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on Central Banking |
| By: | Islomjon Inkhomiddinov (The Central Bank of Uzbekistan) |
| Abstract: | The natural rate of interest, often interpreted as the equilibrium real interest rate, serves as a critical benchmark for evaluating the stance of monetary policy. This paper investigates the natural rate of interest in Uzbekistan using three econometric approaches: the HLW-type model (1), a modified HLW-type model, and the Central Bank of Uzbekistan's Quarterly Projection Model (QPM), semi-structural framework. The semi-structural HLW-type and modified HLW-type models estimate the real interest rate using core inflation, while the QPM relies on headline inflation. The results indicate that the natural rate was relatively stable across the models. The semi-structural HLW-type and modified HLW-type models produced average natural rate estimates of 4.5 percent and 4.1 percent, respectively, while the QPM estimated a slightly lower average rate of 3.4 percent. On average, the natural rate across all models was approximately 4.0 percent. In contrast, the real interest rate exhibited significant variability, reflecting periods of accommodative monetary policy before the adoption of the inflation targeting regime and restrictive policies during the IT regime’s active implementation. These findings emphasize the critical role of accurately estimating the natural rate to guide monetary policy and ensure macroeconomic stability effectively. (1) Holston-Laubach-Williams (2016) |
| Keywords: | Natural level of Real Interest Rate; Core Inflation; Kalman Filter; Bayesian Estimation |
| JEL: | E42 E43 E52 E59 |
| Date: | 2025–02–03 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp02-2025 |
| By: | Yucheng Yang (University of Zurich; Swiss Finance Institute) |
| Abstract: | Inflation has heterogeneous impacts on households, which then affects optimal monetary policy design. I study optimal monetary policy rules in a quantitative heterogeneous agent New Keynesian (HANK) model where inflation has redistributive effects on households through their different (1) consumption baskets, (2) nominal wealth positions, and (3) earnings elasticities to business cycles. I parameterize the model based on the empirical analysis of these channels using the most recent data. Unlike in representative agent models, a utilitarian central bank should adopt an asymmetric monetary policy rule that is accommodative towards inflation and aggressive towards deflation. Specifically, by accommodating stronger demand and higher inflation, the central bank benefits low-income and low-wealth households through nominal debt devaluation and higher earnings growth. |
| Keywords: | Redistributive Inflation, Optimal Monetary Policy, Heterogeneous Agent, Expenditure Channel, Revaluation Channel, Earnings Channel |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2507 |
| By: | Pongpitch Amatyakul; Fiorella De Fiore; Marco Jacopo Lombardi; Benoit Mojon; Daniel Rees |
| Abstract: | Much of the inflation increase in 2021 and 2022 was due to sectoral shocks on which monetary policy has close to no traction. What monetary policy can do, or fail to do, is to ensure that the effects of these shocks dissipate swiftly. We argue that, absent the somewhat delayed but vigorous increases in policy interest rates since 2022, inflation would have subsided more slowly in 2023. Central banks' most important contribution to inflation is to demonstrate commitment to achieving their targets and ensuring that low inflation remains the norm for price- and wage-setting decisions. |
| Date: | 2023–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:82 |
| By: | Nikolaishvili, Giorgi (Wake Forest University, Economics Department) |
| Abstract: | This paper examines the dynamic macroeconomic effects of monetary transmission through community and noncommunity bank lending in the United States. I find that while both types of banks amplify the impact of monetary policy shocks on output, community banks exhibit a more delayed and persistent amplificatory influence than their noncommunity counterparts. These results suggest that continued decline in community banks' market share may dampen the efficacy of monetary policy over longer horizons. Moreover, the adverse real effects of monetary tightening are likely to be longer-lasting for small business borrowers who depend on community banks for funding. |
| Keywords: | Community banks; FAVAR; lending channel; monetary policy; relationship lending |
| JEL: | E51 E52 G21 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:ris:wfuewp:0123 |
| By: | Dąbrowski, Marek A.; Janus, Jakub; Mucha, Krystian |
