nep-cba New Economics Papers
on Central Banking
Issue of 2024‒03‒25
24 papers chosen by
Sergey E. Pekarski, Higher School of Economics

  1. How to conduct monetary policies: the ECB in the past, present and future By De Grauwe, Paul; Ji, Yuemei
  2. Out of the ELB: expected ECB policy rates and the Taylor rule By Marco Bernardini; Alessandro Lin
  3. The Price of Money: The Reserves Convertibility Premium over the Term Structure By Kjell G. Nyborg; Jiri Woschitz
  4. Introducing Textual Measures of Central Bank Policy-Linkages Using ChatGPT By Leek, Lauren Caroline; Bischl, Simeon; Freier, Maximilian
  5. Enhancing resilience with natural growth targeting By Orphanides, Athanasios
  6. How effective quantitative tightening can be with a higher-for-longer pledge? By Kortelainen, Mika
  7. Tin the thick of it: an interim assessment of monetary policy transmission to credit conditions By Margherita Bottero; Antonio M. Conti
  8. A note on the differences between European and international methodologies of banking regulation and supervision By Goodhart, C. A. E.; Sato, Hideki
  9. Spillover Effects of US Monetary Policy on Emerging Markets Amidst Uncertainty By Povilas Lastauskas; Anh Dinh Minh Nguyen
  10. For whom the bill tolls: redistributive consequences of a monetary-fiscal stimulus By Michał Brzoza-Brzezina; Julia Jabłońska; Marcin Kolasa; Krzysztof Makarski
  11. An Integrated Policy Framework (IPF) Diagram for International Economics By Mr. Suman S Basu; Ms. Gita Gopinath
  12. A New Measure of Central Bank Independence By Mr. Tobias Adrian; Mr. Ashraf Khan; Lev Menand
  13. The Secular Decline of Bank Balance Sheet Lending By Greg Buchak; Gregor Matvos; Tomasz Piskorski; Amit Seru
  14. Monetary-Fiscal Interaction and the Liquidity of Government Debt By Cristiano Cantore; Edoardo Leonardi
  15. A Post-Pandemic New Normal for Interest Rates in Emerging Bond Markets? Evidence from Chile By Luis Ceballos; Jens H. E. Christensen; Damian Romero
  16. Understanding Persistent ZLB: Theory and Assessment By Pablo A. Cuba-Borda; Sanjay R. Singh
  17. The Heart of Monetary Economics: A Novel Diagram Depicting the Relationships Between Aggregate Monetary Variables By Zinn, Jesse Aaron
  18. Enhancing repo market transparency: the EU Securities Financing Transactions Regulation By Bassi, Claudio; Grill, Michael; Mirza, Harun; O’Donnell, Charles; Wedow, Michael; Hermes, Felix
  19. Price-Level Determination Under the Gold Standard By Jesús Fernández-Villaverde; Daniel R. Sanches
  20. What caused the euro area post-pandemic inflation? By Arce, Óscar; Ciccarelli, Matteo; Montes-Galdón, Carlos; Kornprobst, Antoine
  21. The market liquidity of interest rate swaps By Boudiaf, Ismael Alexander; Scheicher, Martin; Frieden, Immo
  22. Co-working in the collateral factory: analyzing the infrastructural entanglements of public debt management, central banking, and primary dealer systems By Pape, Fabian; Rommerskirchen, Charlotte
  23. The Impact of Monetary and Fiscal Stimulus on Stock Returns During the COVID-19 Pandemic By Chinmaya Behera; Badri Narayan Rath; Pramod Kumar Mishra
  24. The four ages of banking regulation: What to do today? By Maurizio Trapanese; Riccardo De Bonis

  1. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: We study the evolving operating procedures used by the ECB since its creation. During the period up to 2015, bank reserves were scarce and the ECB, like other central banks, used a corridor system in which the money market rate could fluctuate within the bounds set by the lending and the deposit rates. With the start of Quantitative Easing (QE) the operating procedure evolved into a regime of reserve abundance. This regime has become problematic since the inflation surge forced the central banks to raise the policy rate. The result has been a massive transfer of central banks’ profits (and more) to the banks. We propose a two-tier system of reserve requirements that would only remunerate the reserves in excess of the minimum required. This would drastically reduce the giveaways to banks, allow the central banks to maintain their current operating procedures and make monetary policies more effective in fighting inflation.
