nep-cba New Economics Papers
on Central Banking
Issue of 2023‒11‒27
sixteen papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. The Effect of Monetary Policy & Macroprudential Policy and Their Interaction on Bank Risk-Taking in Indonesia By Hero Wonida; Sekar Utami Setiastuti
  2. Unconventional Policies in State-Contingent Liquidity Traps By William Tayler; Roy Zilberman
  3. Opportunistic Political Central Bank Coverage: Does media coverage of ECB's Monetary Policy Impacts German Political Parties' Popularity? By Hugo Oriola; Matthieu Picault
  4. Monetary shocks and house prices in Europe By Alexis Pourcelot; Alain Coen
  5. U.S. Monetary Policy and Fluctuations of International Bank Lending By Avdjiev, Stefan; Hale, Galina
  6. Easier said than done: Predicting downside risks to house prices in Croatia By Tihana Škrinjarić
  7. The Influence of Fiscal and Monetary Policies on the Shape of the Yield Curve By Yoosoon Chang; Fabio Gomez-Rodriguez; Christian Matthes
  8. The Different Paths of Central Bank Scientization: The Case of the Bank of England By Goutsmedt, Aurélien; Sergi, Francesco; Claveau, François; Fontan, Clément
  9. An Alternative Measure of Core Inflation: The Trimmed Persistence PCE Price Index By John O'Trakoun
  10. The role of expectations for currency crisis dynamics - The case of the Turkish lira By Beckmann, Joscha; Czudaj, Robert L.
  11. That’s what she said: An Empirical Investigation on the Gender Gap in Inflation Expectations By Lovisa Reiche
  12. Curse and blessing: the effect of the dividend ban on euro area bank valuations and syndicated lending By Emiel Sanders; Mathieu Simoens; Rudi Vander Vennet
  13. Financial shock transmission to heterogeneous firms: the earnings-based borrowing constraint channel By Chiţu, Livia; Grothe, Magdalena; Schulze, Tatjana; Van Robays, Ine
  14. Heterogeneous macroprudential policies and corporate financing decisions By Bakkar, Yassine; Machokoto, Michael
  15. Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania By Mantas Dirma; Jaunius Karmelavičius
  16. The leverage anomaly in U.S. bank stock returns By Venmans, Frank

  1. By: Hero Wonida (Bank Indonesia); Sekar Utami Setiastuti (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)
    Abstract: We use the Indonesian quarterly bank-level data from 2009Q1 to 2021Q1 to investigate the effect of monetary policy, macroprudential policy, and the interaction between both policies on bank risk-taking in Indonesia. Several important results emerge. Firstly, we find evidences of the existence of risk-taking channels of the monetary policy in Indonesia, and that both bank size and level of capital have a relatively significant negative impact on bank risk-taking. Secondly, macroprudential policy tightening lowers bank risk-taking. We also find that the interaction between macroprudential policy and monetary policy tightening lowers risk-taking.
    Keywords: Monetary policy, Macroprudential policy, Bank risk-taking
    JEL: G21 G28 G32
    Date: 2023–08
  2. By: William Tayler; Roy Zilberman
    Abstract: We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary.
    Keywords: deposit tax-subsidy, cost channel, optimal policy, discretion vs. commitment, zero lower bound
    JEL: E32 E44 E52 E58 E63
    Date: 2023
  3. By: Hugo Oriola; Matthieu Picault
    Abstract: We define the concept of Opportunistic Political Central Bank Coverage (OPCBC) which corresponds to an opportunistic modification of parties’ popularity induced by media coverage of monetary policy. More precisely, we suppose that the treatment of monetary policy in the press has a significant impact on the popularity of national political parties prior to an election. To investigate on the existence of this concept, we collect monthly popularity ratings for 6 German political forces on the period between January 2005 and December 2021. Then, we measure media coverage through a textual analysis on more than 26.000 press articles from 6 different German newspapers. Finally, we estimate popularity functions for these German political parties in which we introduce our textual measures interacted with a dummy taking the value 1 in the month prior to an election. Our analysis underlines the existence of OPCBCs in Germany in the month preceding federal elections and elections to the European Parliament. This result is robust to the use of a SUR model, alternative pre-electoral periods, the implementation of two different tone analysis, the use of Google Trends data and the interest of the public for members of the ECB. Finally, it seems that the existence of OPCBCs depend on the partisanship of the media studied.
