer (over minimum requirements) optimally held by banks. In particular, with reasonably large buffers, the economy behaves just as when there is no regulation, in which case a very strongly cyclical capital rule would be required to have significant effects.
    Keywords: Credit crunch; cyclical capital requirements; monetary policy; business cycles
    JEL: E32 E44
    Date: 2016–09–01
  6. By: Mathias Lé (ACPR - Autorité de Contrôle Prudentiel et de Résolution - Autorité de Contrôle Prudentiel et de Résolution, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), PSE - Paris School of Economics)
    Abstract: This paper empirically investigates the bank leverage adjustments after deposit insurance adoption. Banks are found to increase significantly their leverage after the introduction of deposit insurance. However, the banks’ responses appear to be heterogenous. The magnitude of the change in bank leverage decreases with (i) the size, (ii) the systemicity and (iii) the initial capitalisation of banks so that the most systemic and the most highly leveraged banks are unresponsive to deposit insurance. As a result, implementing a deposit insurance scheme could have important competitive effects.
    Keywords: Deposit Insurance,Bank Risk-Taking,Leverage,Systemic Bank,Capital Buffer,Market Discipline,Too Big to Fail
    Date: 2014–10–16
  7. By: Haldane, Andrew (Bank of England); Roberts-Sklar, Matt (Bank of England); Wieladek, Tomasz (Bank of England); Young, Chris (Bank of England)
    Abstract: In the past decade or so, a number of central banks have purchased assets financed by the creation of central bank reserves as a tool for loosening monetary policy – a policy often known as ‘quantitative easing’ or ‘QE’. The first half of the paper reviews the international evidence on the impact on financial markets and economic activity of this policy. It finds that these central bank balance sheet expansions had a discernible and significant impact on financial markets and the economy. The second half of the paper provides new empirical analysis on the macroeconomic impact of central bank balance sheet expansions, across time and countries. It finds three key results. First, it is only when central bank balance sheet expansions are used as a monetary policy tool that they have a significant macro-economic impact. Second, there is evidence for the US that the effectiveness of QE may vary over time, depending on the state of the economy and liquidity of the financial system. And third, QE can have strong spill-over effects cross-border, acting mainly via financial channels. For example, the impact of US QE on UK economic activity may be as large as the impact on US economic activity.
    Keywords: Quantitative Easing; QE; unconventional monetary policy; central bank balance sheet
    JEL: E43 E44 E52 E58 E60
    Date: 2016–10–24
  8. By: Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
    Abstract: We analyse the pass-through of monetary policy measures to lending rates to firms and households in the euro area using a unique bank-level dataset. Banks' characteristics such as the capital ratio and the exposure to sovereign debt are responsible for the heterogeneity of pass-through of conventional monetary policy changes. The location of a bank is instead irrelevant. Non-standard measures normalized the capacity of banks to grant loans resulting in a significant compression in lending rates. Banks with a high level of non-performing loans and a low capital ratio were the most responsive to the measures. Finally, we quantify the effects of non-standard policies on the real economic activity using a standard macroeconomic model and find that in absence of these measures both inflation and output gap would have been significantly lower.
    Keywords: European Banks; Heterogeneity; Monetary pass-through; VARs
    JEL: C23 E44 E52 G21
    Date: 2016–10
  9. By: Christian Thimann (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), Axa - AXA, PSE - Paris School of Economics)
    Abstract: This paper aims at providing a conceptual distinction between banking and insurance with regard to systemic regulation. It discusses key differences and similarities as to how both sectors interact with the financial system. Insurers interact as financial intermediaries and through financial market investments, but do not share the features of banking that give rise to particular systemic risk in that sector, such as the institutional interconnectedness through the interbank market, the maturity transformation combined with leverage, the prevalence of liquidity risk and the operation of the payment system. The paper also draws attention to three salient features in insurance that need to be taken account in systemic regulation: the quasiabsence of leverage, the fundamentally different role of capital and the ‘built-in bail-in’ of a significant part of insurance liabilities through policy-holder participation. Based on these considerations, the paper argues that if certain activities were to give rise to concerns about systemic risk in the case of insurers, regulatory responses other than capital surcharges may be more appropriate.
