nep-cba New Economics Papers
on Central Banking
Issue of 2024‒02‒26
25 papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. Optimal Monetary Policy and Taylor Rule Extensions By Blampied, Nicolas; Cafferata, Alessia; Tibiletti, Luisa; Uberti, Mariacristina
  2. A leaky pipeline: Macroprudential policy shocks, non-bank financial intermediation and systemic risk in Europe By Krenz, Johanna; Verma, Akhilesh K
  3. Central Banks, Stock Markets, and the Real Economy By Ricardo J. Caballero; Alp Simsek
  4. The Role of International Financial Integration in Monetary Policy Transmission By Jing Cynthia Wu; Yinxi Xie; Ji Zhang
  5. Optimal normalization policy under behavioral expectations By Alexandre Carrier; Kostas Mavromatis
  6. Central Bank Digital Currency and Banking Choices By Jiaqi Li; Andrew Usher; Yu Zhu
  7. The impact of macroeconomic and monetary policy shocks on credit risk in the euro area corporate sector By Lo Duca, Marco; Moccero, Diego; Parlapiano, Fabio
  8. Inequality and monetary policy: THRANK model By Pavel Vikharev; Anna Novak; Andrei Shulgin
  9. Trends in central bank independence: a de-jure perspective By Davide Romelli
  10. The Effect of US Monetary Policy on the Activities of Russian Banks in the Low Interest Rate Environment By Nadezhda Ivanova; Ekaterina Petreneva; Konstantin Styrin; Yulia Ushakova
  11. Cyclical systemic risk and banks’ vulnerability By Alona Shmygel; Steven Ongena
  12. The term structure of interest rates in a heterogeneous monetary union By James Costain; Galo Nuño Barrau; Carlos Thomas
  13. Challenges for monetary and fiscal policy interactions in the post-pandemic era By Bonam, Dennis; Ciccarelli, Matteo; Gomes, Sandra; Aldama, Pierre; Bańkowski, Krzysztof; Buss, Ginters; da Costa, José Cardoso; Christoffel, Kai; Elfsbacka Schmöller, Michaela; Jacquinot, Pascal; Kataryniuk, Ivan; Marx, Magali; Mavromatis, Kostas; Moyen, Stéphane; Mužić, Ivan; Notarpietro, Alessandro; Papageorgiou, Dimitris; Rannenberg, Ansgar; Skotida, Ifigeneia; Bouabdallah, Othman; Dobrew, Michael; Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Brzoza-Brzezina, Michał; Hurtado, Samuel; Kolasa, Marcin; Patella, Valeria; Renault, Théodore; Domínguez-Díaz, Rubén; Lechthaler, Wolfgang; McClung, Nigel; Šestořád, Tomáš; Silgado-Gómez, Edgar; Železník, Martin; von Thadden, Leo; Menéndez-Álvarez, Carolina
  14. The housing supply channel of monetary policy By Martin Iseringhausen
  15. Monetary policy with profit-driven inflation By Enisse Kharroubi; Enisse Kharroubi and Frank Smets
  16. Regional Dissent: Local Economic Conditions Influence FOMC Votes By Anton Bobrov; Rupal Kamdar; Mauricio Ulate
  17. Central banks sowing the seeds for a green financial sector? NGFS membership and market reactions By Fischer, Lion; Rapp, Marc Steffen; Zahner, Johannes
  18. Is Monetary Policy Transmission Green? By Inessa BENCHORA; Aurélien LEROY; Louis RAFFESTIN
  19. What drives banks’ credit standards? An analysis based on a large bank-firm panel By Faccia, Donata; Hünnekes, Franziska; Köhler-Ulbrich, Petra
  20. Inflation Expectations and Political Polarization: Evidence from the Cooperative Election Study By Ethan Struby; Christina Farhart
  21. A Framework for Digital Currencies for Financial Inclusion in Latin America and the Caribbean By Gabriel Bizama; Alexander Wu; Bernardo Paniagua; Max Mitre
  22. The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory By Xiwen Bai; Jesús Fernández-Villaverde; Yiliang Li; Francesco Zanetti
  23. Transmission to a low-carbon economy and its implications for financial stability in Russia By Anna Burova; Elena Deryugina; Nadezhda Ivanova; Maxim Morozov; Natalia Turdyeva
  24. Visible prices and their influence on inflation expectations of Russian households By Vadim Grishchenko; Diana Gasanova; Egor Fomin; Grigory Korenyak
  25. Does CPI disaggregation improve inflation forecast accuracy? By Viacheslav Kramkov

  1. By: Blampied, Nicolas; Cafferata, Alessia; Tibiletti, Luisa; Uberti, Mariacristina
