nep-cba New Economics Papers
on Central Banking
Issue of 2023‒10‒23
twenty-one papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. CBDC and the operational framework of monetary policy By Jorge Abad; Galo Nuño Barrau; Carlos Thomas
  2. Simple Macroeconomics of Crypto Currency and the Political Economy of Monetary Policy in a Democracy By Sugata Marjit; Kausik Gupta
  3. Monetary Policy Effectiveness in the Face of Uncertainty: The Real Macroeconomic Impact of a Monetary Policy Shock in South Africa during High and Low Uncertainty States By Chevaughn van der Westhuizen; Renee van Eyden; Goodness C. Aye
  4. The effect of quantitative easing and quantitative tightening on the U.S. equity REIT returns By Axelsson, Birger; Song, Han-Suck
  5. An Extended Quarterly Projection Model for the Central Bank of Jordan By Adel Al-Sharkas; Nedal Al-Azzam; Sarah AlTalafha; Rasha Abu Shawish; Ahmad Shalein; Auday Rawwaqah; Amany Al-Rawashdeh; Daniel Baksa; Mr. Philippe D Karam; Mr. Jan Vlcek
  6. The role of central bank forecasts in uncertain times By Jacek Kotłowski
  7. Should Banks Be Worried About Dividend Restrictions? By Josef Schroth
  8. Estimation and Determinants of Cost Efficiency: Evidence from Central Bank Operational Expenses By Mr. Romain M Veyrune; Solo Zerbo
  9. The CO2 content of the TLTRO III scheme and its greening By Chiara Colesanti Senni; Maria Sole Pagliari; Jens van ‘t Klooster
  10. The Contribution of Food Subsidy Policy to Monetary Policy in India By William Ginn; Marc Pourroy
  11. Overconfidence of the chair of the Federal Reserve and market expectations: Evidence based on media coverage By Hamza Bennani
  12. Functional Shocks to Inflation Expectations and Real Interest Rates and Their Macroeconomic Effects By Christina Anderl; Guglielmo Maria Caporale
  13. The Zombie Lending Channel of Monetary Policy By Bruno Albuquerque; Chenyu Mao
  14. The Market Price of Risk and Macro-Financial Dynamics By Mr. Tobias Adrian; Fernando Duarte; Tara Iyer
  15. Modeling the Reserve Demand to Facilitate Central Bank Operations By Zhuohui Chen; Nikolaos Kourentzes; Mr. Romain M Veyrune
  16. In search of accounting principles for the central bank By Krzysztof Kruszewski; Mikołaj Szadkowski
  17. The Swaps Strike Back: Evaluating Expectations of One-Year Inflation By Colin Campbell; Anthony M. Diercks; Steven A. Sharpe; Daniel Soques
  18. Examining CBDC and Wholesale Payments By Jon Durfee; Jesse Leigh Maniff; Priyanka Slattery
  19. One Hundred Inflation Shocks: Seven Stylized Facts By Mr. Anil Ari; Mr. Carlos Mulas-Granados; Mr. Victor Mylonas; Mr. Lev Ratnovski; Wei Zhao
  20. Monetary Policy and Innovation By Yueran Ma; Kaspar Zimmermann
  21. Good Supervision: Lessons from the Field By Mr. Tobias Adrian; Ana Carvalho; Ms. Marina Moretti; Hee Kyong Chon; Katharine Seal; Fabiana Melo; Jay Surti

  1. By: Jorge Abad; Galo Nuño Barrau; Carlos Thomas
    Abstract: We analyze the impact of introducing a central bank-issued digital currency (CBDC) on the operational framework of monetary policy and the macroeconomy as a whole. To this end, we develop a New Keynesian model with heterogeneous banks, a frictional interbank market, a central bank with deposit and lending facillities, and household preferences for different liquid assets. The model is calibrated to replicate the main monetary and financial aggregates in the euro area. Our analysis predicts that CBDC adoption implies a roughly equivalent reduction in banks' deposit funding. However, this 'deposit crunch' has a rather small effect on bank lending to the real economy, and hence on aggregate investment and GDP. This result reflects the parallel impact of CBDC on the central bank's operational framework. For relatively moderate CBDC adoption levels, the reduction in deposits is absorbed by an almost one-to-one fall in reserves at the central bank, implying a transition from a 'floor' system –with ample reserves– to a 'corridor' one. For larger CBCD adoption, the loss of bank deposits is compensated by increased recourse to central bank credit, as the corridor system gives way to a 'ceiling' one with scarce reserves.
