nep-cba New Economics Papers
on Central Banking
Issue of 2020‒06‒22
29 papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. Monetary Policy Independence and the Strength of the Global Financial Cycle By Christian Friedrich; Pierre Guérin; Danilo Leiva-Leon
  2. A Pitfall of Cautiousness in Monetary Policy By Stéphane Dupraz; Sophie Guilloux-Nefussi; Adrian Penalver
  3. Monetary and Prudential Policy Coordination: impact on Bank's Risk-Taking By Olivier Bruno; Melchisedek Joslem Ngambou Djatche
  4. Corona Policy According to HANK By Hagedorn, Marcus; Mitman, Kurt
  5. The Monetary Mystery of the last Decade By Mario Teijeiro
  6. When the Fed sneezes, the whole world catches the cold, when the ECB - only Europe By Walerych, Małgorzata; Wesołowski, Grzegorz
  7. Stablecoins: A Brave New World? By Anastasia Melachrinos; Christian Pfister
  8. The effectiveness of macroprudential policies and capital controls against volatile capital inflows By Jon Frost; Hiro Ito; René van Stralen
  9. Bank Resolution Regimes and Systemic Risk By Beck, Thorsten; Radev, Deyan; Schnabel, Isabel
  10. Are bank capital requirements optimally set? Evidence from researchers’ views By Ambrocio, Gene; Hasan, Iftekhar; Jokivuolle, Esa; Ristolainen, Kim
  11. Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID-19 Outbreak? By Nicola Cetorelli; Linda S. Goldberg; Fabiola Ravazzolo
  12. Public Opinion on Central Banks when Economic Policy is Uncertain By Klodiana Istrefi; Anamaria Piloiu
  13. Corporate Debt Maturity, Repayment Structure and Monetary Policy Transmission By Hatice Gokce Karasoy Can
  14. The role of financial journalists in the expectations channel of the monetary transmission mechanism By Monique Reid; Pierre Siklos; Timothy Guetterman; Stan Du Plessis
  15. Cyclical systemic risk and downside risks to bank profitability By Lang, Jan Hannes; Forletta, Marco
  16. "An Empirical Analysis of Long-Term Brazilian Interest Rates" By Tanweer Akram; Syed Al-Helal Uddin
  17. Interoperable Payment Systems and the Role of Central Bank Digital Currencies By Duffie, Darrell
  18. Monetary Policy Rules: Lessons Learned from ECOWAS Countries By Alain Siri
  19. Fiscal multipliers with financial fragmentation risk and interactions with monetary policy By Darracq Pariès, Matthieu; Papadopoulou, Niki; Müller, Georg
  20. Trading for Bailouts By Toni Ahnert; Caio Machado; Ana Elisa Pereira
  21. Deciphering the macroeconomic effects of internal devaluations in a monetary union By Javier Andrés; Óscar Arce; Samuel Hurtado; Jesús Fernández-Villaverde
  22. Catch, Restrict, and Release: The Real Story of Bank Bailouts By Sergey Tsyplakov; Allen N. Berger; Steven Ongena; Simona Nistor
  23. The effectiveness of currency intervention in a commodity-exporter: Evidence from Mongolia By Victor Pontines; Davaajargal Luvsannyam; Enkhjin Atarbaatar; Ulziikhutag Munkhtsetseg
  24. Liquidity provision during a pandemic By Kahn, Charles M.; Wagner, Wolf
  25. Common shocks in stocks and bonds By Cieslak, Anna; Pang, Hao
  26. Transmission of US and EU Economic Policy Uncertainty Shock to Asian Economies in Bad and Good Times By Balcilar, Mehmet; Ozdemir, Zeynel Abidin; Ozdemir, Huseyin; Wohar, Mark E.
