nep-cba New Economics Papers
on Central Banking
Issue of 2023‒12‒11
25 papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. The Effects of CBDC on the Federal Reserve's Balance Sheet By Christopher J. Gust; Kyungmin Kim; Romina Ruprecht
  2. Risk, monetary policy and asset prices in a global world By Bekaert, Geert; Hoerova, Marie; Xu, Nancy R.
  3. Financial stability considerations in the conduct of monetary policy By Bochmann, Paul; Dieckelmann, Daniel; Fahr, Stephan; Ruzicka, Josef
  4. Replacing bank money with base money: Lessons for CBDCs from the ending of private banknotes in Sweden By Ögren, Anders
  5. Time-Varying Identification of Monetary Policy Shocks By Annika Camehl; Tomasz Wo\'zniak
  6. Lending of Last Resort in Monetary Unions: Differing Views of German Economists in the 19th and 21st Centuries By Trautwein, Hans-Michael
  7. US monetary policy spillovers to European banks By Jung, Alexander
  8. Monetary Policy Under Financial Exclusion By Lahiri, Amartya; Singh, Rajesh
  9. The pass through of monetary policy to euro area bank interest rates By Kyriaki G. LouKa; Nektarios A. Michail
  10. Monetary policy and herding behaviour in the ZAR market By Xolani Sibande
  11. Expectations and the neutrality of interest rates By John Cochran
  12. The Theoretical Superiority of the Compensation view in Explaining Monetary Policy Autonomy By Zico Dasgupta
  13. The Transmission of Monetary Policy to Corporate Investment: The Role of Loan Renegotiation By Eunkyung Lee
  14. Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors By Czudaj, Robert L.
  15. Fed Transparency and Policy Expectation Errors: A Text Analysis Approach By Eric Fischer; Rebecca McCaughrin; Saketh Prazad; Mark Vandergon
  16. The inefficiency of Quantitative Easing in the Euro Area By Nektarios A. Michail; Kyriaki G. LouKa
  17. Hawkish or Dovish Fed? Estimating a Time-Varying Reaction Function of the Federal Open Market Committee's Median Participant By Manuel Gonzalez-Astudillo; Rakeen Tanvir
  18. Monetary/fiscal policy regimes in post-war Europe By Bouabdallah, Othman; Jacquinot, Pascal; Patella, Valeria
  19. Monetary Policy, Segmentation, and the Term Structure By Rohan Kekre; Moritz Lenel; Federico Mainardi
  20. The bright side of the doom loop: banks’ sovereign exposure and default incentives By Rojas, Luis E.; Thaler, Dominik
  21. LCR Premium in the Federal Funds Market By Alyssa G. Anderson; Manjola Tase
  22. FINEX - A New Workhorse Model for Macroeconomic Forecasting and Policy Analysis By Mr. Andrew Berg; Yaroslav Hul; Mr. Philippe D Karam; Adam Remo; Diego Rodriguez Guzman
  23. The Time-Varying Price of Financial Intermediation in the Mortgage Market By Andreas Fuster; Stephanie Lo; Paul Willen
  24. Foreign Exchange Implications of CBDCs and Their Integration via Bridge Coins By Alexis Derviz
  25. Asset Prices, Collateral Constraints and Balance-of-Payments Crises By Singh, Rajesh

  1. By: Christopher J. Gust; Kyungmin Kim; Romina Ruprecht
    Abstract: We propose a parsimonious framework to understand how the issuance of central bank digital currency (CBDC) might affect the financial system, the Federal Reserve's balance sheet, and the implementation of monetary policy. We show that there is a wide range of outcomes on the financial system and the Federal Reserve's balance sheet that could reasonably occur following CBDC issuance. Our analysis highlights that the potential effects on the financial sector depend critically on how the Fed manages its balance sheet. In particular, CBDC could in principle put substantial upward pressure on the spread of the federal funds rate and other wholesale funding rates over the interest rate on reserves unless the Fed expanded its balance sheet to accommodate CBDC issuance.