| Abstract: | In this paper, we propose a novel approach to classifying inflation-targeting (IT) economies based on fractionally integrated processes. Motivated by the rising prevalence and diversity of IT strategies, we leverage variation in the persistence of inflation rate series to identify four de facto IT strategies, or ‘shades’ of IT. Moving from negative orders of fractional integration, indicating anti-persistent behaviour, to more persistent long-memory processes, often associated with less credible policy frameworks, we classify countries into average IT, strict IT, flexible IT, and uncommitted IT categories. This framework sheds light on the differences between declarative and actual monetary policy strategies across 36 advanced and emerging market economies. Notably, we demonstrate that while most economies fall into the flexible IT category, extreme cases, including the uncommitted IT category, occur with marked frequency. Furthermore, we link our IT classification to institutional features of national monetary frameworks using ordinal probit models. The results suggest that differences across IT categories are related to variations in the maturity and stability of IT frameworks, with less pronounced connections to central bank independence and transparency. |
| Keywords: | inflation targeting, monetary policy strategy, central banking, inflation persistence, fractional integration |
| JEL: | C22 E31 E52 E58 |
| Date: | 2025–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123455 |
| By: | Fernando Avalos; Deniz Igan; Cristina Manea; Richhild Moessner |
| Abstract: | During the current monetary policy tightening episode, financial conditions co-moved closely with policy rates, especially in the initial stages but with some differentiation across countries. For advanced economies, the tightening of financial conditions was stronger this time than in the past, while its full impact on real activity appears to be taking longer than usual. Financial conditions may continue tightening long after central banks stop raising policy rates, with possible implications for financial stability. |
| Date: | 2023–11–23 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:80 |
| By: | Olamide Harrison; Vina Nguyen |
| Abstract: | This note provides a conceptual framework to organize discussions of the appropriateness of the monetary policy stance and presents tools that country teams can employ to measure, report, and evaluate the stance of monetary policy. The note focuses exclusively on aggregate demand considerations—on whether the stance is tight or loose—without considering whether such a stance is appropriate for achieving policy objectives. The latter requires considering aggregate supply and Phillips Curve trade-offs. The note does not cover other macroeconomic policies, such as macroprudential or fiscal measures, which could also have a considerable impact on the effectiveness of monetary policy. |
| Keywords: | Monetary policy stance; natural interest rate; neutral interest rate; yield curve |
| Date: | 2025–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfhtn:2025/003 |
| By: | Hassnae HAMMOU OU ALI (Bank Al-Maghrib) |
| Abstract: | This study investigates the role of housing prices in the Moroccan economy and their response to monetary policy shocks. Using a Structural Vector Autoregression (SVAR) model, we explore the transmission mechanisms of monetary policy through various channels, including interest rates, credit availability, and consumer confidence. The analysis uses a comprehensive dataset spanning the period from 2006 to 2024, focusing on macroeconomic indicators, monetary policy instruments, and the Real Estate Asset Price Index (REPI). Empirical findings reveal that contractionary monetary policy leads to a delayed decline in housing prices, which may reflect structural rigidities in Morocco's real estate market. This study contributes to understanding the interplay between monetary policy and asset markets in emerging economies, providing insights for policymakers seeking to balance growth and stability objectives. |
| Keywords: | Real estate prices; Monetary policy; Interest rate; transmission channels |
| JEL: | E52 E40 R32 C32 |
| Date: | 2025–02–03 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp03-2025 |
| By: | Laura Coroneo |
| Abstract: | This paper discusses three key themes in forecasting for monetary policy highlighted in the Bernanke (2024) review: the challenges in economic forecasting, the conditional nature of central bank forecasts, and the importance of forecast evaluation. In addition, a formal evaluation of the Bank of England's inflation forecasts indicates that, despite the large forecast errors in recent years, they were still accurate relative to common benchmarks. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07386 |
| By: | Martin Brown (Swiss National Bank - Study Center Gerzensee; University of St. Gallen); Daniel Hoechle (FHNW School of Business - Institute for Finance; University of Basel - Department of Finance); Alejandra Perez; Markus Schmid (University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)) |
