nep-cba New Economics Papers
on Central Banking
Issue of 2020‒05‒04
thirty-two papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. Central Bank Profit Distribution As A Monetary Policy Tool By Hiermeyer, Martin
  2. Negative monetary policy rates and systemic banks’ risk-taking: evidence from the euro area securities register By Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis
  3. The Riddle of the Natural Rate of Interest By Razzak, Weshah
  4. Shotgun Wedding: Fiscal and Monetary Policy By Marco Bassetto; Thomas J. Sargent
  5. The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? By Paul R. Bergin; Giancarlo Corsetti
  6. ECB and Fed Monetary Policy Measures against the Economic Effects of the Coronavirus Pandemic Have Little Effect By Kerstin Bernoth; Geraldine Dany-Knedlik; Anna Gibert
  7. Unconventional Monetary Policies: A Stock-Taking Exercise By Jean-Guillaume Sahuc; Christian Pfister
  8. The Interaction Between Macroprudential Policy and Financial Stability By Zoe Venter
  9. Exchange rate pass-through in the euro area and EU countries JEL Classification: C50, E31, E52, F31, F41 By Ortega, Eva; Osbat, Chiara
  10. The Janus Face of bank geographic complexity By Iñaki Aldasoro; Bryan Hardy; Maximilian Jager
  11. Dollar invoicing, global value chains, and the business cycle dynamics of international trade By David Cook; Nikhil Patel
  12. Real implications of Quantitative Easing in the euro area: a complex-network perspective By Chiara Perillo; Stefano Battiston
  13. The Financial Accelerator, Wages, and Optimal Monetary Policy By Tobias König
  14. When is Bad News Good News? U.S. Monetary Policy, Macroeconomic News, and Financial Conditions in Emerging Markets By Jasper Hoek; Steven B. Kamin; Emre Yoldas
  15. Liquidity coverage ratio in a payments network: Uncovering contagion paths By Richard Heuver; Ron Berndsen
  16. Monetary policy gradualism and the nonlinear effects of monetary shocks By Luca Metelli; Filippo Natoli; Luca Rossi
  17. Strategic Inattention, Inflation Dynamics, and the Non-Neutrality of Money By Hassan Afrouzi
  18. Should We Be Puzzled by Forward Guidance? By Brent Bundick; Andrew Lee Smith
  19. The Impacts of Strengthening Regulatory Surveillance on Bank Behavior: A Dynamic Analysis from Incomplete to Complete Enforcement of Capital Regulation in Microprudential Policy By Nakashima, Kiyotaka; Ogawa, Toshiaki
  20. Bank Competition and Financial Stability:Evidence from the U.S. Banking Deregulation By Yifei Cao; Jenyu Chou; Ian Gregory-Smith; Alberto Montagnoli
  21. Central bank information and private-sector Expectations By Jochen Güntner
  22. Sticky Capital Controls By Miguel Acosta-Henao; Laura Alfaro; Andrés Fernández
  23. Credit risk statistical information of the Bank of Italy and the new AnaCredit data collection By Maria Di Noia; Davide Moretti
  24. Optimal Policy under Dollar Pricing By Konstantin Egorov; Dmitry Mukhin
  25. Buffering Covid-19 losses - the role of prudential policy By Mathias Drehmann; Marc Farag; Nicola Tarashev; Kostas Tsatsaronis
  26. Bank Deposits Flows and Textual Sentiment: When an ECB President's speech is not just a speech By Anastasiou, Dimitrios; Katsafados, Apostolos G.