    Abstract: The Taylor rule constitutes the main tool policy makers rely on to guide monetary policy. In simple words, the rule is a reaction function that determines the short-term interest rate, which responds in the baseline specifications to changes in the inflation gap and the output gap. Since the original paper of Taylor (1993), a large debate has taken place in the literature regarding what the best performing rules are. This paper attempts to analyze the recent literature on the Taylor rule and in particular two important extensions proposed in the last decades: first, we consider whether financial variables should be included in the Taylor rule; second, we analyze the inclusion of the long-term interest rate. From this analysis, we contribute to the understanding of the main monetary policy tool used by any Central Bank and debate whether we find potential variables to extend it.
    Keywords: Inflation; Interest rates; Output;Taylor rule; Taylor principle
    JEL: E50 E52 E58
    Date: 2024–01
  2. By: Krenz, Johanna; Verma, Akhilesh K
    Abstract: How does macroprudential regulation affect financial stability in the presence of non-bank financial intermediaries? We estimate the contributions of traditional banks vis-'a-vis non-bank financial intermediaries to changes in systemic risk - measured as ∆CoVaR - after macroprudential policy shocks in European countries. We find that while tighter macro-prudential regulation, generally, decreases systemic risk among traditional banks, it has the opposite effect on systemic risk in the non-bank financial intermediation sector. For some types of regulations, the latter effect is even stronger than the former, indicating that macro-prudential tightening increases systemic risk in the entire financial system, through leakages between the traditional and the non-bank financial intermediation sectors.
    Keywords: macroprudential policy, systemic risk, ∆, CoVaR, non-bank financial intermediation, regulatory arbitrage, Europe
    JEL: G18 G23 G28 G21 E58
    Date: 2023
  3. By: Ricardo J. Caballero; Alp Simsek
    Abstract: This article summarizes empirical research on the interaction between monetary policy and asset markets, and reviews our previous theoretical work that captures these interactions. We present a concise model in which monetary policy impacts the aggregate asset price, which in turn influences economic activity with lags. In this context: (i) the central bank (the Fed, for short) stabilizes the aggregate asset price in response to financial shocks, using large-scale asset purchases if needed ("the Fed put"); (ii) when the Fed is constrained, negative financial shocks cause demand recessions, (iii) the Fed's response to aggregate demand shocks increases asset price volatility, but this volatility plays a useful macroeconomic stabilization role; (iv) the Fed's beliefs about the future aggregate demand and supply drive the aggregate asset price; (v) macroeconomic news influences the Fed's beliefs and asset prices; (vi) more precise news reduces output volatility but heightens asset market volatility; (vii) disagreements between the market and the Fed microfound monetary policy shocks, and generate a policy risk premium.
    JEL: E32 E43 E44 E52 G12
    Date: 2024–01
  4. By: Jing Cynthia Wu; Yinxi Xie; Ji Zhang
    Abstract: Motivated by empirical evidence, we propose an open-economy New Keynesian model with financial integration that allows financial intermediaries to hold foreign long-term bonds. We find financial integration features an amplification for a domestic monetary policy shock and a negative spillover for a foreign shock. These results hold for conventional and unconventional monetary policies. Among various aspects of financial integration, the bond duration plays a major role, and our results cannot be replicated by a standard model of perfect risk sharing between households. Finally, we observe an important interaction between financial integration and trade openness and demonstrate trade alone does not have an economically meaningful impact on monetary policy transmission.