    JEL: F3 G3
    Date: 2024–02–28
  2. By: Marco Bernardini (Bank of Italy); Alessandro Lin (Bank of Italy)
    Abstract: We compare the path of the ECB policy rate (deposit facility rate) expected by financial market analysts with simple monetary policy rules based on their own expectations regarding inflation and the economic activity. To this end, we adopt a thick-modelling approach to account for uncertainty surrounding the exact parametrization of the rule according to analysts. We show that, since the ECB monetary policy moved away from the effective lower bound (ELB) and stopped providing explicit forward guidance on the future path of the policy rate, policy rate expectations have become largely aligned with those implied by the rules. We also document three additional findings. First, growing perceptions of downward demand-side risks since spring 2023 have been associated with an adjustment of analysts’ rate expectations to slightly-below rule-implied rates. Second, the significant and continuous upward revisions of expected ECB rates observed during the 2022-23 rate hiking cycle have mainly resulted from upward revisions of expected inflation and expectations of a higher long-run policy rate. Third, analysts’ rate expectations appear to be shaped more by expectations regarding core inflation rather than those of headline inflation.
    Keywords: monetary policy rules, expectations, ECB's survey of monetary analysts, effective lower bound.
    JEL: E52 E40
    Date: 2023–10
  3. By: Kjell G. Nyborg (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Jiri Woschitz (BI Norwegian Business School)
    Abstract: Central bank money provides utility by serving as means of exchange for virtually all transactions in the economy. Central banks issue reserves (money) to banks in exchange for assets such as government bonds. If additional reserves have value to a bank, an asset’s degree of convertibility into reserves can affect its price. We show the existence of a government bond reserves convertibility premium, which tapers off at longer maturities. The degree of convertibility is priced, but heterogeneously so. Our findings have implications for our understanding of reserves, liquidity premia, the term structure of interest rates, and central bank collateral policy.
    Keywords: central bank, reserves, convertibility premium, liquidity premium, term structure, yield curve, collateral policy, haircut
    JEL: G12 E43 E58
    Date: 2024–02
  4. By: Leek, Lauren Caroline (European University Institute); Bischl, Simeon; Freier, Maximilian
    Abstract: While institutionally independent, monetary policy-makers do not operate in a vacuum. The policy choices of a central bank are intricately linked to government policies and financial markets. We present novel indices of monetary, fiscal and financial policy-linkages based on central bank communication, namely, speeches by 118 central banks worldwide from 1997 to mid-2023. Our indices measure not only instances of monetary, fiscal or financial dominance but, importantly, also identify communication that aims to coordinate monetary policy with the government and financial markets. To create our indices, we use a Large Language Model (ChatGPT 3.5-0301) and provide transparent prompt-engineering steps, considering both accuracy on the basis of a manually coded dataset as well as efficiency regarding token usage. We also test several model improvements and provide descriptive statistics of the trends of the indices over time and across central banks including correlations with political-economic variables.
    Date: 2024–02–14
  5. By: Orphanides, Athanasios
    Abstract: Despite a number of helpful changes, including the adoption of an inflation target, the Fed's monetary policy strategy proved insufficiently resilient in recent years. While the Fed eased policy appropriately during the pandemic, it fell behind the curve during the post-pandemic recovery. During 2021, the Fed kept easing policy while the inflation outlook was deteriorating and the economy was growing considerably faster than the economy's natural growth rate-the sum of the Fed's 2% inflation goal and the growth rate of potential output. The resilience of the Fed's monetary policy strategy could be enhanced, and such errors be avoided with guidance from a simple natural growth targeting rule that prescribes that the federal funds rate during each quarter be raised (cut) when projected nominal income growth exceeds (falls short) of the economy's natural growth rate. An illustration with real-time data and forecasts since the early 1990s shows that Fed policy has not persistently deviated from this simple rule with the notable exception of the period coinciding with the Fed's post-pandemic policy error.