  27. Asset Bubbles and Monetary Policy By Feng Dong; Jianjun Miao; Pengfei Wang
  28. Endogenous Growth and Monetary Policy: How Do Interest-Rate Feedback Rules Shape Nominal and Real Transitional Dynamics? By Gustavo Iglésias; Pedro Mazeda Gil
  29. Karl Helfferich and Rudolf Hilferding on Georg Friedrich Knapp’s State Theory of Money: Monetary Theories during the Hyperinflation of 1923 By Greitens, Jan
  30. The fiscal-monetary nexus in Germany By Ehnts, Dirk H.
  31. Short-term Planning, Monetary Policy, and Macroeconomic Persistence By Christopher J. Gust; Edward P. Herbst; J. David Lopez-Salido
  32. Monetary Policy and Speculative Spillovers in Financial Markets By Riza Demirer; David Gabauer; Rangan Gupta

  1. By: Hiermeyer, Martin
    Abstract: Next to conventional and unconventional monetary policy, there may be another form of monetary policy: Central bank profit distribution to the government. By distributing a higher profit than normal if inflation is below target, and a lower profit than normal if inflation is above target, central bankers may achieve their inflation target better. To guard against excessive inflation, lawmakers might stipulate that central bankers can only distribute higher profits than nor-mal if conventional monetary policy is exhausted (0% policy rate).
    Keywords: Monetary Policy; Central Banks and Their Policies
    JEL: E52 E58
    Date: 2020–04–25
  2. By: Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis
    Abstract: We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans. JEL Classification: E43, E52, E58, G01, G21
    Keywords: banks, negative rates, non-standard monetary policy, reach-for-yield, securities
    Date: 2020–04
  3. By: Razzak, Weshah
    Abstract: We provide a general equilibrium model with optimizing agents to compute the natural rate of interest for the G7 countries over the period 2000 to 2017. The model is solved for the equilibrium natural rate of interest, which is determined by a parsimonious equation that is easily computed from raw observable data. The model predicts that the natural rate depends positively on the consumption – leisure growth rates gap, and negatively on the capital – labor growth rates gap. Given our computed natural rate, the short-term nominal interest rates in the G7 have been higher than the natural rate since 2000, except for Germany and the U.S. during the period 2009-2017. In addition, the data do not support the prediction of the Wicksellian theory that prices tend to increase when the short-term nominal rate is lower than the natural rate. Projections of the natural rate over the period 2018 to 2024 are positive in Germany, Italy, Japan, and the U.K. and negative in Canada, France, and the U.S. The model predicts that fiscal expansion is an expensive policy to achieve a 2 percent inflation target when the Zero Lower Bound (ZLB) constraint is binding.
    Keywords: natural rate of interest, monetary policy
    JEL: C68 E43 E52
    Date: 2020–04–21
  4. By: Marco Bassetto; Thomas J. Sargent
    Abstract: This paper describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a "nominal anchor'' in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government issued bonds and money with complete theories whose inputs are bond-money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that confirm the theoretical insight that lines of authority between a Treasury and a Central Bank can be ambiguous, obscure, and fragile.
    JEL: E52 E61 E62 E63
    Date: 2020–04
  5. By: Paul R. Bergin; Giancarlo Corsetti
    Abstract: In the wake of Brexit and the Trump tariff war, central banks have had to reconsider the role of monetary policy in managing the economic effects of tariff shocks, which may induce a slowdown while raising inflation. This paper studies the optimal monetary policy responses using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates.
    JEL: F4
    Date: 2020–04
  6. By: Kerstin Bernoth; Geraldine Dany-Knedlik; Anna Gibert
    Abstract: To cushion the economic effects of the coronavirus pandemic, central banks have taken far-reaching monetary policy measures. The US Federal Reserve has lowered its interest rates and, like the European Central Bank, has expanded its bond purchase programs. However, it is questionable whether these measures are having the desired effect of calming the markets and supporting the real economy. It is true that the macroeconomic effects cannot yet be quantified, but initial indications of their effectiveness can be seen in the short-term reactions of stock prices and bond yields. The following article shows how interest rates and prices have reacted directly to the central bank announcements and what conclusions can be drawn from this for future measures
    Date: 2020
  7. By: Jean-Guillaume Sahuc; Christian Pfister
    Abstract: This paper takes stock of the literature on unconventional monetary policies, from their implementation to their effects on the economy. In particular, we discuss in detail the two main measures implemented in most developed economies, namely forward guidance and large-scale asset purchases. Overall, there is near consensus that these measures have been useful, although there are a few dissenting views. Because unconventional monetary policies have left their mark on economies and on the balance sheets of central banks, we offer insights into their legacy and ask whether they have led to a change in “the rules of the game” for setting interest rates and choosing the size and composition of central banks’ balance sheets. Finally, we discuss whether to modify the objectives and the instruments of monetary policy in the future, in comparison with the pre-crisis situation.