    Keywords: central bank research; international financial markets; monetary policy transmission
    JEL: E44 E52 F36 F42
    Date: 2024–02
  5. By: Alexandre Carrier; Kostas Mavromatis
    Abstract: We examine optimal normalization strategies for a central bank confronted with persistent inflationary shocks and a potential de-anchoring of expectations. Our analysis characterizes optimal monetary policy, when the central bank uses both the short-term interest rate and the balance sheet, in a framework in which agents’ expectations can deviate from the rational expectations benchmark. Optimal policy is developed using a sufficient statistics approach, highlighting the dynamic causal effects of changes in each policy instrument on the central bank’s targets. Three key insights emerge: first, the interest rate is identified as the key instrument for managing inflationary pressures, outperforming balance sheet adjustments. Second, having anchored expectations about the path of quantitative tightening (QT) is crucial to mitigate economic downturns and controlling inflation, within the framework of an optimal balance sheet strategy set under a predefined interest rate rule. Lastly, when both the interest rate and QT are set optimally, expectations are found to significantly influence the optimal interest rate trajectory, whereas their impact on the optimal QT path is comparatively minimal.
    Keywords: Optimal monetary policy; de-anchored expectations; normalization strategy
    JEL: E52 E71 D84
    Date: 2024–02
  6. By: Jiaqi Li; Andrew Usher; Yu Zhu
    Abstract: To what extent does a central bank digital currency (CBDC) compete with bank deposits? To answer this question, we develop and estimate a structural model where each household chooses which financial institution to deposit their digital money with. Households value the interest paid on digital money, the possibility of obtaining complementary financial products, and the access to in-branch services. A non-interest-bearing CBDC that does not provide complementary financial products can substantially crowd out bank deposits only if it provides an extensive service network. Imposing a large limit on CBDC holding would effectively mitigate this crowding out.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E50 E58
    Date: 2024–02
  7. By: Lo Duca, Marco; Moccero, Diego; Parlapiano, Fabio
    Abstract: We analyse the impact of macroeconomic and monetary policy shocks on corporate credit risk as measured by firms’ probabilities of default (PDs) for the four largest euro area countries. We estimate the impact of shocks on one-year PDs using local projections (LP). For the period 2014-19, we find that aggregate shocks significantly affect the dynamics of credit risk. An adverse supply shock leads to a deterioration of firms’ riskiness 10 per cent above the average PD. Contractionary monetary policy shocks exert similar, but delayed effects. Firms’ responses to shocks vary depending on their characteristics and degree of financial constraints. Smaller firms are affected to a larger degree. Firms’ outstanding indebtedness and debt repayment capacity are an important transmission channel for aggregate shocks, but the accumulation of cash reserves helps building resilience. JEL Classification: C23, C55, E43, E52, G33
    Keywords: corporate credit risk, local projections, monetary policy shocks, probabilities of default, structural demand and supply shocks
    Date: 2024–01
  8. By: Pavel Vikharev (Bank of Russia, Russian Federation); Anna Novak (Bank of Russia, Russian Federation); Andrei Shulgin (Bank of Russia, Russian Federation)
    Abstract: The paper explores the mutual influence of inequality and monetary policy. The model introduces household heterogeneity in terms of access to the financial market and intertemporal preferences. The parameters are calibrated and estimated based on both Russia's microdata (including RLMS-HSE and HBS) and macro statistics. We have shown that the introduction of households with no access to the financial market has only a slight impact on the transmission of a monetary policy shock, while its secondary effects help amplify the action of most structural shocks. The behavior of wealthy hand-to-mouth households amplifies the response of macroeconomic variables to the monetary policy shock but has a slight impact on these variables' responses to most of the other structural shocks. We have identified non-structural inequality shocks at the bottom and the top of the Lorenz curve. As a result, we have found that the mutual influence of inequality and monetary policy is limited. The interest rate immediate response to changes in the Gini consumption index equals 0.1 for inequality shocks and 10 for a monetary policy shock. We have demonstrated that the shocks at the top of the Lorenz curve cause a more persistent response from the economy, whereas the shock at the bottom of the Lorenz curve. On first approximation, only one integral inequality indicator can be used to study the role of inequality in a business cycle. The relative consumption dynamics for specified household groups is not a conclusive indicator of either pro- or disinflationary policy, but it provides additional data to help identify structural shocks.