    Keywords: central bank digital currency, interbank market, search and matching frictions, reserves
    JEL: E42 E44 E52 G21
    Date: 2023–09
  2. By: Sugata Marjit; Kausik Gupta
    Abstract: The paper attempts to examine the macroeconomic implications of the coexistence of crypto currency with legal tender money in the context of a democratic country such as India. The paper shows that macroeconomic implications of crypto currency can be captured by a simple extension of the IS-LM model. The main potential political consequence emerges due to difficulty in implementation of monetary policy, especially prior to elections. The paper shows that if the share of crypto currency out of total money supply is high it is bound to impact on the efficacy of monetary policy. .The paper also examines the practical difficulties of legalizing crypto currency.
    Keywords: block chain, crypto currency, legal tender money, monetary policy
    JEL: E52 E58 E61 E63
    Date: 2023
  3. By: Chevaughn van der Westhuizen (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Renee van Eyden (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Goodness C. Aye (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: Economies all over the world operate monetary policy with the main objective to create stable macroeconomic environment for economic prosperity, with monetary policy typically the first line of defence against a number of internal and external shocks. This study addresses whether the effectiveness of monetary policy in South Africa is influenced by the prevailing degree of uncertainty in the domestic goods, stock and currency market as well as the degree of uncertainty in global markets. This is investigated through a Self-Exciting Interacted VAR (SEIVAR) methodology augmented with GARCH and EGARCH volatilities on monthly South African data, over the period 2000:02-2022:05 during which South Africa operated under an inflation targeting regime. Results point to the asymmetric effects of a monetary policy shock dependent on the uncertainty state and that monetary policy was less effective in the high uncertainty states. The results hold important policy implications for the policy makers, as it is imperative to understand how uncertainty alters the transmission of monetary policy through the economy.
    Keywords: Financial Markets, Generalized Impulse Response Function, Inflation, Monetary policy shocks, Non-Linear Self-Exciting Interacted Vector Auto-Regressions, Uncertainty
    JEL: C32 E32 E52
    Date: 2023–10
  4. By: Axelsson, Birger (Department of Real Estate and Construction Management, Royal Institute of Technology); Song, Han-Suck (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: The Federal Reserve (the Fed) has implemented several quantitative easing (QE) programmes to stimulate the U.S. economy and increase the inflation rate after the great financial crisis (GFC) and the COVID-19 crisis. However, when the inflation rate started to increase steeply in 2021, the Fed instead begun to implement quantitative tapering (QT) to cool down the U.S. economy and bring back inflation to it target rate. This study seeks to estimate the effect of the QE and QT programmes on the U.S. equity Real Estate Investment Trusts (REITs) index returns, while controlling for several other important macro-financial factors. The estimations show that the QE programmes significantly contributed to a long period of positive REIT returns, while the recent 2022 QT efforts has contributed significantly to the recent period of negative REIT returns. We also find that the increases in the key macro-financial factors Baa Corporate Bond Yield ad the CBOE volatility index of the U.S. stock market (VIX) result in lower REIT returns, while increases in total bank equity capital of FDIC-Insured Commercial Banks and Savings Institutions contribute to positive REIT returns. We also find that the negative initial REIT return reaction to the COVID-19 outbreak was likely outperformed by the positive impacts of the large combined monetary (QE) and fiscal stimulus packages implemented after the outbreak of the COVID-19 crisis. The findings of this study show that REIT returns are highly sensitive to profound QE and QT programmes through important monetary transmission mechanisms channels such as the interest rate, asset price and risk-taking channels. This research supports REIT investors to understand how the Fed's monetary policy actions, particularly QE and QT programmes, impact the returns of the REIT index, and to adjust their investment strategies accordingly based on their expectations of future monetary policy actions and macro-financial conditions.