    Keywords: Central bank digital currency; Monetary policy implementation; Bank disintermediation; Central bank balance sheet
    JEL: E50 E51 E52 E58
    Date: 2023–11–03
  2. By: Bekaert, Geert; Hoerova, Marie; Xu, Nancy R.
    Abstract: We study how monetary policy and risk shocks affect asset prices in the US, the euro area, and Japan, differentiating between “traditional” monetary policy and communication events, each decomposed into “pure” and information shocks. Communication shocks from the US spill over to risk in the euro area and vice versa, but traditional US shocks show no spillover effects to risk. Both monetary policy and communication shocks spill over to stocks, with euro area information spillovers being particularly strong. US spillovers are consistent with global CAPM intuition whereas euro area spillovers are larger. Importantly, we document a strong global component of risk shocks which is not driven by monetary policy. JEL Classification: E44, E52, G12, G20, E32
    Keywords: central bank communications, global financial cycle, interest rate, international spillovers, monetary policy, risk, stock returns, trilemma
    Date: 2023–11
  3. By: Bochmann, Paul; Dieckelmann, Daniel; Fahr, Stephan; Ruzicka, Josef
    Abstract: We empirically analyze the interaction of monetary policy with financial stability and the real economy in the euro area. For this, we apply a quantile vector autoregressive model and two alternative estimation approaches: simulation and local projections. Our specifications include monetary policy surprises, real GDP, inflation, financial vulnerabilities and systemic financial stress. We disentangle conventional and unconventional monetary policy by separating interest rate surprises into two factors that move the yield curve either at the short end or at the long end. Our results show that a build-up of financial vulnerabilities tends to be accompanied initially by subdued financial stress which resurges, however, over a medium-term horizon, harming economic growth. Tighter conventional monetary policy reduces inflationary pressures but increases the risk of financial stress. [...] JEL Classification: E31, E52, G01, G10
    Keywords: macroprudential policy, monetary policy, monetary policy identification, quantile regressions, financial stability
    Date: 2023–11
  4. By: Ögren, Anders (Department of Economic History, Uppsala University)
    Abstract: A number of central banks have started to investigate the possibility of issuing so-called Central Bank Digital Currencies (CBDCs). The aim may be to compete with cryptocurrencies of different kinds but also to replace digital commercial bank money with central bank issued digital money, i.e. replacing bank money with central bank issued base money. In this paper we study a similar experiment when the Swedish central bank, the Riksbank, in 1903 replaced private banknotes with their own notes. The result of this policy was a massive increase in commercial bank credit due to the increase in base money, spurring the ongoing boom even further. A boom that worsened the 1907 crisis. The result is thus questioning the notion that increased monetary issuance by a monetary authority to replace other financial assets as private money or cryptoassets should lead to increased financial stability – as, in fact, it led to the opposite.
    Keywords: Central banking; Commercial banks; Crises; Cryptoassets; Financial stability
    JEL: E42 N13 N23
    Date: 2022–10–25
  5. By: Annika Camehl (Erasmus University Rotterdam); Tomasz Wo\'zniak (University of Melbourne)
    Abstract: We propose a new Bayesian heteroskedastic Markov-switching structural vector autoregression with data-driven time-varying identification. The model selects alternative exclusion restrictions over time and, as a condition for the search, allows to verify identification through heteroskedasticity within each regime. Based on four alternative monetary policy rules, we show that a monthly six-variable system supports time variation in US monetary policy shock identification. In the sample-dominating first regime, systematic monetary policy follows a Taylor rule extended by the term spread and is effective in curbing inflation. In the second regime, occurring after 2000 and gaining more persistence after the global financial and COVID crises, the Fed acts according to a money-augmented Taylor rule. This regime's unconventional monetary policy provides economic stimulus, features the liquidity effect, and is complemented by a pure term spread shock. Absent the specific monetary policy of the second regime, inflation would be over one percentage point higher on average after 2008.
