nep-mon New Economics Papers
on Monetary Economics
Issue of 2015‒03‒05
23 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Macroeconomic Effects of the Federal Reserve's Unconventional Monetary Policies By Engen, Eric M.; Laubach, Thomas; Reifschneider, David L.
  2. Macroeconomic Policy during a Credit Crunch By Nicolini, Juan Pablo
  3. Monetary policy in the North, effects in the South By Gonzalo De Cadenas Santiago; Alicia Garcia-Herrero; Alvaro Ortiz Vidal-Abarca
  4. Domestic bond markets and inflation By Rose, Andrew K.; Spiegel, Mark M.
  5. Dissecting the brains of central bankers: the case of the ECB's Governing Council members on reforms By Bennani, Hamza
  6. Endogenous volatility at the zero lower bound: implications for stabilization policy By Basu, Susanto; Bundick, Brent
  7. Demand and Income Distribution in a Two-Country Kaleckian Model By Hiroaki Sasaki; Shinya Fujita
  8. Uncertainty shocks in a model of effective demand By Bundick, Brent; Basu, Susanto
  9. On the nature of shocks driving exchange rates in emerging economies By Galina V. Kolev
  10. Remarks at the 2015 U.S. Monetary Policy Forum By Dudley, William
  11. International liquidity shocks and the European sovereign debt crisis: Was euro area unconventional monetary policy successful? By Mary M. Everett
  12. Structural Interdependence in Monetary Economics: Theoretical Assessment and Policy Implications By Cavalieri, Duccio
  13. Time Consistency and the Duration of Government Debt: A Signalling Theory of Quantitative Easing By Gauti Eggertsson; Bulat Gafarov; Saroj Bhatarai
  14. Essentials of Constructive Heterodoxy: Money, Credit, Interest By Kakarot-Handtke, Egmont
  15. "Emerging Market Economies and the Reform of the International Financial Architecture: The 'Exorbitant Privilege' of the Dollar Is Only the Symptom of a Structural Problem" By Jan Kregel
  16. De Facto Exchange Rate Regime Classifications Are Better Than You Think By Michael Bleaney; Mo Tian; Lin Yin
  17. Sovereign Debt, Bail-Outs and Contagion in a Monetary Union By Eijffinger, Sylvester C W; Kobielarz, Michal L.; Uras, Rasim Burak
  18. Testing for Identification in SVAR-GARCH Models: Reconsidering the Impact of Monetary Shocks on Exchange Rates By Helmut Lütkepohl; George Milunovich
  19. Structural reforms and zero lower bound in a monetary union By Andrea Gerali; Alessandro Notarpietro; Massimiliano Pisani
  20. A dynamic network model of the unsecured interbank lending market By Francisco Blasques; Falk Bräuning; Iman van Lelyveld
  21. The road towards the establishment of the European Banking Union By Papanikolaou, Nikolaos
  22. On a tight leash: does bank organisational structure matter for macroprudential spillovers? By Danisewicz, Piotr; Reinhardt, Dennis; Sowerbutts, Rhiannon
  23. The Parade of the Bankers' New Clothes Continues: 23 Flawed Claims Debunked By Admati, Anat; Hellwig, Martin

  1. By: Engen, Eric M. (Board of Governors of the Federal Reserve System (U.S.)); Laubach, Thomas (Board of Governors of the Federal Reserve System (U.S.)); Reifschneider, David L. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools--quantitative easing and increasingly explicit and forward-leaning guidance for the future path of the federal funds rate--in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private-sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve's quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect--subtracting 1-1/4 percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions--does not occur until early 2015, while the peak inflation effect--adding 1/2 percentage point to the inflation rate--is not anticipated until early 2016.
