nep-cba New Economics Papers
on Central Banking
Issue of 2023‒11‒20
ten papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. Fed QE and bank lending behaviour:a heterogeneity analysis of asset purchases By Blix Grimaldi, Marianna; Kapoor, Supriya
  2. The Role of Inflation Targeting in Anchoring Long-Run Inflation Expectations: Evidence from India By Kishor, N. Kundan; Pratap, Bhanu
  3. Monetary Policy Transmission Heterogeneity: Cross-Country Evidence By Mr. Pragyan Deb; Julia Estefania-Flores; Melih Firat; Davide Furceri; Siddharth Kothari
  4. The Unintended Consequences of ECB’s Asset Purchases. How Excess Reserves Shape Bank Lending. By Philipp Roderweis; Jamel Saadaoui; Francisco Serranito
  5. Monetary Policy Transmission through Commodity Prices By Jorge Miranda-Pinto; Mr. Andrea Pescatori; Ervin Prifti; Guillermo Verduzco-Bustos
  6. Monetary Policy and Labor Market Gender Gaps By Valentina Flamini; Diego B. P. Gomes; Bihong Huang; Ms. Lisa L Kolovich; Aina Puig; Ms. Aleksandra Zdzienicka
  7. Show Me the Money. Why Neglecting Money in Monetary Theory and Policy is a Bad Idea By Olivo, Victor
  8. Demand vs. Supply Decomposition of Inflation: Cross-Country Evidence with Applications By Melih Firat; Otso Hao
  9. Inflation Dynamics in Bulgaria: The Role of Policies By Anh D. M. Nguyen; Hajime Takizawa; Iglika Vassileva
  10. Threshold Endogeneity in Threshold VARs: An Application to Monetary State Dependence By Dimitris Christopoulos; Peter McAdam; Elias Tzavalis

  1. By: Blix Grimaldi, Marianna (Swedish National Dept Office); Kapoor, Supriya (Trinity College Dublin)
    Abstract: Though unconventional monetary policy is still new, already there is a conventional wisdom that the impact of monetary policy is related to the composition of the asset mix. This turns out to be incomplete and potentially misleading. In this paper, we find more complex effects on bank lending from Quantitative Easing (QE) introduced by the Federal Reserve Bank in 2008. The novelty of our approach is to augment the model with bank-level heterogeneity. While there is a relation between lending and the type of assets purchased by the central bank, the impact on similarly QE-exposed banks is also crucially dependent on banks’ solvency and liquidity exposures. Our results highlight that it is necessary to take heterogeneity of exposure into account when assessing the effects of QE.
    Keywords: large-scale asset purchases; Federal Reserve; quantitative easing; heterogeneity; liquidity; solvency
    JEL: E52 E58 G21
    Date: 2023–11–01
  2. By: Kishor, N. Kundan; Pratap, Bhanu
    Abstract: This paper explores the effects of India's adoption of inflation targeting (IT) as a monetary policy framework in 2016 on long-term inflation expectations in the private sector. Using data from 2010 to 2022, including inflation forecasts from professional forecasters and an inflation sentiment index derived from newspaper articles, our analysis assesses the impact of inflation sentiment on both long-run and short-run inflation expectations. Our findings suggest that post-2016, long-term inflation expectations became less sensitive to inflation sentiment, indicating that India's transition to IT may have contributed to anchoring these expectations in line with the central bank's target.
    Keywords: Inflation Targeting, Inflation Expectations, Unobserved Component Model, Inflation Sentiment, Indian Economy
    JEL: E31 E52 E58
    Date: 2023–10–23
  3. By: Mr. Pragyan Deb; Julia Estefania-Flores; Melih Firat; Davide Furceri; Siddharth Kothari
    Abstract: This paper revisits the transmission of monetary policy by constructing a novel dataset of monetary policy shocks for an unbalanced sample of 33 advanced and emerging market economies during the period 1991Q2-2023Q2. Our findings reveal that tightening monetary policy swiftly and negatively impacts economic activity, but the effects on inflation and inflation expectations takes time to fully materialize. Notably, there exist significant heterogeneities in the transmission of monetary policy across countries and time, depending on structural characteristics and cyclical conditions. Across countries, monetary policy is more effective in countries with flexible exchange rate regime, more developed financial systems, and credible monetary policy frameworks. In addition, we find that monetary policy transmission is stronger when uncertainty is low, financial conditions are tight and monetary policy is coordinated with fiscal policy—that is, when the stances move in the same direction.