    Keywords: Unconventional monetary policies.
    JEL: E52 E58
    Date: 2020
  8. By: Zoe Venter
    Abstract: In this paper, an index of domestic macroprudential policy tools is constructed and the effectiveness of these tools in controlling credit growth is studied using a dynamic panel data model for the period between 2000 and 2017. The empirical analysis includes two panels namely an EU panel of 27 countries and a Latin American panel of 7 countries, and the paper also looks at a case study of Chile, Colombia, Japan, Portugal and the UK. Our main results find that the cumulative index of macroprudential policy tools does not have a statistically significant impact on credit growth when considering a panel of 27 EU countries. When considering the case of Japan, a tighter capital conservation buffer leads to a decrease in the credit supply. When looking at a panel of 7 Latin American countries, our main results show that a tightening of the capital conservation buffer results in an increase in the credit supply. A tightening of the loan-to-value ratio results in a decrease in the credit supply in the panel of 7 Latin American countries. Lastly, a tightening in the overall macroprudential policy tool stance results in a decrease in credit supply in Japan and an increase in credit supply in Portugal.
    Keywords: Macroprudential Policy, Credit Booms, Capital Flows, Financial Stability, Systematic Risk, EU, Latin America
    JEL: E58 F55 G01
    Date: 2020–04
  9. By: Ortega, Eva; Osbat, Chiara
    Keywords: consumer prices, euro area, exchange rates, import prices, inflation, monetary policy, pass-through
    Date: 2020–04
  10. By: Iñaki Aldasoro; Bryan Hardy; Maximilian Jager
    Abstract: We study the relationship between bank geographic complexity and risk using a unique dataset of 96 global bank holding companies (BHCs) over 2008-2016. From data on the affiliate network of internationally active banking entities, we construct a measure of geographic coverage and complexity for each BHC. We find that higher geographic complexity heightens banks' capacity to absorb local economic shocks, reducing their risk. However, higher geographic complexity is also associated with a higher vulnerability to global shocks and less impact of prudential regulation, increasing their risk. Geographic complexity helps more (with respect to local shocks) and hurts less (with respect to global shocks) if countries' business cycles are misaligned. Large, international regulatory reforms such as the implementation of the GSIB framework and the European Single Supervisory Mechanism reduce bank risk, but geographic complexity weakens this effect. Bank geographic complexity therefore has a Janus face, decreasing some but increasing other aspects of bank risk.
    Keywords: bank geographic complexity, bank risk, bank regulation, GSIB
    JEL: G21 G28
    Date: 2020–04
  11. By: David Cook; Nikhil Patel
    Abstract: Recent literature has highlighted that international trade is mostly priced in a few key vehicle currencies, and is increasingly dominated by intermediate goods and global value chains (GVCs). Taking these features into account, this paper reexamines the business cycle dynamics of international trade and its relationship with monetary policy and exchange rates. Using a three country dynamic stochastic general equilibrium (DSGE) framework, it finds key differences between the response of final goods and GVC trade to both internal and external shocks. In particular, the model shows that in response to a dollar appreciation triggered by a US interest rate increase, direct bilateral trade between non-US countries contracts more than global value chain oriented trade which feeds US final demand. We use granular data on GVC at the sector level to document empirical evidence in favor of this prediction.