    Keywords: European Central Bank; Press; Textual Analysis; Tone Analysis; Elections; Political Cycles; Germany
    JEL: E58 D72 P35
    Date: 2023
  4. By: Alexis Pourcelot; Alain Coen
    Abstract: The purpose of this study is to investigate the effect of conventional and unconventional monetary policy shocks on housing price dynamics and the economy. We also examine the effect of a housing price shock on monetary policy and its implications for the economy. To do so, we implement an SVAR model for the six major European countries (France, Germany, Italy, Netherlands, Spain and the United Kingdom) and thirteen European markets (Paris, Lyon, Marseille, Berlin, Munich, Frankfurt, Amsterdam, Madrid, Barcelona, Seville, London, Birmingham and Manchester) for the last 20 years (2000-2020). We use impulse response functions to understand the effect of a policy rate and a balance sheet shock on housing prices. We also conduct a forecast error variance decomposition analysis to explore each shock’s effect on housing prices across markets. We find that a contractionary policy rate has a negative influence on house prices. Moreover, an expansionary balance sheet shock has a positive impact on housing prices in all countries, but the effect is heterogeneous according to markets. An unconventional monetary policy shock has greater explanatory power regarding housing prices than a conventional one except in the United Kingdom. The market-level analysis indicates that a conventional monetary policy shock explains a larger share of total housing price variance than an unconventional monetary policy shock in markets such as Paris, Lyon, Madrid, London, Birmingham, Manchester and Amsterdam whereas the opposite is true in the German markets, Barcelona and Seville. In Marseille, both policy types have the same explanatory power. Finally, we find that conventional and unconventional monetary policy shocks have a greater impact in more liberalized credit markets.
    Keywords: Conventional and unconventional monetary policy; House Prices; SVAR model
    JEL: R3
    Date: 2023–01–01
  5. By: Avdjiev, Stefan; Hale, Galina
    Date: 2023–10–29
  6. By: Tihana Škrinjarić (Bank of England, United Kingdom Author-Name2: Maja Sabol Author-Name2-First: Maja Author-Name2-Last: Sabol Author-Email2: Author-Workplace-Name2: European Parliament)
    Abstract: House price dynamics are particularly interesting for macroprudential policymakers due to their effects on financial stability and future macroeconomic performance. As the main goal of macroprudential policy is to mitigate systemic risks, it is essential to monitor the central tendency of future house price growth dynamics and focus on downside risks and their possible materialization. This research, the first of its kind applied to the Croatian housing market, tries to identify and capture the main drivers of house price-at-risk (HaR) for the period between 2002Q1 and 2022Q3. It also predicts downside risks to future real house price growth. Based on the quantile regression results, we conclude that downside risks on housing market have increased in recent years. The approach is found to be insightful to monitor the uncertainty of the forecasts and decomposing the drivers to house price forecasting. Our results have implications for a range of policies that influence housing markets.
    Keywords: financial stability, macroprudential policy, quantile regression, growth at risk, house price dynamics, downside risks
    JEL: E32 E44 E58 G01 G28 C22
    Date: 2023–11–08
  7. By: Yoosoon Chang (Indiana University); Fabio Gomez-Rodriguez (Lehigh University and Central Bank of Costa Rica); Christian Matthes (Indiana University)
    Abstract: We investigate the influence of the U.S. government’s spending and taxation decisions, along with the monetary policy choices made by the Federal Reserve, on the dynamics of the nominal yield curve. Aggregate government spending moves the long end of the yield curve, whereas monetary policy and changes in taxation move the short end of the yield curve on impact. Disentangling different types of government spending, we find that only government consumption exerts a discernible influence on the short end of the yield curve. The effects are generally transient and disappear after one year.