    Keywords: Monetary policy transmission; heterogeneity; inflation; statedependence
    Date: 2023–10–17
  4. By: Philipp Roderweis; Jamel Saadaoui; Francisco Serranito
    Abstract: An unintended by-product of asset purchases by the European Central Bank (ECB) has been a huge increase in excess reserves, leading to a structural liquidity surplus in the banking sector of the euro area. These exogenously imposed excess reserves imply higher balance sheet costs, forcing banks to offset these costs by changing their lending behavior. We observe this effect particularly in periods of low-interest rates. Thus, we identify a shock that represents an exogenous imposition of excess reserves on banks. We then employ linear and nonlinear local projection methods to analyze how lending changes in the context of unconventional monetary policy. We find that excess reserves injected by the ECB crowd out certain types of credit. An increase in excess liquidity does not stimulate lending to nonfinancial corporations in the euro area. On the contrary, it tends to discourage it while amplifying household credit for consumption and housing, as well as loans to financial corporations. Impulse response analysis via smooth local projection methods highly confirms these findings.
    Keywords: excess reserves, bank lending channel, bank balance sheet costs, local projection, smooth local projection.
    JEL: C32 E44 E51 E52
    Date: 2023
  5. By: Jorge Miranda-Pinto; Mr. Andrea Pescatori; Ervin Prifti; Guillermo Verduzco-Bustos
    Abstract: Monetary policy influences inflation dynamics by exerting impact on a diverse array of commodity prices. At high frequencies, we show that a 10 basis points increase in US monetary policy rate reduces commodity prices between 0.5% and 2.5%, after 18 to 24 business days. Beyond the dollar appreciation channel, the effects are larger for highly storable and industrial commodities, consistent with the cost of carry and the expected demand channel. We then study the quantitative importance of the commodity-price channel of monetary policy on domestic and international inflation at longer horizons (6-36 months). The results indicate that the response of commodity prices—oil, base metals, and food prices—to monetary policy accounts for 47% of the total effect of US monetary policy on US headline inflation, and 57% of the effect of US monetary policy on other countries’ headline inflation. The commodity price channel on core inflation is smaller and mainly driven by base metal prices. Finally, the commodity-price channel of ECB monetary policy is smaller, and it mainly operates through its effect on energy prices.
    Keywords: Monetary Policy; US monetary policy shock; ECB monetary policy shock; Commodity prices; commodity price channel; inflation; energy prices; food prices; metals prices; core inflation
    Date: 2023–10–10
  6. By: Valentina Flamini; Diego B. P. Gomes; Bihong Huang; Ms. Lisa L Kolovich; Aina Puig; Ms. Aleksandra Zdzienicka
    Abstract: We study the effects of monetary policy shocks on employment gender gaps in a panel of 22 countries using quarterly data from 1990 to 2019. Our results show that men’s employment falls more than women’s after contractionary monetary policy shocks, narrowing the employment gender gap over time. Two factors contribute to explaining this heterogeneous effect. First, a larger impact of monetary policy shocks on employment in the industry sector that employs more men. Second, the larger response of the employment gap in the sector (services) that employs the largest share of men and women. In terms of labor market adjustment, the narrowing of the gender employment gap is initially driven by a reduction in the gender unemployment gaps that, over time, results in an adjustment in the gender labor force participation gap—with men’s labor force participation dropping more than women’s. The effects are larger in countries with more flexible labor market regulations, higher gender wage gaps, and lower informal women’s employment compared to men’s. Finally, the effects are also larger for contractionary monetary policy shocks and during expansions.
