nep-mon New Economics Papers
on Monetary Economics
Issue of 2017‒12‒11
27 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Determinants of Disagreement Between the FOMC and the Fed's Staff: New Insights Based on a Counterfactual Interest Rate By Hamza Bennani; Tobias Kranz; Matthias Neuenkirch
  2. Central bank swap lines and CIP deviations By Richhild Moessner; William A. Allen; Gabriele Galati; William Nelson
  3. The Continuing Validity of Monetary Policy Autonomy Under Floating Exchange Rates By Edward Nelson
  5. Central Bank Digital Currency: Motivations and Implications By Walter Engert; Ben Fung
  6. Identification of Monetary Policy Shocks with External Instrument SVAR By Kyungmin Kim
  8. Household Credit, Global Financial Cycle, and Macroprudential Policies: Credit Register Evidence from an Emerging Country By Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
  9. Non-core liabilities and monetary policy transmission in Indonesia during the post-2007 global financial crisis By Victor Pontines; Reza Y. Siregar
  10. Monetary Policy, Target Inflation and the Great Moderation: An Empirical Investigation By Qazi Haque
  11. Four essays on central banking in Latin America under balance of payments dominance By Malagón González, Jonathan
  12. Eurosystem’s asset purchases and money market rates By W. Arrata; B. Nguyen; I. Rahmouni-Rousseau; M. Vari
  13. The Optimal Level of Foreign Reserves in Macedonia By Biljana Jovanovikj; Danica Unevska Andonova
  14. Monetary policy communication: Evidence from Survey Data By Neda Popovska – Kamnar
  15. Trend Inflation and Evolving Inflation Dynamics: A Bayesian GMM Analysis of the Generalized New Keynesian Phillips Curve By Yasufumi Gemma; Takushi Kurozumi; Mototsugu Shintani
  16. A Quantitative Easing Experiment By A. Penalver; N. Hanaki; E. Akiyama; Y. Funaki; R. Ishikawa
  17. The Welfare Costs of Self-Fulfilling Bank Runs By Elena Mattana; Ettore Panetti
  18. Climate change and monetary policy: Dealing with disruption By Warwick McKibbin; Adele Morris; Augustus J. Panton; Peter J. Wilcoxen
  19. One Market, One Money – A Mistaken Argument (post factum)? By Gros, Daniel
  20. Market Structure and Monetary Non-neutrality By Mongey, Simon
  21. Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins By Heng Chen; Kim Huynh; Oz Shy
  22. The L-Shaped Phillips Curve: Theoretical Justification and Empirical Implications By Narayana R. Kocherlakota
  24. Optimal Interbank Regulation By Thomas J. Carter
  26. Economic Sectors and the Risk-taking Channel of Monetary Policy By Martha López
  27. Why are inflation forecasts sticky? Theory and application to France and Germany By F. Bec; R. Boucekkine; C. Jardet

  1. By: Hamza Bennani; Tobias Kranz; Matthias Neuenkirch
    Abstract: We examine the degree and sources of disagreement between the Federal Open Market Committee (FOMC) and the Federal Reserve’s (Fed’s) staff about the appropriate policy rate for the period 1987–2011. For that purpose, we compute a counterfactual interest rate for the Fed’s staff, based on its own Greenbook forecasts and a Taylor (1993) rule, and compare it with the actual target rate. First, we find that the FOMC behaved more hawkish (dovish) during the 1990s (during the early 2000s) compared to the suggestions of the Fed’s staff. Second, we reveal that a higher share of hawkish dissents, a higher share of voting women, a more experienced FOMC, and a higher share of members with a background in finance, the government, or the Bank staff are associated with relatively more hawkish monetary policy. In addition, the FOMC is found to prefer tighter monetary policy under a Democratic President, if there is a clear majority in the Congress, and during tranquil times.