  27. Public debt and crowding-out: the role of housing wealth By Andrea Camilli; Marta Giagheddu
  28. The Paycheck Protection Program Liquidity Facility (PPPLF) By Haoyang Liu; Desi Volker
  29. Monetary policy, productivity, and market concentration By Andrea Colciago; Riccardo Silvestrini

  1. By: Christian Friedrich; Pierre Guérin; Danilo Leiva-Leon
    Abstract: We propose a new strength measure of the global financial cycle by estimating a regime-switching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, which is defined as the response of central banks' policy interest rates to exogenous changes in inflation. We show that central banks tighten their policy rates in response to an unanticipated increase in the inflation gap during times when global financial cycle strength is low. During times of high financial cycle strength, however, the responses of the same central banks to the same unanticipated changes in the inflation gap appear muted. Finally, by assessing the impact of different policy tools on countries' sensitivities to the global financial cycle, we show that using capital controls, macroprudential policies, and the presence of a flexible exchange rate regime can increase monetary policy independence.
    Keywords: Business fluctuations and cycles; Exchange rate regimes; Financial system regulation and policies; International financial markets; Monetary policy
    JEL: E4 E5 F3 F32 F4 F42 G1 G15 G18
    Date: 2020–06
  2. By: Stéphane Dupraz; Sophie Guilloux-Nefussi; Adrian Penalver
    Abstract: Central banks are often reluctant to take immediate or forceful actions in the face of new information on the economic outlook. To rationalize this cautious approach, Brainard’s attenuation principle is often invoked: when a policy-maker is unsure of the effects of his policies, he should react less than he would under certainty. We show that the Brainard principle, while a wise recommendation for policy-making in general, runs into a pitfall when it is applied to a central bank setting monetary policy. For a central bank, concerns over uncertainty create a cautiousness bias: acting less is justified when taking as given the private sector’s expectations of inflation, but acting less shifts these inflation expectations away from the central bank’s inflation target. In response to the de-anchoring of expectations, the central bank can easily end up acting as much as it is initially reluctant to do, but without succeeding in putting inflation back on target. This pattern is a feature of policy under discretion: the central bank would often be better off tying its hands not to listen to its concerns about uncertainty.
    Keywords: Uncertainty, Inflation Expectations, Discretion vs. Commitment.
    JEL: E31 E52 E58
    Date: 2020
  3. By: Olivier Bruno (Université Côte d'Azur; GREDEG CNRS; Skema Business School); Melchisedek Joslem Ngambou Djatche (Université Côte d'Azur; GREDEG CNRS)
    Abstract: This paper models monetary policy's transmission to bank risk in presence of a capital requirement ratio. We show that the impact of a change in monetary policy rate on bank's risk level is not independent from the strength of the capital requirement ratio. A monetary easing, as well as a monetary contraction, may lead bank to take more risk according to some effecs related to the risk sensitivity of its intermediation margin and risk sensitivity of the prudential tool. We show that the combination of monetary policy with prudential policy has different outcomes in terms of financial stability and expected cost of bank failure.
    Keywords: Monetary policy, prudential policy, financial stability, bank's risktaking, partial equilibrium model
    JEL: E43 E52 E61 G01 G21 G28
    Date: 2020–06
  4. By: Hagedorn, Marcus; Mitman, Kurt
    Abstract: In this note, we analyze the role of the European Central Bank through the lens of the Heterogenous-agent New Keynesian Model (HANK), a new paradigm of fiscal and monetary policy that abandons the assumption of perfectly functioning financial markets. We emphasize three principles that emerge from this view: 1) the effect of fiscal and monetary financing on inflation; 2) the close interaction between fiscal and monetary policy in the determination of inflation; and 3) an economic perspective on Art.123(1) TFEU, the "prohibition of monetary financing."
    Keywords: Art.123(1) TFEU; Fiscal/monetary policy interaction; HANK; inflation; monetary financing
    JEL: D52 E31 E52 E62 E63
    Date: 2020–05
  5. By: Mario Teijeiro
    Abstract: There is a feeling that the wisdom of monetarism has vanished during the last decade. Exceptional interventions of the Federal Reserve (FED) and the European Central Bank (ECB) have barely avoided deflation and have achieved delayed and modest growth. The absence of a solid monetarist explanation has been notorious. Moreover, after the formidable impact of lockdowns, many economists are now predicting a prolonged recession followed by a protracted deflation Japanese style, even when a much larger FED intervention is underway. Where is monetary policy headed to? What is ahead, inflation or deflation? Are we simply witnessing the final demise of monetarism? Or something else is at stake?