    Keywords: Monetary policy reaction function; federal funds rate; forward guidance; large-scale asset purchases; zero lower bound
    JEL: E50
    Date: 2015–01–14
  2. By: Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis)
    Abstract: Most economic models used by central banks prior to the recent financial crisis omitted two fundamental elements: financial markets and liquidity measures. Those models therefore failed to foresee the crisis or understand the policy reaction that followed. In contrast to more orthodox models, we develop a theory in which credit markets and measures of liquidity are central. Our model emphasizes the role of collateral constraints on credit lines and the role of money in transactions, and it can be used to study the effects of alternative monetary policies during and after a financial crisis. A key insight from our approach is that a credit crisis characterized by tightened collateral constraints can cause a bout of deflation that exacerbates the constraints and reduces investment, productivity, employment and economic output. Policymakers can curb deflation and soften the recession by issuing more bonds and money, exactly as U.S. fiscal and monetary officials did in 2008. But our model also reveals an important trade-off in the aftermath of the crisis. Additional liquidity injections necessary to maintain low inflation will partially crowd out private investment and thereby slow economic recovery. The cost of curbing the recession’s depth is thus to extend its duration.
    Date: 2015–02–23
  3. By: Gonzalo De Cadenas Santiago; Alicia Garcia-Herrero; Alvaro Ortiz Vidal-Abarca
    Abstract: Portfolio flows across Emerging Markets (EMs) have been particularly volatile over the last years. Financial distress at the beginning of the crisis was followed by monetary policy reactions in developed economies and emerging countries triggering push and pull forces favourable for flow dynamics across Emerging Markets. Subsequent actions and discussion over the exit strategies of central banks in developed economies – particularly the Fed - were behind the various waves of risk-on/-off sentiment in financial markets. We propose a cross over approach (Dinamic Linear Model / Factor Augmented VAR) to disentangle the net effects of global shocks. This paper will focus on the effects of Monetary Policy in the North (more specifically, monetary policy normalization by the FED and the QE by the ECB) on cross border portfolio flows to the South (Emerging Markets) under six alternative plausible scenarios.
    Keywords: QE, tapering, emerging markets, monetary policy, porfolio flows
    JEL: C32 E32 F32 G12
    Date: 2014–10
  4. By: Rose, Andrew K. (University of California, Berkeley); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: This paper explores the relationship between inflation and the existence of a local, nominal, publicly-traded, long-maturity, domestic-currency bond market. Bond holders are exposed to capital losses through inflation and therefore represent a potential anti-inflationary force; we ask whether their influence is apparent both theoretically and empirically. We develop a simple theoretical model with heterogeneous agents where the issuance of such bonds leads to political pressure on the government to choose a lower inflation rate. We then check this prediction empirically using a panel of data, examining inflation before and after the introduction of a domestic bond market. Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without one. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal variables suggested by theory to account for the potential endogeneity of domestic bond issuance. Notably, we do not find a similar effect for short-term or foreign-currency bonds.
    Keywords: empirical; panel; long; maturity; domestic; currency; risk; fixed; effect; nominal; debt
    JEL: E52 E58
    Date: 2015–02
  5. By: Bennani, Hamza
    Abstract: Since 2009, European central bankers have supported some reforms, in order to draw roadmaps to get out of the euro debt crisis. This paper tests whether the educational and professional background of European central bankers matter for the type of reforms each of them advocated. Through a textual analysis of public speeches delivered by the European central bankers, we draw a cognitive map for each of them and, thus, of the reforms they propose as ways out of the euro debt crisis. Our results show that their occupational background is an important determinant of their respective economic reform proposals.
    Keywords: European Central Bank, Monetary Policy, Euro debt crisis, Cognitive mapping
    JEL: E42 E52 E58 H12
    Date: 2015–01
  6. By: Basu, Susanto; Bundick, Brent (Federal Reserve Bank of Kansas City)
    Abstract: At the zero lower bound, the central bank's inability to offset shocks endogenously generates volatility. In this setting, an increase in uncertainty about future shocks causes significant contractions in the economy and may lead to non-existence of an equilibrium. The form of the monetary policy rule is crucial for avoiding catastrophic outcomes. State-contingent optimal monetary and fiscal policies can attenuate this endogenous volatility by stabilizing the distribution of future outcomes. Fluctuations in uncertainty and the zero lower bound help our model match the unconditional and stochastic volatility in the recent macroeconomic data.