    Keywords: Disagreement, Federal Open Market Committee, Federal Reserve Staff, Monetary Policy, Taylor Rule
    JEL: E52 E58
    Date: 2017
  2. By: Richhild Moessner; William A. Allen; Gabriele Galati; William Nelson
    Abstract: We study the use of US dollar central bank swap lines as a tool for addressing dislocations in the foreign currency swap market against the USD since the global financial crisis. We find that the use of the Federal Reserve’s USD central bank swap lines was mainly related to tensions in US money markets during times of financial crisis, and less to tensions which were confined to foreign exchange swap markets. In particular, we find that the use of USD central bank swap lines did not react significantly to the recent period of persistent deviations of covered interest parity (CIP) since 2014. These results are consistent with the view that the Federal Reserve was guided by enlightened self-interest when providing swap lines to foreign central banks, in order to reduce dislocations in US financial markets and support financial stability. In recent years foreign exchange swap markets have not functioned properly, but it appears that now that the crisis is over, the Federal Reserve and other central banks have decided against trying permanently to fill the gap left by the dysfunction in the commercial foreign exchange swap market.
    Date: 2017–08
  3. By: Edward Nelson
    Abstract: Economic research in recent years has given considerable prominence to the issue of whether a floating exchange rate provides autonomy with regard to monetary policy to a central bank whose economy is highly open. In particular, Rey (2016) has argued that inflation-targeting advanced economies lack monetary policy autonomy by pointing to results suggesting that U.S. monetary policy shocks matter for the behavior of key financial variables in these economies. In contrast, it is argued in this paper that monetary autonomy does prevail in inflation-targeting advanced economies, notwithstanding the reaction of these economies’ asset prices to U.S. monetary policy developments. The reason is that the monetary-autonomy argument, as advanced by Milton Friedman and as embedded in new open-economy models, rests on the fact that the monetary base is insulated from foreign influences under floating rates. This fact allows the home monetary authority to pursue a stabilization policy in which it has a decisive influence on nominal variables in the long run, as well as a short-run influence on real variables. The result that rest-of-world monetary policy is among the other factors affecting the short-run behavior of real variables (including real asset prices) in a small, floating-rate open economy turns out to be consistent with the traditional and appropriate concept of monetary policy autonomy under floating exchange rates. It follows that such effects of rest-of-world monetary policy on the home economy are consistent with the celebrated open-economy trilemma.
    Keywords: Monetary policy autonomy ; Trilemma ; Floating exchange rates ; Inflation targeting
    JEL: E51 E52 F41
    Date: 2017–11–27
  4. By: Eda Gülşen (Central Bank of the Republic of Turkey, Research Department, Ankara, Turkey); Erdal Özmen (Middle East Technical University, Department of Economics, Ankara, Turkey)
    Abstract: We empirically investigate the validity of the monetary policy trilemma postulation for emerging market (EME) and advanced (AE) economies under different exchange rate and monetary policy regimes before and after the recent global financial crisis (GFC). Consistent with the dilemma proposition, domestic interest rates are determined by global financial conditions and the FED rate even under floating exchange rate regimes (ERR) in the long-run. The impact of the FED rates is higher in EME than AE and EME are much more sensitive to global financial cycle under managed than floating ERR. The spillover from the FED rate substantially increases after the GFC in EME with floating ERR and AE. The results from the monetary policy reaction functions based on equilibrium correction mechanism specifications suggest that domestic interest rates respond to inflation and output gaps especially under inflation targeting (IT) in the short-run. The response to inflation gap tends to be smaller in IT AE after the GFC.
    Keywords: Exchange rate regimes, Global financial crisis, Inflation targeting, Monetary policy, Policy trilemma
    JEL: E50 E52 F30 F33 F42
    Date: 2017–11
  5. By: Walter Engert; Ben Fung
    Abstract: The emergence of digital currencies such as Bitcoin and the underlying blockchain and distribution ledger technology have attracted significant attention. These developments have raised the possibility of considerable impacts on the financial system and perhaps the wider economy. This paper addresses the question of whether a central bank should issue digital currency that could be used by the general public. It begins by discussing the possible motivations for a central bank to issue a digital currency. The paper then sets out a benchmark central bank digital currency (CBDC) with features that are similar to cash. The implications of such a digital currency are explored, focusing on central bank seigniorage, monetary policy, the banking system and financial stability, and payments. Finally, a CBDC that differs from the benchmark digital currency in a significant way is considered.