    Date: 2020–06
  6. By: Walerych, Małgorzata; Wesołowski, Grzegorz
    Abstract: This paper presents evidence that the international spillovers of Fed's conventional monetary policy to emerging markets are global, while their ECB's counterparts are local. The result comes from panel Bayesian Vector Autoregressive model estimated separately for two groups of countries: Central Eastern Europe (CEE) and Latin America (LA). In this setup, we investigate the impact of unanticipated and anticipated Fed and ECB montetary policy shocks, showing that the former affect both regions, while the latter are important for CEE and insignificant for LA.
    Keywords: Monetary policy spillovers, international business cycles, emerging economies
    JEL: E32 E58 F44
    Date: 2020–06–05
  7. By: Anastasia Melachrinos; Christian Pfister
    Abstract: At the root of the notion of stablecoin (SC) lies a desire to reconcile two different worlds: that of legal currency, whose essential attributes are hierarchical order, the vocation to uniqueness and stability of the purchasing power, and that of crypto-assets, featuring decentralization, multiplicity and thus the possibility of choice, and the instability of value. Do SCs fulfill their promises? With regard to their volatile prices, limited number, small total amount, and concentrated market, SCs have so far met with a mixed success. They rather represent a complement to the crypto-assets market. However, the arrival of very large issuers, securing a higher degree of confidence to users, and apt to reach a wide public, could give their projects a potentially systemic impact. These global SCs would create risks, in particular for financial stability and monetary policy, and in lesser-developed economies. This paper reviews these risks and the way the private sector, regulators and central banks can address them.
    Keywords: Stablecoins, monetary policy, financial stability.
    JEL: E42 E52 E58
    Date: 2020
  8. By: Jon Frost; Hiro Ito; René van Stralen
    Abstract: This paper compares the effectiveness of macroprudential policies (MaPs) and capital controls (CCs) in influencing the volume and composition of capital inflows, and the probability of banking and currency crises. We distinguish between foreign exchange (FX)-based MaPs, which may be similar to some types of CCs, and non-FX-based MaPs. Using a panel of 83 countries over the period 2000-17, and a propensity score matching model to control for selection bias, we find that capital inflow volumes are lower where FX-based MaPs have been activated. The imposition of CCs does not have a significant effect on the volume or composition of capital inflows. Further, we find that the activation of MaPs is associated with a lower probability of banking crises and surges in capital inflows in the following three years.
    Keywords: capital account openness; capital flows; capital controls; macroprudential policy; banking crises; currency crises
    JEL: F38 G01 G28
    Date: 2020–06
  9. By: Beck, Thorsten; Radev, Deyan; Schnabel, Isabel
    Abstract: We assess the ability of bank resolution frameworks to deal with systemic banking fragility. Using a novel and detailed database on bank resolution regimes in 22 member countries of the Financial Stability Board, we show that systemic risk, as measured by â?³CoVaR, increases more for banks in countries with more comprehensive bank resolution frameworks after negative system-wide shocks, such as Lehman Brothers' default, while it decreases more after positive system-wide shocks, such as Mario Draghi's "whatever it takes'' speech. These results suggest that more comprehensive bank resolution may exacerbate the effect of system-wide shocks and should not be solely relied on in cases of systemic distress.