    Keywords: Endogenous volatility; Zero lower bound; Optimal stabilization policy
    JEL: E32 E52
    Date: 2015–01–01
  7. By: Hiroaki Sasaki; Shinya Fujita
    Abstract: This study builds a two-country Kaleckian model and investigates the effect of one country’s economic policy on both countries. In contrast to preceding studies, we consider monetary aspects as well as real aspects. Our results show that the effects on output of an increase in the nominal wage rate and in the mark-up rate differ from the results obtained from one-country Kaleckian models. Moreover, we show that the success of monetary easing in one country may depend on the other country’s policy, implying the need for policy coordination between the two countries.
    Keywords: two-country Kaleckian model; income distribution; monetary policy
    JEL: E12 E41 E52 F31 F41 F42
    Date: 2015–02
  8. By: Bundick, Brent (Federal Reserve Bank of Kansas City); Basu, Susanto
    Abstract: Can increased uncertainty about the future cause a contraction in output and its components? This paper examines the role of uncertainty shocks in a one-sector, representative-agent,dynamic, stochastic general-equilibrium model. When prices are flexible, uncertainty shocks are not capable of producing business-cycle comovements among key macroeconomic variables. With countercyclical markups through sticky prices, however, uncertainty shocks can generate fluctuations that are consistent with business cycles. Monetary policy usually plays a key role in o setting the negative impact of uncertainty shocks. If the central bank is constrained by the zero lower bound, then monetary policy can no longer perform its usual stabilizing function and higher uncertainty has even more negative e ects on the economy. We calibrate the size of uncertainty shocks using uctuations in the VIX and nd that increased uncertainty about the future may indeed have played a signi cant role in worsening the Great Recession, which is consistent with statements by policymakers, economists, and the financial press.
    Keywords: Uncertainty Shocks; Monetary Policy; Sticky-Price Models; Epstein-Zin Preferences; Zero Lower Bound on Nominal Interest Rates
    JEL: E32 E52
    Date: 2014–11–01
  9. By: Galina V. Kolev
    Abstract: The paper analyzes the sources of exchange rate movements in emerging economies in the context of monetary tapering by the Federal Reserve. A structural vector autoregression framework with a long-run restriction is used to decompose the movements of nominal ex-change rates into two components: one component driven solely by the adjustment of the real exchange rate to permanent shocks and one resulting from transitory shocks such as monetary policy measures. Imposing the restriction that temporary shocks should not affect the real exchange rate in the long run, the analysis shows that the recent depreciation of the Russian ruble and the Turkish lira is largely driven by transitory shocks, like for instance monetary policy measures. Furthermore, the response of the lira to transitory shocks is sluggish and further depreciation is possible in the next months. In Brazil and India, on the contrary, nominal exchange rate behavior is mainly driven by permanent shocks. The recent depreciation is not caused by short-lived shocks but rather by changing long-term macroeconomic fundamentals. The foreign exchange interventions of the central bank to avoid large depreciation are therefore largely misplaced, especially in Brazil. They aggravate the use of nominal exchange rate flexibility as an efficient adjustment mechanism for real exchange rate changes, i.e. changes in relative prices across borders, and efficient allocation of resources.
    Keywords: Exchange rates, emerging economies, SVAR, monetary policy
    JEL: F31 E58
    Date: 2015–02
  10. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the 2015 U.S. Monetary Policy Forum, New York City.