| Abstract: | We study the impact of monetary policy on household finance in open economies. We examine the response of retail investors to a policy shock which led to (i) a sharp appreciation of the domestic currency, (ii) a significant increase in exchange rate volatility, and (iii) the introduction of a negative policy rate. Our analysis is based on monthly, account-level data covering bank deposits, securities holdings and trades for a large sample of affluent bank clients. The policy shock leads to a shift of assets away from fixed income securities towards domestic currency bank deposits and foreign currency risky securities. Wealthier clients display a stronger portfolio shift towards risky securities in foreign currency as they search for yield. Investor attention, as measured by trading activity and contacts with bank advisors, increases temporarily after the shock. |
| Keywords: | Household finance, Monetary policy, Financial stability, Exchange rates, Interest rates |
| JEL: | E41 E52 E58 F31 G11 G21 G51 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp24108 |
| By: | Zheng Gong |
| Abstract: | This paper decomposes a Heterogeneous-Agent New Keynesian (HANK) model’s responses to aggregate shocks into Representative-Agent (RANK) and redistribution effects. RANK effects are obtained by introducing counterfactual transfers neutralizing redistribution, ensuring homogeneous agent responses. Redistribution effects stem from the HANK model’s response to the derived redistribution shock, which breaks down into interest rate exposure, income exposure, and liquidity channels. Following a monetary policy shock, RANK effects explain 62% of the consumption response; the interest rate, income, and liquidity channels contribute 16%, 14%, and 8% respectively. The decomposition is also applied to literature to identify key redistribution channels driving model dynamics. |
| Keywords: | Heterogeneous households; Monetary Policy; Fiscal Policy; HANKmodel; Inequality; Business cycles. |
| JEL: | D31 E21 E43 E52 E62 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_624 |
| By: | Fernando Avalos; Ryan Niladri Banerjee; Matthias Burgert; Boris Hofmann; Cristina Manea; Matthias Rottner |
| Abstract: | Major price increases in energy and food were key drivers of the 2021–22 inflation surge. These large supply-driven commodity price increases, occurring when inflation was already elevated in many countries, increased the risk of moving to a high-inflation regime. Central banks have tended to look through commodity price fluctuations due to their often transitory nature and the implied trade-off between inflation and output stabilisation in the case of supply-driven price shocks. Growing geopolitical disruptions, climate change and a bumpy transition to green energy threaten to make commodity price shifts larger and more frequent going forward. This potentially raises greater risks for price stability, thereby limiting the scope for monetary policy to look through them. |
| Date: | 2025–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:96 |
| By: | Yoosoon Chang (Indiana University, Department of Economics); Soyoung Kim (Seoul National University and Financial Services Commission of South Korea); Joon Park (Indiana University, Department of Economics) |
| Abstract: | This paper investigates the interactions between macroeconomic aggregates and income distribution by developing a structural VAR model with functional variables. With this novel empirical approach, we are able to identify and analyze the effects of various shocks to theincome distribution on macro aggregates, as well as the effects of macroeconomic shocks on the income distribution. Our main findings are as follows: First, contractionary monetary policy shocks reduce income inequality when focusing solely on the redistributive effects, without considering the negative impact on aggregate income levels. This improvement is achieved by reducing the number of low and high-income families while increasing the proportion of middle-income families. However, when the aggregate income shift is also taken into account, contractionary monetary policy shocks worsen income inequality. Second, shocks to the incomedistribution have a substantial effect on output fluctuations. For example, income distribution shocks identified to maximize future output levels have a significant and persistent positive effect on output, contributing up to 30% at long horizons and over 50% for the lowest income percentiles. However, alternative income distribution shocks identified to minimize the futureGini index do not have any significant negative effects on output. This finding, combined with the positive effect of output-maximizing income distribution shocks on equality, suggests thatproperly designed redistributive policies are not subject to the often-claimed trade-off between growth and equality. Moreover, variations in income distribution are primarily explained byshocks to the income distribution itself, rather than by aggregate shocks, including monetary shocks. This highlights the need for redistributive policies to substantially alter the income distribution and reduce inequality. |