    Keywords: monetary policy, inequality, THRANK, inequality shock, hand-to-mouth, Russia, Lorenz curve, household heterogeneity, Wealthy HtM
    JEL: E21 E44 E52 E58
    Date: 2023–07
  9. By: Davide Romelli
    Abstract: This paper presents an extensive update to the Central Bank Independence – Extended (CBIE) index, originally developed in Romelli (2022), extending its coverage for 155 countries from 1923 to 2023. The update reveals a continued global trend towards enhancing central bank independence, which holds across countries’ income levels and indices of central bank independence. Despite the challenges which followed the 2008 Global financial crisis and the recent re-emergence of political scrutiny on central banks following the COVID-19 pandemic, this paper finds no halt in the momentum of central bank reforms. I document a total of 370 reforms in central bank design from 1923 to 2023 and provide evidence of a resurgence in the commitment to central bank independence since 2016. These findings suggest that the slowdown in reforms witnessed post-2008 was a temporary phase, and that, despite increasing political pressures on central banks, central bank independence is still considered a cornerstone for effective economic policy-making
    Keywords: Central banking, central bank independence, central bank governance, legislative reforms.
    JEL: E58 G28 N20
    Date: 2024
  10. By: Nadezhda Ivanova (Bank of Russia, Russian Federation); Ekaterina Petreneva (Bank of Russia, Russian Federation); Konstantin Styrin (Bank of Russia, Russian Federation); Yulia Ushakova (Bank of Russia, Russian Federation)
    Abstract: This paper studies the cross-border transmission of US monetary policy to Russia in 2000-2019 via its effect on activities of Russian banks in the low interest rate environment in comparison with normal times. Specifically, we investigate dynamic responses of lending, funding, and risk taking. The main finding is that, in normal times, the dynamic responses of dependent variables of interest are consistent with the prevalence of the international lending channel whereas in the low rate environment the patterns are different for different indicators: in some instances the dynamic effect of interest is attenuated compared with normal times, in others, it is reinforced.
    Keywords: monetary policy, international spillovers, cross-border transmission, low interest rates
    JEL: E52 F34 G21
    Date: 2023–10
  11. By: Alona Shmygel (National Bank of Ukraine); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))
    Abstract: What is the impact of cyclical systemic risk on future bank profitability? To answer this question, we study a large panel of Ukrainian banks between 2001 and 2023 comprising systemic events and wartime. With linear local projections we study the impact of cyclical systemic risk on bank profitability and following the original Growth-at-Risk approach we utilize quantile local projections to assess its impact on the tails of the future bank-level profitability distribution. We calibrate the countercyclical capital buffer, develop informative “Bank Capital-at-Risk” and “Share of vulnerable banks” indicators, and conduct scenario analyses and stress tests on profitability and capital adequacy.
    Keywords: systemic risk, linear projections, quantile regressions, bank capital, macroprudential policy
    JEL: E58 G21 G32
    Date: 2024–01
  12. By: James Costain; Galo Nuño Barrau; Carlos Thomas
    Abstract: We build an arbitrage-based model of the yield curves in a heterogeneous monetary union with sovereign default risk, which can account for the asymmetric shifts in euro area yields during the Covid-19 pandemic. We derive an affine term structure solution, and decompose yields into term premium and credit risk components. In an extension, we endogenize the peripheral default probability, showing that it decreases with central bank bond-holdings. Calibrating the model to Germany and Italy, we show that a "default risk extraction" channel is the main driver of Italian yields, and that flexibility makes asset purchases more effective.