    Keywords: Federal Reserve, monetary policy strategy, discretion, simple rules, real-time data
    JEL: E32 E52 E58 E61
    Date: 2024
  6. By: Kortelainen, Mika
    Abstract: We study the effect of quantitative tightening both without forward guidance and with higher for longer guidance. This is done by simulating quantitative tightening strategies in a dynamic stochastic general equilibrium model estimated with the euro area data. Quantitative tightening is quantified by a bond supply shock that raises the long-term term premium. Initially, we assume that quantitative tightening comes without forward guidance, meaning that central bank does not communicate any information regarding the future path of the policy rate. Subsequently, we consider quantitative tightening with forward guidance which is communicated through a higher for longer pledge. In addition, this higher for longer pledge is assumed to be fully credible. We find that if credible, quantitative tightening implemented with forward guidance in the form a higher for longer pledge can tighten monetary policy, albeit a little.
    Keywords: monetary policy, quantitative tightening, forward guidance
    JEL: E52
    Date: 2024
  7. By: Margherita Bottero (Bank of Italy); Antonio M. Conti (Bank of Italy)
    Abstract: We use a thick modelling approach to assess the transmission of the unprecedented ECB’s monetary policy hiking cycle, which started in July 2022, to the cost of credit to euro area and Italian non-financial corporations. We uncover two findings. First, the range of forecasts obtained via this approach is wide; simple projections based only on a common trend between reference and lending rates fall in the lower part of it. Second, borrower riskiness emerges in the current juncture as a key driver in explaining the evolution of lending rates, improving substantially forecasts’ accuracy. We also quantify the additional upward risks on lending rates that may stem from unexpected tensions related to sudden outflows of retail deposits and the reduction of the Eurosystem’s balance sheet. Finally, we assess the impact of an adverse credit supply shock on output and inflation dynamics using a Bayesian VAR. The overall results of the paper support the conclusion that a large amount of the effects of monetary tightening is still in the pipeline.
    Keywords: monetary policy transmission, bank lending channel, credit supply, thick modelling, VAR
    JEL: E51 E52 E32 E37 C32
    Date: 2023–10
  8. By: Goodhart, C. A. E.; Sato, Hideki
    Abstract: Although monetary policy is the main tool for central banking in order to control inflation/deflation, micro- and macroprudential instruments are also essential for crisis management. In this paper, we aim to clarify the differences between European and international banking methodologies. The European approach as represented by the European Banking Union, is based on a harder legalistic approach, whereas the international approach implemented by the Basel Committee on Banking Supervision has a soft-law methodology. We propose two comparative standpoints: “uniformity” versus “diversity”, and a “legislative” versus "principle-based” approach.
    Keywords: European Banking Union (EBU); banking regulation and supervision; Basel Committee on Banking Supervision (BCBS)
    JEL: E58 F36 G28
    Date: 2024–02–16
  9. By: Povilas Lastauskas; Anh Dinh Minh Nguyen
    Abstract: This paper examines the impact of US monetary policy tightening on emerging markets, distinguishing between direct and indirect spillover effects using the global vector autoregression with stochastic volatility covering 32 countries. The paper demonstrates that an increase in the US interest rate significantly reduces output for emerging markets, leading to larger, more prolonged, and persistent declines. Such an impact is further intensified by global trade integration, causing a sharper yet slightly quicker rebounding output drop. The spillover effects are significantly amplified when US monetary policy tightening is accompanied by an increase in monetary policy uncertainty. Finally, emerging markets exhibit considerable heterogeneity in their responses to US monetary policy shocks.