    Keywords: dollar invoicing, exchange rates, monetary policy, global value chains
    JEL: E2 E5 E6
    Date: 2020–04
  12. By: Chiara Perillo (University of Zurich, Department of Banking and Finance, Zurich, Switzerland); Stefano Battiston (University of Zurich, Department of Banking and Finance, Zurich, Switzerland)
    Abstract: The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress, as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recognized. A recent debate focused on the effects of unconventional policies aimed at achieving both price and financial stability. In particular, Quantitative Easing (QE, i.e., the large-scale asset purchase programme conducted by a central bank upon the creation of new money) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent, by injecting liquidity, the QE may alter the bank-firm lending level and stimulate the real economy. Second, to what extent the QE may also alter the pattern of intra-financial exposures among financial actors (including banks, investment funds, insurance corporations, and pension funds) and what are the implications in terms of financial stability. Here, we address these two questions by developing a methodology to map the macro-network of financial exposures among institutional sectors across financial instruments (e.g., equity, bonds, and loans) and we illustrate our approach on recently available data (i.e., data on loans and private and public securities purchased within the QE). We then test the effect of the implementation of ECB's QE on the time evolution of the financial linkages in the macro-network of the euro area, as well as the effect on macroeconomic variables, such as output and prices.
    Date: 2020–04
  13. By: Tobias König
    Abstract: This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.
    Keywords: Financial accelerator, monetary policy, nominal rigidities, factor costs
    JEL: E31 E44 E52 E58
    Date: 2020
  14. By: Jasper Hoek; Steven B. Kamin; Emre Yoldas
    Abstract: Rises in U.S. interest rates are often thought to generate adverse spillovers to emerging market economies (EMEs). We show that what appears to be bad news for EMEs might actually be good news, or at least not-so-bad news, depending on the source of the rise in U.S. interest rates. We present evidence that higher U.S. interest rates stemming from stronger U.S. growth generate only modest spillovers, while those stemming from a more hawkish Fed policy stance or inflationary pressures can lead to significant tightening of EME financial conditions. Our identification of the sources of U.S. rate changes is based on high-frequency moves in U.S. Treasury yields and stock prices around FOMC announcements and U.S. employment report releases. We interpret positive comovements of stocks and interest rates around these events as growth shocks and negative comovements as monetary shocks, and estimate the effect of these shocks on emerging market asset prices. For economies with greater macroeconomic vulnerabilities, the difference between the impact of monetary and growth shocks is magnified. In fact, for EMEs with very low levels of vulnerability, a growth-driven rise in U.S. interest rates may even ease financial conditions in some markets.
    Keywords: Monetary policy; Spillovers; Emerging markets; Growth shock; Monetary shock; Financial conditions
    JEL: E50 F30
    Date: 2020–01–31
  15. By: Richard Heuver; Ron Berndsen
    Abstract: The Liquidity Coverage Ratio (LCR) requirement of the Basel III framework is aimed at making banks more resilient against liquidity shocks and indicates the extent to which a bank is able to meet its payment obligations over a 30-day stress period. Notwithstanding the fact that it forms an important addition to the available information for regulators, it presents information on the status of a single bank on a monthly reporting basis. In this paper we generate an LCR-like statistic on a daily basis and simulate liquidity failure of each of the systemically important banks, using historical payments data from TARGET2. The aim of the paper is to uncover paths of contagion. The trigger is a bank with a deteriorating LCR and the knock-on effect is modelled as the impact on the LCR of other banks. We generate then the cascade of contagion, which in general consists of multiple paths, trying to answer the question to what extent the financial network further deteriorates. In doing so we provide paths of contagion which give a sense of potential systemic risk present in the network. We find that the majority of damage is caused by a small group of large banks. Furthermore we find groups of banks that are very vulnerable to shocks, regardless of the size or location of the disruption. Our model reveals that the shortfall of liquidity at the stressed bank is a more important driver than the addition of liquidity at the other banks. A version of the contagion network based on a 14-day period reveals a monthly pattern, which is in line with other literature in which window dressing is addressed. The data used in this paper are available to supervisors, central banks and resolution authorities, therefore making it possible to anticipate contagion of failing liquidity coverage within their payment network on a daily basis.