    Keywords: sovereign default, quantitative easing, yield curve, affine model, Covid-19 crisis, ECB, pandemic emergency purchase programme
    JEL: E5 G12 F45
    Date: 2024–02
  13. By: Bonam, Dennis; Ciccarelli, Matteo; Gomes, Sandra; Aldama, Pierre; Bańkowski, Krzysztof; Buss, Ginters; da Costa, José Cardoso; Christoffel, Kai; Elfsbacka Schmöller, Michaela; Jacquinot, Pascal; Kataryniuk, Ivan; Marx, Magali; Mavromatis, Kostas; Moyen, Stéphane; Mužić, Ivan; Notarpietro, Alessandro; Papageorgiou, Dimitris; Rannenberg, Ansgar; Skotida, Ifigeneia; Bouabdallah, Othman; Dobrew, Michael; Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Brzoza-Brzezina, Michał; Hurtado, Samuel; Kolasa, Marcin; Patella, Valeria; Renault, Théodore; Domínguez-Díaz, Rubén; Lechthaler, Wolfgang; McClung, Nigel; Šestořád, Tomáš; Silgado-Gómez, Edgar; Železník, Martin; von Thadden, Leo; Menéndez-Álvarez, Carolina
    Abstract: In the low inflation and low interest rate environment that prevailed over the period 2013-2020, many argued that besides expansionary monetary policy, expansionary fiscal policy could also support central banks’ efforts to bring inflation closer to target. During the pandemic, proper alignment of fiscal and monetary policy was again crucial in promoting a rapid macroeconomic recovery. Since the end of 2021 an environment of higher inflation, lower growth, higher uncertainty, and higher interest rates has changed the nature of the required policy mix and poses different challenges to the interaction between monetary and fiscal policy. Following up on the work done under the ECB’s 2020 strategy review (see Debrun et al., 2021), this report explores some of the renewed challenges to monetary and fiscal policy interactions in an environment of high inflation. The main general conclusion is that, with an independent monetary policy that aims to bring inflation back to target in a timely manner, it is still possible to design fiscal policy in a way that protects vulnerable parts of society against the costs of high inflation without pulling against the central bank’s effort to tame inflation. This is more likely to be the case if fiscal measures are temporary and targeted, and if priority is given to structural reforms and public investment in support of potential growth. The latter is particularly effective in reshaping the supply side of the economy in a manner that is likely to have a lasting positive structural impact. JEL Classification: E22, E52, E58, E62
    Keywords: fiscal policy, monetary policy, public investment
    Date: 2024–02
  14. By: Martin Iseringhausen
    Abstract: We study the role of regional housing markets in the transmission of US monetary policy. Using a FAVAR model over 1999q1–2019q4, we find sizeable heterogeneity in the responses of US states to a contractionary monetary policy shock. Part of this regional variation is due to differences in housing supply elasticities, household debt overhang, and housing wealth (volatility). Our analysis indicates that house prices and consumption respond more in supply-inelastic states and in states with large household debt imbalances, where negative housing wealth effects bite more strongly and borrowing constraints become more binding. Moreover, financial stability risks increase sharply in these areas as mortgage delinquencies and foreclosures surge, worsening banks’ balance sheets. Finally, monetary policy may have a stronger effect on housing tenure decisions in supply-inelastic states, where the homeownership rate and price-to-rent ratios decline by more. Our findings stress the importance of regional housing supply conditions in assessing the macrofinancial effects of rising interest rates.
