nep-cba New Economics Papers
on Central Banking
Issue of 2023‒09‒04
fourteen papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. Implementing Yield Curve Control Measures into the CNB Core Forecasting Model By Frantisek Brazdik; Karel Musil; Stanislav Tvrz
  2. The term structure of inflation forecasts disagreement and monetary policy transmission By Alessandro Barbera; Dora Xia; Sonya Zhu
  3. Monetary policy rules under bounded rationality By Dobrew, Michael; Gerke, Rafael; Kienzler, Daniel; Schwemmer, Alexander
  4. Drivers of Large Recessions and Monetary Policy Responses By Giovanni Melina; Stefania Villa
  5. On the empirical relevance of the exchange rate as a shock absorber at the zero lower bound By Finck, David; Hoffmann, Mathias; Hürtgen, Patrick
  6. Long-term deposit funding and demand for central bank funds: Evidence from targeted longer-term refinancing operations By Fudulache, Adina-Elena; Goetz, Martin R.
  7. Analysis of the usability of capital buffers during the crisis precipitated by COVID-19 By Luis Fernández Lafuerza; Matías Lamas; Javier Mencía; Irene Pablos; Raquel Vegas
  8. The Norwegian overnight interbank market during the Covid pandemic By Q. Farooq Akram; Jon H. Findreng; Lyndsie Smith
  9. Measuring Household Inflation Perceptions and Expectations: The Effect of Guided vs Non-Guided Inflation Questions By Bernd Hayo; Pierre-Guillaume Méon
  10. FX intervention and domestic credit in a partially dollarized economy: Evidence using microdata from Peru. By Marcos Ceron; Rafael Nivin; Diego Yamunaque
  11. The pass-through from inflation perceptions to inflation expectations By Huber, Stefanie J.; Minina, Daria; Schmidt, Tobias
  12. Financially sustainable optimal currency areas By André Cartapanis; Marie-Hélène Gagnon; Céline Gimet
  13. To lend or not to lend: the Bank of Japan's ETF purchase program and securities lending By Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
  14. Central Bank of the Republic of Turkey Household Finance and Consumption Survey Methodology By Gianni Betti; Evren Ceritoglu; Muserref Kucukbayrak; Ozlem Sevinc

  1. By: Frantisek Brazdik; Karel Musil; Stanislav Tvrz
    Abstract: In response to the 2008 financial crisis, when policy rates hit their lower bound, central banks adopted unconventional policies to meet their announced targets. These policies can either directly target interest rates or the quantities of assets. Taking into account the specific features of the Czech economy, this paper presents an extension of the CNB's core projection model for long-term assets and yield curve control measures. This extension demonstrates the ability of the CNB to consider and assess various unconventional policies within its analytical framework.
    Keywords: DSGE models, inflation targeting, quantitative easing, unconventional monetary policy, yield curve
    JEL: E32 E37 E43 E58
    Date: 2023–08
  2. By: Alessandro Barbera; Dora Xia; Sonya Zhu
    Abstract: The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.
    Keywords: inflation expectation; forecasts disagreement; monetary policy transmission
    JEL: E31 E37 E52
    Date: 2023–08
  3. By: Dobrew, Michael; Gerke, Rafael; Kienzler, Daniel; Schwemmer, Alexander
    Abstract: We study the welfare performance of various simple monetary policy rules under bounded rationality (BR) along the lines of Gabaix (2020) in a New Keynesian model with sticky wages and an effective lower bound (ELB) on interest rates. Policy strategies with a strong history dependence lose their advantage over inflation targeting in mitigating a demand-driven recessions when interest rates are constrained by the ELB. For supply shocks, inflation t argeting o utperforms h istory-dependent r ules f or a s ufficiently high degree of BR. An exponential average inflation targeting rule, which features a variable degree of history dependence, performs remarkably well, independent of the degree of BR.
    Keywords: Bounded Rationality, Sticky Wages, Monetary Policy Strategies, Zero LowerBound
    JEL: E20 E24 E31 E32 E52
    Date: 2023
  4. By: Giovanni Melina; Stefania Villa
    Abstract: Shocks to capital utilization are introduced in a structural macroeconomic closed-economy model with financial frictions to capture disruptions on the ability of the capital stock to provide capital services used in production. Estimates for the Euro Area and the United States show that these shocks were among the most important drivers of the output contraction during the Global Financial Crisis and the COVID-19 Crisis, while financial shocks were more relevant during the Global Financial Crisis. Thanks to the timely and strong intervention of the European Central Bank and the U.S. Federal Reserve, monetary policy shocks exerted a sizable positive contribution to output and inflation during the COVID-19 Crisis.