    Keywords: Systemic risk,Insurance,Financial regulation
    Date: 2014–10–16
  10. By: Bonga-Bonga, Lumengo; Lebese, Ntsakeseni Letitia
    Abstract: With critics suggesting that inflation targeting is not an appropriate monetary policy framework for developing and emerging countries, this paper assesses whether or not the 3%-6% inflation target is the optimal inflation target band in South Africa. The optimal inflation target band is determined based on the time-varying non-accelerating inflation rate of unemployment (the NAIRU). The estimation results provide an estimated inflation range that is wider than the current range pursued by the South African Reserve Bank. This may suggest that the current range of inflation hinders real activities, especially employment in South Africa.
    Keywords: inflation target, NAIRU, unemployment, South Africa
    JEL: C13 E52
    Date: 2016–08–22
  11. By: Mariusz Kapuściński
    Abstract: This study investigates whether the effects of monetary policy are amplified through its impact on bank balance sheet strength. Or, in other words, it tests whether the bank lending channel of the monetary transmission mechanism (as reformulated by Disyatat, 2011) works. To this end, panel vector autoregressions with high frequency identification and univariate panel regressions are applied to data for Poland. Counterfactual exercises show that the analysed channel accounts for about 23% of a decrease in lending following a monetary policy impulse. This is another piece of evidence showing that the financial accelerator works in both non-financial and financial sector. In some cases it can make the interplay between monetary and macroprudential policy non-trivial.
    Keywords: monetary transmission mechanism, bank capital, panel vector autoregressions, high frequency identification
    JEL: E52 E51 C33 C23 E43
    Date: 2016
  12. By: Ferre De Graeve (Department of Economics, KU Leuven); Konstantinos Theodoridis (Bank of England)
    Abstract: During the Great Recession numerous central banks have implemented various unconventional monetary policy measures. This paper aims to empirically evaluate two particular types of unconventional policies (forward guidance and quantitative easing)in a structural manner. The primary aim is to evaluate the policies jointly, to mitigate concerns that empirical evaluation of either policy in isolation is prone to at leastpartially absorb the effects of the other - typically simultaneously implemented - policy. The approach is structural to overcome inherent empirical difficulties in evaluating policies, e.g. in the wake of anticipation. The model is estimated for the US (1975-2015) and sheds light on the historical real effects of the government debt maturity structure as well as the contribution of Fed policy through its maturity policy during the crisis.
    Keywords: Unconventional monetary policy, quantitative easing, forward guidance
    JEL: E40 E43 E52 E58 E63
    Date: 2016–10
  13. By: Robert E. Hall; Ricardo Reis
    Abstract: Today, all major central banks pay or collect interest on reserves, and stand ready to use the interest rate as an instrument of monetary policy. We show that by paying an appropriate rate on reserves, the central bank can pin the price level uniquely to a target. The essential idea is to index reserves to the market interest rate, the price level, and the target price level in a way that creates a contractionary financial force if the price level is above the target and an expansionary force if below. Our payment-on-reserves policy process does not require terminal conditions like Taylor rules, exogenous fiscal surpluses like the fiscal theory of the price level, liquidity preference as in quantity theories, or local approximations as in new Keynesian models. The process accommodates liquidity services from reserves, segmented financial markets where only some institutions can hold reserves, and nominal rigidities. We believe it would be easy to implement.
    JEL: E31 E42 E58
    Date: 2016–10
  14. By: Bassetto, Marco (Federal Reserve Bank of Chicago); Benzoni, Luca (Federal Reserve Bank of Chicago); Serrao, Trevor (Federal Reserve Bank of Chicago)
    Abstract: We study the interplay between monetary policy and financial conditions shocks. Such shocks have a significant and similar impact on the real economy, though with different degrees of persistence. The systematic fed funds rate response to a financial shock contributes to bringing the economy back towards trend, but a zero lower bound on policy rates can prevent this from happening, with a significant cost in terms of output and investment. In a retrospective analysis of the U.S. economy over the past 20 years, we decompose the realization of economic variables into the contributions of financial, monetary policy, and other shocks.
    Keywords: Excess bond premium; financial conditions; monetary policy; zero lower bound
    JEL: E44 E52 G28
    Date: 2016–10–17
  15. By: Olivier De Jonghey (Corresponding author, CentER, European Banking Center, Tilburg University); Hans Dewachterz (National Bank of Belgium, Research Department, KULeuven); Steven Ongenax (University of Zurich, SFI, CEPR)
    Abstract: We analyze how time-varying bank-speci_c capital requirements a_ect banks' balance sheet adjustments as well as bank lending to the non-_nancial corporate sector. To do so, we relate Pillar 2 capital requirements to bank balance sheet data, a fully documented corporate credit register and _rm balance sheet data. Our analysis consists of three components. First, we examine how time-varying bank-speci_c capital requirements a_ect banks' balance sheet composition. Subsequently, we investigate how capital requirements a_ect the supply of bank credit to the corporate sector, both on the intensive and extensive margin, as well as for di_erent types of credit. Finally, we document how bank characteristics, _rm characteristics and the stance of monetary policy impact the relationship between bank capital requirements and credit supply.