    Keywords: Credit conditions, FAVAR, house prices, monetary policy, regional data, supply elasticities
    JEL: C23 E32 E52 R31
    Date: 2024–02–05
  15. By: Enisse Kharroubi; Enisse Kharroubi and Frank Smets
    Abstract: Following evidence on the role of firm profits in the current inflation surge, we develop a New Keynesian model where profit-driven inflation stems from the presence of reservation profits on the supply side. We use this framework to investigate the positive and normative implications of cost push shocks, focusing on energy price shocks. We first show that these shocks lead to inefficiently large supply contractions and thereby inefficiently large (profit-driven) inflation, as firms which retrench do not internalise the social costs of doing so. Second, we show that optimal monetary policy follows a pecking order. It first aims at shielding the supply side from the fallout of the shock, thereby undoing the negative retrenchment externality. It then splits the burden of the shock between supply and demand, when insulating the supply side is too costly. Finally, when the energy price shock is very large, monetary policy loses traction. Budget-neutral fiscal interventions, e.g. redistribution from high- to low-income households and/or from high- to low-profit firms, can then restore monetary policy effectiveness.
    Keywords: energy price shocks, price stickiness, reservation profits, optimal monetary policy, corporate tax
    JEL: D21 E23 E31 E32 E52 E62 H24 H25
    Date: 2024–02
  16. By: Anton Bobrov (Federal Reserve Bank of San Francisco); Rupal Kamdar (Indiana University); Mauricio Ulate (Federal Reserve Bank of San Francisco)
    Abstract: U.S. monetary-policy decisions are made by the 12 voting members of the Federal Open Market Committee (FOMC). Seven of these members, coming from the Federal Reserve Board of Governors, inherently represent national-level interests. The remaining five members, a rotating group of presidents from the 12 Federal Reserve districts, come instead from sub-national jurisdictions. Does this structure have relevant implications for the monetary policy-making process? In this paper, we first build a panel dataset on economic activity across Fed districts. We then provide evidence that regional economic conditions influence the voting behavior of district presidents. Specifically, a regional unemployment rate that is one percentage point higher than the U.S. level is associated with an approximately nine percentage points higher probability of dissenting in favor of looser policy at the FOMC. This result is statistically significant, robust to different specifications, and indicates that the regional component in the structure of the FOMC could matter for monetary policy.
    Keywords: Monetary Policy, FOMC, Regional Economic Conditions, Taylor Rule
    Date: 2024–02
  17. By: Fischer, Lion; Rapp, Marc Steffen; Zahner, Johannes
    Abstract: In December 2017, during the One Planet Summit in Paris, a group of eight central banks and supervisory authorities launched the "Network for Greening the Financial Sector" (NGFS) to address challenges and risks posed by climate change to the global financial system. Until 06/2023 an additional 69 central banks from all around the world have joined the network. We find that the propensity to join the network can be described as a function in the country's economic development (e.g., GDP per capita), national institutions (e.g., central bank independence), and performance of the central bank on its mandates (e.g., price stability and output gap). Using an event study design to examine consequences of network expansions in capital markets, we document that a difference portfolio that is long in clean energy stocks and short in fossil fuel stocks benefits from an enlargement of the NGFS. Overall, our results suggest that an increasing number of central banks and supervisory authorities are concerned about climate change and willing to go beyond their traditional objectives, and that the capital market believes they will do so.
    Keywords: Climate finance, green central bank policy, stock market reaction, sustainable finance
    JEL: E58 E61 G1 Q54 Q58
    Date: 2024
  18. By: Inessa BENCHORA; Aurélien LEROY; Louis RAFFESTIN
    Abstract: This article examines the impact of monetary policy (MP) on firms’ stock prices across CO2 emissions. We provide a theoretical model in which green firms are less sensitive to MP shocks than brown firms, because they are less exposed to transition risk and provide non-pecuniary utility to investors. We test this prediction by using a panel event-study regression approach on 857 US firms between 2010 and 2019. We find robust evidence that firms with high carbon intensity are significantly more affected by policy rate surprises. The sensitivity premium of brown firms remains significant when controlling for classic sources of MP heterogeneity, is persistent, and increases with climate awareness. Our results suggest that the market neutrality principle guiding the implementation of monetary policy could induce a bias toward brown firms.
