nep-cba New Economics Papers
on Central Banking
Issue of 2022‒05‒16
twenty-six papers chosen by
Sergey E. Pekarski
Higher School of Economics

  1. Can unconventional monetary policy contribute to climate action? By Alice Eliet-Doillet; Andrea Maino
  2. Inflation Targeting in India : An Interim Assessment By Gupta, Poonam; Eichengreen, Barry; Choudhary, Rishabh
  3. Assessing the Effects of Borrower-Based Macroprudential Policy on Credit in the EU Using Intensity-Based Indices By Lara Coulier; Selien De Schryder
  4. Monetary Policy in Disaster-Prone Developing Countries By Mr. Chris Papageorgiou; Mr. Giovanni Melina; Mr. Alessandro Cantelmo; Nikos Fatouros
  5. Monetary Policy and Bank Liquidity Creation: A Multivariate Markov Switching Approach By Mustafa Caglayan; Kostas Mouratidis
  6. The Natural Rate of Interest Through a Hall of Mirrors By Phurichai Rungcharoenkitkul; Fabian Winkler
  7. The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under By David O. Lucca; Jonathan H. Wright
  8. The new inflationary environment: How persistent are the current inflationary dynamics and how is monetary policy expected to respond? By Demary, Markus; Herforth, Anna-Lena; Zdrzalek, Jonas
  9. A Central Bank Digital Currency for India? By Barry Eichengreen; Poonam Gupta; Tim Marple
  10. Fiscal and Monetary Policies in an Agent-Based Model By Pongpitch Amatyakul; Nutnicha Theppornpitak
  11. A Preferred-Habitat Model of Term Premia, Exchange Rates, and Monetary Policy Spillovers By Pierre-Olivier Gourinchas; Walker D. Ray; Dimitri Vayanos
  12. Back to the Roots of Internal Credit Risk Models: Why Do Banks’ Risk-Weighted Asset Levels Converge over Time? By Victoria Böhnke; Steven Ongena; Florentina Paraschiv; Endre J Reite
  13. What should the inflation target be? Views from 600 economists By Ambrocio, Gene; Ferrero, Andrea; Jokivuolle, Esa; Ristolainen, Kim
  14. Central Bank Digital Currency (CBDC): Critical Issues and the Indian Perspective By D. Priyadarshini; Sabyasachi Kar
  15. Economic Policy Uncertainty and the Yield Curve By Markus Leippold; Felix Matthys
  16. Forecasting Inflation with a Zero Lower Bound or Negative Interest Rates: Evidence from Point and Density Forecasts By Christina Anderl; Guglielmo Maria Caporale
  17. Asymmetric Systemic Risk By Radoslav Raykov; Consuelo Silva-Buston
  18. The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Risk Channel By Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
  19. The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies By Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
  20. Inflation expectations and climate concern By Meinerding, Christoph; Poinelli, Andrea; Schüler, Yves
  21. Does monetary policy affect the net interest margin of credit institutions? Evidence from Colombia By Javier Eliecer Pirateque-Niño; Daniela Rodríguez-Novoa; José Hernán Piñeros-Gordo
  22. Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility By Ralf R. Meisenzahl; Karen M. Pence
  23. The Taper This Time By Eichengreen, Barry; Gupta, Poonam; Choudhary, Rishabh
  24. The Ethics of Alternative Currencies By Louis Larue; Camille Meyer; Marek Hudon; Joakim Sandberg
  25. Developing an Income-Distribution- Sensitive Taylor Rule: An Application to South Africa By Capazario, Michele
  26. How Economic, Political and Institutional Factors Influence the Choice of Exchange Rate Regimes? New Evidence from Selected Countries of the MENA Region By Maraoui, Najia; Amor, Thouraya Hadj; Khefacha, Islem; Rault, Christophe

  1. By: Alice Eliet-Doillet (Ecole Polytechnique Fédérale de Lausanne); Andrea Maino (University of Geneva)
    Abstract: This paper investigates the impact of central banks when supporting policies aiming at greening the financial system. The July 2021 Monetary Policy Strategy Review of the European Central Bank unexpectedly dedicated a whole workstream to climate change. The announcement had a significant effect on the pricing and issuance of green bonds in the Eurozone. We find that ECB eligible green bonds’ Yield-to-Maturity decreased following the announcement when compared to equivalent conventional bonds. Firms incorporated in the Eurozone reacted to the announcement by increasing the amount of green bond issued, for both the segments of ECB-eligible and non-ECB-eligible green bonds.