    Keywords: Liquidity Coverage; Basel III; payment systems; graph theory; simulation modeling
    JEL: E58 G21 E42 C63
    Date: 2020–03
  16. By: Luca Metelli (Bank of Italy); Filippo Natoli; Luca Rossi (Bank of Italy)
    Abstract: Monetary policy in the United States has often followed a gradual approach by changing policy rates through multiple small adjustments rather than all-at-once hikes or cuts. This conduct could provide a signal about the extent of the intended policy change. We quantify the state-dependent effects of monetary shocks in times of more and less gradual policy. We propose two indicators of high vs. low gradualism periods and use local projections to estimate the effects of identified high-frequency shocks in the two states. Our findings suggest that monetary policy transmission is stronger when the perception of gradualism is high.
    Keywords: gradualism, inertia, monetary policy transmission, state dependence, local projections.
    JEL: C22 C26 E44 E52 E58
    Date: 2020–04
  17. By: Hassan Afrouzi
    Abstract: How does competition affect information acquisition of firms and thus the response of inflation and output to monetary policy shocks? This paper addresses these questions in a new dynamic general equilibrium model with both dynamic rational inattention and oligopolistic competition. In the model, rationally inattentive firms acquire information about the endogenous beliefs of their competitors. Moreover, firms with fewer competitors endogenously choose to acquire less information about aggregate shocks – a novel prediction of the model that is supported by empirical evidence from survey data. A quantitative exercise disciplined by firm-level survey data shows that firms’ strategic inattention to aggregate shocks associated with oligopolistic competition increases monetary non-neutrality by up to 77% and amplifies the half-life of output response to monetary shocks by up to 30%. Furthermore, the model matches the relationship between the number of firms’ competitors and their uncertainty about inflation as a non-targeted moment.
    Keywords: rational inattention, oligopolistic competition, inflation dynamics, inflation expectations, monetary non-neutrality
    JEL: E31 E32
    Date: 2020
  18. By: Brent Bundick; Andrew Lee Smith
    Abstract: Although a growing literature argues output is too sensitive to future interest rates in standard macroeconomic models, little empirical evidence has been put forth to evaluate this claim. In this paper, we use a range of vector autoregression models to answer the central question of how much output responds to changes in interest rate expectations following a monetary policy shock. Despite distinct identification strategies and sample periods, we find surprising agreement regarding this elasticity across empirical models. We then show that in a standard model of nominal rigidity estimated using impulse response matching, forward guidance shocks produce an elasticity of output with respect to expected interest rates similar to our empirical estimates. Our results suggest that standard macroeconomic models do not overstate the observed sensitivity of output to expected interest rates.
    Keywords: Forward Guidance; Monetary Policy Shocks; Zero Lower Bound; Impulse Response Matching
    JEL: E32 E52
    Date: 2020–04–30
  19. By: Nakashima, Kiyotaka; Ogawa, Toshiaki
    Abstract: This study examines the impact of strengthening bank capital supervision on bank behavior in the incomplete and complete enforcement of regulations. In a dynamic model of banks facing idiosyncratic shocks, banks accumulate regulatory capital and decrease charter value and lending in the short run, while in the long run, the banking system achieves stability. To test the short-run implications, we utilize the introduction of the prompt corrective action program in Japan as a natural experiment. Using some empirical specifications with bank- and loan-level data, we find empirical evidence consistent with the theoretical predictions.
    Keywords: regulatory surveillance; incomplete enforcement; heterogeneous bank model; prompt corrective action; bank capital ratio; credit crunch
    JEL: G00 G21 G28
    Date: 2020–04–29
  20. By: Yifei Cao (School of Economics, University of Nottingham Ningbo China); Jenyu Chou (School of Economics, University of Nottingham Ningbo China); Ian Gregory-Smith (Department of Economics, University of Sheffield, UK); Alberto Montagnoli (Department of Economics, University of Sheffield, UK)
    Abstract: This paper examines the causal relationship between banking competition and financial stability. We find that an exogenous competition shock significantly improved the stability of banks, consistent with the ‘competition-stability hypothesis’. We show that banks improved their cost efficiency and reduced credit risks in response to U.S. banking deregulation. In addition, we show the competition shock had a larger impact on banks who were initially operating in a less competitive environment. Our findings provide the first quasi-natural experimental evidence on the non-linear relationship between bank competition and financial stability.
