nep-cba New Economics Papers
on Central Banking
Issue of 2022‒01‒24
27 papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. Identifying Monetary Policy Shocks Using the Central Bank's Information Set By Ruediger Bachmann; Isabel Gödl-Hanisch; Eric R. Sims
  2. Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries By Martin Hodula; Ngoc Anh Ngo
  3. Zombie Lending and Policy Traps By Viral V. Acharya; Simone Lenzu; Olivier Wang
  4. Welfare gains in a small open economy with a dual mandate for monetary policy By Punnoose Jacob; Murat Özbilgin
  5. A Quantitative Microfounded Model for the Integrated Policy Framework By Christopher J. Erceg; Jesper Lindé; Mr. Tobias Adrian; Pawel Zabczyk; Marcin Kolasa
  6. Does clarity make central banks more engaging? Lessons from ECB communications By Ferrara, Federico Maria; Angino, Siria
  7. Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy By Beatriz González; Galo Nuño; Dominik Thaler; Silvia Albrizio
  8. MARTIN Gets a Bank Account: Adding a Banking Sector to the RBA's Macroeconometric Model By Anthony Brassil; Mike Major; Peter Rickards
  9. Monetary Policy, External Finance and Investment By James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
  10. Scaling, unwinding and greening QE in a calibrated portfolio balance model By Riedler, Jesper; Koziol, Tina
  11. The Rise, Fall and Stabilization of U.S. Inflation: Shifting Regimes and Evolving Reputation By Robert G. King; Yang K. Lu
  12. Central bank swap lines: evidence on the effects of the lender of last resort By Bahaj, Saleem; Reis, Ricardo
  13. Measuring U.S. Core Inflation: The Stress Test of COVID-19 By Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra; Mr. Antonio Spilimbergo
  14. The Inflation Game By Wolfgang Kuhle
  15. Reconsidering the Fed’s Forecasting Advantage By Amy Y. Guisinger; Michael W. McCracken; Michael T. Owyang
  16. A financial stability perspective on the First Home shared equity scheme By De Burca, Orla; Kelly, Robert; O'Brien, Eoin
  17. Will video kill the radio star? Digitalisation and the future of banking By Beck, Thorsten; Cecchetti, Stephen G.; Grothe, Magdalena; Kemp, Malcolm; Pelizzon, Loriana; Sánchez Serrano, Antonio
  18. Financial Regulation, Climate Change, and the Transition to a Low-Carbon Economy: A Survey of the Issues By Pierpaolo Grippa; Mr. Dimitri G Demekas
  19. The household effects of mortgage regulation By Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
  20. Reconsidering macroeconomic policy prescriptions with meta-analysis By Sebastian Gechert
  21. News versus Surprise in Structural Forecasting Models: Central Bankers' Practical Perspective By Karel Musil; Stanislav Tvrz; Jan Vlcek
  22. Better out than in? Regional disparity and heterogeneous income effects of the euro By Sang-Wook (Stanley) Cho; Sally Wong
  23. Understanding Persistent ZLB: Theory and Assessment By Pablo Cuba-Borda; Sanjay R. Singh
  24. Determinants of Inflation Expectations By Richhild Moessner
  25. The macroeconomic channels of macroprudential mortgage policies By Aikman, David; Kelly, Robert; McCann, Fergal; Yao, Fang
  26. Globalization of Capital Flows and the (In)Disciplining of Nations By Arthur Blouin; Sayantan Ghosal; Sharun W. Mukand
  27. Double overreaction in beauty-contests with information acquisition: theory and experiment By Romain Baeriswyl; Kene Boun My; Camille Cornand

  1. By: Ruediger Bachmann; Isabel Gödl-Hanisch; Eric R. Sims
    Abstract: We identify monetary policy shocks by exploiting variation in the central bank’s information set. To be specific, we use differences between nowcasts of the output gap and inflation with final, revised estimates of these series to isolate movements in the policy rate unrelated to economic conditions. We then compute the effects of a monetary policy shock on the aggregate economy using local projection methods. We find that a contractionary monetary policy shock has a limited negative effect on output but a persistent negative impact on prices. In contrast to alternative identification approaches, we do not observe a price puzzle when analyzing the period from 1987 to 2008. Further, we validate the identification approach in a simple New Keynesian model, augmented by the assumption that the central bank observes the ingredients of the Taylor rule with error.