    Keywords: bail-in; Bank resolution regimes; systemic risk
    JEL: G01 G21 G28
    Date: 2020–05
  10. By: Ambrocio, Gene; Hasan, Iftekhar; Jokivuolle, Esa; Ristolainen, Kim
    Abstract: We survey 149 leading academic researchers on bank capital regulation. The median (average) respondent prefers a 10% (15%) minimum non-risk-weighted equity-to-assets ratio, which is considerably higher than the current requirement. North Americans prefer a significantly higher equity-to-assets ratio than Europeans. We find substantial support for the new forms of regulation introduced in Basel III, such as liquidity requirements. Views are most dispersed regarding the use of hybrid assets and bail-inable debt in capital regulation. 70% of experts would support an additional market-based capital requirement. When investigating factors driving capital requirement preferences, we find that the typical expert believes a five percentage points increase in capital requirements would “probably decrease” both the likelihood and social cost of a crisis with “minimal to no change” to loan volumes and economic activity. The best predictor of capital requirement preference is how strongly an expert believes that higher capital requirements would increase the cost of bank lending.
    JEL: G01 G28
    Date: 2020–06–02
  11. By: Nicola Cetorelli; Linda S. Goldberg; Fabiola Ravazzolo
    Abstract: In March 2020, the Federal Open Market Committee (FOMC) made changes to its swap line facilities with foreign central banks to enhance the provision of dollars to global funding markets. Because the dollar has important roles in international trade and financial markets, reducing these strains helps facilitate the supply of credit to households and businesses, both domestically and abroad. This post summarizes the changes made to central bank swap lines and shows when these changes were effective at bringing down dollar funding strains abroad.
    Keywords: dollar; swap; central bank; COVID-19
    JEL: E5 E51
    Date: 2020–05–22
  12. By: Klodiana Istrefi; Anamaria Piloiu
    Abstract: This paper investigates whether uncertainty about economic policy plays a role in shaping the credibility and reputation of the central bank in the eyes of the public. In particular, we look at the effect of policy uncertainty for the dynamics of citizens’ opinion, being trust, satisfaction or confidence, in the European Central Bank, the Bank of England and the Bank of Japan. Estimating Bayesian VARs for the period 1999-2014, we find that shocks to economic policy uncertainty induce economic contractions and relatively sharp deterioration in trust or satisfaction measures, which in general take longer than economic growth to rebuild.
    Keywords: Policy Uncertainty; Central Banks; Public Opinion; Structural VAR.
    JEL: E02 E31 E58 E63 P16
    Date: 2020
  13. By: Hatice Gokce Karasoy Can
    Abstract: Taking a theoretical stand, this paper studies the role of corporate debt maturity and its repayment structure in monetary policy transmission mechanism. It builds on a stylized New Keynesian dynamic stochastic general equilibrium (NK-DSGE) model and discusses the transmission under various corporate debt structures. The results show that a given contractionary monetary policy is less effective in terms of stabilizing inflation when debt contracts are written on a floating rate basis. Moreover, increased corporate debt burden amplifies the real effects of the credit channel. Extending the maturity of floating rate debt aggravates these effects and makes firms even more vulnerable to adverse shocks.
    Keywords: Floating rate debt, Debt maturity, Monetary policy transmission, Credit channel
    JEL: E43 E44 E52 E58 G30
    Date: 2020
  14. By: Monique Reid; Pierre Siklos; Timothy Guetterman; Stan Du Plessis
    Abstract: Monetary policy relies on managing the inflation expectations of the public in order to influence prices (inflation). Relying on the South African experience we argue that most of the general public are only exposed to the communication of the South African Reserve Bank (SARB) via the media. This state of affairs is fairly typical around the globe. We explore the role and biases of the journalists in transmitting the SARB’s communication to the rationally inattentive general public. Our aim is to obtain insights about the factors that influence media articles that deal with monetary policy issues. Using interviews and qualitative content analysis, we explore the extent of the journalists’ knowledge about inflation and monetary policy, their views concerning the credibility of the SARB, the sources of information they use, and the constraints and incentives they face in writing the articles.
