|
on Central Banking |
| By: | Tobback, Ellen; Nardelli, Stefano; Martens, David |
| Abstract: | We propose a Hawkish-Dovish (HD) indicator that measures the degree of ‘hawkishness’ or ‘dovishness’ of the media’s perception of the ECB’s tone at each press conference. We compare two methods to calculate the indicator: semantic orientation and Support Vector Machines text classification. We show that the latter method tends to provide more stable and accurate measurements of perception on a labelled test set. Furthermore, we demonstrate the potential use of this indicator with several applications: we perform a correlation analysis with a set of interest rates, use Latent Dirichlet Allocation to detect the dominant topics in the news articles, and estimate a set of Taylor rules. The findings provide decisive evidence in favour of using an advanced text mining classification model to measure the medias perception and the Taylor rule application confirms that communication plays a significant role in enhancing the accuracy when trying to estimate the bank’s reaction function. JEL Classification: C02, C63, E52, E58 |
| Keywords: | communication, data mining, monetary policy, quantitative methods |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172085&r=cba |
| By: | Goodhart, Charles A; Lastra, Rosa |
| Abstract: | The consensus that surrounded the granting of central bank independence in the pursuit of a price stability oriented monetary policy has been challenged in the aftermath of the global financial crisis, in the light of the rise of populism on the one hand and the expanded mandates of central banks on the other hand. After considering the economic case for independence and the three Ds (distributional, directional and duration effects), the paper examines three different dimensions in the debate of how the rise in populism - or simply general discontent with the status quo - affects central bank independence. Finally, the paper examines how to interpret the legality of central bank mandates, and whether or not central banks have exceeded their powers. This analysis leads us in turn to consider accountability and, in particular, the judicial review of central bank actions and decisions. It is important to have in place adequate mechanisms to "guard the guardians" of monetary and financial stability. |
| Keywords: | accountability; central bank independence; Judicial review; Legitimacy; Mandates; populism |
| JEL: | E50 E58 H10 K10 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12122&r=cba |
| By: | Tente, Natalia; von Westernhagen, Natalja; Slopek, Ulf |
| Abstract: | M-PRESS-CreditRisk is a new top-down macro stress testing framework that can help supervisors gauge banks' capital adequacy related to credit risk. For the first time, it combines calibration of microprudential capital requirements and macroprudential buffers in a unified, coherent framework. Its core element is an advanced credit portfolio model - SystemicCreditRisk - built upon a rich, non-linear dependence structure for interconnected bank portfolios. Incorporating numerous sector/country-specific systematic factors, the model focuses on credit default concentration risk as a major source of large losses that may have systemic impact. A test run using a sample of 12 systemically important German banks provides measures for systemic credit risk and the banks' contributions to it in both baseline and stress scenarios. Capital requirements calibrated to the results combine elements of Pillar 1 and Pillar 2, whereas macroprudential buffers can internalize the system's tail risk. The maximum model-based combined requirements range between 6.3% and 27.2% of credit RWA depending on the bank. A comparison with the reported capital figures suggests that there appears to be enough capital in the banking system, but its distribution might be suboptimal from a systemic point of view as the capital level of a number of banks might need improvement. |
| Keywords: | Systemic Credit Risk,Tail Risk,Stress Testing,Microprudential Capital Requirements,Systemic Risk Buffer,O-SII Buffer,Hierarchical Archimedean Copula |
| JEL: | C15 C23 C63 G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:152017&r=cba |
| By: | Łyziak, Tomasz; Paloviita, Maritta |
| Abstract: | This paper studies the formation of inflation expectations in the euro area. We first analyse the forecast accuracy of ECB inflation projections relative to private sector forecasts. Then, using the ECB Survey of Professional Forecasters (ECB SPF), we estimate a general model integrating two theoretical concepts: the hybrid model of expectations, including rational and static expectations, and the sticky-information (epidemiological) model. When modelling inflation expectations we consider – except for backward-looking factors – the rational expectations assumption and the effects of ECB communication. More specifically, we examine whether ECB inflation projections are still important in expectations’ formation once the impact of forward-lookingness of economic agents has been taken into account. We also derive implicit (perceived) inflation targets and assess their consistency with the official ECB inflation target. Our analysis indicates that the recent turbulent times have contributed to changes in expectations’ formation in the euro area, as the importance of backward-looking mechanisms has decreased, while the importance of the perceived inflation target has increased. We also find that the perceived inflation target has remained broadly consistent with the official ECB inflation target in the medium-term. However, the downward trend of the perceived target suggests some risks of de-anchoring of inflation expectations. The importance of ECB inflation projections for medium-term private sector inflation expectations has increased over time, but the magnitude of this effect is rather small. However, SPF inflation forecasts remain consistent with ECB communication, being either close to ECB projections or between ECB projections and the inflation target. |
| JEL: | D84 E52 E58 |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2017_013&r=cba |
| By: | De-Ramon, sebastian (Bank of England); Straughan, Michael (Bank of England) |