    Keywords: Monetary policy; shocks; gender inequality; labor market; unemployment; labor force participation; monetary policy shock; gender employment gap; gender labor force participation gap; labor market gender gaps; men employment; employment gender gaps; Labor markets; Employment; Women
    Date: 2023–09–29
  7. By: Olivo, Victor
    Abstract: This paper discusses numerous and serious conceptual criticisms of arguments and theories that consider that inflation and the price level are exclusively a fiscal phenomenon in which money plays no distinctive role. The price level, substantial acceleration of the inflation rate or sustained inflation rates of two digits or more cannot be explained by expectations or changes in expectations alone as Sargent (1982), Woodford (2008) and the FTPL proponents claim. The empirical evidence obtained using cointegration and error correction models estimated using linear and non-linear techniques provides robust indication that money plays a crucial role in understanding the long-run evolution of the price level and the short-run dynamics of inflation.
    Keywords: Price Level; Inflation; Monetarism, Monetary, Monetary Base, Monetary Policy, Money, Money Stock.
    JEL: E31 E52
    Date: 2023–10–22
  8. By: Melih Firat; Otso Hao
    Abstract: What are the contributions of demand and supply factors to inflation? To address this question, we follow Shapiro (2022) and construct quarterly demand-driven and supply-driven inflation series for 32 countries utilizing sectoral Personal Consumption Expenditures (PCE) data. We highlight global trends and country-specific differences in inflation decompositions during critical periods such as the great financial crisis of 2008 and the recent inflation surge since 2021. Validating our inflation series, we find that supply-driven inflation is more reactive to oil shocks and supply chain pressures, while demand-driven inflation displays a more pronounced response to monetary policy shocks. Our results also suggest a steeper Phillips curve when inflation is demand-driven, holding significant implications for effective policy design.
    Keywords: Inflation decomposition; demand vs supply; Phillips curve; monetary policy; supply chain pressures
    Date: 2023–10–17
  9. By: Anh D. M. Nguyen; Hajime Takizawa; Iglika Vassileva
    Abstract: This paper analyses inflation dynamics in Bulgaria using different complementary econometrics technics. We find that common factors play a large role in the EU’s inflation variation but impact individual countries differently due to country-specific factors. Greater weight of energy and food in Bulgaria’s CPI basket amplifies the impact of shocks on headline inflation. Furthermore, second-round effects in Bulgaria are likely pronounced, associated with a higher inflation persistence compared to the EU countries. Recent ECB monetary tightening has been insufficient for Bulgaria and its transmission is weak. Fiscal policy supported the recovery from the COVID crisis but added to inflation.
    Keywords: Inflation; Monetary policy; Fiscal policy; ECB interest rates; Phillips curve; Principal Component Analysis; VARl Sign restrictions.; inflation dynamics; HICP inflation; ECB Policy rate; inflation variation; inflation development; inflation in EU country; Energy prices; Inflation persistence; Food prices; Global
    Date: 2023–09–29
  10. By: Dimitris Christopoulos; Peter McAdam; Elias Tzavalis
    Abstract: A new method refines the threshold vector autoregressive model used to study the effects of monetary policy. We contribute a new method for dealing with the problem of endogeneity of the threshold variable in threshold vector auto-regression (TVAR) models. Drawing on copula theory enables us to capture the dependence structure between the threshold variable and the vector of TVAR innovations, independently of the marginal distribution of the threshold variable. A Monte Carlo demonstrates that our method works well, and that ignoring threshold endogeneity leads to biased estimates of the threshold parameter and the variance-covariance error structure, thus invalidating dynamic analysis. As an application, we assess the effects of interest rate shocks on output and inflation: when “expected” inflation exceeds 3.6 percent, the effects of monetary policy are faster and stronger than otherwise.
    Keywords: VAR models; threshold models; monetary policy
    JEL: E40 E50 C32
    Date: 2023–07–28

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