    Keywords: Covid-19, Global Financial Crisis, Great Lockdown, monetary policy, capital utilization
    JEL: E40 E50 E60
    Date: 2023
  5. By: Finck, David; Hoffmann, Mathias; Hürtgen, Patrick
    Abstract: We estimate the effects of a negative asymmetric demand shock on the real exchange rate for the euro area vis-à-vis the United States, Canada, and Japan by state-dependent sign-restricted local projection methods. We find a real depreciation when interest rates are not at the ZLB, but also when they are. The exchange rate can accomodate considerable variations in output, confirming its shock-absorbing capacity before and during the ZLB episode. The stabilizing role of the exchange rate is accompanied by a significant expansion of the ECB's balance sheet at the ZLB, while it remained unaffected in the pre-ZLB period. Our empirical results can be reconciled with an open economy New Keynesian model extended with unconventional monetary policy measures when interest rates are at the ZLB.
    Keywords: Zero Lower Bound, Exchange Rate, Local Projections, State-dependent Effects, Unconventional Monetary Policy, Demand Shocks
    JEL: F31 E31 E37 C54
    Date: 2023
  6. By: Fudulache, Adina-Elena; Goetz, Martin R.
    Abstract: We exploit variation in the share of seniors across European banking markets to construct an IV for banks' dependence on long-term deposit funding and find that greater long-term deposit funding reduces demand for long-term central bank funding via targeted longer-term refinancing operations (TLTRO). This effect is stronger when banks face less competition. Long-term central bank funding further motivates banks to reduce their dependence on debt issuance and increase their money markets borrowing. Our findings are consistent with the idea that banks' access to stable funding can crowd out their incentive to apply for (long-term) central bank funding.
    Keywords: Monetary policy, bank funding, deposit financing
    JEL: E50 G20 G28
    Date: 2023
  7. By: Luis Fernández Lafuerza (BANCO DE ESPAÑA); Matías Lamas (BANCO DE ESPAÑA); Javier Mencía (BANCO DE ESPAÑA); Irene Pablos (BANCO DE ESPAÑA); Raquel Vegas (BANCO DE ESPAÑA)
    Abstract: This paper analyses the ability of banks to use voluntary and regulatory capital buffers, taking advantage of the experience of the COVID-19 pandemic. In the first place, we find that the usability of macroprudential buffers is not hampered in Spain by other parallel banks’ requirements. Additionally, we find that the existing voluntary buffers over capital requirements at the beginning of the pandemic have had significant effects on the financial markets, affecting the evolution of European bank stock prices, as well as the holdings of bank shares by investment funds. Lastly, we find no significant aggregate effect of voluntary capital buffers on the provision of financing to non-financial companies in Spain. However, we do identify negative effects in the supply of credit from banks with lower voluntary buffers to companies with which they had more recent relationships. Likewise, if the analysis is carried out exclusively on credit operations without public guarantees, we observe that those banks with lower voluntary capital buffers reduced credit more.
    Keywords: capital usability, voluntary capital buffers, bank stock prices, provision of credit
    JEL: G20 G21 G28
    Date: 2023–03
  8. By: Q. Farooq Akram; Jon H. Findreng; Lyndsie Smith
    Abstract: We analyse the behaviour of the Norwegian unsecured overnight interbank market in response to heightened uncertainty and the central bank's liquidity support measures following the Covid-19 pandemic. The liquidity measures enabled banks to fulfil their liquidity needs primarily through participation in extraordinary liquidity auctions. The distribution of central bank reserves across banks did not change due to these measures, but interbank trading fell sharply. Ample liquidity support through the auctions and low interbank trading contributed to low and overly stable overnight rates. Actually, throughout our sample period from 2017 to 2021, the overnight rates remained largely unaffected by fluctuations in uncertainty and overall liquidity conditions.
    Keywords: The Covid-19 pandemic, distribution of central bank reserves, overnight interbank market, liquidity policy.
    JEL: G21 E42 E47 E58
    Date: 2023–06–16
  9. By: Bernd Hayo; Pierre-Guillaume Méon
    Abstract: An experiment using a representative survey of the German population shows that letting respondents report a number rather than asking them to choose from a list of predefined ranges lowers the response rate for both perceived past and expected inflation and decreases (increases) reported past (expected) inflation. Income, education, gender, objective and subjective knowledge about monetary policy, and political affiliation affect the effect’s size but not its sign. East and West German respondents who were 15 or older when the Berlin Wall fell have reactions different from those who were younger at that time, which supports the ‘impressionable years’ hypothesis based on different inflation experiences.