    Keywords: Climate Change, Central Banks, Green Bonds, Carbon Emissions, Quantitative Easing, Monetary Policy, ESG
    JEL: Q58 E52 E58 G12
    Date: 2022–04
  2. By: Gupta, Poonam; Eichengreen, Barry; Choudhary, Rishabh
    Abstract: This paper provides an assessment of India’s inflation-targeting regime. It shows that the Reserve Bank of India is best characterized as a flexible inflation targeter: contrary to criticism, it does not neglect changes in the output gap when setting policy rates. The paper does not find that the Reserve Bank of India became more hawkish following the transition to inflation-targeting; to the contrary, adjusting for inflation and the output gap, policy rates became lower, not higher. Some evidence suggests that inflation has become better anchored: increases in actual inflation do less to excite inflation expectations, indicative of improved anti-inflation credibility. The question is whether the shift to inflation-targeting has enhanced the credibility of monetary policy such that the Reserve Bank of India is in a position to take extraordinary action in response to the Covid-19 crisis. The paper argues that the rules and understandings governing inflation-targeting regimes come with escape clauses allowing central banks to shelve their inflation targets temporarily, under specific circumstances satisfied by the Covid-19 pandemic. The paper provides evidence that inflation-targeting central banks were able to respond more forcefully to the Covid-19 crisis, consistent with the idea that inflation expectations were better anchored, providing more policy room for maneuver.
    Keywords: Inflation targeting, Monetary policy, India
    JEL: E5 E52
    Date: 2021–01
  3. By: Lara Coulier; Selien De Schryder (-)
    Abstract: We construct new data-driven intensity-adjusted indices for a broad set of macroprudential policy announcements in the European Union (EU) that are able to capture the restrictiveness and bindingness of the macroprudential policy actions. The indices are used to assess the effectiveness of borrower-based macroprudential policy in reducing credit in the EU from 1995 to 2019. Our results indicate that these instruments have successfully reduced household, housing, and to a smaller extent consumption credit, especially in the long run. Moreover, we find that standard dummy approaches used to measure macroprudential policy signal different effects of borrower-based policies in our sample and are more sensitive to outliers, resulting in deceptive and incomplete results.
    Keywords: Macroprudential policy, intensity-adjustment, household credit, panel data analysis
    JEL: E58 C23 G18 G28
    Date: 2022–04
  4. By: Mr. Chris Papageorgiou; Mr. Giovanni Melina; Mr. Alessandro Cantelmo; Nikos Fatouros
    Abstract: This paper analyzes monetary policy regimes in emerging and developing economies where climate-related natural disasters are major macroeconomic shocks. A narrative analysis of IMF reports published around the occurrence of natural disasters documents their impact on important macroeconomic variables and monetary policy responses. While countries with at least some degree of monetary policy independence typically react by tightening the monetary policy stance, in a sizable number of cases monetary policy was accommodated. Given the lack of consensus on best practices in these circumstances, a small-open-economy New-Keynesian model with disaster shocks is leveraged to evaluate welfare under alternative monetary policy rules. Results suggest that responding to inflation while allowing temporary deviations from its target is the welfare maximizing policy. Alternative regimes such as strict inflation targeting, exchange rate pegs, or Taylor rules explicitly responding to economic activity or the exchange rate would be welfare-detrimental. With climate change projected to expand the list of disaster-prone countries, these findings are likely to be soon relevant also for richer or larger economies.
    Keywords: Natural Disasters, Climate Change, DSGE, Monetary Policy, Exchange Rate Regimes.
    Date: 2022–04–01
  5. By: Mustafa Caglayan (Edinburgh Business School, Heriot–Watt University, UK); Kostas Mouratidis (Department of Economics, University of Sheffield, UK)
    Abstract: Despite its importance, there is little empirical research on how monetary policy affects bank-liquidity creation. We propose a general Markov switching framework to examine the effects of monetary policy on liquidity creation while accounting for endogenous regime switches and capturing the idea that financial crises could be due to a regime switch from information-insensitive debt to information-sensitive debt. Using total liquidity creation and its components for different bank-size categories, we show that monetary policy has a regime dependent impact. Furthermore, based on the filter probabilities, our analysis also raises the possibility of a future financial turmoil.