    Keywords: Bank notes, Digital Currencies, Financial services, Payment clearing and settlement systems
    JEL: E E4 E41 E42 E5
    Date: 2017
  6. By: Kyungmin Kim
    Abstract: We explore the use of external instrument SVAR to identify monetary policy shocks. We identify a forward guidance shock as the monetary shock component having zero instant impact on the policy rate. A contractionary forward guidance shock raises both future output and price level, stressing the relative importance of revealing policymakers' view on future output and price level over committing to a policy stance. We also decompose non-monetary structural shocks, and find that positive shocks to output and price level lead to monetary contraction. Since information on output and price level is revealed through both monetary and non-monetary channels, some monetary and non-monetary shocks can look alike, leading to linear dependence and violating usual instrument SVAR assumptions. We show that some of the main findings are robust to such dependence.
    Keywords: Forward guidance ; Instrument VAR ; Monetary policy
    JEL: E52 E44
    Date: 2017–11–28
  7. By: Boris Hofmann; Gert Peersman (-)
    Abstract: This study shows that, in the United States, the effects of monetary policy on credit and housing markets have become considerably stronger relative to the impact on GDP since the mid-1980s, while the effects on inflation have become weaker. Macroeconomic stabilization through monetary policy may therefore have become associated with greater fluctuations in credit and housing markets, whereas stabilizing credit and house prices may have become less costly in terms of macroeconomic volatility. These changes in the aggregate impact of monetary policy can be explained by several important changes in the monetary transmission mechanism and in the composition of macroeconomic and credit aggregates. In particular, the stronger impact of monetary policy on credit is driven by a much higher responsiveness of mortgage credit and a larger share of mortgages in total credit since the 1980s.
    Keywords: monetary policy trade-offs, monetary transmission mechanism, inflation, credit, house prices.
    JEL: E52
    Date: 2017–10
  8. By: Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
    Abstract: We analyze the effects of macroprudential policies on local bank credit cycles and interactions with international financial conditions. For identification, we exploit the comprehensive credit register containing all bank loans to individuals in Romania, a small open economy subject to external shocks, and the period 2004-2012, which covers a full boom-bust credit cycle when a wide range of macroprudential measures were deployed. Although household leverage is known to be a key driver of financial crises, to our knowledge this is the first paper that employs a household credit register to study leverage and macroprudential policies over a full economic cycle. Our results show that tighter macroprudential conditions are associated with a significant decline in household credit, with substantially stronger effects for FX loans than for local currency loans. The effects on FX loans are higher for: (i) ex-ante riskier borrowers proxied by higher debt-service-to-income ratios and (ii) banks with greater exposure to foreign funding. Moreover, tighter macroprudential policy has stronger dampening effects on FX lending when global risk appetite is high and foreign monetary policy is expansionary. Finally, quantitative effects are in general larger for borrower rather than lender macroprudential policies. Overall, the results suggest that macroprudential policies are effective in mitigating bank risk-taking in household lending over the local bank credit and global financial cycles, and therefore have important implications for policy and bank risk management.
    Keywords: macroprudential policies, global financial cycle, cross-border spillovers, household credit, bank loans
    JEL: E58 F0 F40 G21 G28 D14
    Date: 2017–12
  9. By: Victor Pontines; Reza Y. Siregar
    Abstract: The policy importance of non-core liabilities has risen to prominence in recent years with the studies of Shin and Shin (2010), Hahm, et al., (2010) and Hahm, et al., (2013) highlighting it as a useful indicator of financial procyclicality and vulnerability. In this paper, we look at non-core liabilities in relation to its role in the transmission of monetary policy, particularly by examining how the interest rate channel of monetary policy is affected by non-deposit liabilities. We analyse this issue in the context of an emerging economy experience of Indonesia, which in recent years, has seen an increased reliance of its banking sector on non-core funding. Our investigation employs available bank-level data on non-core liabilities and lending rates in Indonesia over the period October 2011 to July 2016. We find that including non-core liabilities in the estimation has an effect, relative to the baseline, of stronger overall and immediate pass-through, albeit with a more sluggish adjustment towards correction of disequilibrium in the next period. The overall effect is that non-core liabilities make the duration lengthier for the monetary policy rate to transmit to bank lending rates in Indonesia.