    JEL: E31 E52 E58
    Date: 2021–12
  2. By: Martin Hodula; Ngoc Anh Ngo
    Abstract: We examine whether macroprudential policy actions affect shadow bank lending. We use a large dataset covering 23 European Union countries and synthesize a narrow measure of shadow banking focused on capturing credit intermediation by non-banks. To address the endogeneity bias inherent to modelling of the effects of macroprudential policy on the financial sector, we consider a novel index of the macroprudential authority's strength in pursuing its goals and use it to instrument for a macroprudential policy variable in an IV estimation framework. We robustly demonstrate that following a macroprudential policy tightening, shadow bank lending increases. We harness the cross-sectional dimension of our data to show that the effect applies especially to low-capitalized banking sectors, where macroprudential policy is expected to be more binding, leading to credit reallocation from banks to non-banks.
    Keywords: European Union, instrumental variables, macroprudential policy, non-bank lending, regulatory leakages
    JEL: G21 G23 G28
    Date: 2021–12
  3. By: Viral V. Acharya; Simone Lenzu; Olivier Wang
    Abstract: We build a model with heterogeneous firms and banks to analyze how policy affects credit allocation and long-term economic outcomes. When firms are hit by small negative shocks, conventional monetary policy can restore efficient bank lending and production by lowering interest rates. Large shocks, however, necessitate unconventional policy such as regulatory forbearance towards banks to stabilize the economy. Aggressive accommodation runs the risk of introducing zombie lending and a “diabolical sorting”, whereby low-capitalization banks extend new credit or evergreen existing loans to low-productivity firms. If shocks reduce the profitability gap between healthy and zombie firms, the optimal forbearance policy is non-monotone in the size of the shock. In a dynamic setting, policy aimed at avoiding short-term recessions can be trapped into protracted low rates and excessive forbearance, due to congestion externalities imposed by zombie lending on healthier firms. The resulting economic sclerosis delays the recovery from transitory shocks, and can even lead to permanent output losses.
    JEL: E44 E52 G01 G21 G28 G33
    Date: 2021–12
  4. By: Punnoose Jacob; Murat Özbilgin
    Abstract: In March 2019, the Reserve Bank of New Zealand was entrusted with a new employment stabilisation objective, that complements its traditional price-stability mandate. Against this backdrop, we assess whether the central bank’s stronger emphasis on the stabilisation of employment, and more broadly, resource utilisation, enhances social welfare. We calibrate an open-economy growth model to New Zealand data. In a second order approximation of the model, we evaluate how lifetime household utility is affected by a wide range of simple and implementable monetary policy rules that target both inflation and resource utilisation. We find that additionally stabilising resource utilisation always improves social welfare at any given level of inflation stabilisation. However, the welfare gains from stabilising resource utilisation get milder as the central bank is increasingly sensitive to inflation.
    Keywords: Optimal simple rules, welfare analysis, monetary policy, dual mandate
    JEL: F41 E52
    Date: 2021–10
  5. By: Christopher J. Erceg; Jesper Lindé; Mr. Tobias Adrian; Pawel Zabczyk; Marcin Kolasa
    Abstract: We develop a microfounded New Keynesian model to analyze monetary policy and financial stability issues in open economies with financial fragilities and weakly anchored inflation expectations. We show that foreign exchange intervention (FXI) and capital flow management tools (CFMs) can improve monetary policy tradeoffs under some conditions, including by reducing the need for procyclical tightening in response to capital outflow pressures. Moreover, they can be used in a preemptive way to reduce the risk of a “sudden stop” through curbing a buildup in leverage. While these tools can materially improve welfare, mainly by dampening inefficient fluctuations in risk premia, our analysis also highlights potential limitations, including the possibility that their deployment may forestall needed adjustment in the external balance. Finally, our results also emphasize the power of FXIs to provide domestic stimulus in a liquidity trap.
    Keywords: Monetary Policy, FX Intervention, Capital Controls, Sudden Stops, DSGE Model
    Date: 2021–12–17
  6. By: Ferrara, Federico Maria; Angino, Siria
    Abstract: Despite increasing communication efforts, it may be difficult for central banks to engage the public, as their language is often too difficult to understand for most citizens. Focusing on the case of the European Central Bank (ECB), we hypothesise that greater communication clarity is conducive to stronger engagement. We rely on readability metrics to measure the clarity of ECB communications. We show that communication clarity is a significant and robust predictor of the media engagement generated by the ECB with its speeches, press conferences and tweets. Our findings are validated by a placebo test and have significant policy implications for central bank communication.