| Keywords: | monetary policy, income distribution, re-distributive effects, structural vector autoregression, functional time series |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:inu:caeprp:2025002 |
| By: | Sarah Bell; Michael Chui; Tamara Gomes; Paul Moser-Boehm; Albert Pierres Tejada |
| Abstract: | Rising interest rates are reducing profits or even leading to losses at some central banks, especially those that purchased domestic currency assets for macroeconomic and financial stability objectives. Losses and negative equity do not directly affect the ability of central banks to operate effectively. In normal times and in crises, central banks should be judged on whether they fulfil their mandates. Central banks can underscore their continued ability to achieve policy objectives by clearly explaining the reasons for losses and highlighting the overall benefits of their policy measures. |
| Date: | 2023–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:68 |
| By: | Pietro Patelli; Jimmy Shek; Ilhyock Shim |
| Abstract: | Currency appreciation in emerging market economies (EMEs) has gone hand in hand with greater risk-taking, higher capital flows and more accommodative financial conditions, against the backdrop of the increasing share of foreign investment in local currency assets in EMEs' external financing since 2007. The historically positive correlation between US dollar strength against EME currencies and EME sovereign bond spreads over US Treasuries up to 2021 continued in Latin America but reversed in emerging Asia in 2022–23. Such a divergence reflects a range of policy responses by EME central banks in the face of the unprecedented combination of shocks in 2022. In particular, central banks in emerging Asia intervened more actively in FX markets and relied less on monetary policy tightening than those in Latin America. |
| Date: | 2023–11–02 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:79 |
| By: | Juhro, Solikin M.; Robinson, Irman; Rahadyan, Heru; Rishanty, Arnita |
| Abstract: | Climate change poses major challenges to the global economy and society, requiring coordinated efforts to alleviate its impacts. Given the nature of climate change, the adoption of central bank policies offers a more holistic strategy for managing and mitigating climate risks, thereby bolstering the resilience of the financial system and the economy. This paper aims to explore the critical tasks of coping with climate risks and proposes an integrated central bank climate regulatory framework to foster sustainable economic growth, by exploring the transmission mechanisms of central bank policies to support the establishment of just transition targets. The framework delineates three essential strategies, namely: (i) data, tools, and research, (ii) regulation and supervision, and (iii) climate transition policy. This paper shows that the central bank’s climate policies to manage transition risks can navigate just transition and support the achievement of sustainable economic growth. The operationalization of these strategies extends beyond the traditional purview of central bank activities, necessitating a collaborative and synergistic approach among regulators and industry stakeholders to guide the global economy toward sustainability. |
| Keywords: | climate risks, just transition target, sustainability, sustainable finance, sustainable economic growth, central bank policy. |
| JEL: | O13 Q52 Q54 Q56 Q58 |
| Date: | 2024–12–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123324 |
| By: | Escribano Saez, Álvaro; Rodríguez, Juan Andrés; Arranz Cuesta, Miguel Angel |
| Abstract: | Since the influential works of Friedman and Schwartz (1963, 1982) and Hendry and Ericsson (1991), on the monetary history of the United States of America and the United Kingdom from 1876 to 1975, there has been a great concern in the literature about the instability of money demand functions. This concern together with the results of the New Keynesian´s models (Woodford, 2003), produced the abandon of money as an instrument of monetary policy. Recently, using M1 as the measure of money, Benati, Lucas, Nicolini and Weber (2021) have shown, for a shorter and recent period of time, that there is a stable long-run money demand for a long list of countries. However, to date there are no studies showing that stable long-run and short-run money demand equations exist since the XIX century and how it can be used to inform monetary policy based on the quantitative theory of money. By means of nonlinear cointegration and nonlinear error-correction models, this paper presents evidence of UK stable long-run and short-run money demands of real broad monetary balances from 1874 to 2023. These equations provide with key elements to identify periods of excess money demand generating periods of 6.5% excess inflation, over the historical 2.2% average. Stable Money demand estimates provide useful policy rules and additional cross-check instruments for monetary policy to reach inflation targets. Furthermore, they help identifying spurious transmission channels of monetary policy, when theoretical models impose invalid common factor restrictions. |