    Date: 2024–02
  10. By: Michał Brzoza-Brzezina; Julia Jabłońska; Marcin Kolasa; Krzysztof Makarski
    Abstract: During the COVID-19 pandemic, governments in the euro area sharply increased spending, while the European Central Bank eased financing conditions. We use this episode to assess how such a concerted monetary-fiscal stimulus redistributes welfare between various age cohorts. Our assessment involves not only the income side of household balance sheets (mainly direct effects of transfers), but also the more obscure financing side that, to a substantial degree, occurred via indirect effects (with a prominent role of the inflation tax). Using a quantitative life-cycle model, we document that young households benefited from the stimulus, while the bill was mainly paid by middle-aged and older agents. Crucially, most welfare redistribution was due to indirect effects related to macroeconomic adjustment that resulted from the stimulus. As a consequence, even though all age cohorts received significant transfers, welfare of some actually decreased.
    Keywords: COVID-19; Fiscal expansion, Monetary policy, Redistribution
    JEL: E31 E51 E52 H5 J11
    Date: 2024–02
  11. By: Mr. Suman S Basu; Ms. Gita Gopinath
    Abstract: The Mundell-Fleming IS-LM approach has guided generations of economists over the past 60 years. But countries have experienced new problems, the international finance literature has advanced, and the composition of the global economy has changed, so the scene is set for an updated approach. We propose an Integrated Policy Framework (IPF) diagram to analyze the use of multiple policy tools as a function of shocks and country characteristics. The underlying model features dominant currency pricing, shallow foreign exchange (FX) markets, and occasionally-binding external and domestic borrowing constraints. Our diagram includes the use of monetary policy, FX intervention, capital controls, and domestic macroprudential measures. It has four panels to explore four key trade-offs related to import consumption, home goods consumption, the housing market, and monetary policy. Our extended diagram adds fiscal policy into the mix.
    Keywords: integrated policy framework; monetary policy; foreign exchange intervention; capital controls; macroprudential policy; fiscal policy
    Date: 2024–02–23
  12. By: Mr. Tobias Adrian; Mr. Ashraf Khan; Lev Menand
    Abstract: This paper constructs a new index for measuring de jure central bank independence, the first entirely new index in three decades. The index draws on a comprehensive dataset from the IMF’s Central Bank Legislation Database (CBLD) and Monetary Operations and Instruments Database (MOID) and weightings derived from a survey of 87 respondents, mostly consisting of central bank governors and general counsels. It improves upon existing indices including the Cukierman, Webb, and Neyapti (CWN) index, which has been the de facto standard for measuring central bank independence since 1992, as well as recent extensions by Garriga (2016) and Romelli (2022). For example, it includes areas absent from the CWN index, such as board composition, financial independence, and budgetary independence. It treats dimensions such as the status of the chief executive as composite metrics to prevent overstating the independence of statutory schemes. It distills ten key metrics, simplifying current frameworks that now include upwards of forty distinct variables. And it replaces the subjective weighting systems relied on in the existing literature with an empirically grounded alternative. This paper presents the key features of the new index; a companion, forthcoming paper will provide detailed findings by country/region, income level, and exchange rate regime.
    Keywords: Central bank independence; monetary policy; governance; transparency
    Date: 2024–02–23
  13. By: Greg Buchak; Gregor Matvos; Tomasz Piskorski; Amit Seru
    Abstract: The traditional model of bank-led financial intermediation, where banks issue demandable deposits to savers and make informationally sensitive loans to borrowers, has seen a dramatic decline since 1970s. Instead, private credit is increasingly intermediated through arms-length transactions, such as securitization. This paper documents these trends, explores their causes, and discusses their implications for the financial system and regulation. We document that the balance sheet share of overall private lending has declined from 60% in 1970 to 35% in 2023, while the deposit share of savings has declined from 22% to 13%. Additionally, the share of loans as a percentage of bank assets has fallen from 70% to 55%. We develop a structural model to explore whether technological improvements in securitization, shifts in saver preferences away from deposits, and changes in implicit subsidies and costs of bank activities can explain these shifts. Declines in securitization cost account for changes in aggregate lending quantities. Savers, rather than borrowers, are the main drivers of bank balance sheet size. Implicit banks’ costs and subsidies explain shifting bank balance sheet composition. Together, these forces explain the fall in the overall share of informationally sensitive bank lending in credit intermediation. We conclude by examining how these shifts impact the financial sector’s sensitivity to macroprudential regulation. While raising capital requirements or liquidity requirements decreases lending in both early (1960s) and recent (2020’s) scenarios, the effect is less pronounced in the later period due to the reduced role of bank balance sheets in credit intermediation. The substitution of bank balance sheet loans with debt securities in response to these policies explains why we observe only a fairly modest decline in aggregate lending despite a large contraction of bank balance sheet lending. Overall, we find that the intermediation sector has undergone significant transformation, with implications for macroprudential policy and financial regulation.