    Keywords: Central bank communication; clarity; ECB; engagement; media; readability metrics; 810356
    JEL: F3 G3
    Date: 2021–11–18
  7. By: Beatriz González; Galo Nuño; Dominik Thaler; Silvia Albrizio
    Abstract: We analyze monetary policy in a New Keynesian model with heterogeneous firms and financial frictions. Firms differ in their productivity and net worth and face collateral constraints that cause capital misallocation. TFP endogenously depends on the time-varying distribution of firms. Although a reduction in real rates increases misallocation in partial equilibrium, general-equilibrium effects overturn this result: a monetary expansion increases the investment of high-productivity firms relatively more than that of low-productivity ones, crowding out the latter and increasing TFP. We provide empirical evidence based on Spanish granular data supporting this mechanism. This has important implications for optimal monetary policy. We show how a central bank without pre-commitments engineers an unexpected monetary expansion to increase TFP in the medium run. In the event of a cost-push shock, the central bank leans with the wind to increase demand and reduce misallocation.
    Keywords: monetary policy, firm heterogeneity, financial frictions, misallocation
    JEL: E12 E22 E43 E52 L11
    Date: 2021
  8. By: Anthony Brassil (Reserve Bank of Australia); Mike Major (Reserve Bank of Australia); Peter Rickards (Reserve Bank of Australia)
    Abstract: We add a simplified banking sector to the RBA's macroeconometric model (MARTIN). How this banking sector interacts with the rest of the economy chiefly depends on the extent of loan losses. During small downturns, losses are absorbed by banks' profits and the resulting effect on the broader economy is limited to that caused by the lower shareholder returns (which is already part of MARTIN). During large downturns, loan losses reduce banks' capital, and banks respond by reducing their credit supply. This reduction in supply reduces housing prices, wealth and investment; thereby amplifying the downturn (which leads to further losses). Our state-dependent approach is a significant advance on the treatment of financial sectors within existing macroeconometric models. Having a banking sector in MARTIN allows us to explore important policy questions. In this paper, we show how the effectiveness of monetary policy depends on the state of the economy. During large downturns, monetary policy is more effective than usual because it can reduce loan losses and therefore moderate any reduction in credit supply. But at low interest rates, the zero lower bound on retail deposit interest rates reduces policy effectiveness. We also investigate how one of the more pessimistic economic scenarios that could have resulted from COVID-19 might have affected the banking sector, and subsequently amplified the resulting downturn.
    Keywords: banking; financial accelerator; macroeconomic model
    JEL: E17 E44 E51 G21
    Date: 2022–01
  9. By: James Cloyne (University of California Davis/NBER/CEPR); Clodomiro Ferreira (Bank of Spain); Maren Froemel (Bank of England); Paolo Surico (London Business School/CEPR)
    Abstract: In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that financial frictions play a significant role in the transmission of monetary policy to investment.
    Keywords: monetary policy, investment, firm’s debt, collateral, financial frictions
    JEL: E22 E32 E52
    Date: 2021–11
  10. By: Riedler, Jesper; Koziol, Tina
    Abstract: We develop a portfolio balance model to analyze the impact of euro area quantitative easing (QE) on asset yields. Our model features two countries each populated by two agents representing their respective banking and mututal fund sectors. Agents, which differ in their preferences for assets, can trade currencies, bonds and equities. In simulations of the calibrated model we find that 10-year euro area bond returns decline by 31 basis points in response to €1 trillion in central bank bond purchases, which is in line with the empirical literature. QE leads to a substantial flattening of the yield curve and increasing the maturity of purchased bonds increases the average yield impact. When QE is unwound, yields increase quicker than the central bank balance sheet shrinks. This is because the yield impact scales non-linearly with increasing asset purchases. When assessing the potential impact of green QE, we find that it is slightly less effective in reducing bond yields than conventional QE. However, the spread between green and brown bond yields decreases with conventional QE while it increases with green QE.