    Keywords: Liquidity creation; bank size; monetary policy; policy trade-off; asymmetric effects; Markov switching
    JEL: E32 E52
    Date: 2022–03
  6. By: Phurichai Rungcharoenkitkul; Fabian Winkler
    Abstract: Prevailing explanations of persistently low interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side underestimates the effect of its own action on the other's inference, possibly leading to large and persistent changes in perceived r-star disconnected from fundamentals. Monetary policy, through its influence on the private sector's beliefs, endogenously determines r-star as a result. We simulate a calibrated model and show that this `hall-of-mirrors' effect can explain much of the decline in real interest rates since 2008.
    Keywords: Natural rate of interest; Learning; Misperception; Overreaction; Dispersed information; Long-term rates; Demand shocks; Monetary policy shocks
    JEL: E43 E52 E58 D82 D83
    Date: 2022–03–18
  7. By: David O. Lucca; Jonathan H. Wright
    Abstract: We study the recent Australian experience with yield curve control (YCC) of government bonds as perhaps the best evidence of how this policy might work in other developed economies. We interpret the evidence with a simple model in which YCC affects prices of both government and other bonds via “broad” transmission channels, but only government bond prices through “narrow” liquidity channels. YCC seemingly worked well in 2020 while the market expected short rates to stay at zero for long. But as the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the outstanding amount of the targeted government bond, and its yield dislocated from other financial market instruments. The model and empirical evidence point to narrow transmission channels playing more prominent roles than broad channels considered in prior studies of quantitative easing (QE), such as portfolio balance effects and signaling about short term rates. We argue that asset-specific narrow channels may be primary transmission mechanisms of quantity-based QE policies as well.
    Keywords: monetary policy; yield curve control; quantitative easing
    JEL: E4 E5 G1
    Date: 2022–04–01
  8. By: Demary, Markus; Herforth, Anna-Lena; Zdrzalek, Jonas
    Abstract: We argue that the period of low inflation has come to an end based on six structural factors, which define the new inflationary environment: [...] How high will inflation rise? How long will the new inflationary environment last? How challenging is it for central banks to counteract these inflationary pressures? A stagflation like in the 1970ies seems possible given these trends. The energy-crisis made the transformation of our energy systems necessary, which is, however, progressing slowly, thereby contributing to a longer lasting energy-triggered inflation. The highest risk will be an energy embargo, resulting in a deep recession together with high inflation. In this case monetary policy might be forced to inject high amounts of liquidity into markets despite high inflation.
    JEL: E31 E32 E52
    Date: 2022
  9. By: Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Tim Marple (University of California, Berkeley)
    Abstract: We review arguments for CBDC issuance in India. These include facilitating payments,enhancing financial inclusion, enabling the central bank and government to retain control of the payments system, facilitating cross-border payments, reducing dependence on the dollardominatedglobal payments system, providing an encompassing platform for digital financial innovation. We then compare progress in India with other countries. In setting an end 2022 target date for issuance, India is in line with the other BRICS, but not with other countries with comparable levels of per capita GDP, which have been more reluctant to commit to a date. Nor is it in line with other countries with comparably independent central banks, which have been more cautious about setting a deadline. Finally, we sketch a roadmap and timeline for India’s CBDC project going forward.
    Keywords: Central Bank, Digital Currency, India, Monetary Systems, Payment Systems
    JEL: E40 E42 E51 E50 E58 G21
    Date: 2022–05–03
  10. By: Pongpitch Amatyakul; Nutnicha Theppornpitak
    Abstract: In this paper, we aim to assess the impacts of using monetary policies and fiscal transfers on the economy using an agent-based model. The model used is based on the original model developed by Ashraf et al. (2017), where agents endogenously develop trading networks of goods and labor, to study the impacts of the banking sector, and extended by Popoyan et al. (2017) to include different policy rate rules and macroprudential policy. We evaluate different fiscal policies and their interactions with monetary policy on how the economy performs based on aggregates such as total output and inflation, as well as based on granular data such as the wealth and consumption of the agents at specific percentiles. The findings are that consumption-based policies are best for reducing the aggregate effects on GDP, targeted policies are efficient if the government's goal is to help a specific group, and unconditional transfers are the least efficient of the three. In addition, we analyze the effects of implementing monetary and fiscal policies synchronously after a COVID-19-like crisis, and we do not find conclusive evidence that combining the two policies are better than the sum of the individual effects, but it is likely to be necessary to do both in order to get the economy back to its original path in a timely manner.