    Keywords: non-core liabilities, lending rates, policy rates, interest rate channel, monetary policy transmission, dynamic panel
    JEL: C33 E43 E52 G21
    Date: 2017–12
  10. By: Qazi Haque (School of Economics, University of Adelaide)
    Abstract: This paper compares the empirical fit of a Taylor rule featuring constant versus time-varying inflation target by estimating a Generalized New Keynesian model under positive trend inflation while allowing for indeterminacy. The estimation is conducted over two different periods covering the Great Inflation and the Great Moderation. We find that the rule embedding time variation in target inflation turns out to be empirically superior and determinacy prevails in both sample periods. Counterfactual simulations point toward both `good policy' and `good luck' as drivers of the Great Moderation. We find that better monetary policy, both in terms of a more active response to inflation gap and a more anchored inflation target, has resulted in the decline in inflation gap volatility and predictability. In contrast, the reduction in output growth variability is mainly explained by reduced volatility of technology shocks.
    Keywords: Monetary policy; Great Inflation; Great Moderation; Equilibrium Indeterminacy; Generalized New Keynesian Phillips curve; Taylor rules; Time-varying inflation target; Good policy; Good luck; Sequential Monte Carlo
    JEL: C11 C52 C62 E31 E32 E52 E58
    Date: 2017–11
  11. By: Malagón González, Jonathan (Tilburg University, School of Economics and Management)
    Abstract: Flexible inflation targeting was the choice of five of the seven largest Latin American economies in the late 1990s/early 2000s. This was combined with the prior choice for more open capital accounts and greater exchange rate flexibility, which had been adopted as part of the market liberalization policies spread throughout Latin America since the mid-1980s. However, most Latin American economies are characterized by balance of payments dominance: a condition in which the short-term macroeconomic dynamics is mainly determined by the external shocks that periodically hit these economies, particularly procyclical capital flows and terms of trade shocks. One of the major complications of the region is that these shocks tend to induce procyclical responses from fiscal and monetary authorities. This dissertation consists of four empirical essays that study key elements of central banking in Latin America in a context of balance of payment dominance. The first essay analyses the exchange rate policy throughout the concept of fear of floating. The second paper examines the impact of external shocks on financial stability and the role of Basel regulations on its mitigation. The third paper measures the financial spillovers of developed economies’ conventional and unconventional monetary policy over the Latin American financial markets. The last paper assesses the effectiveness and determinants of monetary policy rate under balance of payments dominance.
    Date: 2017
  12. By: W. Arrata; B. Nguyen; I. Rahmouni-Rousseau; M. Vari
    Abstract: Some Euro area money market rates have been standing below the deposit facility rate since 2015, which coincided with the start of the Eurosystem’s public sector purchase program (PSPP). In this paper, we explore empirically the interactions between the PSPP and short term secured money market rates (repo rates). We document different channels through which asset purchases may affect the various segments of the Euro area repo market. Using proprietary data from the PSPP purchases and transactions made on the repo market for specific securities (“special”), our results show that the PSPP has contributed to push down repo rate, in particular prior to January 2017. On average, purchasing 1% of a bond outstanding is associated with a decline in its repo rate of -0.78 bps.
    Keywords: specialness, repo market, asset purchases, money market.