    Keywords: Taylor-type rule; inertial monetary policy rule; real short-term interest rate; GDP growth; r*; monetary policy normalization; long-term equilibrium real federal funds rate
    JEL: E52
    Date: 2015–02–27
  11. By: Mary M. Everett
    Abstract: Using novel data on individual euro area banks' balance sheets this paper shows that exposure to stressed European sovereigns manifested in a liquidity shock to their international funding through two channels: (i) a contraction in cross-border funding, and (ii) a contraction in US wholesale funding. The effectiveness of the ECB's unconventional monetary policy measures, in the form of the 3-year Long-Term Refinancing Operations (VLTROs), in mitigating effects of the European sovereign debt crisis on the supply of private sector credit is assessed. Controlling for banks' risk factors and credit demand, the first round of VLTROs in December 2011 is not found to have been successful in offsetting the decline in credit supply to Households and non-financial corporates. In contrast, the VLTROs in February 2012 are found to have mitigated the effect of the European sovereign debt crisis on credit supply. Moreover, a contraction in credit supply to non-financial corporates, but not households, is documented for euro area banks affected by the international liquidity shock and that drew on ECB liquidity under the VLTRO facilities.
    Keywords: European sovereign crisis, cross-border banking, sovereign debt, international transmission, non-standard measures, ECB liquidity
    JEL: G21 G15 H63
    Date: 2015–02
  12. By: Cavalieri, Duccio
    Abstract: This is a theoretical analysis of structural interdependence in monetary economics. Some recent attempts to integrate money and finance in the theory of income and expenditure are critically examined. The Sraffian dichotomic interpretation of classical political economy is refused. A version of the classical surplus approach devoid of separating connotations is sketched, where flows and stocks are consistently reconciled and net financial wealth vanishes in the aggregate. Marx’s law of value is criticized and set aside, as historically outdated by the advent of cognitive capitalism. New Consensus and New Neoclassical Synthesis macroeconomic models are criticized from an orthodox Keynesian point of view. Two further results emerge from the analysis: the illegitimacy of Marx’s asymmetrical treatment of constant and variable capital in the theory of value and the suggestion of a correct method for measuring the unit cost of real capital. Some reasons for reconsidering in this perspective the traditional approaches to monetary theory and policy are indicated.
    Keywords: monetary theory; monetary policy; fiscal policy; structural interdependence; Sraffian dichotomy; post-Keynesian economics; SFCA; MMT; MEV
    JEL: B22 E12 E44 E52 M41
    Date: 2015–02–25
  13. By: Gauti Eggertsson (Brown University); Bulat Gafarov (Pennsylvania State University); Saroj Bhatarai (Pennsylvania State University)
    Abstract: We present a signalling theory of quantitative easing in which open market operations that change the duration of outstanding nominal government debt a§ect the incentives of the central bank in determining the real interest rate. In a time consistent (Markov-perfect) equilibrium of a sticky-price model with coordinated monetary and fiscal policy, we show that shortening the duration of outstanding government debt provides an incentive to the central bank to keep short-term real interest rates low in future in order to avoid capital losses. In a liquidity trap situation then, where the current short-term nominal interest rate is up against the zero lower bound, quantitative easing can be effective to fight deflation and a negative output gap as it leads to lower real long-term interest rates by lowering future expected real short-term interest rates. We show illustrative numerical examples that suggest that the benefits of quantitative easing in a liquidity trap can be large in a way that is not fully captured by some recent empirical studies
    Date: 2014
  14. By: Kakarot-Handtke, Egmont
    Abstract: The goal of theoretical economics is to explain how the monetary economy works. The fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for Constructive Heterodoxy that the subjective axiomatic foundations have to be replaced. This amounts to a paradigm shift. Nobody can rest content with a pluralism of false theories. Based on a set of objective axioms all economic conceptions have to be reconstructed from scratch. In the following this is done for the theory of money.
    Keywords: new framework of concepts, structure-centric, Structural Law of Supply and Demand, stock of money, monetary profit, transaction unit, banking unit
    JEL: B59 E10
    Date: 2015–02–28
  15. By: Jan Kregel
    Abstract: If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally--credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.
    Keywords: Banking Principle; Bretton Woods; Creditor Countries; Debtor Countries; Emerging Market Economies; Gold Standard; International Monetary Standard; Keynes; Reparations; Schacht; Triffin
    JEL: E42 E52 F12 N44
    Date: 2015–02
  16. By: Michael Bleaney; Mo Tian; Lin Yin
    Abstract: Several de facto exchange rate regime classifications have been widely used in empirical research, but they are known to disagree with one another to a disturbing extent. We dissect the algorithms employed and argue that they can be significantly improved. We implement the improvements, and show that there is a far higher agreement rate between the modified classifications. We conclude that the current pessimism about de facto exchange rate regime classification schemes is unwarranted.