    Keywords: Bank Competition, Bank Risk, Financial Stability, Banking Deregulation
    JEL: G18 G20 G21 G28
    Date: 2020–04
  21. By: Jochen Güntner
    Abstract: Jarocinski and Karadi (2020) disentangle a pure information from the interest rate component of monetary policy surprises. This note quantifies the information revealed in FOMC announcements using forecast revisions from Blue Chip Economic Indicators. In response to a positive central bank information shock, survey participants revise their now- and short-term forecasts of real GDP growth upwards, while the corresponding revisions in the growth rate of the GDP deflator are mostly statistically insignificant.
    Keywords: Blue Chip Economic Indicators, Central bank information shocks, Forecast revisions
    JEL: E32 E52 E66
    Date: 2020–04
  22. By: Miguel Acosta-Henao; Laura Alfaro; Andrés Fernández
    Abstract: There is much ongoing debate on the merits of capital controls as effective policy instruments. The differing perspectives are due in part to a lack of empirical studies that look at the intensive margin of controls, which in turn has prevented a quantitative assessment of optimal capital control models against the data. We contribute to this debate by addressing both positive and normative features of capital controls. On the positive side, we build a new dataset using textual analysis, from which we document a set of stylized facts of capital controls along their intensive and extensive margins for 21 emerging markets. We document that capital controls are “sticky”; that is, changes to capital controls do not occur frequently, and when they do, they remain in place for a long time. Overall, they have not been used systematically across countries or time, and there has been considerable heterogeneity across countries in terms of the intensity with which they have been used. On the normative side, we extend a model of capital controls relying on pecuniary externalities augmented by including an (S; s) cost of implementing such policies. We illustrate how this friction goes a long way toward bringing the model closer to the data. When the extended model is calibrated for each of the countries in the new dataset, we find that the size of these costs is large, thus substantially reducing the welfare-enhancing effects of capital controls compared with the frictionless Ramsey benchmark. We conclude with a discussion of the structural interpretations of such costs, which calls for a richer set of policy constraints when considering the use of capital controls in models of pecuniary externalities.
    JEL: E44 F38 F41 G01
    Date: 2020–04
  23. By: Maria Di Noia (Banca d’Italia); Davide Moretti (Banca d’Italia)
    Abstract: This paper provides an overview of the statistical information on credit risk managed by the Bank of Italy. The Institute has a long tradition of systematic and detailed financial data collection. With specific reference to information on credit risk, the Bank of Italy has managed the Central Credit Register since the early 1960s and, more recently, introduced new data collections on credit risk primarily in response to specific supervisory needs. At international level, also due to the increasing demand for data subsequent to the global financial crisis of the last decade, the data and data collection systems of euro-area countries have become increasingly harmonized and granular. In this context, the introduction of the AnaCredit framework can be considered the main driver behind the spread of this ‘new paradigm’ of data collection, and may also prove to be a strong incentive for national and European Authorities to rationalize the reporting burden for reporting agents.
    Keywords: AnaCredit, Central Credit Register, credit risk, non-performing loans, granular surveys, statistics
    JEL: G21 C81
    Date: 2020–04
  24. By: Konstantin Egorov (New Economic School); Dmitry Mukhin (WISC)
    Abstract: Recent empirical evidence shows that most international prices are sticky in dollars. This paper studies the optimal policy implications of this fact in the context of an open economy model, allowing for an arbitrary structure of asset markets, general preferences and technologies, timeor state-dependent price setting, a rich set of shocks, and endogenous currency choice. We show that although monetary policy is less ecient and cannot implement the exible-price allocation, ination targeting remains robustly optimal in non-U.S. economies. The implementation of this non-cooperative policy results in a “global monetary cycle†with other countries partially pegging their exchange rates to the dollar and importing the monetary stance of the U.S. In spite of the aggregate demand externality, capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. The optimal U.S. policy, on the other hand, deviates from ination targeting to take advantage of its eects on global product and asset markets, generating negative spillovers on the rest of the world. International cooperation benets other countries by improving global demand for dollar-invoiced goods, but may be hard to sustain because it is not in the self-interest of the U.S. At the same time, countries can still gain from local forms of policy coordination — such as forming a currency union like the Eurozone.