    Keywords: euro area QE,portfolio balancing channel,yield curve,green QE
    JEL: C63 G11 E52
    Date: 2021
  11. By: Robert G. King; Yang K. Lu
    Abstract: The rise, fall, and stabilization of US inflation between 1969 and 2005 is consistent with a model of shifting policy regimes that features a forward-looking New Keynesian Phillips curve, policymakers that can or cannot commit, and private sector learning about policymaker type. Using model-implied inflation forecasting rules to extract state variables from the inflation forecasts in the Survey of Professional Forecasters, we provide evidence that policy regimes without commitment prevailed before 1980 and regimes with commitment prevailed afterward. With theory and quantification, we find that evolution of reputational capital is central to understanding the behavior of inflation.
    JEL: D82 D83 E52
    Date: 2021–12
  12. By: Bahaj, Saleem; Reis, Ricardo
    Abstract: Theory predicts that central-bank lending programs put ceilings on private domestic lending rates, reduce ex post financing risk, and encourage ex ante investment. This paper shows that with global banks and integrated financial markets, but domestic central banks, then lending of last resort can be achieved using swap lines. Through them, a source central bank provides source-currency credit to recipient-country banks using the recipient central bank as the monitor and as the bearer of the credit risk. In theory, the swap lines should put a ceiling on deviations from covered interest parity, lower average ex post bank borrowing costs, and increase ex ante inflows from recipient-country banks into privately-issued assets denominated in the source-country’s currency. Empirically, these three predictions are tested using variation in the terms of the swap line over time, variation in the central banks that have access to the swap line, variation on the days of the week in which the swap line is open, variation in the exposure of different securities to foreign investment, and variation in banks’ exposure to dollar funding risk. The evidence suggests that the international lender of last resort is very effective.
    Keywords: liquidity facilities; currency basis; bond portfolio flows; 682288
    JEL: E44 F33 G15
    Date: 2021–11–08
  13. By: Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra; Mr. Antonio Spilimbergo
    Abstract: Large price changes in industries affected by the COVID-19 pandemic have caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020-2021. The Federal Reserve’s preferred measure of core, the inflation rate excluding food and energy prices (XFE), has performed poorly: over most of 2020-21, it is almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, have been less volatile, but the least volatile have been measures that filter out large price changes in any industry, such as the Cleveland Fed’s median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures have followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy has rebounded. Overall, we find that the case for the Federal Reserve to move away from the traditional XFE measure of core has strengthened during 2020-21.
    Keywords: Inflation, business fluctuations, central banks.
    Date: 2021–12–17
  14. By: Wolfgang Kuhle
    Abstract: We study a game where households convert paper assets, such as money, into consumption goods, to preempt inflation. The game features a unique equilibrium with high (low) inflation, if money supply is high (low). For intermediate levels of money supply, there exist multiple equilibria with either high or low inflation. Equilibria with moderate inflation, however, do not exist, and can thus not be targeted by a central bank. That is, depending on agents' equilibrium play, money supply is always either too high or too low for moderate inflation. We also show that inflation rates of long-lived goods, such as houses, cars, expensive watches, furniture, or paintings, are a leading indicator for broader, economy wide, inflation.
    Date: 2021–12
  15. By: Amy Y. Guisinger; Michael W. McCracken; Michael T. Owyang
    Abstract: Previous studies show the Fed has a forecast advantage over the private sector, either because it devotes more resources to forecasting or because it has an informational advantage in knowing the path of future monetary policy. We evaluate the Fed’s forecast advantage to determine how much of it results from the Fed’s knowledge of the conditioning path. We develop two tests—an instrumental variable encompassing test and a path-dependent encompassing test—to equalize the Fed’s information set with the private sector’s. We find that, generally, the Fed does not encompass the private sector when the latter has knowledge of the future of monetary policy. Further, we find that between 20 and 30 percent of the difference between the Fed’s average mean squared forecast error and the private sector’s can be explained by monetary policy.
    Keywords: conditional encompassing; eurodollar futures; fed information
    JEL: C36 C53 E47
    Date: 2022–01–06
  16. By: De Burca, Orla (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland); O'Brien, Eoin (Central Bank of Ireland)
    Abstract: This Note outlines the interaction between the First Home scheme and the Central Bank’s macroprudential mortgage measures. Taking a financial stability perspective, it analyses the considerations, covering the implications for borrower resilience, bank resilience as well as credit and house price dynamics, that underpin the change in the mortgage measures regulations to clarify the ability of regulated mortgage providers to take part in the scheme. The implications for borrower and bank resilience are considered to be limited or (better) mitigated by other elements of the prudential framework. Nonetheless, as a measure which will boost the finance available to households to purchase a home the potential for creating upward pressure on house prices is present. The extent of this impact will depend on broader housing market conditions and given the anticipated size of the scheme the Central Bank judged that it would not be proportionate for the mortgage measures framework to altogether restrict lenders from participating in its introduction. Central to this judgement is the characteristics of this form of financing, other safeguards provided by prudential bank capital regulations and the Scheme’s initial scale and scope.