| Keywords: | Money demand stability; Nonlinear cointegration; Nonlinear equilibrium correction; Nonlinear error correction; Opportunity cost of holding money; Role of money in monetary policy |
| JEL: | E41 E43 E47 E51 |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:45845 |
| By: | Christian Bittner (Deutsche Bundesbank & Goethe University Frankfurt); Rustam Jamilov (University of Oxford); Farzad Saidi (University of Bonn & CEPR) |
| Abstract: | We develop a quantitative macroeconomic framework with heterogeneous financial intermediaries and active liquidity management. In the model, banks manage uninsured, idiosyncratic deposit withdrawal risk through an iterative over-the-counter interbank market with endogenous intensive and extensive margins and equilibrium assortative matching based on balance sheet size. We validate our framework using administrative data from Germany encompassing the universe of bank-to-bank exposures. Our findings strongly support the presence of assortative matching in the data, thereby confirming the model's key mechanism. We show that assortative matching can inefficiently lead to reduced trading volumes and a broader region of inaction in the interbank market, a smaller and riskier banking sector, and a macroeconomy characterized by lower aggregate output. Using our empirically validated framework, we explore secular trends in interbank trading, the roles of liquidity and interest rate corridor policies, and the impact of deposit market power. |
| Keywords: | Heterogeneous banks, interbank markets, monetary policy, liquidity policy |
| JEL: | E44 E52 G20 G21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:353 |
| By: | Jung-Hyun Ahn (NEOMA Business School); Vincent Bignon (AMSE, Banque de France; Banque de France); Régis Breton (Banque de France) |
| Abstract: | This paper analyzes how collateral quality shocks affect banks’ liquidity management and the risk-free rate. We develop a model where banks manage liquidity through near-cash assets and marketable securities subject to idiosyncratic and/or aggregate shocks. Collateral quality deterioration leads to non-monotonic changes in liquidity holdings: moderate declines reduce cash holdings via lower market returns, while severe declines cause precautionary hoarding and market freezes. Reduced collateral quality depresses the risk-free rate. Policy interventions, including liquidity regulation and negative interest rate policies can mitigate these effects. Our findings highlight the risks of collateral quality shocks and the importance of policy complementarities in addressing liquidity issues. |
| Keywords: | interbank market, risk-free rate, collateral, liquidity regulation, negative interest rate, cash-hoarding. |
| JEL: | E58 G28 G21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:aim:wpaimx:2502 |
| By: | Miguel Ampudia; Fiorella De Fiore; Enisse Kharroubi; Cristina Manea |
| Abstract: | Monetary policy is tightening globally while private debt levels stand at historical highs. When private debt to GDP is high, aggregate demand may be more sensitive to interest rate hikes. Yet, after a decade of low rates, the maturity of private debt has generally lengthened, the prevalence of variable rates has fallen, and household net worth has increased. This should counteract the higher demand sensitivity stemming from elevated debt. Both the level and composition of private debt are important factors, although not the only ones, for the calibration of monetary policy in the current economic environment. |
| Date: | 2023–02–24 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:70 |
| By: | Ursel Baumann; Annalisa Ferrando; Dmitris Georgarakos; Yuriy Gorodnichenko; Timo Reinelt |
| Abstract: | Does a successful disinflation contribute to the anchoring of inflation expectations? We provide novel survey evidence on the dynamics of euro area firms’ inflation expectations during the disinflation episode since 2022. We show that firms’ short-term inflation expectations declined steadily towards the inflation target as the disinflation progressed. However, we also document a thick tail in longer-term inflation expectations, substantial disagreement about the inflation outlook, and an increased sensitivity of longer-term inflation expectations to short-term inflation expectations. These findings suggest that it may take more time to bring inflation expectations fully in line with central bank objectives. |
| Keywords: | inflation expectations; firms; surveys; anchoring |
| JEL: | E31 E52 |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:99484 |
| By: | Jean-Sébastien Fontaine; Ingomar Krohn; James Kyeong; Rishi Vala; Konrad Zmitrowicz |