    Keywords: REITs; Quantitative Easing; Quantitative Tightening; Real Estate; Inflation
    JEL: E31 E41 E44 G19
    Date: 2023–09–28
  5. By: Adel Al-Sharkas; Nedal Al-Azzam; Sarah AlTalafha; Rasha Abu Shawish; Ahmad Shalein; Auday Rawwaqah; Amany Al-Rawashdeh; Daniel Baksa; Mr. Philippe D Karam; Mr. Jan Vlcek
    Abstract: The Central Bank of Jordan (CBJ) has developed a Forecasting and Policy Analysis System (FPAS) to serve as a reliable analytical framework for macroeconomic analysis, forecasting and decision-making under a pegged exchange rate regime. At the heart of the FPAS is the CBJ’s extended Jordan Analysis Model (JAM2.0). The model captures the monetary transmission mechanism and provides a consistent monetary policy framework that uses the exchange rate as an effective nominal anchor. This paper outlines the structure and properties of JAM2.0 and emphasizes the enhanced interplay and tradeoffs among monetary, fiscal, and foreign exchange management policies. Simulation and forecasting exercises demonstrate JAM2.0’s ability to match key stylized facts of the Jordanian economy, produce accurate forecasts of important macroeconomic variables, and explain the critical relationships among policies.
    Date: 2023–08–25
  6. By: Jacek Kotłowski (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: The macroeconomic projection is one of the key communication tools of the central bank. We examine how the projection published by Narodowy Bank Polski affects the expectations of the professional forecasters. We focus on the role of uncertainty in explaining the impact of inflation and GDP forecasts released by the central bank on the forecasters’ expectations. We find that by disclosing its projection the central bank affects the inflation and GDP forecasts formulated by professional forecasters for all the examined horizons: the current year, the next year and two years ahead. Importantly, our results show that the impact of the NBP projection on the expectations of the professional forecasters is stronger when uncertainty is high, which remains in line with the Woodford (2001) model, in which public information helps private agents to separate signal from noise contained in the data. We also evidence that the coordinating role of the projection for the private sector inflation forecasts is larger in high inflation environment.
    Keywords: Monetary policy, central bank communication, forecasting, inflation expectations, uncertainty.
    JEL: C24 E37 E52 E58
    Date: 2023
  7. By: Josef Schroth
    Abstract: Countercyclical bank capital requirements have emerged as a popular regulatory tool to help smooth financial cycles. The idea is to reduce capital requirements when exogenous shocks cause aggregate bank capital to decrease so that regulation does not needlessly constrain banks’ supply of credit. In the model in this paper, banks are rationally forward-looking and thus ignore short-lived reductions in capital requirements. During a financial crisis, a regulator would want to first impose drastic dividend restrictions to force banks to rebuild capital, but also would want to keep capital requirements low for a sufficiently long time afterwards. However, such a policy is not time-consistent. Once banks are sufficiently re-capitalized, the regulator would be tempted to immediately raise capital requirements all the way to pre-crisis levels. Optimal time-consistent capital regulation requires that bank capital is rebuilt gradually during financial crises. In particular, banks must be able to pay dividends even when bank equity is still significantly below pre-crisis levels.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies; Lender of last resort
    JEL: E13 E32 E44
    Date: 2023–09
  8. By: Mr. Romain M Veyrune; Solo Zerbo
    Abstract: The finances of central banks is a topic of renewed interest: many central banks are posting significant losses due to the cost of monetary policy, over which central banks have no control. Conversely, operational expenses, over which the central banks have more control, is a subject of less attention. We use public income statement data from central banks to calculate a score for operational expense efficiency based on a stochastic frontier analysis. In addition, we offer potential explanations for the observed variations in efficiency levels across central banks. Our analysis reveals significant heterogeneity across countries and income groups. Central banks with a single objective demonstrate higher efficiency compared with those with multiple objectives. Regarding the output of price stability, central banks in low-income developing countries exhibit lower efficiency compared with central banks in emerging markets and advanced economies. Factors such as central bank independence, the depth of the financial system, and the degree of openness play a role in influencing efficiency levels. Our findings underscore the significance of well-defined objectives, the operating environment, and concentration on core activities in reducing inefficiency.