    Date: 2023–11
  6. By: Trautwein, Hans-Michael (Department of Economics, Carl von Ossietzky Universität Oldenburg)
    Abstract: The European Central Bank’s activities as lender of last resort are especially controversial in Germany. The overriding concern of the critics is an alleged tendency of creating moral hazard on the side of public and private borrowers in the European Monetary Union. This contrasts with the predominant views among German economists in the classical gold standard era, when the newly founded German empire merged the many currency areas in its realm into monetary union. Prominent experts and policy advisors, such as Erwin Nasse, Adolph Wagner and Friedrich Bendixen, argued that in view of the costs of system failures moral hazard ought not to be a predominant consideration at times of crisis. In critical assessments of the Currency vs. Banking debates in England, German commentators questioned the credibility and sustainability of strict rules for monetary policy in banking crises. Some even developed evolutionary views, in which monetary integration is driven by financial markets and lending of last resort becomes a constitutive characteristic of central banking, in particular in the formation of a monetary union. This paper compares the older German views about lending of last resort in monetary unions with the current discourse and explores possible explanations for the differences.
    Keywords: monetary union; banking crises; lending of last resort; gold standard
    JEL: B15 E58 F45 G01
    Date: 2022–02–01
  7. By: Jung, Alexander
    Abstract: The Federal Reserve’s (Fed) monetary policy announcements have created massive spillovers to global financial markets. Based on daily data for the sample from 1999 to 2019, this study finds that the Fed’s monetary policy announcements created significant international spillovers to bond yields and stock prices of European banks and non-financial corporations (NFCs), while changes in uncertainty around the expected Fed policy path and Fed information effects constituted critical additional dimensions of these spillover effects. International spillovers to bond yields of banks and NFCs were similar, while stock prices of European banks responded somewhat stronger than those of NFCs. The significant spillovers from the Fed’s forward guidance to European bond yields show that central bank communication is very relevant for international transmission. In relation to earlier studies emphasizing strong QE-related spillovers, this study suggests that Fed QE announcements created only small spillovers on bond yields and stock prices of European banks and NFCs. JEL Classification: E44, E52, F42, G14, G21
    Keywords: high-frequency event study, instrumental variables, local projections, monetary policy shocks, monetary policy uncertainty
    Date: 2023–11
  8. By: Lahiri, Amartya; Singh, Rajesh
    Abstract: We investigate the welfare implications of alternative monetary policy rules in a small open economy with access to world capital markets. Financial market access is costly and induces an endogenous segmentation of households into non-traders who never participate and traders who only participate intermittently in asset markets. The model can reproduce standard business cycle moments of open economies including a countercyclical current account even though the model has no capital and investment. Our main policy result is that procyclical monetary policy outperforms both the Taylor rule and inflation targeting in this environment. Given widespread evidence of endemic financial exclusion throughout the world, these results suggest caution in importing monetary policy prescriptions tailored for developed countries into emerging economies.
    Date: 2023–11–06
  9. By: Kyriaki G. LouKa (Central Bank of Cyprus); Nektarios A. Michail (Central Bank of Cyprus)
    Abstract: We examine the transmission of monetary policy to bank interest rates in the euro area, using rolling 10-year samples. The results suggest that the pass through of policy rates to bank interest rates was relatively stable prior to the use of unconventional monetary policy measures, in which case the multiplier increased, especially for housing and short-term NFCs loans. It appears that Quantitative Easing (QE) operations allow for bank lending rates to further decline, however, this could lead to higher lending in those particular loan categories, with certain repercussions to the economy. In addition to the excess liquidity created by asset purchases, other factors such as credit risk and house price growth also appear to impact the pass through.