    Keywords: exchange rate regimes, trade, volatility JEL codes: F31
    Date: 2015–02
  17. By: Eijffinger, Sylvester C W; Kobielarz, Michal L.; Uras, Rasim Burak
    Abstract: The European sovereign debt crisis is characterized by the simultaneous surge in borrowing costs in the GIPS countries after 2008. We present a theory, which can account for the behavior of sovereign bond spreads in Southern Europe between 1998 and 2012. Our key theoretical argument is related to the bail-out guarantee provided by a monetary union, which endogenously varies with the number of member countries in sovereign debt trouble. We incorporate this theoretical foundation in an otherwise standard small open economy DSGE model and explain (i) the convergence of interest rates on sovereign bonds following the European monetary integration in late 1990s, and (ii) - following the heightened default risk of Greece - the sudden surge in interest rates in countries with relatively sound economic and financial fundamentals. We calibrate the model to match the behavior of the Portuguese economy over the period of 1998 to 2012.
    Keywords: bail-out; contagion; interest rate spreads; sovereign debt crisis
    JEL: F33 F34 F36 F41
    Date: 2015–03
  18. By: Helmut Lütkepohl; George Milunovich
    Abstract: Changes in residual volatility in vector autoregressive (VAR) models can be used for identifying structural shocks in a structural VAR analysis. Testable conditions are given for full identification for the case where the volatility changes can be modelled by a multivariate GARCH process. Formal statistical tests are presented for identification and their small sample properties are investigated via a Monte Carlo study. The tests are applied to investigate the validity of the identification conditions in a study of the effects of U.S. monetary policy on exchange rates. It is found that the data do not support full identification in most of the models considered, and the implied problems for the interpretation of the results are discussed.
    Keywords: Structural vector autoregression, conditional heteroskedasticity, GARCH, identification via heteroskedasticity
    JEL: C32
    Date: 2015
  19. By: Andrea Gerali (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We assess the short- and medium-term macroeconomic effects of competition-friendly reforms in the service sector when the monetary policy rate is stuck at the zero lower bound (ZLB) in a monetary union. We calibrate a large-scale multi-country multi-sector dynamic general equilibrium model to one region within the euro area, the rest of the euro area and the rest of the world. We find first, that unilateral reforms by a single country do not affect the number of periods for which the ZLB holds and have mild medium-term expansionary effects on GDP. Second, reforms simultaneously implemented in the entire euro area can favor an earlier exit from the ZLB if they have sufficiently inflationary effects, which happens when the gradual increase in the supply of goods and services is matched by a sufficiently large increase in investment, associated with higher expected levels of output. Reforms have expansionary effects because of their positive wealth effect, which more than counterbalances the recessionary substitution effect associated with higher real interest rates. If investment cannot immediately react to the reforms, then the latter has a deflationary impact and the duration of the ZLB is not reduced.
    Keywords: competition, markups, monetary policy, zero lower bound
    JEL: C51 E31 E52
    Date: 2015–01
  20. By: Francisco Blasques; Falk Bräuning; Iman van Lelyveld
    Abstract: We introduce a structural dynamic network model of the formation of lending relationships in the unsecured interbank market. Banks are subject to random liquidity shocks and can form links with potential trading partners to bilaterally Nash bargain about loan conditions. To reduce credit risk uncertainty, banks can engage in costly peer monitoring of counterparties. We estimate the structural model parameters by indirect inference using network statistics of the Dutch interbank market from 2008 to 2011. The estimated model accurately explains the high sparsity and stability of the lending network. In particular, peer monitoring and credit risk uncertainty are key factors in the formation of stable interbank lending relationships that are associated with improved credit conditions. Moreover, the estimated degree distribution of the lending network is highly skewed with a few very interconnected core banks and many peripheral banks that trade mainly with core banks. Shocks to credit risk uncertainty can lead to extended periods of low market activity, amplified by a reduction in peer monitoring. Finally, our monetary policy analysis shows that a wider interest rate corridor leads to a more active market through a direct effect on the outside options and an indirect multiplier effect by increasing banks' monitoring and search efforts.