    Keywords: Monetary policy; Fiscal policy; Simulation
    JEL: E52 E62
    Date: 2022–04
  11. By: Pierre-Olivier Gourinchas; Walker D. Ray; Dimitri Vayanos
    Abstract: We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by global arbitrageurs with limited capital. Our model accounts for the empirically documented violations of Uncovered Interest Parity (UIP) and the Expectations Hypothesis, and for how UIP violations depend on bond maturity, investment horizon, and yield curve slope differentials. Large-scale purchases of long-maturity bonds lower domestic and foreign bond yields, and depreciate the currency. Conventional monetary policy is transmitted to domestic and international bond yields as well, but its international transmission is weaker than for unconventional policy.
    JEL: F31 F41 F42 G11 G12
    Date: 2022–03
  12. By: Victoria Böhnke (University of Münster); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)); Florentina Paraschiv (Zeppelin University, Chair of Finance; Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance); Endre J Reite (Norwegian University of Science and Technology (NTNU) - Department of International Business)
    Abstract: The internal ratings-based (IRB) approach maps banks’ risk profiles more adequately than the standardized approach. After switching to IRB, banks’ risk-weighted asset (RWA) densities are thus expected to diverge, especially across countries with different supervisory strictness and risk levels. However, when examining 52 listed banks headquartered in 14 European countries that adopted the IRB approach, we observe a convergence of their RWA densities over time. We test if this convergence can be entirely explained by differences in the size of the banks, loss levels, country risk, and/or time of IRB implementation, yet this is not the case. Whereas banks in high-risk countries, with lax regulation, reduce their RWA densities, banks elsewhere increase theirs. Especially for banks in high-risk countries, RWA densities underestimate banks’ actual economic risk. Hence, the IRB approach allows for regulatory arbitrage, whereby authorities only enforce strict supervision on capital requirements if they do not jeopardize bank resilience.
    Keywords: Capital regulation, credit risk, internal ratings-based approach, regulatory arbitrage, risk-weighted assets
    JEL: G21 G28
    Date: 2022–04
  13. By: Ambrocio, Gene; Ferrero, Andrea; Jokivuolle, Esa; Ristolainen, Kim
    JEL: C38 E31 E52 E58
    Date: 2022–05–09
  14. By: D. Priyadarshini; Sabyasachi Kar (Institute of Economic Growth, Delhi)
    Abstract: A large number of Central Banks around the world are planning to introduce Central Bank Digital Currencies (CBDCs) as a legal tender in their countries. The Reserve Bank of India (RBI) has also revealed similar plans with an Indian CBDC expected in the near future. Any evaluation of such a major change in the nature of money requires a broader understanding of the opportunities and challenges arising from the adoption of CBDCs. In this paper, we discuss these issues at the conceptual level and specifically in the Indian context. We show that the conceptual issues can be characterised in three ways – monetary sovereignty issues, issues from the point of view of national sovereignty, and developmental issues. In the Indian context, we analyse these issues from the perspective of the rapid digitalization taking place in the country.
    Keywords: CBDC, Monetary Sovereignty, Disintermediation, Dollarization, Financial Inclusion, Cryptocurrencies
    JEL: E42 E51 E58 G21 G28 O33
    Date: 2021–09
  15. By: Markus Leippold (University of Zurich; Swiss Finance Institute); Felix Matthys (ITAM)
    Abstract: This paper analyzes the impact of economic policy uncertainty on the term structure of real and nominal interest rates. We derive a general equilibrium model where the real side of the economy is driven by government policy uncertainty and the central bank sets money supply endogenously following a Taylor rule. We analyze the impact of government and monetary policy uncertainty on nominal yields, short rates, bond risk premia and the term structure of bond yield volatility. Furthermore, we show that our standard affine yield curve model is able to capture both, the shape of the term structure of interest rates as well as the hump-shaped bond yield volatility curve. Finally, the empirical analysis shows that, whereas higher government policy uncertainty leads to a decline in yields, and an increase in bond yield volatility, monetary policy uncertainty does not have a significant contemporaneous effect on movements in the yield or volatility but is however an important predictor for bond risk premia.