    Keywords: Inflation perception; inflation expectation; survey question design; Germany; household survey; impressionable years hypothesis
    JEL: E52 E58 Z13
    Date: 2023–08–01
  10. By: Marcos Ceron (Central Reserve Bank of Peru); Rafael Nivin (Central Reserve Bank of Peru); Diego Yamunaque (Central Reserve Bank of Peru)
    Abstract: In this work we study the impact of FX interventions on Credit growth in Peru. Using Panel data at the firm-bank level from the Peruvian Credit Registry we find that purchases of dollars by the Central Bank are associated with reductions on the stock of credit held by Medium, Big and Corporate Firms in the Peruvian economy. We also found that the impact is stronger for firms with a higher level of debt dollarization. These results suggest that FX interventions can be seen as an additional tool for Financial stability, especially in times of large inflows of capital.
    Keywords: FX intervention; Credit registry; Emerging markets; Credit growth
    JEL: E58 F31 F33 G20
    Date: 2023–08–13
  11. By: Huber, Stefanie J.; Minina, Daria; Schmidt, Tobias
    Abstract: This paper documents a strong relationship between households' perceptions about inflation over the past 12 months and households' short- and long-term expectations about future inflation. This relationship is strong during periods of high-inflation but even stronger during low-inflation periods. We establish a causal relationship by implementing a randomized information provision experiment in a large and representative survey to generate an exogenous variation in inflation perceptions. Our results show that household perceptions about past inflation drive their expectations about future inflation rates. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. We identify two critical moderating factors for this heterogeneity; differences in individual uncertainty about future inflation and information acquisition. Further, we show that the large majority of households rely on their shopping experience when forming their perceptions about past inflation and pay particular attention to food and fuel prices. The shopping experience affects inflation expectations indirectly - through perceptions.
    Keywords: inflation dynamics, expectations, perceptions, uncertainty, household finance, monetary policy, randomized control trial
    JEL: D10 D84 D90 E31 E52 G40 G50
    Date: 2023
  12. By: André Cartapanis (Institut d'Études Politiques [IEP] - Aix-en-Provence); Marie-Hélène Gagnon (ULaval - Université Laval [Québec]); Céline Gimet (Institut d'Études Politiques [IEP] - Aix-en-Provence, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In current economic conditions, financial stability is paramount to the proper functioning of open markets. Financial stability must be balanced with financial flexibility. This relationship is deeply affected by financial fragmentation. This is why Central Banks have focused on these issues in the last decade in particular. Both financial stability and financial fragmentation have unintended consequences on optimal currency areas. In this paper, we survey the original optimal currency areas literature and relate it with the new literature on financial stability and financial fragmentation. We highlight the importance of new macroprudential policies both at the national and regional levels.
    Date: 2023
  13. By: Mitsuru Katagiri; Junnosuke Shino; Koji Takahashi
    Abstract: This study investigates the effects of the Bank of Japan's (BOJ) exchange-traded fund (ETF) purchase program on stock returns, particularly focusing on the role of the stock lending market. Using firm-level panel data, we find that the BOJ's purchases raised stock returns more for those stocks with limited availability in the stock lending market. Nonetheless, over the longer term, the BOJ's accumulated purchases lowered lending fees and weakened the effects of their purchases on stock returns. This result suggests that ETF managers supply stocks that constitute ETFs held by the BOJ to the stock lending market, which weakens the policy effects of the program.
    Keywords: large-scale asset purchase (LSAP), ETF purchase program, stock lending market, Bank of Japan
    JEL: E58 G12 G14
    Date: 2023–08
  14. By: Gianni Betti; Evren Ceritoglu; Muserref Kucukbayrak; Ozlem Sevinc
    Abstract: This article describes the methodologies used in the first wave of the Central Bank of the Republic of Turkey – Household Finance and Consumption Survey (CBRT-HFCS). Particularly, we summarize design and implementation of the CBRT-HFCS in terms of questionnaire, sampling, collection of data and fieldwork, non-response, weighting and construction of replicate weights. The CBRT-HFCS provides data on assets, liabilities, income and credit constraints of Turkish households, which is designed to be compatible with the European Central Bank – Household Finance and Consumption Survey (ECB-HFCS). This survey uniquely ensures a comparable data set for the Turkish households with 19 Euro area countries as well as Croatia, Poland and Hungary participating in the ECB-HFCS and fills a significant data gap in Turkey. The CBRT-HFCS also oversamples wealthy households based on unit house prices at the neighborhood level. Oversampling is a common approach applied in many wealth surveys, enabling to better capture balance sheet of the top tail of wealth distribution, which is new to household surveys conducted by the Turkish Statistical Institute (TURKSTAT).
    Keywords: Sampling design, Oversampling, Wealth distribution
    JEL: C83 D31
    Date: 2022

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