    Date: 2020–04–25
  25. By: Mathias Drehmann; Marc Farag; Nicola Tarashev; Kostas Tsatsaronis
    Abstract: By allowing banks to run down some of their buffers, policymakers are sending a strong signal about their resolve to lessen the economic fallout from the pandemic. Such prudential measures complement the main policy levers: monetary and fiscal instruments. To avoid a reduction in credit to the real economy, authorities need to ensure that banks have the capacity and willingness to make use of the flexibility afforded by the buffer release. Payout restrictions on banks and risk-sharing between banks and the public sector will be key. r banks to continue playing a positive role in the supply of funding during the recovery, they should maintain usable buffers for a long period, as losses from a severe recession will take time to materialise.
    Date: 2020–04–24
  26. By: Anastasiou, Dimitrios; Katsafados, Apostolos G.
    Abstract: We investigate whether the so-called textual sentiment has any impact on European depositors’ behavior to withdraw their deposits. After the manual collection of monthly speeches of the president of the European Central Bank (ECB hereafter) we apply textual analysis techniques following the methodology of Loughran and McDonald (2011) and we construct two alternative sentiments able to capture the perceived uncertainty. We find that high frequency of uncertainty and weak modal words in the monthly speeches of the president of the ECB leads both households and non-financial corporations to withdraw their bank deposits. We also find that these textual sentiments have greater impact on non-financial corporations. These findings suggest that regulators and policy makers could expand the already existing early-warning systems for the banking sector by taking into consideration the frequency of uncertainty and weak modal words in the ECB president’s speeches.
    Keywords: European deposit flows; bank runs; ECB President's speeches; textual analysis; textual sentiment
    JEL: D8 D80 G0 G02 G2 G20 G21
    Date: 2020–01
  27. By: Feng Dong (Tsinghua University); Jianjun Miao (Boston University); Pengfei Wang (Peking University)
    Abstract: We provide a model of rational bubbles in a DNK framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade bubble assets to raise their net worth. The bubble assets command a liquidity premium and can have a positive value. Monetary policy affects the conditions for the existence of a bubble, its steady-state size, and its dynamics including the initial size. The leaning-against-the-wind interest rate policy reduces bubble volatility, but could raise inflation volatility. Whether monetary policy should respond to asset bubbles depends on the particular interest rate rule and exogenous shocks.
    Keywords: asset bubble, monetary policy, Dynamic New Keynesian model, credit constraints, multiple equilibria, sentiment
    JEL: E32 E44 E52 G12
    Date: 2020–04
  28. By: Gustavo Iglésias; Pedro Mazeda Gil
    Abstract: Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries. The literature distinguishes, in particular, between active and passive monetary policies in this regard. We address the nominal and real transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved transitional dynamics occurs under both active and passive monetary policies. We carry out our study from three perspectives: the convergence behaviour of catching-up economies; a structural monetary-policy shock (i.e., a change in the long-run inflation target); and real industrialpolicy shocks (i.e., a change in R&D subsidies or in manufacturing subsidies). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies’ convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shocks.