    Keywords: Term structure modeling, yield volatility curve, policy uncertainty, bond risk premia
    Date: 2022–04
  16. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates the predictive power of the shadow rate for the inflation rate in countries with a zero lower bound (the US, the UK and Canada) and in those with negative rates (Japan, the Euro Area and Switzerland). Using shadow rates obtained from two different models (the Wu-Xia (2016) and the Krippner (2015a) ones) and for different lower bound parameters we compare the out-of-sample forecasting performance of an inflation model including a shadow rate interaction term with a benchmark one excluding it. Both specifications are estimated by OLS (Ordinary Least Squares) and includes a range of macroeconomic factors computed by means of principal component analysis. Both point and density forecasts of the inflation rate are evaluated. The models including the shadow rate interaction term are found to outperform the benchmark ones according to both sets of criteria except in countries operating an official inflation targeting regime. The presence or absence of a zero lower bound affects which type of shadow rate produces more accurate inflation forecasts.
    Keywords: shadow interest rates, zero lower bound, inflation forecasting, density forecasts
    JEL: C38 C53 E37 E43 E58
    Date: 2022
  17. By: Radoslav Raykov; Consuelo Silva-Buston
    Abstract: Bank regulation is based on the premise that risks spill over more easily from large banks to the banking system than vice versa. On the contrary, we document that risk transmission is stronger in the system-to-bank direction. We term this asymmetric systemic risk, measure it with net exposure metrics, and explore the consequences and channels behind it. We show that banks with positive net exposure to the system had higher default risk during the 2008 crisis, and that bank size and trading activities were the main determinants of this net exposure, which increased default risk through trading income volatility and overall profit volatility. We argue that the current bank supervision objectives can be achieved more efficiently if regulation focuses on reducing such net exposures, rather than buffering the default risks arising from them.
    Keywords: Financial institutions; Financial stability; Financial system regulation and policies
    JEL: G10 G20
    Date: 2022–05
  18. By: Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
    Abstract: This paper aims to provide evidence on the relationship between fiscal and monetary policy in Colombia through an empirical exploration of the credit risk channel. Under this approach, fiscal policy plays an important explanatory role in the sovereign risk premium, which, in turn, could affect the exchange rate and inflation expectations. The Central Bank reacts to inflation expectations using the policy interest rate; consequently, such reaction could be indirectly influenced by fiscal behavior. Using monthly data from January 2003 to December 2019, we estimate both jointly and independently the reduced-form core equations of a system that describes the credit risk channel in a small open economy. Our findings are in line with the model predictions. Fiscal policy affected the country’s sovereign risk during this period, but only slightly. Hence, there is insufficient evidence to sustain the idea that monetary policy has been significantly influenced by government fiscal management. **** Este documento analiza la relación entre las políticas fiscal y monetaria en Colombia, mediante la evaluación empírica del canal de riesgo crediticio. En este enfoque, la política fiscal explicaría la prima de riesgo soberano la cual, a su vez, puede afectar la tasa de cambio nominal y las expectativas de inflación. El Banco Central reacciona a las expectativas de inflación usando la tasa de interés de política; así, dicha reacción estaría influenciada indirectamente por la política fiscal. Utilizando información mensual de 2003 a 2019 se estima, de manera conjunta e independiente, un sistema de ecuaciones que describe de forma reducida el funcionamiento del canal de riesgo de crédito en una economía pequeña y abierta. Nuestros resultados son coherentes con las predicciones del modelo teórico. Se encuentra que la política fiscal afectó el riesgo soberano del país durante el período de estudio, aunque de manera modesta. Sin embargo, no hay suficiente evidencia para afirmar que la política monetaria haya sido influenciada de manera importante por la política fiscal, descartándose situaciones de dominancia fiscal.
    Keywords: Policy interaction, fiscal policy, monetary policy, sovereign credit risk, Interacción de políticas, política fiscal, política monetaria, riesgo de crédito soberano.