    Keywords: operational efficiency; stochastic frontier analysis; operating independence; trade; financial depth
    Date: 2023–09–15
  9. By: Chiara Colesanti Senni; Maria Sole Pagliari; Jens van ‘t Klooster
    Abstract: This paper investigates the climate impact of central bank refinancing operations, with a focus the ECB’s TLTRO III program. Notably, we construct a novel database that combines i) confidential data on loans granted by EU banks to non-financial corporations; ii) confidential data on TLTRO III participation and iii) data on sectoral emissions. We find that the emissions content of bank loans granted over the TLTRO III reference period amount to 8% of overall Euro Area 2019 emissions and that more than 80% of total cumulated loans issued in the reference period was directed towards polluting companies. We then investigate the effectiveness of a green credit easing scheme via a general equilibrium model. Our findings are twofold: first, the central bank policy can increase the costs for lending to polluting companies, thus re-directing loans to less-polluting firms; second, the financial stability implications of such a policy should be carefully considered. Finally, we address legal and operational challenges to such a policy by outlining three alternative ways of implementing a “green†TLTRO programme.
    Keywords: TLTRO, CO2 emissions; transition risk; monetary policy; financial stability
    JEL: E40 E50 Q50 Q54
    Date: 2023–10
  10. By: William Ginn (LabCorp); Marc Pourroy (CRIEF - Centre de recherche sur l'intégration économique et financière - Université de Poitiers, Université de Poitiers)
    Abstract: Food price volatility is a major threat for welfare, economic prosperity and political stability. The monetary authority is generally viewed in the literature as the only institution responsible for price stability, however this approach overlooks the importance of food price stabilization policies using fiscal instruments. We develop and estimate a Bayesian DSGE model that incorporates monetary and fiscal policy tailored to India, replicating food demand and food supply subsidies. We find that following a world food price shock, CPI and therefore interest rate volatility would be 21% higher in the absence of food subsidies. Putting this effect aside would lead to overestimating the effectiveness of inflation targeting by the central bank. Accordingly, we find that the subsidy policy has large heterogeneous distributional welfare effects: while farmers benefit from all subsidies, the inclusion of urban households into the demand subsidy program is required to offset supply subsidy welfare cost.
    Keywords: DSGE Model, Price stabilisation, Food prices, Commodities, Monetary Policy, India
    Date: 2022–08
  11. By: Hamza Bennani (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris] - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université - IUML - FR 3473 Institut universitaire Mer et Littoral - UM - Le Mans Université - UA - Université d'Angers - UBS - Université de Bretagne Sud - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - CNRS - Centre National de la Recherche Scientifique - Nantes Université - pôle Sciences et technologie - Nantes Univ - Nantes Université - Nantes Univ - ECN - École Centrale de Nantes - Nantes Univ - Nantes Université)
    Abstract: This paper examines the relationship between the overconfidence expressed by the chair of the US Federal Reserve and financial market expectations. I first use a media‐based proxy to compute a measure of Fed chair's overconfidence for the period 1999M01–2017M07, the overconfidence indicator. The overconfidence indicator provides a quantitative measure of the overconfidence expressed by the Fed chair, which is covered by the media, and thus, perceived by financial market participants. I relate this variable to inflation and unemployment expectations of market participants. Our results show that an overconfident Fed chair is significantly associated with higher inflation expectations and lower unemployment expectations. These findings are robust to (i) the macroeconomic forecasts used to extract the exogenous component of the media‐based proxy reflecting Fed chair's overconfidence (the Survey of Professional Forecasters and the Greenbook forecasts) and (iii) an alternative proxy of inflation expectations. These findings shed some new light on the impact of central bankers' communication on financial market expectations, and thus, on the effectiveness of their monetary policy decisions.
    Date: 2023–07
  12. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper applies a recently developed method (Inoue and Rossi, 2021) to estimate functional inflation expectations and ex-ante real interest rate shocks, and then examines their macroeconomic effects in the context of a Functional Vector Autoregressive model with exogenous variables (Functional VARX). Monthly data from January 1998 to May 2023 for the US, the UK and the euro area are used for the analysis. The estimated impulse responses show significant effects of the functional shocks on both inflation and output. In addition, threshold functional local projections indicate that the effects are nonlinear and depend on central bank credibility. Further, inflation expectations shocks have similar effects to supply (demand) ones when they are driven by long-term (short-term) changes. In the presence of an inverted (steepening) real interest rate term structure, the effects are inflationary (deflationary) and expansionary (recessionary). Finally, the responses of inflation, output and the policy rate are driven primarily by the slope and curvature factors of the term structure shocks, which contain important information not captured by traditional scalar shocks.