    Keywords: monetary policy, central bank communication, journalists
    JEL: E52 E58
    Date: 2020–04
  15. By: Lang, Jan Hannes; Forletta, Marco
    Abstract: This paper studies the impact of cyclical systemic risk on future bank profitability for a large representative panel of EU banks between 2005 and 2017. Using linear local projections we show that high current levels of cyclical systemic risk predict large drops in the average bank-level return on assets (ROA) with a lead time of 3-5 years. Based on quantile local projections we further show that the negative impact of cyclical systemic risk on the left tail of the future bank-level ROA distribution is an order of magnitude larger than on the median. Given the tight link between negative profits and reductions in bank capital, our method can be used to quantify the level of “Bank capital-at-risk” for a given banking system, akin to the concept of “Growth-at-risk”. We illustrate how the method can inform the calibration of countercyclical macroprudential policy instruments. JEL Classification: G01, G17, C22, C54, G21
    Keywords: bank profitability, Growth-at-risk, local projections, quantile regressions, systemic risk
    Date: 2020–05
  16. By: Tanweer Akram; Syed Al-Helal Uddin
    Abstract: This paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data in the context of the evolution of Brazil’s key macroeconomic variables. The results show that the current short-term interest rate has a decisive influence on BGBs’ long-term interest rates after controlling for various key macroeconomic variables, such as inflation and industrial production or economic activity. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.
    Keywords: Brazilian Government Bonds; Long-Term Interest Rate; Bond Yields; Monetary Policy; Short-Term Interest Rate; Banco Central do Brasil (BCB)
    JEL: E43 E50 E58 E60 G10 G12
  17. By: Duffie, Darrell (Stanford U)
    Abstract: I explain the meaning of an interoperable payment system and why interoperability is crucial for efficiency. I review some alternative approaches to interoperability, including central bank digital currencies (CBDCs), hybrid CBDCs, and two-ledger upgrades of bank-based payment systems.
    Date: 2020–05
  18. By: Alain Siri (CEDRES, University of Ouaga II, Burkina Faso)
  19. By: Darracq Pariès, Matthieu; Papadopoulou, Niki; Müller, Georg
    Abstract: We quantify the size of fiscal multipliers under financial fragmentation risk and demonstrate how non-standard monetary policy can support the macroeconomic transmission of fiscal interventions. We employ a DSGE model with financial frictions whereby the interplay of corporate, banks and sovereign solvency risk affect the transmission of fiscal policy. The output multiplier of fiscal expansion is found to be significantly dampened by tighter financial conditions in case households are less certain about implicit and explicit state-guarantees for the banking system, or banks are weakly capitalized and highly exposed to the government sector. In this context, we show that central bank asset purchases or liquidity operations designed to ensure favourable bank funding conditions can restore fiscal multipliers. JEL Classification: E44, E52, E62
    Keywords: DSGE models, fiscal stabilization, sovereign-bank nexus, sovereign risk
    Date: 2020–06
  20. By: Toni Ahnert; Caio Machado; Ana Elisa Pereira
    Abstract: Government interventions such as bailouts are often implemented in times of high uncertainty. Policymakers may therefore rely on information from financial markets to guide their decisions. We propose a model in which a policymaker learns from market activity and where market participants have high stakes in the intervention. We study how the strategic behavior of informed traders affects market informativeness, the probability and efficiency of bailouts, and stock prices. We apply the model to study the liquidity support of distressed banks and derive implications for market informativeness and policy design. Commitment to a minimum liquidity support can increase market informativeness and welfare.
    Keywords: Financial institutions, Financial markets, Financial system regulation and policies, Lender of last resort
    JEL: D83 G18
    Date: 2020–06
  21. By: Javier Andrés (Universidad de Valencia); Óscar Arce (Banco de España); Samuel Hurtado (Banco de España); Jesús Fernández-Villaverde (University of Pennsylvania, NBER, and CEPR)
    Abstract: We study the macroeconomic effects of internal devaluations undertaken by a periphery of countries belonging to a monetary union. We find that internal devaluations have large and positive output effects in the long run. Through an expectations channel, most of these effects carry over to the short run. Internal devaluations focused on goods markets reforms are generally more powerful in stimulating growth than reforms aimed at moderating wages, but the latter are less deflationary. For a monetary union with a periphery the size of the euro area’s, the countries at the periphery benefit from internal devaluations even at the zero lower bound (ZLB) of the nominal interest rate. Nevertheless, when the ZLB binds, there is a case for a sequencing of reforms that prioritizes labor policies over goods markets reforms.
