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on Central Banking |
| By: | Mr. Damien Capelle; Mr. Ken Teoh |
| Abstract: | Recent events have reignited concerns about the financial stability implications of monetary policy. We show empirically that monetary tightening exacerbates financial stress after supply shocks, through declines in asset prices, bank equity and increased run risks. We then develop a tractable model in which intermediaries face occasionally binding leverage constraints and endogenous risks of runs, while producers face price adjustment frictions. Interest rate tightening, by lowering asset prices, exacerbates both financial distortions when intermediaries’ equity is sufficiently low. We use the model to characterize the constrained efficient use of interest rate policy, credit policy, equity injection, macroprudential policy and deposit insurance during periods of supply-driven inflation and fragility. When other tools are costly, optimal monetary policy tightening should be less aggressive in the presence of financial fragility. If other tools were not costly, the right combination of tools could perfectly separate financial stability from price stability objectives. |
| Keywords: | Financial panics; financial stability; monetary policy |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/035 |
| By: | Supriya Kapoor (Trinity Business School, Trinity College Dublin); Michael Mahony (Macro-Finance Division, Central Bank of Ireland); Anuj Pratap Singh (Macro-Finance Division, Central Bank of Ireland) |
| Abstract: | Since July 2022, European Central Bank (ECB) increased its interest rates for the first time in eleven years to bring inflation back to target. This has huge implication on the credit decision for firms, especially the small and medium enterprises (SME), instrumental in supporting employment, innovation and income. Using ECB's `Survey on Access to Finance of Enterprises' (SAFE) from 2015 to 2023, this paper assesses if the ECB's monetary policy tightening bears any relationship with SME's substituting away from bank credit towards alternative sources of finance. Our results show that contractionary monetary policy shocks were positively associated with the likelihood of SME's substituting away from bank credit. We find this behaviour across SMEs with larger turnover, employee size, age, as well as credit-quality; indicating a much stronger reliance and stickiness to bank credit for relatively smaller, younger, and riskier firms despite increases in the cost of credit following contractionary monetary policy shocks. |
| Keywords: | European Central Bank (ECB), monetary policy tightening, SME credit demand, firm bank credit substitution, firm financing behaviour and adaptability |
| JEL: | D22 E50 E51 E52 E58 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0125 |
| By: | Shin-ichi Fukuda (Faculty of Economics, The University of Tokyo) |
| Abstract: | Monetary policy is a powerful policy tool in stabilizing short-term economic fluctuations. However, no matter how effective it is, it could have unintended adverse impacts on the economy if the central bank continued extreme monetary easing over a long period of time. Japan is an exceptional country where such concern exists. This paper analyzes the effects of unconventional monetary policy in Japan since the end of the 1990s. We explore the effects not only on stabilizing short-term macroeconomic fluctuations such as the GDP gap, but also on medium- and long-term productivity such as total factor productivity (TFP). If the prolonged ultra-low interest rate environment distorts the price mechanism and causes misallocation of funds, the unconventional monetary policy could reduce the productivity of the economy. The estimation results show that the Bank of Japan (BOJ)'s unconventional monetary policy had a significant positive impact on the GDP gap even under a liquidity trap where the policy rate hit its effective lower bound (ELB). However, they also show that unconventional monetary policy had a significant negative impact on TFP growth. The results suggest that while unconventional monetary policy was effective in boosting the economy in the short term, the prolonged ultra-low interest rate environment may have had a negative impact on medium- and long-term productivity growth in the Japanese economy. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2025cf1240 |
| By: | Collard, Fabrice; Fève, Patrick; Wangner, Philipp |
| Abstract: | This paper explores how the persistence of demand shocks interacts with monetary policy in New Keynesian frameworks. We identify two key propagation channels: a permanent income channel, which amplifies the effects of persistent shocks, and a real interest rate channel, which goes in the opposite direction. The balance between these forces depends critically on the aggressiveness of the central bank’s response to inflation, giving rise to distinct monetary policy regimes. Under accommodative policies, persistence magnifies the response of output, while aggressive policies dampen these effects. In the intermediate regime, a hump-shaped relationship emerges between persistence and the response of output. Our analysis extends to medium-scale DSGE models, featuring capital accumulation, household heterogeneity, behavioral frictions, working capital, nominal wage and price rigidities, revealing that these dynamics are remarkably robust. |
