nep-mon New Economics Papers
on Monetary Economics
Issue of 2018‒02‒19
twenty-six papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Pushing on a String: State-Owned Enterprises and Monetary Policy Transmission in China By Hongyi Chen; Ran Li; Peter Tillmann
  2. Forward Guidance and Heterogeneous Beliefs By Andrade, Philippe; Gaballo, Gaetano; Mengus, Eric; Mojon, Benoit
  3. Trade-offs between Inflation Targeting and Financial Stability Objectives: Drivers of Gains from Coordinating Monetary and Macroprudential Policies By Jessica Roldán-Peña; Mauricio Torres-Ferro; Alberto Torres
  4. The Ramsey Cooperative and Non-Cooperative Unconventional Monetary Policy By Shifu Jiang
  5. Why are inflation forecasts sticky? By Frédérique Bec; Raouf Boucekkine; Caroline Jardet
  6. Monetary Policy and the Relative Price of Durable Goods By Alessandro Cantelmo; Giovanni Melina
  7. The Policy Mix in the US and EMU: Evidence from a SVAR Analysis By António Afonso; Luís Gonçalves
  8. Does Communicating a Numerical Inflation Target Anchor Inflation Expectations? Evidence & Bond Market Implications By Bundick, Brent; Smith, Andrew Lee
  9. A Trendy Approach to UK Inflation Dynamics By Forbes, Kristin; Kirkham, Lewis; Theodoridis, Konstantinos
  10. Is the financial cycle a leading indicator of real output during expansions and contractions? A quantile analysis for Greece By Costas Karfakis; Eftychia Karfaki
  11. Internationalisation of the Rupee. By Kumar, Shekhar Hari; Patnaik, Ila
  12. Monetary Policy and Asset Price Bubbles By Christophe Blot; Paul Hubert; Fabien Labondance
  13. International Monetary Policy Spillovers: Evidence from a TVP-VAR By Nikolaos Antonakakis; David Gabauer; Rangan Gupta
  14. What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices By Mertens, Thomas M.; Williams, John C.
  15. Explaining Inflation with a Classical Dichotomy Model and Switching Monetary Regimes: Mexico 1932-2013 By Garcés Díaz Daniel
  16. Does Central Bank Transparency and Communication Affect Financial and Macroeconomic Forecasts? By Thomas Lustenberger; Enzo Rossi
  17. Managing unanchored, heterogeneous expectations and liquidity traps By Hommes, Cars H.; Lustenhouwer, Joep
  18. Financial shocks, credit spreads and the international credit channel By Cesa Bianchi, Ambrogio; Sokol, Andrej
  19. How do the Renminbi and other East Asian currencies co-move? By Keddad, Benjamin
  20. Uninsured Unemployment Risk and Optimal Monetary Policy By Edouard Challe
  21. Owner Occupied Housing in the CPI and Its Impact On Monetary Policy During Housing Booms and Busts By HILL Robert J.; STEURER Miriam; WALTL Sofie R.
  22. Monetary and fiscal policies in interaction in monetary unions By Foresti, Pasquale
  23. Monetary System of Georgia in XI-XII centuries and its Effect on Economic Activity By Abuselidze, George
  24. Sovereign stress, banking stress, and the monetary transmission mechanism in the Euro area By Holtemöller, Oliver; Scherer, Jan-Christopher
  25. The Bank of England as lender of last resort: new historical evidence from daily transactional data By Anson, Mike; Bholat, David; Kang, Miao; Thomas, Ryland
  26. The Pass-Through of Monetary Policy Rate to Lending Rates: The Role of Macro-financial Factors By Gregor, Jiri; Melecky, Martin

  1. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Ran Li (Bank for International Settlements); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: This paper studies whether monetary transmission in China is asymmetric. While researchers found an asymmetric transmission in the U.S. and other economies, China offers a specific rationale for asymmetries: the presence of state-owned enterprises (SOEs) enjoying preferential access to financing. To study the consequences of SOEs for policy transmission, we differentiate between expansionary and restrictive policy shocks and argue that SOEs should suffer less from a policy tightening and benefit more from a policy easing. Based on sector-specific macroeconomic time series and a large firm-level data set, we provide evidence of a systematic and sizable asymmetry in the transmission of monetary policy shocks in China. The nature of the asymmetry is consistent with the notion of explicit or implicit government-guarantees of SOEs and has consequences for the adjustment of aggregate variables. In contrast to other central banks, the People’s Bank of China seems to be able to “push on a string”.