    JEL: E41 O31 O41
    Date: 2020
  29. By: Greitens, Jan
    Abstract: The monetary ideas of Georg Friedrich Knapp have recently resurfaced in the context of the Modern Monetary Theory whose representatives see themselves in his tradition. The historical debate on Knapp's "State Theory of Money," which divided opinion when it was first published in 1905 as well as during the period of German inflation that peaked in 1923, is therefore of particular interest. Knapp describes money largely from a legal perspective, labelling it a "creature of the legal order". The principle "Mark = Mark" reflects his nominalistic approach. However, he opposed monetary state financing, and favoured balanced governmental budgets. One of his students, Karl Helfferich, was the most influential monetary theorist in the German Reich during the first decades of the 20th century. In defining Knapp's view as an ultimate ideal that might be realised at some point, and his own metallist approach as a practical necessity, he tries to reconcile his teacher's nominalistic theory on the one hand with his own gold currency-principles on the other.The monetary theory of the Marxist Rudolf Hilferding was eclectic, but he moved closer to a nominalistic approach after studying Knapp's theory. During inflation, Helfferich, a representative of the Balance of Payments Theory, and Hilferding, more of the Quantity Theory of Money, also held opposing views in the public debate on the monetary reforms required. The relationship between the three authors was highly complex. While Helfferich and Knapp were personally close, they were far apart in their theories although Helfferich tried to conceal this fact. Hilferding and Helfferich, meanwhile, held similar views on some practical points, such as the necessity of a gold-based currency, but clashed vehemently on a personal level. (English version of: Karl Helfferich und Rudolf Hilferding über Georg Friedrich Knapps "Staatliche Theorie des Geldes": Geldtheorien zur Zeit der Hyperinflation von 1923“, IBF Paper Series 04-19, 928/)
    Keywords: Helfferich,Hilferding,Knapp,State Theory of Money,Hyperinflation,Modern Monetary Theory
    JEL: B31 E31 N14
    Date: 2020
  30. By: Ehnts, Dirk H.
    Abstract: In this paper, the focus lies on the way the German government spends, how it spends and what the connection between finance ministry and central bank is. The institutions involved in the process are identified and discussed. As a member of the Eurozone, Germany's national central bank is not allowed to buy sovereign securities on its own account. The German government uses taxes and revenues from sovereign security issues to finance its spending, continuing the institutional framework that existed during the era of the deutsch mark. This description confirms the idea that 'the state spends first' also in the Eurozone and that it makes sense to consolidate central bank and government(s) even when a government is not issuing a sovereign currency.
    Keywords: government spending,fiscal,monetary,Treasury,sovereign default,Eurozone
    JEL: E63 B52 E42
    Date: 2020
  31. By: Christopher J. Gust; Edward P. Herbst; J. David Lopez-Salido
    Abstract: This paper uses aggregate data to estimate and evaluate a behavioral New Keynesian (NK) model in which households and firms plan over a finite horizon. The finite-horizon (FH) model outperforms rational expectations versions of the NK model commonly used in empirical applications as well as other behavioral NK models. The better fit of the FH model reflects that it can induce slow-moving trends in key endogenous variables which deliver substantial persistence in output and inflation dynamics. In the FH model, households and firms are forward-looking in thinking about events over their planning horizon but are backward looking regarding events beyond that point. This gives rise to persistence without resorting to additional features such as habit persistence and price contracts indexed to lagged inflation. The parameter estimates imply that the planning horizons of most households and firms are less than two years which considerably dampens the effects of expected future changes of monetary policy on the macroeconomy.
    Keywords: Finite-horizon planning; Learning; Monetary policy; New keynesian model; Bayesian estimation
    JEL: C11 E52
    Date: 2020–01–08
  32. By: Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); David Gabauer (Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraße 69, 4040 Linz, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: This paper examines the role of monetary policy (MP) of the United States (U.S.) as a driver of connectedness patterns in speculative activities in ï¬ nancial markets. Examining measures of speculation in four major markets including gold, equities, Treasury bonds and crude oil, we show that speculative activities can spill over across markets with the stock market generally serving as the main transmitter of speculative shocks. While unconventional MP is associated with greater connectedness of speculative activities in ï¬ nancial markets, we also ï¬ nd that unconventional (conventional) MP drives gold (ï¬ nancial assets) to serve as a net transmitter of speculative shocks to the other markets. The ï¬ ndings establish an important link between the monetary policy signals and trading behavior in ï¬ nancial markets with signiï¬ cant policy implications.
    Keywords: Monetary Policy, Speculation, TVP-VAR, Dynamic Connectedness, Quantiles
    JEL: C32 E32 F42
    Date: 2020–04

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