| Abstract: | Changes in domestic interest rates affect the value of the Canadian dollar less than changes in the risk premium do. These variations often occur when a broad shift in risk sentiment occurs in global markets. Ultimately, the value of the currency reflects long-term, slow-moving features of the economies. |
| Keywords: | Asset pricing; Econometric and statistical methods; Exchange rates; Interest rates; Monetary policy |
| JEL: | E4 E43 F3 F31 G1 G12 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocsan:25-2 |
| By: | Nikolaishvili, Giorgi (Wake Forest University, Economics Department) |
| Abstract: | I propose the pass-through impulse response function (PT-IRF) as a novel reduced-form empirical approach to measuring transmission channel dynamics. In essence, a PT-IRF quantifies the propagation of a shock through the Granger causality of a specified set of endogenous variables within a dynamical system. This approach has fewer informational requirements than alternative methods, such as structural parameter and empirical policy counterfactual exercises. A PT-IRF only requires the specification of a reduced-form VAR and identification of a shock of interest, bypassing the need to either build a structural model or identify multiple shocks. I demonstrate the flexibility of PT-IRFs by empirically analyzing the indirect dynamic transmission of oil price shocks to inflation and output via interest rates, as well as the indirect dynamic effect of monetary policy shocks on output via changes in credit supply. |
| Keywords: | Directed graph; dynamic propagation; Granger causality; vector autoregression |
| JEL: | C10 C32 C50 E52 |
| Date: | 2025–01–27 |
| URL: | https://d.repec.org/n?u=RePEc:ris:wfuewp:0121 |
| By: | Salvatore Federico; Andrea Modena; Luca Regis |
| Abstract: | We study the impact of state-contingent dividend taxes (and bans) and capital regulation on a firm’s optimal strategy and value. In the model, the firm generates stochastic income under time-varying macroeconomic conditions. Its manager distributes dividends and issues costly equity to maximize shareholder value. We solve the manager’s stochastic control problem and derive the firm’s reserve distribution in closed form. Imposing dividend taxes (or bans) during crises generates a trade-off, as it encourages reserve accumulation in bad states but promotes payouts in good ones. Also, the policy undermines financial stability by reducing the firm’s value and its recapitalization incentives across states. Coordinating dividend taxes with counter-cyclical capital regulation can mitigate value losses and ameliorate the trade-off, but it also creates additional recapitalization disincentives. |
| Keywords: | Capital requirements; dividend bans; payout taxation; policy coordination; stochastic control. |
| JEL: | G32 G35 G38 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_622 |
| By: | Ryan Niladri Banerjee; Denis Gorea; Deniz Igan; Gabor Pinter |
| Abstract: | Inflation receded from recent peaks, but housing cost growth remains elevated. This strength reflects pandemic-induced changes in housing supply and demand which further aggravated existing pressures from long-standing housing shortages and demographic trends. Strong growth of the housing component of inflation can be a concern for monetary policy because it tends to be more persistent than components related to other services and goods, reflecting lags in measurement and infrequent changes in rents. In the short term, rents and housing costs may rise after a monetary policy tightening if landlords pass higher financing costs to tenants, property developers reduce new supply or more households opt to rent rather than buy. |
| Date: | 2024–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:89 |
| By: | Federico Lubello |
| Abstract: | We develop a dynamic, stochastic general equilibrium (DSGE) model for the euro area that accounts for climate change-related risk. The model features polluting (“brown”) firms and non-polluting (“green”) firms and a climate module with endogenous emissions modeled as a byproduct externality. In the model, exogenous shocks propagate throughout the economy and affect macroeconomic variables through their impact on interest rate spreads. We assess the business cycle and policy implications of transition risk stemming from changes in the carbon tax, and the implications of micro- and macroprudential tools that account for climate considerations. Our results suggest that a higher carbon tax on brown firms dampens economic activity and volatility, shifting lending from the brown to the green sector and reducing emissions. However, it entails welfare costs. From a policy-making perspective, we find that when the financial regulator integrates climate objectives into its policy toolkit, it can minimize the tradeoff between macroeconomic volatility and welfare by fully coordinating its micro- and macroprudential policy tools. |
| Keywords: | Climate risk; macroprudential policy coordination; DSGE models |