    Date: 2021–11
  17. By: Beck, Thorsten; Cecchetti, Stephen G.; Grothe, Magdalena; Kemp, Malcolm; Pelizzon, Loriana; Sánchez Serrano, Antonio
    Abstract: This report discusses the impact of digitalization on the structure of the European banking system. The recent wave of financial innovation based on the opportunities digitalisation offers, however, has come mostly from outside the incumbent banking system in the form of new financial service providers, either in competition or cooperation with incumbent banks but with the potential for substantial disruption. After discussing how identified risks may evolve and the emergence of new sources of risks, the report introduces three different scenarios for the future European banking system: (i) incumbent banks continue their dominance; (ii) incumbent banks retrench; and (iii) central bank digital currencies (under certain specifications). It also derives macroprudential policy measures.
    Date: 2022–01
  18. By: Pierpaolo Grippa; Mr. Dimitri G Demekas
    Abstract: There are demands on central banks and financial regulators to take on new responsibilities for supporting the transition to a low-carbon economy. Regulators can indeed facilitate the reorientation of financial flows necessary for the transition. But their powers should not be overestimated. Their diagnostic and policy toolkits are still in their infancy. They cannot (and should not) expand their mandate unilaterally. Taking on these new responsibilities can also have potential pitfalls and unintended consequences. Ultimately, financial regulators cannot deliver a low-carbon economy by themselves and should not risk being caught again in the role of ‘the only game in town.’
    Keywords: Financial stability, financial regulation, climate change, climate mitigation policy, low-carbon economy, energy transition, carbon price, green finance
    Date: 2021–12–17
  19. By: Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
    Abstract: We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses – thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.
    Keywords: Household leverage, Financial regulation, Macroprudential policy, Mortgage markets
    Date: 2021–12
  20. By: Sebastian Gechert (Department of Economics, Chemnitz University of Technology)
    Abstract: This paper investigates recent developments in meta-analysis, the tool to quantitatively synthesize research in a certain body of literature. After providing a brief overview on how to do a meta-analysis and discussing recent methodological advancements in the field, I review applied contributions to the field of macroeconomics. It turns out that meta-analyses have often questioned the conventional wisdom and established new consensuses in fiscal, monetary and labor market policies by uncovering substantial publication bias and unexpected determining factors in many bodies of literature – in particular those dominated by policy conclusions in the neoclassical tradition like minimum wages, financial regulation and the relative effects of tax and spending policies.
    Keywords: Meta-analysis, macroeconomics, monetary policy, fiscal policy, labor market
    JEL: E50 E60 J30
    Date: 2022–01
  21. By: Karel Musil; Stanislav Tvrz; Jan Vlcek
    Abstract: The paper deals with the treatment of shocks in central banks' forecasts. Within the rational expectations (RE) concept, which is widely used in structural macroeconomic models, the paper highlights the differences between news and surprise shocks and argues that most shocks in central bank forecasts should be treated as news. The paper also points out some drawbacks of news shocks under the assumption of full information from the practical point of view of forecasting and policy decision-making at central banks. As a potential solution, the paper refers to the LIRE concept as introduced in Brazdik et al. (2020). The paper discusses the properties of the LIRE concept and finds it versatile and useful in dealing with news shocks without abandoning the RE framework. The paper concludes that LIRE can be effectively used for practical structural macroeconomic modelling.
    Keywords: Anticipated shocks, conditional forecast, DSGE models, rational expectations
    JEL: D58 D84 E37 E52
    Date: 2021–12
  22. By: Sang-Wook (Stanley) Cho; Sally Wong
    Abstract: This paper conducts a counterfactual analysis on the effect of adopting the euro on regional income and disparity within Denmark and Sweden. Using the synthetic control method, we find that Danish regions would have experienced small heterogeneous effects from adopting the euro in terms of GDP per capita, while all Swedish regions are better off without the euro with varying magnitudes. Adopting the euro would have decreased regional income disparity in Denmark, while the effect is ambiguous in Sweden due to greater convergence among noncapital regions but further divergence with Stockholm. The lower disparity observed across Danish regions and non-capital Swedish regions as a result of eurozone membership is primarily driven by losses suffered by high-income regions rather than from gains to low-income regions. These results highlight the cost of foregoing stabilisation tools such as an independent monetary policy and a floating exchange rate regime. For Sweden in particular, macroeconomic stability outweighs the potential efficiency gains from a common currency.