| Keywords: | Persistence; Demand Shocks; Monetary Policy; New Keynesian Model |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130328 |
| By: | Shunsuke Haba (Bank of Japan); Kimihiko Izawa (Bank of Japan); Yui Kishaba (Bank of Japan); Yusuke Takahashi (Bank of Japan); Shunichi Yoneyama (Bank of Japan) |
| Abstract: | This paper estimates the policy effects of the Bank of Japan's expansionary monetary policy measures since the introduction of Quantitative and Qualitative Monetary Easing (QQE) in 2013 using the Bank of Japan's large-scale macroeconomic model, the Quarterly Japanese Economic Model (Q-JEM). Specifically, we generate "counterfactual paths" for key financial variables, including nominal interest rates, as well as inflation expectations, in a hypothetical scenario where these policy measures are absent. Then, we conduct counterfactual analysis using Q-JEM to simulate the developments of real GDP and the CPI under those counterfactual paths, and estimate the policy effects as the differences between the actual values and the simulation results. The analysis shows that, during the period from the introduction of QQE in 2013 to the April-June quarter of 2023, the policy measures have on average pushed up the level of real GDP by around +1.3 to +1.8 percent and the year-on-year rate of change in the CPI (less fresh food and energy) by around +0.5 to +0.7 percentage points. |
| Keywords: | Monetary policy; Policy effect; Large macroeconomic model; Simulation |
| JEL: | C53 E37 E43 E47 E52 E58 |
| Date: | 2025–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp25e02 |
| By: | Söhnke M. Bartram; Mark Grinblatt; Yan Xu |
| Abstract: | The relative restrictiveness of a central bank’s supply of money predicts the raw and risk-adjusted returns of its currency—both next month and at least three years into the future. Archived data, known by currency traders at the time, estimates central bank restrictiveness as a scaling of the residual from out-of-sample panel regressions of M1 on macroeconomic variables tied to domestic and international transaction requirements. Carry’s ability to forecast currency returns is subsumed by the central bank restrictiveness signal, which also forecasts inflation. |
| JEL: | F31 G12 G15 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33423 |
| By: | Pilar García (BANCO DE ESPAÑA); Diego Torres (BANCO DE ESPAÑA) |
| Abstract: | We present evidence suggesting that a simple measure of central bank communication tone, as perceived and interpreted by the media, correlates with the performance of financial assets and market participants’ expectations. This correlation appears even stronger than that of indices constructed using more complex models, such as a large language models like BERT. We employ a straightforward quantitative index, inspired by the well-known Baker, Bloom and Davis (2016) paper, using a “bag of words” approach and semantic orientation to measure this media-perceived tone orientation in terms of dovishness or hawkishness. Our approach, which emphasises the perception by the press media, contrasts with previous research that focused primarily on central bank minutes or speeches. Our preliminary findings reveal a statistically significant correlation with the movements of 2, 5 and 10-year US Treasury yields, with reactions being faster and more pronounced for shorter maturities. Our index also shows a leading correlation with some measures of inflation expectations, investor sentiment proxies, the stock market and the dollar. Additionally, to account for the impact of COVID-19, we propose the use of Google search trends as a proxy variable. |
| Keywords: | central bank communication, natural language processing, market perception, monetary policy, inflation expectations, bond yields, investor sentiment |
| JEL: | E50 E52 E58 G14 G17 C45 C81 D83 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2505 |
| By: | Guillaume Bazot (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Eric Monnet (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research); Matthias Morys (University of York [York, UK]) |
| Abstract: | We study how central banks have used their balance sheet to absorb international monetary shocks since the late 19th century, thereby regaining some monetary policy autonomy in a context of financial openness. If the uncovered interest rate parity does not hold, an increase in the leading international interest rate may push up domestic interest rates in both fixed and floating exchange rate regimes. Central banks can partially insulate domestic short-term interest rates from this increase by expanding domestic assets. With a fixed exchange rate, this is in addition to the sterilization of foreign exchange interventions. Accounting for the response of central bank balance sheets to an exogenous international shock sheds light on some puzzling behavior of interest rates and exchange rates across international monetary regimes in history. This study is based on a new monthly dataset of central bank balance sheets, macroeconomic, and financial variables for 23 countries since 1891. |
| Keywords: | Trilemma, Central bank balance sheets, International monetary system, Dilemma, Global financial cycle, Foreign exchange interventions trilemma |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04778323 |