    JEL: E52 E58 G10
    Date: 2017
  13. By: Biljana Jovanovikj (National Bank of the Republic of Macedonia); Danica Unevska Andonova (National Bank of the Republic of Macedonia)
    Abstract: During the last two decades the emerging countries have experienced an upward trend in reserve accumulation. However, high level of foreign reserve assets implies certain costs. Consequently, given the trade-off between the benefits and the costs of holding reserves, there are issues related to the adequacy of the current level of reserves. In this analysis we make an effort to assess the optimal level of the official foreign reserves in Macedonia. The estimation of the optimal level of foreign reserves is based on cost-benefit welfare model as in Jeanne and Ranciere (2011), in which reserves serve as an insurance for the economy and have two roles - to mitigate the negative effects of a capital account crisis (sudden stop) and to prevent future crisis. The model that captures the benefit of holding reserves as self-insurance assumes an exogenous probability of crisis. This basic model shows that the actual level of official reserve assets is above the level for crisis mitigation. In case when reserves are held not only for crisis mitigation purposes, but also for crisis prevention, the probability of crisis is endogenous and depends on the level of reserves. This extended model, which is more suitable for Macedonia regarding the exchange rate regime, shows optimal level of reserves that is still below, but close to the official foreign reserves in recent years.
    Keywords: optimal reserves, sudden stop crisis, Macedonia, endogenous probability of crisis
    JEL: F31 F32 F41
    Date: 2017
  14. By: Neda Popovska – Kamnar (National Bank of the Republic of Macedonia)
    Abstract: This paper summarizes the results of a Survey on Monetary policy Communication conducted among central banks in Central Eastern and South-Eastern Europe and the euro area. The main objective of this Survey was to draw evidence on the level of transparency and communication strategies of the central banks. The results of the Survey reveal that today the central banks pay much attention to the proper transparency and provide significant information about their decisions and policy making process. The overall conclusion of the Monetary policy communication Survey is that the communication and the transparency of the 15 central banks included in the Survey is on satisfactory level. Still, there is always a room for improvement, especially in the area of introducing forward guidance by the central banks and more “proactive ways” of communication with the public.
    Keywords: survey data, central banks, monetary policy, communication, transparency
    JEL: E52 E58 E66
    Date: 2017
  15. By: Yasufumi Gemma (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently Research and Statistics Department), Bank of Japan (E-mail:; Takushi Kurozumi (Director and Senior Economist, Institute for Monetary and Economic Studies (currently Monetary Affairs Department), Bank of Japan (E-mail:; Mototsugu Shintani (Professor, RCAST, University of Tokyo and Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Inflation dynamics in the U.S. and Japan are investigated by estimating a “generalized” version of the Galí and Gertler (1999) New Keynesian Phillips curve (NKPC) with Bayesian GMM. This generalized NKPC (GNKPC) differs from the original only in that, in line with the micro evidence, each period some prices remain unchanged even under non-zero trend inflation. Yet the GNKPC has features that are significantly distinct from those of the NKPC. Model selection using quasi-marginal likelihood shows that the GNKPC empirically outperforms the NKPC in both the U.S. and Japan. Moreover, it explains U.S. inflation dynamics better than a constant-trend-inflation variant of the Cogley and Sbordone (2008) GNKPC. According to our selected GNKPC, when trend inflation fell after the Great Inflation of the 1970s in the U.S., the probability of no price change rose. Consequently, the GNKPC’s slope flattened and its inflation- inertia coefficient decreased. As for Japan, when trend inflation turned slightly negative after the late 1990s (until the early 2010s), the fraction of backward-looking price setters increased; therefore, the GNKPC’s inflation-inertia coefficient increased and its slope flattened.
    Keywords: Inflation Dynamics, Trend Inflation, Generalized New Keynesian Phillips Curve, Bayesian GMM Estimation, Quasi-marginal Likelihood
    JEL: C11 C26 E31
    Date: 2017–11
  16. By: A. Penalver; N. Hanaki; E. Akiyama; Y. Funaki; R. Ishikawa
    Abstract: This paper presents experimental evidence that quantitative easing can be effective in raising bond prices even if bonds and cash are perfect substitutes and the path of interest rates is fixed. Despite knowing the fundamental value of bonds, participants in the experiment believed that bond prices would exceed this value when they knew that a central bank would buy a large fraction of the market in a quantitative easing operation. By contrast, there was no average deviation of prices from fundamentals when trading only occurred between participants themselves.
    Keywords: Quantitative Easing, Experimental asset markets.