    Keywords: currency union, euro, synthetic control method, regional income disparity
    JEL: C21 E65 F45 O52 R1
    Date: 2021–10
  23. By: Pablo Cuba-Borda; Sanjay R. Singh (Department of Economics, University of California Davis)
    Abstract: Concerns of prolonged stagnation periods with near-zero interest rates and deflation have become widespread in many advanced economies. We build a theoretical framework that rationalizes two theories of low interest rates: expectations-trap and secular stagnation in a unified setting. We analytically derive contrasting policy implications under each hypothesis and identify robust policies that eliminate expectations-trap and reduce the severity of secular stagnation episodes. We provide a quantitative assessment of the Japanese experience from 1998:Q1-2020:Q4. We find evidence favoring the expectations-trap hypothesis and show that equilibrium indeterminacy is essential to distinguish between theories of low interest rates in the data.
    Keywords: Expectations-driven trap, secular stagnation, zero lower bound, robust policies.
    JEL: E31 E32 E52
    Date: 2022–01–12
  24. By: Richhild Moessner
    Abstract: This paper analyses the determinants of short-term inflation expectations based on surveys of professionals, using dynamic cross-country panel estimation for a large number of 34 OECD economies. We find that food consumer price inflation and depreciations of the domestic exchange rate have significant positive effects on professionals’ survey-based inflation expectations. Moreover, core consumer price inflation and the output gap have significant positive effects.
    Keywords: inflation expectations, inflation, food prices, exchange rates
    JEL: E52 E58
    Date: 2021
  25. By: Aikman, David (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland)
    Abstract: Borrower-based macroprudential policies, such as limits to loan-to-value and loan-to-income ratios, have grown in popularity in the last decade globally. An understanding of their effects, both intended and unintended, is continuously evolving. In this Note, we discuss the macroeconomic channels though which such measures, like all economic policies, can both benefit and impose costs on the economy. System-wide benefits of such measures arise predominantly through the taming of housing-credit cycles, which lower both the probability and the severity of financial recessions, as well as avoiding resource misallocation. Such crises have been shown to have particularly harmful effects, are followed by slow recoveries and can have persistent adverse macroeconomic effects. The macroeconomic costs of such measures operate through liquidity constraints on renters, and reductions in consumption and construction activity that may arise through dampened house prices and expectations. These macroeconomic costs are more likely to be short-term, and less likely to affect the productive capacity of the economy in the long-run.
    Date: 2021–10
  26. By: Arthur Blouin; Sayantan Ghosal; Sharun W. Mukand
    Abstract: We analyze whether or not the globalization of capital, 'disciplines' governments and improves governance. We demonstrate that globalization affects governance, by increasing a country's vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments and improve governance and welfare by placing countries in a 'golden straitjacket'. However, globalization may also 'overdiscipline' governments - resulting in a perverse impact on governmental incentives that catalyzes (mis)governance. Accordingly, the paper suggests a novel (and qualified) role for capital controls. Finally, we provide some evidence consistent with the predictions from our theoretical framework.
    Keywords: Globalization, Governance, Capital Flight, Capital Controls, Discipline.
    JEL: F55 F36
    Date: 2022–01
  27. By: Romain Baeriswyl (Swiss National Bank); Kene Boun My (BETA - Bureau d'Économie Théorique et Appliquée - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon)
    Abstract: Central banks' disclosures, such as forward guidance, have a weaker effect on the economy in reality than in theoretical models. The present paper contributes to understanding how people pay attention and react to various sources of information. In a beauty-contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents equilibrium attention, which, in turn, increases the weight assigned to them in equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on the realised attention and the realised action is qualitatively consistent with theoretical predictions, though quantitatively weaker. Both the lack of attention to public disclosures and a limited level of reasoning by economic agents account for the weaker realised reaction. This suggests that it is just as important for a central bank to control reaction to public disclosures by swaying information acquisition by recipients as it is by shaping information disclosures themselves.
    Keywords: Overreaction,Information acquisition,Beauty-contest,Central bank communication
    Date: 2021

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