    Keywords: pass through, deposit beta, error correction, euro area, asset purchases
    JEL: E43
    Date: 2023–08
  10. By: Xolani Sibande
    Abstract: This paper investigates the presence of herding and its interactions with monetary policy in the ZAR market. We use both the standard herding tests and Sim and Zhous (2015) quantile-on-quantile regressions. Similar to previous results in other markets, we found that extreme market events mainly drove herding behaviour in the ZAR market. This result is significant in the presence of monetary policy announcements. However, herding in the ZAR markets was not related to market fads. It therefore was, in the main, a rational response to public information, indicating central bank credibility. This credibility gives scope to the central bank to improve communication in periods of market crisis to dampen potential volatility. Further studies on the herding of specific ZAR market participants can be invaluable.
    Date: 2023–11–14
  11. By: John Cochran
    Abstract: Our central banks set interest rate targets, and do not even pretend to control money supplies. How do interest rates affect inflation? We finally have a complete theory of inflation under interest rate targets and unconstrained liquidity. Its long-run properties mirror those of monetary theory: Inflation can be stable and determinate under interest rate targets, including a peg, analogous to a k-percent rule. The zero bound era is confirmatory evidence. Uncomfortably, stability means that higher interest rates eventually raise inflation, just as higher money growth eventually raises inflation. Sticky prices generate some short-run non-neutrality as well: Higher nominal interest rates can raise real rates and lower output. A model in which higher nominal interest rates temporarily lower inflation, without a change in fiscal policy, is a harder task. I exhibit one such model, but it paints a much more limited picture than standard beliefs. We either need a model with a stronger effect, or to accept that higher interest rates have quite limited power to lower inflation. Empirical understanding of how interest rates affect inflation without fiscal help is also a wide-open question.
    Keywords: interest rates, inflation, neutrality, non-neutrality
    JEL: E4 E5
    Date: 2023–10
  12. By: Zico Dasgupta
    Abstract: This paper compares three theoretical frameworks that attempt to explain the phenomenon of weak relationship between foreign and domestic interest rate under fixed or manage-float exchange rate regimes - the Mundell-Fleming (MF) model without sterilization and the Mundell-Fleming model with sterilization (MFS) and the Compensation view. It argues for the theoretical superiority of the Compensation view as it can explain monetary policy autonomy under less restrictive assumptions. The paper outlines the underlying models of these frameworks and highlights the centrality of commercial bank loans in the Compensation view. I discuss the trend in India’s interest rates which is consistent with the Compensation view.
    Keywords: Monetary Policy, Endogenous money, Mundell-Fleming, Compensation view, Sterilization
    JEL: E43 E51 E52 E58
    Date: 2023–11
  13. By: Eunkyung Lee
    Abstract: I construct a novel dataset comprising over 100, 000 loan observations from U.S. firms and estimate that renegotiating existing loans — rather than originating new loans — significantly contributes to the corporate investment response to monetary policy shocks, accounting for half of the aggregate effect. Expansionary monetary policy shocks increase bank credit predominantly through renegotiations, and in turn, firms that renegotiate boost investment the most. By contrast, new loan issuance is driven by the firm’s investment growth prior to the shocks, consequently contributing only a tenth to the overall investment response. Notably, renegotiations amplify investment responses for financially constrained firms. These findings unveil novel dimensions of the channels through which monetary policy affects corporate investment.
    Keywords: monetary policy transmission; bank debt; investment; financial constraints; renegotiation; text analysis
    JEL: E22 E32 E52 G21 G32
    Date: 2023–11
  14. By: Czudaj, Robert L.
    Abstract: This paper proposes a new measure proxying the degree of anchoring of inflation expectations on an individual forecaster level and studies the co-movement of this measure with expectations regarding monetary policy and different cost-push factors. In doing so, we rely on data taken from the ECB Survey of Professional Forecasters for both parts of the analysis. First, we construct a measure for the degree of anchoring of inflation expectations for each forecaster based on his inflation expectations taking into account both point and density forecasts. Second, we regress this anchoring measure on the professional forecasters' expectations regarding the policy rate of the ECB and three different cost factors potentially affecting the inflation rate: the crude oil price, the USD/EUR exchange rate, and unit labor costs. The main findings indicate that expectations regarding a tightening of monetary policy are generally able to enhance the degree of anchoring while an expected increase in both the crude oil price and unit labor costs seems to lower the degree of anchoring. The latter finding is more pronounced for shorter horizons.