| By: | Steininger, Lea; Matzner, Anna |
| Abstract: | We study the heterogeneous pass-through of monetary policy across firms with different labor shares. The goal is to obtain evidence on a labor-intensity transmission channel that should in fact be operating for other kinds of demand shocks as well. Our basic idea is that labor is special: unlike capital, it cannot be pledged against loans as collateral due to property rights. Based on a sample of over one million European firms, we document substantial heterogeneity in terms of firms’ investment response: when conditions tighten, fixed capital stock of labor-intensive firms decreases relative to capital-intensive production. These findings cannot be explained by other proxies for financial constraints such as age, size or financial leverage. Our results suggest that the impact of monetary policy is driven by borrowing constraints of high labor share firms, and that monetary policy is more potent in an economy characterized by a high labor share. JEL Classification: D22, E52, D31, E23, E32 |
| Keywords: | factor input costs, financial constraints, firm heterogeneity, labor share, monetary policy |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253024 |
| By: | McLaughlin, Darragh; McLaughlin, Eoin; Kenny, Seán |
| Abstract: | The 1955-56 macroeconomic crisis is a central event in modern Irish history. Yet, despite this centrality, its causes are not clearly understood. In 1955-6, Ireland, which had previously followed British interest rates in lockstep as part of its fixed exchange with the latter, briefly experimented with independent monetary policy. Our contribution is twofold. First, we highlight how the Irish response was based on a misunderstanding of a run on Sterling in 1955. Second, we focus on a series of monetary shocks taking place from January 1955 to February 1956. We construct yields for Irish and UK public debt, as well as bank share indices at a daily frequency (1954-6), to test whether the shock was transmitted via financial markets. Employing an event study and testing for structural breaks, we explore the institutional framework through which the mechanisms of the crisis occurred. We find that expansionary monetary policy can only be maintained with sufficient reserves, merely postponing the inevitability of capital flight which is observed in the banking sector. |
| Keywords: | Monetary Policy, Monetary Union, Optimum Currency Area, Trilemma |
| JEL: | E42 E52 F45 N14 N24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hwuaef:311198 |
| By: | Charles Labrousse (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INSEE - Institut national de la statistique et des études économiques (INSEE)); Yann Perdereau (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | What are the effects of central bank balance sheet expansion, and should we worry about central bank losses? Using a Heterogeneous Agent New Keynesian model incorporating money in utility and an endogenous zero lower bound (ZLB), we study the fiscal-monetary interaction of central bank balance sheet policies. We find that the overall efficiency of QE and QT policies depends on the combination of the expected future size of the balance sheet and the fiscal transmission of central bank losses. First, permanent balance sheet expansions stimulate the economy in the long-run and, by anticipation, increase inflation and output during the ZLB episode, as they interact with distortionary taxes and imperfect capital markets. Second, at the end of the ZLB, the central bank incurs losses: issuing securities to offset these losses is more welfare-enhancing than raising taxes. |
| Keywords: | Monetary policy, Heterogeneous agents, Balance sheet, Quantitative Easing, Quantitative Tightening, CB losses, Fiscal and monetary policy mix |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04577286 |
| By: | Rebeca Anguren (BANCO DE ESPAÑA); Gabriel Jiménez (BANCO DE ESPAÑA); José-Luis Peydró (BANCO DE ESPAÑA) |
| Abstract: | We study the short-term effects of both tighter and looser bank capital requirements on bank risk-taking in a crisis period. We exploit credit register data matched with firm and bank level data in conjunction with changes in capital requirements stemming from Basel III, including the introduction of a SME supporting bank capital factor in the European Union. We find that tighter capital requirements reduce the supply of bank credit to firms, while looser capital requirements mitigate the credit supply effects of increasing capital. Importantly, at the loan level (credit supply), banks more affected by capital requirements temporarily change less the supply of credit to riskier than to safer firms, and these asymmetric effects occur for both the tightening and the loosening of bank capital requirements. Finally, these effects are also important at the firm-level for total credit availability and for firm survival. Interestingly, our results suggest that those banks most impacted by the tighter Basel III capital requirements prioritize credit among ex-ante riskier firms to avoid their closure, consistent with loan evergreening. |
| Keywords: | bank capital requirements, credit supply, bank risk-taking, Basel III, loan evergreening |
| JEL: | G21 G28 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2508 |