    JEL: E61 E63 E62 E52
    Date: 2022–04
  19. By: Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
    Abstract: We document a decline in the dollar share of international reserves since the turn of the century. This decline reflects active portfolio diversification by central bank reserve managers; it is not a byproduct of changes in exchange rates and interest rates, of reserve accumulation by a small handful of central banks with large and distinctive balance sheets, or of changes in coverage of surveys of reserve composition. Strikingly, the decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies and units that, along with the dollar, have historically comprised the IMF’s Special Drawing Rights. Rather, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies. A characterization of the evolution of the international reserve system in the last 20 years is thus as ongoing movement away from the dollar, a recent if still modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies. These observations provide hints of how the international system may evolve going forward.
    Keywords: International reserves, currency composition, dollar; USD share; dollar dominance; currency share; dollar share; share of foreign exchange; Reserve currencies; Currencies; International reserves; Reserves management; Asset valuation; Global; Africa
    Date: 2022–03–24
  20. By: Meinerding, Christoph; Poinelli, Andrea; Schüler, Yves
    Abstract: Using survey data from German households, we find that individuals with lower climate concern tend to have higher inflation expectations up to five years ahead. This correlation is most pronounced among individuals with extremely high inflation expectations. Evaluating candidate explanations, we find that part of the link between climate concern and inflation expectations can be associated with individuals' perceived exposures to climate-related risks and with their distrust in the central bank. Overall, our results suggest that climate change perceptions matter for inflation expectations.
    Keywords: climate change,inflation expectations,physical risk,transition risk,central bank distrust,household surveys
    JEL: E31 E50 Q54 Q58
    Date: 2022
  21. By: Javier Eliecer Pirateque-Niño; Daniela Rodríguez-Novoa; José Hernán Piñeros-Gordo
    Abstract: This paper analyzes empirically the relationship between monetary policy interventions and the net interest margin of Colombian credit institutions for the 2003 – 2019 period. Considering the endogeneity problem that arises when analysing this relationship, we calculate a series of monetary policy shocks as the residuals of regressing the monetary policy rate on a set of quantifiable variables that the Central Bank of Colombia’s Board of Directors had at each of its monetary policy meetings. Thereafter, we conduct a panel regression analysis in which we relate these shocks, and a set of macroeconomic and bank-specific variables to the net interest margin. Through a non-linear approach, we find a significant quadratic relationship, which reflects that once the endogeneity problem is overcome, the net interest margin increases to policy shocks. The net interest margin increases to positive policy shocks due to the different dynamics of deposits and loans, and increases to negative policy shocks given the higher sensitivity of banks’ funding costs compared to the one of interest income. **** Este documento analiza empíricamente la relación entre las intervenciones de política monetaria y el margen neto de interés de los establecimientos de crédito en Colombia entre 2003 y 2019. Con el fin de controlar por la endogeneidad que subyace a esta relación, se calcula una serie de choques de política monetaria. Estos choques corresponden a los residuales de una regresión entre la tasa de política monetaria y un conjunto de variables cuantificables disponibles para la Junta Directiva del Banco de la República al momento de cada una de sus reuniones de política monetaria. Seguido de esto, se realiza un análisis de panel de datos en el que se utilizan como variables explicativas del margen neto de interés la serie de choques, algunas variables macroeconómicas y algunas propias de cada entidad. Mediante una aproximación no lineal, se encuentra una relación cuadrática significativa, la cual indica que una vez se supera el problema de endogeneidad, el margen neto de interés se incrementa ante choques de política monetaria. Ante choques positivos de política monetaria, el aumento en el margen neto de interés obedece al comportamiento asimétrico de los préstamos y los depósitos. Por su parte, ante choques negativos de política monetaria el margen neto de interés incrementa dada la mayor sensibilidad de los costos de fondeo bancarios frente a los ingresos por intereses.
    Keywords: net interest margin, monetary policy shock, credit intensity, interest rates, margen neto de interés, choques de política monetaria, intensidad del crédito, tasas de interés
    JEL: E43 E44 E52 G21
    Date: 2022–04
  22. By: Ralf R. Meisenzahl; Karen M. Pence
    Abstract: In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer needed, providing liquidity to a wide range of assets, and having borrowers internalize credit risk rather than shift it to the government--were related to institutional differences across nonbanks. Since all TALF borrowers faced the same program terms and conditions, our study is able to highlight the role of these institutional constraints.