    Keywords: Anchoring, Inflation expectations, Monetary policy, Crude oil, Unit labor costs
    JEL: E31 E52 Q43
    Date: 2023–11–02
  15. By: Eric Fischer; Rebecca McCaughrin; Saketh Prazad; Mark Vandergon
    Abstract: This paper seeks to estimate the extent to which market-implied policy expectations could be improved with further information disclosure from the FOMC. Using text analysis methods based on large language models, we show that if FOMC meeting materials with five-year lagged release dates—like meeting transcripts and Tealbooks—were accessible to the public in real time, market policy expectations could substantially improve forecasting accuracy. Most of this improvement occurs during easing cycles. For instance, at the six-month forecasting horizon, the market could have predicted as much as 125 basis points of additional easing during the 2001 and 2008 recessions, equivalent to a 40-50 percent reduction in mean squared error. This potential forecasting improvement appears to be related to incomplete information about the Fed’s reaction function, particularly with respect to financial stability concerns in 2008. In contrast, having enhanced access to meeting materials would not have improved the market’s policy rate forecasting during tightening cycles.
    Keywords: interest rates; monetary policy; central banks and their policies; sentiment analysis
    JEL: E43 E52 E58 C80
    Date: 2023–11–01
  16. By: Nektarios A. Michail (Central Bank of Cyprus); Kyriaki G. LouKa (Central Bank of Cyprus)
    Abstract: We examine whether quantitative easing had an impact on output and inflation in the euro area. Using a BVAR model, over the March 2015 - December 2021 period, our results suggest that quantitative easing is an inefficient policy tool. In particular, following a shock that increases asset purchases by around 1% of euro area GDP, inflation increases by around 0.01%, while industrial production rises by 0.3%. The biggest beneficiary of quantitative easing is the stock market, rising more than 2% after the shock. Since only a very small share of the general populace holds stocks, this has adverse inequality effects.
    Keywords: quantitative easing; euro area; inequality; asset purchases
    JEL: E58 E52 C32
    Date: 2023–10
  17. By: Manuel Gonzalez-Astudillo; Rakeen Tanvir
    Abstract: This paper estimates a time-varying reaction function of the median participant of the Federal Open Market Committee, using a Taylor rule with time-varying coefficients estimated on one- to three-year ahead median forecasts of the federal funds rate, inflation, and the unemployment rate from the Summary of Economic Projections (SEP). We estimate the model with Bayesian methods, incorporating the effective lower bound on the median federal funds rate projections. The results indicate that the monetary policy rule has become significantly more persistent after the pandemic than in the years prior, and it currently reacts strongly to inflation, at more than twice the responsiveness estimated prior to 2020. Our proposed policy rule produces accurate predictions of the median federal funds rate projections in real time for given SEP forecasts of inflation and the unemployment rate, suggesting that the median participant's reaction function is well-represented by our assumed Taylor rule with time-varying coefficients. Our results show that the median participant's reaction function becomes less persistent and less responsive to inflation yet more responsive to the output gap in anticipation of tighter monetary policy conditions. We also find that labor market activity, inflation, and macroeconomic uncertainty correlate significantly with the evolution of the time-varying coefficients of the rule. Finally, we show that in times of a less persistent policy rule or more responsiveness to inflation, markets perceive nominal bonds as better macroeconomic hedges.