    Keywords: Yield Curve, Fiscal Policy, Monetary Policy, Functional Time Series
    Date: 2023–11
  8. By: Goutsmedt, Aurélien (UC Louvain - F.R.S-FNRS); Sergi, Francesco; Claveau, François; Fontan, Clément
    Abstract: This article investigates the scientization process in central banks, using the Bank of England (BoE) as a case study. It proposes an ideal type of the scientized central bank, which is tied to the core idea that the scientization of an organization grows with its willingness to contribute to the relevant science. We derive from this ideal type empirically observable characteristics regarding leadership and staff profiles, use of internal resources, composition of external networks, and publication and discursive outputs. The BoE is then contrasted to this ideal type of a thoroughly scientized central bank. The empirical material includes archives and interviews as well as three databases providing quantitative information from 1980 to 2019. We find that the path towards scientization is strategically motivated and varied, influenced by factors such as balancing the imperatives of expert credibility and informing policymaking. Based on this empirical analysis, we underline the multifaceted dynamics of the scientization process and call for more nuanced representations in the academic literature.
    Date: 2023–10–30
  9. By: John O'Trakoun
    Abstract: I introduce the "trimmed persistence PCE, " a new measure of core inflation in which component prices are weighted according to the time-varying persistence of their price changes. The components of trimmed persistence personal consumption expenditures (PCE) display less tendency to mechanically pass-through the level of the prior period's inflation to the current period; thus, the impact of the current stance of monetary policy and real economic factors are more likely to be visible in recent trimmed persistence inflation compared to headline inflation. Trimmed persistence inflation performs comparably to existing popular measures of core inflation in terms of volatility and relationship with economic slack. Model selection procedures confirm trimmed persistence PCE contributes additional information to inflation forecasting models when stacked against other popular measures of core inflation. Applying the new index in a Taylor rule analysis suggests the Fed's aggressive path of federal funds rate hikes during the pandemic may have achieved appropriately restrictive levels by the fourth quarter of 2022, clearing the way for more measured policy adjustment thereafter as risks of policy overshooting became more salient.
    Keywords: inflation; core inflation; inflation persistence; time-varying; inflation dynamics
    JEL: C22 E31 E37 E52
    Date: 2023–11
  10. By: Beckmann, Joscha; Czudaj, Robert L.
    Abstract: This paper examines whether and how expectations have contributed to the turbulent path of the Turkish lira since 2008. We derive uncertainty measures surrounding gross domestic product (GDP) growth, inflation, the interest rate, and exchange rates based on survey data from Consensus Economics. Our results illustrate that forecasts have affected realized exchange rates and stock market returns via increased uncertainty. We also show that expectations regarding monetary policy have changed throughout the sample period. In line with, a gradual adjustment of expectations professionals have accounted for the violation of the Taylor rule.
    Keywords: disagreement, expectations, foreign exchange, survey data, Taylor rule, Turkish lira, uncertainty
    Date: 2023
  11. By: Lovisa Reiche
    Abstract: The gender gap in inflation expectations, i.e., women reporting systematically higher inflation expectations in consumer surveys, is a well-established phenomenon. The dis parity has been attributed to women’s greater involvement in grocery shopping and exposure to volatile food prices. I evaluate this hypothesis using a Bayesian learning framework, which suggests that signal volatility increases mean expectations only when ever the prior is flat. Such a flat prior could be caused by low financial literacy, which is more prevalent in women. Using data from the “Bundesbank Online Panel – House holds”, I find that grocery shopping increases expectations only for a low literacy sample and including a control for financial literacy closes the gender gap fully. This observation has significant macroeconomic implications, including potential gender-based disparities in retirement investment and monetary policy targeting.