| Abstract: | The Basel III/CRD IV reforms to the banking system following the financial crisis of 2008–09 required banks to raise significantly both the quality and quantity of capital on their balance sheets. This econometric study provides evidence of both the long and short-term implications for ongoing activity in the UK economy of a change in the aggregate proportion of bank capital funding. We find that, in response to changes in their capital funding, banks change credit spreads applied to private non-financial corporate borrowers to a greater extent than for household borrowers in the short term, but equalise these changes in the longer term. The short-term impact reflects banks’ desire to adjust their capital ratios through changes to the value of their risk-weighted assets by restricting the flow of lending to higher-risk sectors to a greater extent than to lower-risk sectors. We also find that after recent regulatory reforms banks may have modified their price-setting behaviour somewhat. We develop a vector error correction model of these effects with an innovative non-standard estimation of the short-term coefficients. Using this approach, we are able to: (i) test hypotheses about the short-term and long-term responses to changes in the aggregate mix of bank capital funding; (ii) test hypotheses about the responses of the non-financial corporate and household sectors; and (iii) enhance the accuracy of the short-term dynamics and the accuracy of the macroeconomic simulations of the effect of increasing bank capital. |
| Keywords: | Capital requirements; DSGE models; UK economy; bank competition |
| JEL: | D22 D53 E27 G21 |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0663&r=cba |
| By: | Boris Hofmann; Gert Peersman |
| Abstract: | This study shows that, in the United States, the effects of monetary policy on credit and housing markets have become considerably stronger relative to the impact on GDP since the mid-1980s, while the effects on inflation have become weaker. Macroeconomic stabilization through monetary policy may therefore have become associated with greater fluctuations in credit and housing markets, whereas stabilizing credit and house prices may have become less costly in terms of macroeconomic volatility. These changes in the aggregate impact of monetary policy can be explained by several important changes in the monetary transmission mechanism and in the composition of macroeconomic and credit aggregates. In particular, the stronger impact of monetary policy on credit is driven by a much higher responsiveness of mortgage credit and a larger share of mortgages in total credit since the 1980s. |
| Keywords: | Monetary policy trade-offs, monetary transmission mechanism, inflation, credit, house prices |
| JEL: | E52 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:649&r=cba |
| By: | Tröger, Tobias |
| Abstract: | The Judgement of the EGC in the Case T-122/15 - Landeskreditbank Baden-Württemberg - Förderbank v European Central Bank is the first statement of the European judiciary on the sub-stantive law of the Banking Union. Beyond its specific holding, the decision is of great importance, because it hints at the methodological approach the EGC will take in interpreting prudential banking regulation in the appeals against supervisory measures that fall in its jurisdiction under TFEU, arts. 256(1) subpara 1 and 263(4). Specifically, the case pertained to the scope of direct ECB oversight of significant banks in the euro area and the reassignment of this competence to national competent authorities (NCAs) in individual circumstances (Single Supervisory Mechanism (SSM) Regulation, art. 6(4) subpara 2; SSM Framework Regulation, arts. 70, 71). |
| Keywords: | Banking Union,ECB,EGC,Landeskreditbank Baden-Württemberg,NCAs,SSM |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:56&r=cba |
| By: | Åhl, Magnus (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | Some central banks have decided to publish forecasts of their policy rates. Can such forecasts manage market expectations of future policy rates? I use regression analysis on Swedish data to conclude that the answer is yes. The published Riksbank forecasts affect expectations of the future repo rate up to a horizon of approximately a year and a half. However, the response of market expectations to a surprise in the announced repo-rate path is not one-to-one, but is estimated to be less than half of the surprise and decreasing with the forecast horizon. |
| Keywords: | Policy-rate path; monetary-policy expectations |
| JEL: | E52 E58 G14 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0339&r=cba |
| By: | Bardoscia, Marco (Bank of England); Barucca, Paolo (University of Zurich, London Institute for Mathematical Science, IMT Lucca); Brinley Codd, Adam (Bank of England); Hill, John (Bank of England) |
| Abstract: | We study solvency contagion risk in the UK banking system from 2008 to 2015. We develop a model that not only accounts for losses transmitted after banks default, but also for losses due to the fact that creditors revalue their exposures when probabilities of default of their counterparties change. We apply our model to a unique data set of real UK interbank exposures. We show that risks due to solvency contagion decrease markedly from the peak of the crisis to the present, to the point of becoming negligible. By decomposing the change in losses into two main contributions — the increase in banks’ capital and the decrease in interbank exposures — we are able to pinpoint the main driver in each year. In some cases we observe that an increase in aggregate capital is associated with a positive contribution to losses. This suggests that the distribution of capital among banks is also important. |
| Keywords: | Financial networks; systemic risk; financial contagion; macroprudential policy; stress testing |
| JEL: | D85 G01 G12 G21 G28 G33 G38 |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0662&r=cba |
| By: | Ben Fung; Hanna Halaburda |
| Abstract: | Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks. One key policy question for public authorities such as a central bank is whether or not to issue its own digital currency that can be used by the general public to make payments. There are several public policy arguments for a central-bank-issued digital currency. This paper proposes a framework for assessing why a central bank should consider issuing a digital currency and how to implement it to improve the efficiency of the retail payment system. |
| Keywords: | Digital Currencies, Financial services, Payment clearing and settlement systems |
| JEL: | E41 E42 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:16-22&r=cba |