    Keywords: inflation expectations, term structure, real interest rates, functional shocks
    JEL: E31 E43 C32
    Date: 2023
  13. By: Bruno Albuquerque; Chenyu Mao
    Abstract: We uncover a new channel—the zombie lending channel—in the transmission of monetary policy to nonfinancial corporates. This channel originates from the presence of unviable and unproductive (zombie) firms. We identify exogenous variation in monetary conditions around the world by exploiting the international transmission of US monetary policy shocks. We find that tighter monetary policy leads to more favorable credit conditions for zombie firms relative to other firms. Zombies are then able to cut investment and employment by relatively less. This is indicative of evergreening motives by lenders when interest rates rise: lenders face incentives to restructure existing loans of zombie firms to avoid the realization of losses on their balance sheets. Policies that strengthen banks’ balance sheets, that limit banks’ incentives to engage in risky behavior, and laws that allow an efficient resolution of weak firms, may help mitigate zombie lending practices when financial conditions tighten.
    Keywords: Monetary policy; Corporate investment; Zombie firms; Zombie lending
    Date: 2023–09–15
  14. By: Mr. Tobias Adrian; Fernando Duarte; Tara Iyer
    Abstract: We propose the conditional volatility of GDP spanned by financial factors as a “Volatility Financial Conditions Index” (VFCI) and show it is closely tied to the market price of risk. The VFCI exhibits superior explanatory power for stock and bond risk premia compared to other FCIs. We use a variety of identification strategies and instruments to demonstrate robust causal relationships between the VFCI and macroeconomic aggregates: a tightening of financial conditions as measured by the VFCI leads to a persistent contraction of output and triggers an immediate easing of monetary policy. Conversely, contractionary monetary policy shocks cause tighter financial conditions.
    Keywords: Macro-Finance; Financial Conditions Index; Monetary Policy; Asset Pricing; Market Price of Risk; Consumption Volatility; Causal Identification
    Date: 2023–09–22
  15. By: Zhuohui Chen; Nikolaos Kourentzes; Mr. Romain M Veyrune
    Abstract: Implementing monetary policy largely consists in controlling short-term interest rates which supposes having a good understanding of banks’ demand for liquidity also called “reserves” at the central bank. This work aims to offer a modeling methodology for estimating the demand for reserves that itself is influenced by various macro and market structure variables. The model can help central banks to identify ”stable points” on the demand for reserves, which correspond to the levels of reserves for which the short-term interest rate volatility is minimal. Both parametric and non-parametric approaches are provided, with a particular focus on capturing the modeling uncertainty and, therefore, facilitating scenario analysis. A method is proposed to test the forecasting performances of different approaches and exogenous regressors combination, finding that simpler parametric expressions provide on balance better performances. Adding variables to both parametric and non-parametric provides better explanations and predictions. The proposed methodology is evaluated using data from the Euro system and the US Federal Reserve System.
    Keywords: Reserve demand; scenario analysis; short-term interest rate; sigmoid
    Date: 2023–09–01
  16. By: Krzysztof Kruszewski (Narodowy Bank Polski); Mikołaj Szadkowski (Narodowy Bank Polski)
    Abstract: The paper presents the selected accounting principles applied by central banks. It has been emphasised that since 2004 the NBP accounting principles are in line with the Eurosystem accounting principles. The paper shows that the possible change of these principles depends on the perspective of adopting the euro by Poland. If the adoption of the euro takes place in the near future, NBP will have to continue applying the current accounting rules. In this context the paper presents how the NBP balance sheet would change on the date of the hypothetical adoption of the euro by Poland. On the other hand, if the adoption of the single currency becomes a distant prospect, NBP could consider changing the applied accounting principles. Due to the growing risks faced by central banks in the first two decades of the 21st century, this choice should be correlated with the need to build a bank's strong equity position and to reduce the volatility of its financial result. Hence, the paper proposes directions for modification of the existing NBP accounting principles, which would ensure the implementation of the adopted assumptions. The authors indicate that in the case of NBP the application of IFRS would be unjustified.
    Keywords: central bank, central bank accounting, accounting principles of central banks.