    Keywords: Summary of Economic Projections; Reaction function; Taylor rule; FOMC communications; Time-varying coefficients; Censored regression
    JEL: C32 C34 E52 E58
    Date: 2023–11–06
  18. By: Bouabdallah, Othman; Jacquinot, Pascal; Patella, Valeria
    Abstract: In most euro area countries, the monetary/fiscal policy mix is responsible for the changing history of debt and inflation facts. Using a Dynamic Stochastic General Equilibrium model with Markov-switching policy rules, we identify three distinct monetary/fiscal regimes in France and Italy: a Passive Monetary-Active Fiscal regime (PM/AF) before the late 80s/early 90s; an Active Monetary-Passive Fiscal regime (AM/PF) with central bank independence and EMU convergence; a third regime with policy rates at the effective lower bound combined with fiscal active behavior to sustain the recovery. Our simulations reveal that the PM/AF regime in France led to price volatility and debt stabilisation, while the AM/PF regime resulted in disinflation and rising debt trajectory. Meanwhile, Italy’s procyclical fiscal policy in downturns contributed to persisting imbalances, high aggregate volatility, and low growth. JEL Classification: E63, E62, E32, E52, C32
    Keywords: debt, euro area, inflation, Markov-switching, Monetary-fiscal policy mix
    Date: 2023–11
  19. By: Rohan Kekre (Chicago Booth and NBER); Moritz Lenel (Princeton and NBER); Federico Mainardi (Chicago Booth)
    Abstract: We develop a segmented markets model which rationalizes the effects of monetary policy on the term structure of interest rates. As in the preferred habitat tradition, habitat investors and arbitrageurs trade bonds of various maturities. As in the intermediary asset pricing tradition, the wealth of arbitrageurs is a state variable which affects equilibrium term premia. When arbitrageurs’ portfolio features positive duration, an unexpected fall in the short rate revalues wealth in their favor and compresses term premia. A calibration to the U.S. economy accounts for the effects of monetary shocks along the yield curve. We discuss the additional implications of our framework for state-dependence, endogenous price volatility, and trends in term premia from a declining natural rate.
    Keywords: monetary policy, term structure, segmented markets
    JEL: E44 E63 G12
    Date: 2023–09
  20. By: Rojas, Luis E.; Thaler, Dominik
    Abstract: The feedback loop between sovereign and financial sector insolvency has been identified as a key driver of the European debt crisis and has motivated an array of policy proposals. We revisit this “doom loop” focusing on governments’ incentives to default. To this end, we present a simple 3-period model with strategic sovereign default, where debt is held by domestic banks and foreign investors. The government maximizes domestic welfare, and thus the temptation to default increases with externally-held debt. Importantly, the costs of default arise endogenously from the damage that default causes to domestic banks’ balance sheets. Domestically-held debt thus serves as a commitment device for the government. We show that two prominent policy prescriptions – lower exposure of banks to domestic sovereign debt or a commitment not to bailout banks – can backfire, since default incentives depend not only on the quantity of debt, but also on who holds it. Conversely, allowing banks to buy additional sovereign debt in times of sovereign distress can avert the doom loop. In an extension we show that in the context of a monetary union (such as the euro area) similar unintended negative consequences may arise from the pooling of debt (such as European safe bond aka. ESBies). A backstop by the central bank (such as the ECB’s Transmission Protection Instrument) can successfully disable the loop if precisely calibrated. JEL Classification: E44, E6, F34
    Keywords: bailout, doom loop, ESBies, self-fulfilling crises, sovereign default, transmission protection instrument
    Date: 2023–11
  21. By: Alyssa G. Anderson; Manjola Tase
    Abstract: We document the existence of a regulatory premium in the federal funds market related to the implementation of the Liquidity Coverage Ratio (LCR). We use difference-in-differences analysis and confidential bank level data on borrowing in the fed funds and Eurodollar markets to compare the interest rates paid by banks subject to daily reporting of their liquidity profile (daily reporters) relative to other banks. We find that, after the implementation of LCR, daily reporters paid a higher rate compared to other banks when borrowing in the fed funds market given the LCR-favorability of many of the lenders in this market. In addition, on the days that banks borrowed in both the fed funds and Eurodollar markets, daily reporters paid a higher rate than other banks for their borrowing in the fed funds market but not for their borrowing in the Eurodollar market.