    Keywords: Climate change, Transition risk, Carbon emissions, Monetary policy shocks, Risk premia.
    JEL: E44 O13 Q49 Q54 G12 G15
    Date: 2023
  19. By: Faccia, Donata; Hünnekes, Franziska; Köhler-Ulbrich, Petra
    Abstract: In this paper we build a unique dataset to study how banks decide which firms to lend to and how this decision depends on their own situation and the characteristics of their borrowers. We find that weaker capitalised banks adjust their credit standards more than healthier banks, especially for firms with a higher default risk. We also show how credit standards change in reaction to two specific macroeconomic developments, namely an increase in bank funding costs and a sudden deterioration in banks’ corporate loan portfolios. Here we find that weaker banks respond more forcefully by tightening their credit standards more than better capitalised banks. This development is particularly pronounced when banks are linked to riskier firms. Insofar, we provide evidence of heterogeneity in the bank lending channel, depending on the situation of the lenders and the borrowers. JEL Classification: E44, E51, E52, G21
    Keywords: bank lending channel, credit risk, credit supply, monetary policy transmission
    Date: 2024–02
  20. By: Ethan Struby (Carleton College); Christina Farhart (Carleton College)
    Abstract: Using a unique, nationally representative survey from the 2022 midterm elections, we investigate the partisan divide in beliefs about inflation and monetary policy. We find that party identity is predictive of inflation forecasts even after conditioning on beliefs about both past inflation and the Federal Reserve’s long-run inflation target. Partisan forecast differences are driven by respondents who express low generalized trust in others and have a high degree of political knowledge; high-trust and lowknowledge partisans make similar forecasts all else equal. This finding is consistent with the literature in political psychology that examines the endorsement of conspiracy theories and political misinformation. We argue that the partisan divide in consumer inflation surveys is consistent with strategic responses by partisans.
    JEL: E70 E71 E30 E31
    Date: 2024–01
  21. By: Gabriel Bizama; Alexander Wu; Bernardo Paniagua; Max Mitre
    Abstract: This research aims to provide a framework to assess the contribution of digital currencies to promote financial inclusion, based on a diagnosis of the landscape of financial inclusion and domestic and cross-border payments in Latin America and the Caribbean. It also provides insights from central banks in the region on key aspects regarding a possible implementation of central bank digital currencies. Findings show that although digital currencies development is at an early stage, a well-designed system could reduce the cost of domestic and cross-border payments, improve the settlement of transactions to achieve real-time payments, expand the accessibility of central bank money, incorporate programmable payments and achieve system performance demands.
    Date: 2024–01
  22. By: Xiwen Bai; Jesús Fernández-Villaverde; Yiliang Li; Francesco Zanetti
    Abstract: We study the causal effects and policy implications of global supply chain disruptions. We construct a new index of supply chain disruptions from the mandatory automatic identification system data of container ships, developing a novel spatial clustering algorithm that determines real-time congestion from the position, speed, and heading of container ships in major ports around the globe. We develop a model with search frictions between producers and retailers that links spare productive capacity with congestion in the goods market and the responses of output and prices to supply chain shocks. The co-movements of output, prices, and spare capacity yield unique identifying restrictions for supply chain disturbances that allow us to study the causal effects of such disruptions. We document how supply chain shocks drove inflation during 2021 but that, in 2022, traditional demand and supply shocks also played an important role in explaining inflation. Finally, we show how monetary policy is more effective in taming inflation after a global supply chain shock than in regular circumstances.