    Keywords: monetary union, internal devaluation, structural reforms, zero lower bound, policy sequencing
    JEL: E44 E63 D42
    Date: 2020–06
  22. By: Sergey Tsyplakov (University of South Carolina - Darla Moore School of Business); Allen N. Berger (University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Simona Nistor (Babes-Bolyai University - Department of Finance)
    Abstract: Bank bailouts are not the "one-shot" events commonly described in the literature. These bailouts are instead dynamic processes in which regulators "catch" financially distressed banks; "restrict" their activities over time; and "release" the banks from restrictions at sufficiently healthy capital ratios. The "catch-restrict-release" approach is a global phenomenon, which we document using hand-collected data on capital injection and debt guarantee bailouts in the European Union (EU) over 2008-2014. We present a dynamic theoretical model of socially-optimizing regulators engaging in "catch-restrict-release" capital injection and debt guarantee bailouts, and empirically test model predictions. Observed EU bailouts are qualitatively consistent with optimizing behavior.
    Keywords: bailout, debt guarantees, capital injections, bailout restrictions, regulatory restriction phase, restriction duration
    JEL: G21 G28
    Date: 2020–05
  23. By: Victor Pontines; Davaajargal Luvsannyam; Enkhjin Atarbaatar; Ulziikhutag Munkhtsetseg
    Abstract: Although EME central banks actively intervene in currency markets, there is a long-running debate as to its effectiveness in affecting exchange rates. In this study, we use unique daily data on currency interventions in Mongolia to analyze the impact of these interventions on the changes in the MNT/USD exchange rate. The results indicate that currency intervention is effective in Mongolia, although it differs in certain ways. Currency sales are effective in moving changes in the MNT/USD in the correct direction, especially when carried out in larger amounts and when implemented frequently. This effect can last from one to three weeks, although we find the magnitude of the daily effect to be relatively small. We do not find evidence, however, that currency purchases are effective. These findings are comparable to the existing literature on the effectiveness of intervention in EMEs.
    Keywords: Currency intervention, exchange rate, treatment effect, causal effect, local projection, Mongolia
    JEL: C14 C32 E58 F31
    Date: 2020–03
  24. By: Kahn, Charles M.; Wagner, Wolf
    Abstract: We examine how public liquidity should be distributed to firms when immediate production entails externalities, such as by spreading a virus. Direct provision of liquidity can address externalities, but traditional distribution of liquidity (through banks) has informational advantages. We show that which mode is preferred is determined by the variance (but not the level) of firm characteristics in the economy. Traditional provision is always part of the optimal policy when liquidity modes can be combined, and involves promising low interest rates for when the pandemic is over in order to incentivize temporary production shutdowns at firms.
    Keywords: banks; Covid-10; mothballing; public liquidity
    JEL: G20 G28 G31 I18
    Date: 2020–05
  25. By: Cieslak, Anna; Pang, Hao
    Abstract: We propose a new approach to identify economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yields. The method allows us to study the drivers of asset prices at a daily frequency over the last three-and-a-half decades. We analyze the content of news from the Fed, major macro announcements, and sources of time-varying stock-bond comovement. The results emphasize the importance of two risk-premium shocks-compensation for discount-rate and cash-flow news-which have different effects on stocks and bonds. The impact of the Fed on both risk premiums explains why stocks but not bonds earn high FOMC-day returns.