    Keywords: Eurodollars; Liquidity Coverage Ratio; market segmentation
    JEL: E49 E52 G21 G28
    Date: 2023–11–09
  22. By: Mr. Andrew Berg; Yaroslav Hul; Mr. Philippe D Karam; Adam Remo; Diego Rodriguez Guzman
    Abstract: This paper presents a semi-structural macroeconomic model aimed at facilitating policy analysis and forecasting, primarily in countries with imperfect capital mobility and hybrid monetary policy regimes. Compared to earlier gap-trend projection models, the Forecasting Model of Internal and External Balance (FINEX) contains three main innovations: it accentuates external and internal balances; explicitly incorporates fiscal policy; and partly endogenizes the main trends. FINEX thus covers a broad set of policy instruments, including foreign exchange interventions (FXI), capital flow management measures (CFM), as well as common fiscal policy instruments. The model incorporates insights from the recent DSGE literature, while maintaining a more accessible gap-trend structure that lends itself to practical policy applications. While the paper refrains from drawing broad policy lessons, it emphasizes the model's ability to interpret recent data in terms of structural shocks and policy responses, thereby aiding policymakers in constructing coherent economic narratives and considering alternative scenarios.
    Keywords: Semi-Structural Modeling; Monetary Policy; Fiscal Policy; Foreign Exchange Intervention; Forecasting; Imperfect Capital Mobility
    Date: 2023–11–10
  23. By: Andreas Fuster (École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)); Stephanie Lo (NDVR); Paul Willen (Federal Reserve Bank of Boston; NBER)
    Abstract: We introduce a new measure of the price charged by financial intermediaries for connecting mortgage borrowers with capital market investors. Based on administrative lender pricing data, we document that the price of intermediation is strongly driven by variation in demand, reflecting capacity constraints of mortgage originators. This positive co-movement of price with quantity reduced the pass-through of quantitative easing. We also find a notable upward trend in this price over 2008- 2014, likely due to an increased legal and regulatory burden in the mortgage market. The trend led to an implicit cost to borrowers of nearly $100 billion over this period.
    Keywords: mortgage finance, financial intermediation, monetary policy transmission, QE
    JEL: E44 E52 G21 L11
    Date: 2023–11
  24. By: Alexis Derviz
    Abstract: When several central banks decide to introduce CBDCs, interoperability requirements create demand for a common payment infrastructure and a joint digital accounting unit (bridge coin). Many attributes of the latter resemble those of private digital currencies. At the same time, the CBDC-embracing authorities actively contribute to elevating digital wallets to the position of a household technology. Private agents discover ways to make domestic and foreign payments in the (digital) currency of their choice irrespective of the CBDC-issuing authorities' intentions. In such a world, will fiat currencies and the central banks that issue them be sidetracked by the bridge coin, or are old and new forms of international transactions able to coexist? What changes await the traditional FX market? These questions are addressed in a two-country, twogood, two-currency DSGE model with a global digital currency (digicoin). Under a certain structure of FX transaction costs, all three partial FX markets coexist and the use of fiat currency in foreign trade is unlikely to be eliminated completely as long as the bridge coin operator is unable to become a global banker as well.
    Keywords: Bridge coin, cash in advance, CBDC, digital currency, FX market
    JEL: C61 C63 D58 E02 E59 G23
    Date: 2023–07
  25. By: Singh, Rajesh
    Abstract: Emerging markets crises experience shows that asset prices decline in advance of balance-of-payments crises, and that firms face credit constraints during crises. This paper presents a model where an anticipated balance-of-payments crisis causes asset prices to decline that in turn trigger firms' collateral constraints to bind. With collateral constraints, self-fulfilling crisis equilibria are shown to exist even when there are no government bailouts. The time of the self-fulfilling run on foreign reserves is mapped with its initial level and the degree of government bailout. Without government bailout, the time of the run conforms to the conventional wisdom: the higher the level of foreign reserves, the later is the crisis. With bailouts, however, this relationship is non-monotonic. When government bailouts are large, the higher the level of foreign reserves, the sooner is the crisis.
    Date: 2023–11–02

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