    Date: 2023–10–23
  12. By: Emiel Sanders; Mathieu Simoens; Rudi Vander Vennet (-)
    Abstract: At the outbreak of the Covid-19 pandemic, the European Central Bank issued a strong recommendation towards banks to halt dividend payouts. The goal of this de facto dividend ban was to boost banks’ capital to ensure the supply of new credit. However, given the importance of dividends for stock market investors, this unprecedented measure is likely to have impacted bank valuations. Hence, banks may have chosen to preserve their higher capital buffers to boost payouts after the lifting of the ban, rendering the intended positive effect on credit supply a priori uncertain. We first investigate the effect of the dividend ban announcement on euro area banks’ valuations and find a significantly negative impact. Second, we assess the effect of the dividend ban on syndicated lending, including potential heterogeneity depending on the stock market reaction. We show that credit supply significantly increased, without counteracting effect of the negative stock market reaction.
    Keywords: Covid-19; dividend, euro area banks; market valuation; syndicated lending
    JEL: E51 G21 G28
    Date: 2023–11
  13. By: Chiţu, Livia; Grothe, Magdalena; Schulze, Tatjana; Van Robays, Ine
    Abstract: We study the heterogeneous impact of jointly identified monetary policy and global riskshocks on corporate funding costs. We disentangle these two shocks in a structural BayesianVector Autoregression framework and investigate their respective effects on funding costsof heterogeneous firms using micro-data for the US. We tease out mechanisms underlyingthe effects by contrasting financial frictions arising from traditional asset-based collateralconstraints with the recent earnings-based borrowing constraint hypothesis, differentiatingfirms across leverage and earnings. Our empirical evidence strongly supports the earnings-basedborrowing constraint hypothesis. We find that global risk shocks have stronger andmore heterogeneous effects on corporate funding costs which depend on firms’ positionwithin the earnings distribution. JEL Classification: G12, E43, E52
    Keywords: corporate spreads, earnings-based borrowing constraint, global risk shocks, heterogeneous firms, monetary policy shocks
    Date: 2023–11
  14. By: Bakkar, Yassine; Machokoto, Michael
    Abstract: Utilizing data from 31, 336 firms across 69 countries over the period 2011-2017, we find evidence suggesting macroprudential policies have a significant negative impact on corporate debt, particularly long-term debt. We further find that macroprudential policies have heterogeneous effects, with a greater impact observed among firms facing binding credit constraints and high market competition, as well as those operating in countries with less developed institutions. These findings underscore the importance of institutional factors in determining the effectiveness of macroprudential policies.
    Keywords: Capital structure, debt maturity, macroprudential policies
    JEL: G20 G30 G32
    Date: 2023
  15. By: Mantas Dirma; Jaunius Karmelavičius
    Abstract: Despite having introduced borrower-based measures (BBM), Lithuania's housing and mortgage markets were booming during the low-interest-rate period, casting doubt on the macroprudential toolkit's ability to contain excessive mortgage growth. This paper assesses the adequacy of BBMs’ parametrization in Lithuania. We do so by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the preregulatory era. Our BBM limit calibration exercise reveals that (1) in the low-rate environment, income-based measures could have been tighter; and (2) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment.
    Keywords: macroprudential policy; borrower-based measures; LTV; mortgage credit risk; lifetime expected loss; probability of default.
    Date: 2023–10–27
  16. By: Venmans, Frank
    Abstract: This article examines the relationship between capital ratios and returns on US bank stocks between 1973 and 2019. Banks with low capital ratios do not have higher, but rather lower returns than banks with intermediate levels of capital. This is not explained by standard risk factors. As a result, risk-adjusted returns (alphas) of lowcapital banks are negative. Moreover, the stock returns exhibit a delayed reaction to changes in capital ratios. Low-capital banks that further increase their debt have high abnormal returns on the day of announcement, but tend to have low risk-adjusted returns in the 9 months that follow. The paper uncovers several explanations for this leverage anomaly: under-priced default risk, under-priced systematic risk and sensitivity to idiosyncratic volatility.
    Keywords: asset pricing anonaly; bank regulation; capital requirements; leverage
    JEL: G12 G14 G21 G32
    Date: 2021–11–01

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