    JEL: E50 G2 G20 G21 G22 G23 G24 G28 G29 L50
    Date: 2024–02
  14. By: Cristiano Cantore (Sapienza University of Rome); Edoardo Leonardi
    Abstract: How does the monetary and fiscal policy mix alter households’ saving incentives? And what are the resulting implications on the evolution and stabilization of the economy? To answer these questions, we build a heterogenous agents New Keynesian model where 3 different types of agents can save in assets with different liquidity profiles to insure against idiosyncratic risk. Policy mixes affect saving incentives differently according to their effect on the liquidity premium- the return difference between less liquid assets and public debt. We derive an intuitive analytical expression linking the liquidity premium with consumption differentials amongst different types of agents. Our analysis highlights the presence of two competing forces on the liquidity premium: a self-insurance-driven demand channel and a policy-driven supply channel. We show that the relative strength of the two is tightly linked to the policy mix in place and the type of business cycle shock hitting the economy.
    Keywords: monetary-fiscal interaction, liquidity, government debt, HANK
    JEL: E12 E52 E62 E58 E63
    Date: 2024–01
  15. By: Luis Ceballos; Jens H. E. Christensen; Damian Romero
    Abstract: Before the COVID-19 pandemic, researchers intensely debated the extent of the decline in the steady-state short-term real interest rate—the so-called equilibrium or natural rate of interest. Given the recent sharp increase in interest rates, we revisit this question in an emerging bond market context and offer a Chilean perspective using a dynamic term structure finance model estimated directly on the prices of individual Chilean inflation indexed bonds with adjustments for bond-specific liquidity risk and real term premia. We estimate that the equilibrium real rate in Chile fell about 2 and a half percentage points in the 2003-2022 period and has remained low since then.
    Keywords: affine arbitrage-free term structure model; financial market frictions; monetary policy; rstar
    JEL: C32 E43 E52 G12
    Date: 2024–02–21
  16. By: Pablo A. Cuba-Borda; Sanjay R. Singh
    Abstract: We develop a theoretical framework that rationalizes two hypotheses of long-lasting low interest rate episodes: deflationary-expectations-traps and secular stagnation in a unified setting. These hypotheses differ in the sign of the theoretical correlation between inflation and output growth that they imply. Using the data from Japan over 1998:Q1-2019:Q4, we find that the data favor the expectations-trap hypothesis. The superior model fit of the expectations trap relies on its ability to generate the observed negative correlation between inflation and output growth.
    Keywords: Expectations-driven trap; secular stagnation; zero lower bound (ZLB)
    JEL: E31 E32 E52
    Date: 2023–12–15
  17. By: Zinn, Jesse Aaron (Clayton State University)
    Abstract: This work introduces the Heart of Monetary Economics, a novel figure that depicts the relationships between aggregate monetary variables. The figure contains more information than the Venn diagram that shows how the monetary base and money supply have currency in circulation as their intersection. A distinguishing feature of the heart is that it illustrates how the net amount of financial capital generated by depository institutions equals the difference between the money supply and the monetary base. As such, the figure may aid students learning about money creation. This work also points out a nearly identical figure that contains the same information as the heart. It also provides a proof that these two figures are the only two with their general shape consistent with the relationships they display.