| By: | Peter Karadi (EUROPEAN CENTRAL BANK AND CEPR); Anton Nakov (EUROPEAN CENTRAL BANK AND CEPR); Galo Nuño (BANCO DE ESPAÑA AND CEPR); Ernesto Pastén (CENTRAL BANK OF CHILE); Dominik Thaler (EUROPEAN CENTRAL BANK) |
| Abstract: | We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides micro-foundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. When facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model. |
| Keywords: | state-dependent pricing, large shocks, nonlinear Phillips curve, optimal monetary policy |
| JEL: | E31 E32 E52 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2510 |
| By: | R. Anton Braun; Daisuke Ikeda |
| Abstract: | Household net worth portfolios vary significantly over the lifecycle. Young households typically have low net worth and hold leveraged long positions in illiquid tangible assets like homes, cars and appliances. Older households, in contrast, tend to have high net worth and significant holdings of liquid assets in their portfolios. Monetary policy alters the interest rate on deposits and the spread on liquid and illiquid assets. Consequently, changes in monetary policy are likely to impact portfolio returns and investment opportunities of young and old households differently. We propose a quantitative model of monetary policy over the lifecycle that formalizes this insight. Households make endogenous portfolio choices and the age profile of their choices in our model is consistent with Japanese data. Our model has different microeconomic foundations and propagation channels of monetary policy compared to previous New Keynesian models, yet it reproduces the empirical responses of aggregate variables, and the microeconomic responses of different age groups to a tighter monetary policy. Net worth, consumption, and welfare increase, for older households but decrease for younger households, leading to higher wealth inequality. Additionally, monetary policy, by altering investment opportunities, has persistent and varied impacts on what different age groups can achieve over their remaining lives. Our results imply that aggregate consumption is a poor metric for assessing the impact of monetary policy on households because the large consumption declines of young households are offset by gains from older and more affluent households. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:25-006e |
| By: | Ichiro Fukunaga (Bank of Japan); Yui Kishaba (Bank of Japan); Nao Shibata (Bank of Japan); Shunichi Yoneyama (Bank of Japan) |
| Abstract: | This paper examines the formation mechanism of medium- to long-term inflation expectations in Japan using the Bank of Japan's large-scale macroeconomic model, the Quarterly Japanese Economic Model (Q-JEM), from the perspective of the model's past forecast accuracy and its assessment of future uncertainty. We compare the forecast accuracy of various specifications of the inflation expectations function in the model, and find that specifications that take into account the mechanism of adaptive expectations, which is influenced by past actual values of inflation, provided relatively high forecast accuracy on average since 2013. However, the relative forecast accuracy between different specifications varied from phase to phase, suggesting a large uncertainty in the expectations formation mechanism itself. We also assess the future uncertainty of inflation expectations based on the model's past forecast errors. Under the assumption of adaptive expectations mechanism, inflation expectations are more likely to rise when the recent actual inflation is higher. |
| Keywords: | inflation expectations; monetary policy; large-scale macroeconomic model |
| JEL: | C53 E31 E37 E52 |
| Date: | 2025–02–19 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp25e03 |
| By: | Carolina Lopez-Quiles; Mr. Adil Mohommad |
| Abstract: | We examine spillovers from ECB’s TLTROs on European countries outside the euro area. Using individual banks’ balance sheet data, we find that TLTROs lowered funding and lending rates for foreign-owned subsidiaries, especially in emerging market economies. We also find an increase in profitability among foreign subsidiaries and no effects on solvency risk. The effects are sizable--every €1 billion in exposure to TLTROs via parent banks is associated with 0.2 bps reduction in deposit rates and 0.4 bps reduction in lending rates of foreign subsidiaries. This underscores the need to factor euro area monetary policies into policy settings outside the euro area. |
| Keywords: | Monetary policy; spillovers; TLTRO; CESEE |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/034 |
| By: | Katharina Bergant; Ms. Mai Hakamada; Mr. Divya Kirti; Rui Mano |
| Abstract: | Given the recent surge in inflation and the resulting sharp monetary tightening, this note asks whether bank profits are exposed to inflation. While most banks tend to match income and expense exposures, 5 and 8 percent of banks in Advanced Economies (AE) and Emerging Market and Developing Economies (EMDE), respectively, are vulnerable to changes in inflation and interest rates due to differences in risk management practices and business structures, with 3 and 6 percent of AE and EMDE banks, respectively, at least as exposed as Silicon Valley Bank at the onset of its failure. If losses at individual banks leave room for wider panics—despite needed improvements in bank regulation and supervision and other ex ante measures—central banks may need to weigh raising rates to contain inflation against the potential for financial instability. |