    JEL: C90 D84 G21
    Date: 2017
  17. By: Elena Mattana; Ettore Panetti
    Abstract: We study the welfare implications of self-fulfilling bank runs and liquidity require-ments, in a neoclassical growth model where banks, facing long-lasting possible runs, can choose in any period a run-proof asset portfolio. In this framework, runs distort banks’insurance provision against idiosyncratic liquidity shocks, and liquidity requirements re-solve this distortion by forcing a credit tightening. Quantitatively, the welfare costs of self-fulfilling bank runs are equivalent to a constant consumption loss of up to 2.5 percent of U.S. GDP. Depending on fundamentals, liquidity requirements might generate small welfare gains, but also increase the welfare costs by up to 1.8 percent.
    Keywords: financial intermediation, bank runs, regulation, welfare
    JEL: E21 E44 G01 G20
    Date: 2017–11
  18. By: Warwick McKibbin; Adele Morris; Augustus J. Panton; Peter J. Wilcoxen
    Abstract: This paper explores the interaction of monetary policy and climate change as they jointly influence macroeconomic outcomes. In bringing together the literatures on climate change and monetary policy, we seek to alert policymakers in each realm to the implications of the other.
    Date: 2017–12
  19. By: Gros, Daniel
    Abstract: Why should Europe opt for monetary union? ‘One Market needs one Money'! This is, at first sight, the key argument of the influential report by the European Commission entitled “One Market, One Money”, published in 1990. But after closer examination of the report, Daniel Gros considers its rather more agnostic subtitle: “An evaluation of the potential benefits and costs of forming an economic and monetary union” and concludes that the key argument was in fact the other way round: one money would create one market. Unfortunately, the authors of 1990 did not recognise that ‘one money’ would foster huge cross-border financial flows that would one day lead to a very costly financial crisis.
    Date: 2017–02
  20. By: Mongey, Simon (Federal Reserve Bank of Minneapolis)
    Abstract: I propose an equilibrium menu cost model with a continuum of sectors, each consisting of strategically engaged firms. Compared to a model with monopolistically competitive sectors that is calibrated to the same data on good-level price flexibility, the dynamic duopoly model features a smaller inflation response to monetary shocks and output responses that are more than twice as large. The model also implies (i) four times larger welfare losses from nominal rigidities, (ii) smaller menu costs and idiosyncratic shocks are needed to match the data, (iii) a U-shaped relationship between market concentration and price flexibility, for which I find empirical support.
    Keywords: Oligopoly; Menu costs; Monetary policy; Firm dynamics
    JEL: E30 E39 E51 L11 L13
    Date: 2017–10–31
  21. By: Heng Chen; Kim Huynh; Oz Shy
    Abstract: Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction. Our novel method accounts for how much change is received in the form of banknotes and metal coins, assuming that the weight and size of coins are inconvenient to carry. We use the regression discontinuity design (RDD) approach to estimate the model using the 2013 Bank of Canada Method-of-Payments (MOP) Survey and find a significant number of cash users who switch to paying with debit or credit cards at transaction values marginally above $5 and $10. We attribute this finding to the burden of receiving coins as change associated with the currency denomination structure. Our proposed methodology is general and can be applied to other countries and institutional details.
    Keywords: Bank notes, Econometric and statistical methods
    JEL: D03 E42
    Date: 2017
  22. By: Narayana R. Kocherlakota
    Abstract: This paper has two parts. In the first part, I demonstrate that, in the absence of price and wage bounds, monetary models do not have current equilibria - and so lack predictive content - for a wide range of possible policy rules and/or beliefs about future equilibrium outcomes. This non-existence problem disappears in models in which firms face (arbitrarily loose) finite upper bounds on prices or positive lower bonds on nominal wages. In the second part, I study the properties of a class of dynamic monetary models with these kinds of bounds on prices/wages. Among other results, I show that these models imply that the Phillips curve is L-shaped, are consistent with the existence of permanently inefficiently low output (secular stagnation), and do not imply that forward guidance is surprisingly effective. I show too that economies with lower nominal wage floors have even worse equilibrium outcomes in welfare terms. It follows that models with arbitrarily low but positive nominal wage floors are not well approximated by models without wage floors.