    Keywords: Capital requirements, credit supply, credit register, bank, regulation
    JEL: G01 G21 G28 F02 L5
    Date: 2016–10
  16. By: Stefan Avdjiev; Catherine Koch; Patrick McGuire; Goetz von Peter
    Abstract: We combine the BIS international banking statistics with the IBRN prudential instruments database in a global study analyzing the effect of prudential measures on international lending. Our bilateral setting, which features multiple home and destination countries, allows us to simultaneously estimate both the international transmission and the local effects of such measures. We find that changes in macroprudential policy via loan-to-value limits and local currency reserve requirements have a significant impact on international bank lending. Balance sheet characteristics play an important role in determining the strength of these effects, with better capitalized banking systems and those with more liquid assets and less core deposits reacting more. Overall, our results suggest that the tightening of these macroprudential measures can be associated with international spillovers.
    Keywords: International banking, macroprudential measures, spillovers
    Date: 2016–10
  17. By: Jonathan A. Attey (Erasmus University Rotterdam, The Netherlands); Casper G. de Vries (Erasmus University Rotterdam, The Netherlands)
    Abstract: Empirical estimations suggest heavy-tailed unconditional distributions for inflation, the output gap and the interest rate. However, standard NK models used in policy analysis imply normal distributions for these variables. In this study, we propose a model which replicates the above mentioned empirical features of inflation,the output gap and the interest rate and subsequently investigate the conduct of monetary policy in this model. The novelty of this study is the introduction of random wage indexation as a source of multiplicative shocks. The findings of this study include the following: Firstly, the unconditional distributions of inflation, the output gap and the interest rates exhibit heavy-tailed characteristics. Secondly, under an indexation to lagged inflation scheme, there exists a positive relationship between expected inflation and conditional variance of inflation. Finally, it is better to target current inflation rather than lagged inflation when conducting monetary policy under a Taylor rule.
    Keywords: Wage Indexation; Monetary Policy
    JEL: E31 E40 E52
    Date: 2016–10–17
  18. By: Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of private short-term interest rate expectations. We estimate the static and dynamic impact of forward guidance on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements decrease most of the term structure of private short-term interest rate expectations, this being robust to several specifications. The effect is stronger on longer maturities and persistent.
    Keywords: Central Bank communication; Short term interest rate expectations; OIS
    JEL: E43 E52 E58
    Date: 2016–10
  19. By: Jobarteh, Mustapha
    Abstract: The degree to which a change in exchange rate is reflected in changes in the domestic prices is termed exchange rate pass through (ERPT). In this work, we trace the evolutionary path of the ERPT to domestic prices in The Gambia using 60 windows of rolling VARs from 2002m1 to 2012m12. Our findings show pass through is higher in the long run than in the short run, and that irrespective of the horizon considered EPRT has been declining since 2002. Hence, exchange rate fluctuations those not seem to pose any significant threat to monetary policy in The Gambia.
    Keywords: Exchange Rate Pass Through, Inflation, Rolling VAR, The Gambia
    JEL: E52 E58
    Date: 2016–10–19
  20. By: Dennis Bonam; Bart Hobijn
    Abstract: Earlier studies on the equilibrium properties of standard dynamic macroeconomic models have shown that an inflation-targeting central bank imposes strict budgetary requirements on fiscal policy needed to obtain a unique and stable equilibrium. The failure of only one fiscal authority within a monetary union to meet these requirements already results in non-existence of equilibrium and an unstable monetary union. We show that such outcomes can be averted if fiscal authorities can make a credible commitment to switch to more sustainable fiscal regimes in the future. In addition, we illustrate how alternative policy measures, such as fiscal bailouts and debt monetization by the central bank, also broaden the range of policy stances under which monetary unions are stable.