| Keywords: | Inflation; Bank profitability; Monetary policy; Financial stability |
| Date: | 2025–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfsdn:2025/001 |
| By: | Martin, Reiner; O’Brien, Edward; Peiris, M. Udara; Tsomocos, Dimitrios P. |
| Abstract: | Following the Global Financial Crisis of 2007-8, Ireland, Slovenia, and Spain set up public Asset Management Companies (AMCs), purchasing delinquent loans equal to 44%, 16%, and 10% of GDP, respectively. Though deemed successful, it’s unclear if this was de facto traditional capital and liquidity support. We show that AMCs have a systematic advantage in reducing pecuniary externalities and costs associated with loan delinquencies. AMCs enhance average returns to bank lending, promoting additional lending (bank lending channel) and improving corporate borrowers’ balance sheets (balance sheet channel). The welfare gains of well-designed and well-managed AMCs are between 0.2% and 0.5% of steady-state consumption, independent of whether they are financed through fiscal transfers or sterilized monetary transfers; AMCs can complement traditional fiscal and monetary policies in managing financial crises. JEL Classification: E44, G18, G21, G28 |
| Keywords: | AMC, distressed assets, eurozone, fiscal policy, monetary policy |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253023 |
| By: | Benedict Clements; Sanjeev Gupta; João Tovar Jalles |
| Abstract: | This paper delineates equitable fiscal and monetary policies, along with their corresponding institutional frameworks, which can be tailored to help countries fulfill the fundamental tenets of the UN's 2030 Agenda. Monetary policy should aim to keep inflation at low or moderate levels, thus avoiding the deleterious effects of high inflation on inequality. Sound governance of central bank practices includes the establishment of independence and accountability for the central bank; solid policy and operational strategies; and transparent communications. Fiscal policy is the government’s primary instrument for achieving redistribution. Emerging Market and Developing Economies (EMDEs) will need to increase revenues by reforming tax expenditures; more extensive excise taxes on goods with negative externalities; and improving the design of the income tax. On the spending side, priorities include curtailing fuel subsidies; increasing health spending to provide a basic package of universal health benefits; reallocating health outlays toward primary and preventive care; and reallocating education spending toward primary and secondary schools. Sound fiscal governance includes the implementation of fiscal responsibility laws and medium-term fiscal frameworks (MTEFs); aligning these MTEFs with Integrated National Financing Frameworks; creating Independent Fiscal Institutions, such as Fiscal Councils; implementing transparent budgetary processes; and strengthening research capacity. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp03682025 |
| By: | Bindseil, Ulrich; Coste, Charles-Enguerrand; Pantelopoulos, George |
| Abstract: | The digitalisation of payments has accelerated over the last decades with the internet and ever faster and cheaper computing. Now, many believe that decentralised finance (“DeFi”) offers fundamentally new possibilities for trading, payments and settlement. Moreover, for a few years central banks have launched work on what has been called retail and wholesale central bank digital currencies (“CBDC”). Concurrent to the rise of innovative technologies has been the advent of new terminology, which is widely used, but which often seems to be biased, confusing, or is used inconsistently. By providing an etymology of key concepts and reviewing terminology and definitions, this paper also provides a new approach to clarifying the essence of new technologies in the field of payments to facilitate ongoing discussions about their eventual merits and use cases. JEL Classification: B26, E42 |
| Keywords: | CBDC, DeFi, digital assets, DLT, tokenization |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253022 |
| By: | Bandoni, Emil; De Nora, Giorgia; Giuzio, Margherita; Ryan, Ellen; Storz, Manuela |
| Abstract: | Institutional investors, such as investment funds, are playing an increasingly important role in residential real estate markets. This raises the possibility that their actions might drive aggregate market outcomes and may change how and which macrofinancial shocks transmit to house prices. In a Bayesian vector autoregression setting, we show that a demand shock from institutional investors has a positive and persistent effect on aggregate euro area house price growth and mortgage lending volumes. Institutional investors also increase their purchase activity following a loosening of monetary policy. Exploiting regional heterogeneity in eight euro area countries, we show in a panel regression setting that institutional investors weaken the link between house price growth and local economic fundamentals, but strengthen the sensitivity to monetary policy and financial market developments. JEL Classification: R31, E52, G23 |
| Keywords: | financial stability, investment funds, monetary policy, non-bank financial intermediation, real estate |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253026 |