    Date: 2024–02–11
  18. By: Bassi, Claudio; Grill, Michael; Mirza, Harun; O’Donnell, Charles; Wedow, Michael; Hermes, Felix
    Abstract: The introduction of the Securities Financing Transactions Regulation into EU law provides a unique opportunity to obtain an in-depth understanding of repo markets. Based on the transaction-level data reported under the regulation, this paper presents an overview and key facts about the euro area repo market. We start by providing a description of the dataset, including its regulatory background, as well as highlighting some of its advantages for financial stability analysis. We then go on to present three sets of findings that are highly relevant to financial stability and focus on the dimensions of the different market segments, counterparties, and collateral, including haircut practices. Finally, we outline how the data reported under the regulation can support the policy work of central banks and supervisory authorities. We demonstrate that these data can be used to make several important contributions to enhancing our understanding of the repo market from a financial stability perspective, ultimately assisting international efforts to increase repo market resilience. JEL Classification: G10, G18, G23
    Keywords: financial stability, regulation, securities financing transactions
    Date: 2024–02
  19. By: Jesús Fernández-Villaverde; Daniel R. Sanches
    Abstract: We present a micro-founded monetary model of a small open economy to examine the behavior of money, prices, and output under the gold standard. In particular, we formally analyze Hume’s celebrated price-specie flow mechanism. Our framework incorporates the influence of international trade on the money supply in the Home country through gold flows. In the short run, a positive correlation exists between the quantity of money and the price level. Additionally, we demonstrate that money is non-neutral during the transition to the steady state, which has implications for welfare. While the gold standard exposes the Home country to short-term fluctuations in money, prices, and output caused by external shocks, it ensures long-term price stability as the quantity of money and prices only temporarily deviate from their steady-state levels. We discuss the importance of policy coordination for achieving efficiency under the gold standard and consider the role of fiat money in this environment. We also develop a version of the model with two large economies.
    Keywords: Gold standard; specie flows; non-neutrality of money; long-run price stability; inelastic money supply
    JEL: E42 E58 G21
    Date: 2024–02–29
  20. By: Arce, Óscar; Ciccarelli, Matteo; Montes-Galdón, Carlos; Kornprobst, Antoine
    Abstract: This paper applies the semi-structural model proposed by Bernanke and Blanchard (2023) to analyse wage growth, price inflation and inflation expectations in the euro area. It is part of a broader project coordinated by Bernanke and Blanchard to provide a unified framework for analysing and comparing global inflation dynamics across the major world economic areas, including US, euro area, Canada, UK, and Japan. The paper makes four main contributions. First, it estimates the model using quarterly data from the euro area covering the period from the first quarter of 1999 to the second quarter of 2023. Second, it conducts an empirical assessment of how euro area price inflation responds to various exogenous shocks. This includes evaluating how shock transmission evolved during the pandemic and comparing it with experience in the United States. Third, the model decomposes the drivers of wage growth and price inflation in the post-pandemic period. It emphasises the transmission channels and the respective roles of supply and demand forces that have contributed to the recent inflationary surge. Notably, it identifies the impact of labour market tightness, productivity, global supply chain disruptions and energy and food price shocks. Finally, the model generates conditional projections based on these exogenous shocks, enabling a more robust cross-check of inflation forecasts during times of significant global economic disturbances. JEL Classification: C5, E47, E52, E58, F4
    Keywords: central banking, econometric modelling, forecasting and simulation, monetary policy
    Date: 2024–02
  21. By: Boudiaf, Ismael Alexander; Scheicher, Martin; Frieden, Immo