    Keywords: supply chain disruptions, search-and-matching in the goods market, SVAR, state-dependence of monetary policy
    JEL: E32 E58 J64
    Date: 2024–01
  23. By: Anna Burova (Bank of Russia, Russian Federation); Elena Deryugina (Bank of Russia, Russian Federation); Nadezhda Ivanova (Bank of Russia, Russian Federation); Maxim Morozov (Bank of Russia, Russian Federation); Natalia Turdyeva (Bank of Russia, Russian Federation)
    Abstract: Energy transition and climate policies associated with it may become one of the major challenges for the Russian economy. We present an approach to assessing consequences of climate policy for Russia and evaluating related transition risks for the country’s financial system. This approach relies on a CGE model for the Russian economy and a financial model based on firm-level data. We show that both international and domestic climate policies affect the financial stability of the Russian Federation. The effects of international climate actions summarised in the NGFS Net Zero 2050 scenario are bigger than the effects of the introduction of a domestic emission trading system with a reduction goal of the Intensive scenario of the Russian state strategy of low-carbon development.
    Keywords: Russia, climate policy, energy transition, transition risk, financial stability, CGE
    JEL: C68 E51 E62 G10 G21 Q52 Q54 Q58
    Date: 2023–02
  24. By: Vadim Grishchenko (Bank of Russia, Russian Federation); Diana Gasanova (Higher School of Economics, Russian Federation); Egor Fomin (Higher School of Economics, Russian Federation); Grigory Korenyak (Moscow State University, Russian Federation)
    Abstract: A multitude of recent research shows that the inflation expectations of households are far from rational. In making inflation forecasts, people tend to focus on the prices of particular goods and services, which they can observe every day – ‘visible prices’. In this paper, we propose a new method for the identification of such items. Our novel ‘brute force’ algorithm automatically sorts through the full array of prices of goods and services given by Rosstat and constructs consumer baskets. It then selects the best baskets based on their ability to forecast the inflation expectations of Russian households from the FOM Survey. In the end, we get a decomposition of various met-rics of inflation expectations for visible prices which also demonstrates good forecasting perfor-mance (as compared to the AR(1) process as a benchmark). To ensure robustness, we use an alter-native method (optimisation with regularisation) and a variety of metrics of inflation expectations. As a result, we get lists of ‘robust visible items’ which include not only foodstuffs but mainly durable goods and services. Surprisingly enough, oil and petrol, which are typically labelled ‘vis-ible goods’ in research, do not fall into this category for Russia.
    Keywords: inflation expectations, households, visible prices, visible items, Rosstat, FOM Survey
    JEL: C43 C82 E31 E37
    Date: 2023–10
  25. By: Viacheslav Kramkov (Bank of Russia, Russian Federation)
    Abstract: If the consumer price index (CPI), one of the main indicators of inflation, consists of several components, would it be more accurate to forecast them separately? International experience shows that the aggregate of individual forecasts is often more accurate than the forecast of the aggregated index. In this paper, we explore this issue for Russia and test whether the quality of inflation forecasts can be improved by the CPI individual components forecasting. Using the panel data of Russian regions for the period from 2010 to 2021 we partially confirm the usefulness of a disaggregated approach. Individual modelling of the short-term price dynamics of individual commodity groups is ahead in terms of accuracy of the overall inflation model, including standard benchmark models, but only under certain conditions. First, it is necessary to include the factors of trend inflation in the models, which helps to separate the trend inflation acceleration/deceleration from short-term idiosyncratic fluctuations. Secondly, the models should have the property of inflation convergence to its long-term level, determined by the Bank of Russia's goal. Under these conditions, the disaggregated approach gives a more accurate forecast on short horizons than the aggregated one and a forecast of comparable to non-structural models’ accuracy on longer ones. Additionally, good predictive properties of the “anchored” forecast model were established (the “anchored” forecast is equal to the target inflation rate). The accuracy of this forecast turns out to be higher than the accuracy of standard models and does not deteriorate with an increase in the forecast horizon. This allows us to recommend this model as a simple non-structural benchmark for measuring the quality of inflation forecast models in Russia.
    Keywords: price dynamics of CPI components, forecasting, relative prices, trend inflation, idiosyncratic shocks, comparison of forecasting models in panel data
    JEL: E31 E37
    Date: 2023–03

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.