    Keywords: Non-Bank Financial Institutions; Securitization; Lender of Last Resort; Term Asset-Backed Securities Loan Facility; TALF
    JEL: E52 E53 G12 G23
    Date: 2022–04–13
  23. By: Eichengreen, Barry; Gupta, Poonam; Choudhary, Rishabh
    Abstract: On November 3, 2021, the Federal Open Market Committee announced that it would reduce the scale of its asset purchases by $15 billion a month starting immediately. Do emerging markets, such as India, need to prepare for a replay of the taper tantrum of 2013? We show that emerging markets, including India, have strengthened their external economic and financial positions since 2013. At the same time, fiscal deficits are much wider, and public debts are much heavier. As U.S. interest rates now begin moving up, servicing existing debts and preventing the debt-to-GDP ratio from rising still further will become more challenging. Either taxes have to be raised or public spending must be cut to generate additional revenues for debt servicing.
    Keywords: Capital Flows, Emerging Markets, Monetary Policy, Tapering, India
    JEL: F32 F41 F42 F62
    Date: 2022–01–14
  24. By: Louis Larue; Camille Meyer; Marek Hudon; Joakim Sandberg
    Abstract: Alternative currencies are means of payment that circulate alongside-as an alternative or complement to-official currencies. While these currencies have existed for a long time, both society and academia have shown a renewed interest in their potential to decentralize the governance of monetary affairs and to bring people and organizations together in more ethical or sustainable ways. This article is a review of the ethical and philosophical implications of these alternative monetary projects. We first discuss various classifications of these currencies before analyzing the ethical challenges linked to the way they tackle social and environmental issues. We also examine the incentive-based and coercive mechanisms used by these currencies from an ethical perspective and debate the promises and perils of monetary decentralization and democracy. We conclude by identifying an agenda for future research.
    Keywords: alternative currencies; complementary currencies; cryptocurrencies; ethics of money; nature of money
    Date: 2022
  25. By: Capazario, Michele
    Abstract: This research has attempted to derive a new Taylor-type monetary policy rule which is sensitive to changes in the functional distribution of income proxied for by the labourer’s share of national income. I then apply this new policy rule to South African data between quarter 4 of 2001 and quarter 4 of 2021. This rule, once applied, yields favorable results in terms of goodness of fit relative to other such rules applied to South African data. The application of this rule to South Africa also yields an interesting finding- the South African Reserve Bank, most likely as a means to stabilise the South African macroeconomic system, reacts more to changes in the functional distribution of income than to an equivalent change in the inflation rate or output growth. I suggest that this formulation of the Taylor rule, and others like it, be used and developed further in future research.
    Keywords: Taylor Rule; Structuralist; Labour Share
    JEL: C26 E00 E5
    Date: 2022–04–13
  26. By: Maraoui, Najia (Monastir University); Amor, Thouraya Hadj (Monastir University); Khefacha, Islem (Monastir University); Rault, Christophe (University of Orléans)
    Abstract: In this paper, we investigate how economic, political and institutional factors affect the choice of exchange rate regimes, using data on eight MENA (Middle East and North Africa) countries over the 1984-2016 period. Specifically, we run random-effects ordered probit regressions of the likelihood of exchange rate regimes on potential determinants of exchange rate regimes. Three important findings emerge from the analysis. i) Political and institutional factors play an important role in determining the exchange rate regime in MENA countries: a democratic political regime and a low level of corruption increases the probability to opt for a fixed regime. While, strong governments, political stability such as less internal conflicts and more government stability, more law and order enforcement and left-wing Government decreases the probability to opt for a fixed regime. ii) Bureaucracy, independent central banks, elections, terms of trade as well as the monetary independence have no effect on the choice of exchange rate regimes. iii) Financial development is not a robust determinant of the choice of exchange rate regimes. Our results still hold when considering alternative specifications and have important implications for policy makers in MENA countries.
    Keywords: exchange rate regimes, country risk, political and institutional factors, panel data, ordered probit regression, MENA
    JEL: C23 F33 F55 H80
    Date: 2022–04

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