| JEL: | E1 E2 O41 Q5 Q58 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp192 |
| By: | Bryan Hardy; Deniz Igan; Enisse Kharroubi |
| Abstract: | Emerging market economies broke with the past by showing resilience in the face of rapid monetary tightening in advanced economies. Structural factors were at play, with better monetary policy and prudential frameworks being key. Conjunctural factors also played a role. The commonality of the Covid-19 shock ameliorated policy trade-offs, while the strong showing in advanced economies supported financial market sentiment globally. Nevertheless, as with the rest of the world economy, emerging markets are not out of the woods. More persistent inflation, in particular in advanced economies, could keep global financial conditions tighter for longer and test emerging market resilience going forward. |
| Date: | 2024–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:bis:bisblt:88 |
| By: | Адилханова Зарина // Adilkhanova Zarina (National Bank of Kazakhstan); Ержан Ислам // Yerzhan Islam (National Bank of Kazakhstan) |
| Abstract: | В условиях нестабильной макроэкономической среды повышение точности прогнозирования инфляции является приоритетной задачей для центральных банков, особенно тех, которые придерживаются режима инфляционного таргетирования. Традиционные эконометрические модели сталкиваются с ограничениями при учёте волатильности, внешних шоков и нелинейных взаимосвязей. Данное исследование направлено на улучшение прогнозирования инфляции путём интеграции методов машинного обучения в существующую систему селективно-комбинированного прогнозирования инфляции. Включение таких алгоритмов, как Ridge Regression, Lasso Regression и Elastic Net, позволяет выявлять сложные паттерны в макроэкономических данных и повышать точность прогнозов. Сравнительный анализ прогнозов, полученных с использованием традиционных эконометрических моделей (OLS, LTAR, BVAR, RW) и алгоритмов машинного обучения, показывает, что гибридный подход значительно снижает ошибки прогнозирования и повышает надёжность прогнозов в краткосрочном периоде. Полученные результаты могут внести вклад в совершенствование инструментов макроэкономического прогнозирования и развитие более эффективной денежно-кредитной политики, поддерживая качество принятия решений центральными банками. // In an environment of macroeconomic instability, improving the accuracy of inflation forecasting is a priority for central banks, especially those operating under inflation targeting regimes. Traditional econometric models face limitations in accounting for volatility, external shocks, and nonlinear relationships. This study aims to enhance inflation forecasting by integrating machine learning methods into the existing Selective-Combined Inflation Forecasting System (SSCIF). The inclusion of algorithms such as Ridge Regression, Lasso Regression, and Elastic Net enables the identification of complex patterns in macroeconomic data, thereby improving forecast accuracy. A comparative analysis of forecasts generated using traditional econometric models (OLS, LTAR, BVAR, RW) and machine learning algorithms demonstrates that the hybrid approach significantly reduces forecasting errors and enhances the reliability of short-term forecasts. The results contribute to the advancement of macroeconomic forecasting tools and the development of more effective monetary policy, supporting better decision-making by central banks. |
| Keywords: | инфляция, прогнозирование, индекс потребительских цен, модель, машинное обучение, эконометрические модели, точность прогнозов, inflation, forecasting, consumer price index, model, machine learning, econometric models, forecast accuracy |
| JEL: | E31 E37 C52 C61 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:aob:wpaper:62 |
| By: | Cinthia de Souza |
| Abstract: | This paper analyses the role of sovereign investor groups in shaping financial instability and asymmetries within the Eurozone and their interaction with its institutional framework. It proposes a framework to assess the impacts of government debt outflows on countries’ financial fragility under varying scenarios, including different paces of Quantitative Tightening (QT) and evolving investor group dynamics. Our findings indicate that foreign investors play a potential asymmetrical role in the Eurozone, exhibiting destabilising behaviour towards peripheral government debt. This uneven role can be exacerbated by a market-based institutional approach to public debt or mitigated by appropriate support for these state liabilities. By combining the impacts of QT with the potential reemergence of foreign flow asymmetries in sovereign markets, our findings highlight that such dynamics could further deepen the Eurozone's core-periphery divide. |
| Keywords: | Sovereign Debt; Government Bondholders; Financial Asymmetries;Eurozone Jel Classification:H63; G15; E58 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:921 |