    Keywords: Federal Reserve; risk premia; stock-bond comovement
    JEL: E43 E44 G12 G14
    Date: 2020–05
  26. By: Balcilar, Mehmet (Eastern Mediterranean University); Ozdemir, Zeynel Abidin (Ankara HBV University); Ozdemir, Huseyin (Gazi University); Wohar, Mark E. (University of Nebraska Omaha)
    Abstract: This study empirically examines the fragility of five major Asian economies (China, Hong Kong, India, Japan, and South Korea) to economic policy uncertainty (EPU) of US and EU, and oil prices in different state of the economies. To investigate these dynamics, we use the relative tail dependence by means of the spillover index of Diebold and Yilmaz (2009, 2012) obtained from Quantile Vector Autoregressive (QVAR) model, a robust and semiparametric model, which does not require specification of the full distribution of error terms. The distinguishing feature of our approach from the previous studies is the determination of sign and intensity of asymmetric spillover dynamics from external shocks to Asian economies and variables covering a wide range of macroeconomic aspects. Our results indicate that the spillover indices from EPU and oil price shocks to Asian economies significantly vary across quantiles. The results from sub-sample analysis show that the US EPU has an asymmetric effect on macro variables of China, Hong Kong, and South Korea during the quantitative easing period (QE) and the reverse QE (RQE) periods while the EU EPU makes Asian markets vulnerable during the Eurozone debt crisis. The large-scale asset purchases (LSAPs) of ECB and BoJ seem to reduce Asian market fragilities after 2015. Last but not least, we get partial evidence to support an asymmetric effect of the crude oil shocks on some Asian markets.
    Keywords: quantile VAR, oil price change, economic policy uncertainty, relative-tail-dependence
    JEL: C32 E44 F42 G01
    Date: 2020–05
  27. By: Andrea Camilli; Marta Giagheddu
    Abstract: We investigate the role of housing wealth concentration for the transmission of macroeconomic shocks in high-debt economies. We build a general equilibrium model with housing and heterogeneous agents who differ in their saving and investment opportunities. Banks optimizing their portfolio between mortgages and sovereign securities are characterized by financial frictions operating as a transmission mechanism, as households' collateralized debt links sovereign debt with the real economy, through interest rates and housing prices. We find that the more concentrated wealth is the worse the recession is, however associated with less consumption inequality due to a smaller crowding out of households' lending. We also show that a similar positive effect across agents can be obtained at different levels of inequality through financial repression and that a relevant distributional trade-off between macroprudential policy and households collateral requirements is present.
    Keywords: Sovereign risk, housing, lending crowding-out, regulation, liquidity, heterogeneity.
    JEL: E32 E44 G11 G18 R21
    Date: 2020–05
  28. By: Haoyang Liu; Desi Volker
    Abstract: On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP). Under the Paycheck Protection Program Liquidity Facility (PPPLF), Federal Reserve Banks are authorized to supply liquidity to financial institutions participating in the PPP in the form of term financing on a non-recourse basis while taking PPP loans as collateral. The facility was launched April 16, 2020. As of May 7, it had issued over $29 billion in loans (see the H.4.1 Statistical Release). This post lays out the background for the PPPLF and discusses its intended effects.
    Keywords: Paycheck Protection Program (PPP); Paycheck Protection Program Liquidity Facility (PPPLF); COVID-19; Federal Reserve facilities; CARES Act
    JEL: E5
    Date: 2020–05–20
  29. By: Andrea Colciago; Riccardo Silvestrini
    Abstract: This paper builds a New Keynesian industry dynamics model for the analysis of macroeconomic fluctuations and monetary policy. A continuum of heterogeneous firms populates the economy, markets are imperfectly competitive and nominal wages are sticky. An expansionary monetary policy shock triggers a response in labor productivity. By reducing borrowing costs, the shock initially attracts low productivity firms in the market. As a result, aggregate productivity decreases on impact. It then overshoots its initial level since, after the initial over-crowding, competition cleanses the market from low productivity firms. The overshooting amplifies the response of the main macroeconomic variables to the shock. A high ex-ante degree of market concentration partially impairs the transmission of monetary policy by disrupting the entry and exit mechanism.
    Keywords: Market Concentration; Monetary Policy; Competition; Productivity
    JEL: D42 E52 E58 L16
    Date: 2020–05

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