    JEL: E58 G21
    Date: 2023
  17. By: Colin Campbell; Anthony M. Diercks; Steven A. Sharpe; Daniel Soques
    Abstract: This study examines the forecasting performance of inflation swaps and survey-based expectations for one-year inflation. Conducting this exercise helps determine if one set of expectations can provide a cleaner signal about future inflation. The study finds that, overall, inflation swaps more frequently provide better forecasts of future inflation. Previous studies that found poor performance of swaps were strongly influenced by liquidity issues during the financial crisis and the pandemic. When these periods are excluded, swaps have superior predictive ability. Our analysis suggests that combining the two expectations can lead to even better forecasts. The optimal static combination is roughly an equal weighting of swaps and surveys. Alternatively, a dynamic smooth-transition regime switching model can also lead to superior performance and provide a clearer signal on expectations of future inflation. Recently, this measure has implied the Federal Reserve is expected to be closer to its inflation target over the next year than the surveys would suggest.
    Keywords: Inflation expectations; Inflation swaps; Surveys; Forecasting
    JEL: E31 E37
    Date: 2023–09–22
  18. By: Jon Durfee; Jesse Leigh Maniff; Priyanka Slattery
    Abstract: This paper explores whether a new settlement asset in the form of central bank money is essential for a new platform that processes wholesale payment transactions. Central bank money currently exists for wholesale transactions in the form of depository institution balances at the Federal Reserve (Reserve Banks) used for Fedwire® Funds Service (Fedwire).
    Date: 2023–09–08
  19. By: Mr. Anil Ari; Mr. Carlos Mulas-Granados; Mr. Victor Mylonas; Mr. Lev Ratnovski; Wei Zhao
    Abstract: This paper identifies over 100 inflation shock episodes in 56 countries since the 1970s, including over 60 episodes linked to the 1973–79 oil crises. We document that only in 60 percent of the episodes was inflation brought back down (or “resolved”) within 5 years, and that even in these “successful” cases resolving inflation took, on average, over 3 years. Success rates were lower and resolution times longer for episodes induced by terms-of-trade shocks during the 1973–79 oil crises. Most unresolved episodes involved “premature celebrations”, where inflation declined initially, only to plateau at an elevated level or re-accelerate. Сountries that resolved inflation had tighter monetary policy that was maintained more consistently over time, lower nominal wage growth, and less currency depreciation, compared to unresolved cases. Successful disinflations were associated with short-term output losses, but not with larger output, employment, or real wage losses over a 5-year horizon, potentially indicating the value of policy credibility and macroeconomic stability.
    Keywords: Inflation Shocks; Disinflation; Monetary Policy; 1973–79 Oil Crises; Termsof- Trade Shocks
    Date: 2023–09–15
  20. By: Yueran Ma; Kaspar Zimmermann
    Abstract: We document that monetary policy has a substantial impact on innovation activities. After a tightening shock of 100 basis points, research and development (R&D) spending declines by about 1 to 3 percent and venture capital (VC) investment declines by about 25 percent in the following 1 to 3 years. Patenting in important technologies, as well as a patent-based aggregate innovation index, declines by up to 9 percent in the following 2 to 4 years. Based on previous estimates of the sensitivity of output to innovation activities, these magnitudes imply that output could be 1 percent lower after another 5 years. Monetary policy can influence innovation activities by changing aggregate demand and correspondingly the profitability of innovation, and by changing financial market conditions. Both channels appear relevant in the data. Our findings suggest that monetary policy may affect the productive capacity of the economy in the longer term, in addition to the well-recognized near-term effects on economic outcomes.
    JEL: E2 E5 G31 O3
    Date: 2023–09
  21. By: Mr. Tobias Adrian; Ana Carvalho; Ms. Marina Moretti; Hee Kyong Chon; Katharine Seal; Fabiana Melo; Jay Surti
    Abstract: Keeping banks safe and sound hinges on good supervision. The bank failures of March 2023 precipitated questions about the effectiveness of supervision. This paper reflects on lessons learned from this banking turmoil and reviews global progress in delivering effective supervision over the past ten years. It finds progress in areas like risk monitoring, stress testing, and business model analysis. Yet, progress has also been hampered by deficiencies in supervisory approaches, techniques, tools, and (use of) corrective and sanctioning powers, as well as by unclear mandates, inadequate powers, and lack of independence and resources. Overcoming these deficiencies requires supervisors to improve their own performance and other policy makers to contribute to ensuring vigilant, independent and accountable supervision.
    Keywords: Banks; supervision; prudential standards
    Date: 2023–09–06

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