    Keywords: Interbank liquidity; financial networks; credit risk uncertainty; peer monitoring; monetary policy; trading relationships; indirect parameter estimation
    JEL: C33 C51 E52 G01 G21
    Date: 2015–02
  21. By: Papanikolaou, Nikolaos
    Abstract: The rising delinquencies in the U.S. subprime mortgage market in 2006 and the succeeding collapse in housing prices had a considerably negative impact on the functioning of the European financial systems and the smooth operation of European economies. Indeed, in the Euro-area, what started as a financial crisis escalated to a twin crisis after being doubled by the eruption of a massive sovereign debt crisis in 2010. The lack of an established set of bank supervision and resolution strategies at the Euro-area level, the vicious circle between banks and European nation-states, the threats for the sustainability of the common currency, and the deterioration of the market conditions were the key factors which lately led to the acceleration of the steps towards the creation of a banking union in Europe. The principal aim of the European Banking Union is to shape the necessary legal and institutional framework and provide the authorities with powers and tools to deal with ailing banks in order to prevent the devastating effects that a future shock may have on the financial system, the real economy, and the society. This paper presents the formal reactions of the sovereigns and the European Central Bank to the twin crisis, and critically discusses the key problems and the inherent weaknesses which led to the establishment of a banking union for the Euro-area member states. The structure of the banking union, the various aspects of its operation, and its future prospects are also presented and discussed.
    Keywords: Eurozone; European Banking Union; bank regulation and supervision; sovereign risk
    JEL: E58 F33 F36 F39 F55 G21 G28 H63
    Date: 2015–02–28
  22. By: Danisewicz, Piotr (Lancaster University); Reinhardt, Dennis (Bank of England); Sowerbutts, Rhiannon (Bank of England)
    Abstract: This paper examines whether cross-border spillovers of macroprudential regulation depend on the organisational structure of banks’ foreign affiliates. Our analysis compares the response of foreign banks’ branches versus subsidiaries in the United Kingdom to changes in macroprudential regulations in foreign banks’ home countries. By focusing on branches and subsidiaries of the same banking group, we are able to control for all the factors affecting parent banks’ decisions regarding the lending of their foreign affiliates. We document that there are important differences between the type of regulation and the type of lending. Following a tightening of capital regulation, branches of multinational banks reduce interbank lending growth by 6 percentage points more relative to subsidiaries of the same banking group. Lending to non-banks does not exhibit such differences. A tightening in lending standards or reserve requirements at home does not have differential effects on both interbank and non-bank lending in the United Kingdom.
    Keywords: Macro prudential regulation; cross-border lending; credit supply; foreign banks organisational structure
    JEL: E51 E58 G21 G28
    Date: 2015–02–20
  23. By: Admati, Anat (Stanford University); Hellwig, Martin (Max Planck Institute for Research on Collective Goods)
    Abstract: The debate on banking regulation has been dominated by flawed and misleading claims. The title of our book The Bankers New Clothes: What's Wrong with Banking and What to Do about It (Princeton University Press, 2013, see refers to flawed claims about banking and banking regulation, and the book discusses and debunks many of them. Flawed claims are still made in the policy debate, particularly in the context of proposals that banks be funded with more equity and rely less on borrowing than current or new regulations would allow. Those who make the flawed claims do so without addressing our arguments, even when they comment on the book or on our earlier writings. Because the financial system continues to be dangerous and distorted, however, flawed claims must not win the policy debate. This document provides a brief account of claims that we have come across since the book was published in February, 2013. We provide brief responses, with references to more detailed discussions in the book and elsewhere. Nothing that we heard or read changes our conclusions or our strong policy recommendations.
    Date: 2013–06

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