    Abstract: This paper studies market liquidity in interest rate swaps (IRS) before and during the global tightening of monetary policy. IRS constitute the single largest derivatives segment globally. Banks and Pension Funds extensively rely on IRS to hedge interest rate risk. Hence, providing an understanding of this market and the drivers of market liquidity is a key research question in the current market context. We use price and volume data from around 338.000 trades in the most active long-horizon swap contract denominated in EUR to construct seven liquidity measures. Taking a comprehensive approach, we ap-ply linear regressions to determine the drivers of variation in liquidity. Our liquidity measures are significantly related to monetary policy, market-wide fixed income liquidity, EURIBOR rate volatility and Dealer behaviour. Indicators for generic market stress such as VIX which are often documented in the literature are not strongly connected to IRS trading conditions. JEL Classification: G12, G15
    Keywords: fixed income, liquidity, market structure, swap
    Date: 2024–03
  22. By: Pape, Fabian; Rommerskirchen, Charlotte
    Abstract: Scholarship on sovereign debt emphasizes the importance of central banks in backstopping markets, but less attention has been devoted to the interactions of debt management offices with private finance. To fill this gap, this article examines the market-based operations of debt management offices alongside those of central banks. Debt management has played a crucial role in constructing and nurturing liquidity conditions in primary and secondary markets for sovereign debt through the contracting of primary dealers as monetary and fiscal policy partners, the embrace of repo markets, and later through the creation of special liquidity facilities. Co-working in the collateral factory of the modern financial system creates new forms of entanglements that we term the ‘collateral triangle’, linking together central banking, debt management, and primary dealer operations in a shared convergence on repo finance as integral to public sector governability and private sector business models. Debt management and central banking jointly created and now maintain the infrastructures of this ‘collateral triangle’, not least because the inherent stability risks of repo markets threaten market-based monetary policy and market-based debt management. Routine de-risking by both actors is a core feature of the collateral system.
    Keywords: critical macrofinance; sovereign debt; primary dealers; repo markets; monetary-fiscal coordination; 1912377; ES/S011277/1; T&F deal
    JEL: J1
    Date: 2024–02–08
  23. By: Chinmaya Behera (Economics and General Management, Goa Institute of Management, Goa, India, (Corresponding author: Goa Institute of Management, Poriem, Sattari, Goa)); Badri Narayan Rath (Department of Liberal Arts, IIT Hyderabad, Kandi, Sangareddy, India); Pramod Kumar Mishra (School of Management, University of Hyderabad, Telangana, India)
    Abstract: We contribute to the literature by investing the impact of monetary and fiscal stimulus and exchange rate on stock returns during the COVID-19 pandemic in Australia, China, India, and Indonesia. By employing the machine learning approach, We find that monetary stimulus positively boosts the stock return of Indonesia. Contrary, fiscal stimulus adversely affected stock return in Australia. The exchange rate positively impacts stock return for both India and Indonesia during the COVID-19 pandemic. However, the findings from this study reveal that both monetary and fiscal stimulus have no effect on the stock market return in the case of China and India. Policymakers needs better strategy to counter the extreme events like pandemic. Our model is robust to the alternative model specification.
    Keywords: Monetary Policy, Fiscal Policy, Stock Return, Machine Learning, COVID-19
    JEL: G11 G15 G18
    Date: 2023–09
  24. By: Maurizio Trapanese (Banca d'Italia); Riccardo De Bonis (Banca d'Italia)
    Abstract: In illustrating the four ages into which the evolution of banking regulation from the 19th century to today can be divided, this paper underlines the links between the supervisory approaches and the prevailing economic theories in each era, and tries to draw from the historical experience indications for the future. The emphasis is on the age of banking deregulation and the subsequent response to the 2007-08 global financial crisis. As regards the current phase, the work underlines how decisions have been taken in some jurisdictions (e.g., US) since 2018 to introduce deviations from the international prudential standards. It is to these elements that the causes of the crises of some American regional banks in the first months of 2023 can be traced. For the future, attention is drawn to the need for the authorities to resist pressure to deregulate the system, introducing instead the possible corrective measures suggested by the recent crisis cases. At the same time, the importance of proceeding with a reduction of regulatory complexity and of pursuing the right balance between regulatory proportionality and the protection of financial stability is underlined.
    Keywords: economic thought, financial crises, banks, regulation, economic history
    JEL: B20 G01 G21 G39 N20
    Date: 2023–09

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