    JEL: E10 E12 E31 E43 E52
    Date: 2017–11
  23. By: Nadav Ben Zeev (BGU)
    Keywords: Exchange rate regime; Credit supply shocks; Emerging market economies
    JEL: F41 F44
    Date: 2017
  24. By: Thomas J. Carter
    Abstract: Recent years have seen renewed interest in the regulation of interbank markets. A review of the literature in this area identifies two gaps: first, the literature has tended to make ad hoc assumptions about the interbank contract space, which makes it difficult to generate convincing policy prescriptions; second, the literature has tended to focus on ex-post interventions that kick in only after an interbank disruption has come underway (e.g., open-market operations, lender-of-last-resort interventions, bail-outs), rather than ex-ante prudential policies. In this paper, I take steps toward addressing both these gaps, namely by building a simple model for the interbank market in which banks optimally choose the form of their interbank contracts. I show that the model delivers episodes that qualitatively resemble the interbank disruptions witnessed during the financial crisis. Some important implications for policy then emerge. In particular, I show that optimal policy requires careful coordination between ex-post and ex-ante interventions, with the ex-ante component surprisingly doing most of the heavy lifting. This suggests that previous literature has underemphasized the role that ex-ante interventions have to play in optimal interbank regulation.
    Keywords: Financial stability, Financial system regulation and policies
    JEL: G01 G20
    Date: 2017
  25. By: Jamel Saadaoui
    Abstract: From the onset of the euro crisis to the Brexit vote, we have witnessed impressive reductions of current account imbalances in peripheral countries of the euro area. These reductions can be the result of either a compression of internal demand or an improvement in external competitiveness. In this paper, we compute exchange rate misalignments within the euro area to assess whether peripheral countries have managed to improve their external competitiveness. After controlling for the reduction of business cycle synchronization within the EMU, we find that peripheral countries have managed to reduce their exchange rate misalignments thanks to internal devaluations. To some extent, these favourable evolutions reflect improvements in external competitiveness. Nevertheless, these gains could only be temporary if peripheral countries do not improve their non-price competitiveness, their trade structures and their international specializations in the long run.
    Keywords: Internal Devaluation, Equilibrium Exchange Rate, External Competitiveness.
    JEL: F31 F32 F44
    Date: 2017
  26. By: Martha López (Banco de la República de Colombia)
    Abstract: The recent financial crises brought about a new string of theoretical and empirical studies about the so-called risk-taking channel of monetary policy. There is strong empirical evidence of the channel in terms of local and in terms of the international spillovers of the mechanism. In this paper we contribute to this empirical literature and enhance the range of the analysis by studying which economic sectors are more vulnerable to the channel. We use loan level micro-data for 3019 Colombian firms between 2005:1 and 2014:3. The identification technique used for our estimations is the one developed in Jimenez et al. (2014). Our results show strong evidence of a risk-taking channel for the economy as a whole and a stronger effect in the agriculture and services sectors than in the others. This results are supported in terms not only of ex ante credit risk but also in terms of ex post credit risk. The firms more affected are the less profitable and the less leveraged. Classification JEL: E44, E51, E52, G10, G20.
    Keywords: Monetary policy, credit risk, supply of credit, bank capital, financial stability.
    Date: 2017–11
  27. By: F. Bec; R. Boucekkine; C. Jardet
    Abstract: This paper proposes a theoretical model of forecasts formation which implies that in presence of information observation and forecasts communication costs, rational professional forecasters might find it optimal not to revise their forecasts continuously, or at any time. The threshold timeand state-dependence of the observation reviews and forecasts revisions implied by this model are then tested using inflation forecast updates of professional forecasters from recent Consensus Economics panel data for France and Germany. Our empirical results support the presence of both kinds of dependence, as well as their threshold-type shape. They also imply an upper bound of the optimal time between two information observations of about six months and the coexistence of both types of costs, the observation cost being about 1.5 times larger than the communication cost.
    Keywords: Forecast revision, binary choice models, information and communication costs.
    JEL: C23 D8 E31
    Date: 2017

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