    Keywords: Markov switching; monetary union; equilibrium stability and uniqueness; monetary-fiscal interactions
    JEL: E62 E63
    Date: 2016–10
  21. By: Gaetano Gaballo (Banque de France); Eric Mengus (HEC Paris); Benoït Mojon; Philippe Andrade (Banque de France)
    Abstract: We analyze the effects of forward guidance when agents have heterogeneous interpretations of whether forward guidance contains a commitment on future policy actions. Using survey expectations, we document that forward guidance lowered disagreement about future short-term interest rates to historically low levels while it did not affect much disagreement about future inflation and future consumption. We introduce heterogeneous beliefs on future policy and fundamentals in an otherwise standard New-Keynesian model. We show that, because the commitment type of the central bank is unobserved, agreement on the future path of interest rates can coexist with disagreement on the length of the trap. Such heterogeneity of beliefs can strongly mitigate the effectiveness of forward guidance. It also alters the optimal policy at the zero lower bound compared to a situation where beliefs are homogenous.
    Date: 2016
  22. By: McPhilemy, Samuel (Bank of England); Vaughan, Rory (Bank of England)
    Abstract: International standards for banking regulation leave individual countries with discretion to determine how the separate legal entities within a banking group should be brought together for the purposes of prudential regulation and supervision. This paper documents differences in the levels of application of prudential requirements drawing on a survey of national rules and regulations in eight jurisdictions. Most jurisdictions apply prudential requirements on a consolidated basis, meaning that they require groups to meet standards for minimum capital and liquidity adequacy as if they constituted a single financial unit. However, consolidated requirements do not account for potential impediments to the transferability of financial resources within banking groups. Reflecting this, international banking standards suggest prudential requirements should be applied also at lower levels. The Basel Accord sets out two alternatives for applying prudential requirements beneath the consolidated level: solo application and sub-consolidation. Solo application involves applying prudential standards to individual operating banks within a group, as if those banks were separate standalone entities; sub-consolidation involves regulating sub-groupings of entities as if those sub-groupings were themselves a single financial unit. These approaches have differing implications with respect to the allocation of financial resources across the legal entities within banking groups. However, in practice different jurisdictions arrive at similar outcomes through their differentiated application of certain other regulations, notably restrictions on intragroup exposures. The final part of the paper considers how forthcoming standards on bank resolution affect the economic rationales for sub-consolidated and solo application of prudential requirements.
    Keywords: Banks; regulation; scope of regulatory consolidation; solo requirements; sub-consolidation levels of application.
    JEL: G21 G28 G38
    Date: 2016–10–21
  23. By: Monaheng Seleteng (PhD)
    Abstract: The paper investigates the effects of South African monetary policy implementation on selected macroeconomic variables in the rest of the Common Monetary Area (CMA) looking specifically at the response of a shock to South African key interest rate (repo rate) on macroeconomic variables such as the regional lending rates, interest rate spread, private sector credit, money supply, inflation and economic growth in the rest of the CMA countries. The analysis is conducted using impulse-response functions derived from Panel Vector Autoregression (PVAR) methodology. The estimates are conducted using annual data for a panel of four CMA countries for the period 1980 – 2012. The results show that a positive shock to South African repo rate significantly affects lending rates, inflation and economic growth in the entire CMA countries. South African repo rate has more impact on lending rates in the entire CMA. This is then followed by the impact on inflation and then economic growth.
    Keywords: Monetary policy, Transmission Mechanism, interest rates, Impulse-Response Functions, PVAR Model, Variance-Decomposition.
    JEL: C3 E43 E47 E52 E58 E61
    Date: 2016–10
  24. By: Marco Capasso; Alessio Moneta
    Abstract: This study investigates the effects of a monetary policy shock on real output and prices, by means of a novel distribution-free nonrecursive identification scheme for structural vector autoregressions. Structural shocks are assumed to be mutually independent. The identification procedure is agnostic in Uhlig[2005]'s sense, since the response of output to a monetary shock is not restricted. Moreover, assuming mutual independence of the shocks allows us to impose no additional constraints derived from economic theory.
    Keywords: Structural Models, Vector Autoregressions, Independent Component Analysis, Identification, Monetary Policy
    Date: 2016–10–24
  25. By: Philip Turner
    Abstract: The Bernanke-Blinder closed economy model suggests that macroprudential policies aimed at bank lending will affect the domestic long-term interest rate. In an open economy, domestic shocks to long-term rates are likely to influence capital flows and the exchange rate. Currency movements feed back into domestic credit through several channels, which will be influenced by balance sheet positions and not only by income flows. Macroprudential policies aimed at domestic credit and at foreign currency borrowing may be the best option open to small countries facing very low global interest rates and risky domestic credit expansion.
    Keywords: Bernanke-Blinder model, capital flows, interest rate policy, macroprudential policy
    Date: 2016–10

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