    Keywords: monetary transmission, state-owned enterprises, financial system, VAR, state-dependent local projections, firm-level data
    JEL: E32 E44 G32
    Date: 2018
  2. By: Andrade, Philippe; Gaballo, Gaetano; Mengus, Eric; Mojon, Benoit
    Abstract: Central banks' announcements that future rates are expected to remain low for some time could signal either a weak macroeconomic outlook - which is bad news - or a more accommodative policy stance - which is good news. We use the Survey of Professional Forecasters to show that, when the Fed gave date-based forward guidance between 2011Q3 and 2012Q4, these two interpretations coexisted despite a consensus that rates would stay low for long. We rationalize these facts in an otherwise standard New-Keynesian model where agents: (i) are uncertain about the length of the trap, (ii) have different priors on the commitment ability of the central bank, and (iii) perceive central bank announcements of expected rates as accurate. This heterogeneity of beliefs introduces a trade-off in forward guidance policy: leveraging on the optimism of those who believe the central bank can commit comes at the cost of inducing excess pessimism in non-believers. When pessimistic views prevail, forward guidance can even be detrimental.
    Keywords: disagreement; optimal policy; signaling channel; survey forecasts.; zero lower bound
    JEL: E31 E52 E65
    Date: 2018–01
  3. By: Jessica Roldán-Peña; Mauricio Torres-Ferro; Alberto Torres
    Abstract: This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives; (2) monetary policy leaning against the wind; and (3) a case of policy coordination between monetary and macroprudential instruments. We find that, under certain circumstances, having financial stability objectives as an additional macroeconomic policy increases the volatility of inflation. We identify cases in which the tradeoffs in terms of macroeconomic volatility between policy objectives create scope for improvement when monetary and macroprudential policies are coordinated. These improvements are generally larger when financial shocks are the main driver of macroeconomic fluctuations.
    Keywords: Price and Financial Stability;Leaning Against the Wind;Monetary and Macroprudential Policy Coordination
    JEL: E44 E52 E61 G28
    Date: 2017–12
  4. By: Shifu Jiang
    Abstract: I study the Ramsey problem for three unconventional monetary policies in a twocountry model. An equity injection into financial intermediaries is the most efficient policy. Due to precautionary effects of future risk, a central bank should exit from these policies in accordance with but slower than the speed of deleveraging in the financial sector. The optimal policy is changed considerably if cross-country policy cooperation is not imposed. In this case, the unconventional interventions tend to be too strong in one country but too weak in the other. The cooperation gain is a function of policy cost. At last, I evaluate several simple rules and find that the rule responding to gaps in asset prices mimics the optimal policy very well.
    JEL: E44 E58 F41 F42 C63
    Date: 2017–12
  5. By: Frédérique Bec (Thema; University of Cergy-Pontoise;CREST); Raouf Boucekkine (Aix-Marseille University; CNRS; EHESS; Centrale Marseille; AMSE and IMéra); Caroline Jardet (Banque de France, DGEI-DCPM)
    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 time- and 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 co-existence 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: 2017–11–07
  6. By: Alessandro Cantelmo; Giovanni Melina
    Abstract: In a SVAR model of the US, the response of the relative price of durables to a monetary contraction is either flat or mildly positive. It significantly falls only if narrowly defined as the ratio between new-house and nondurables prices. These findings are rationalized via the estimation of a two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as nondurables, leading to a flat relative price response to a monetary shock. Conversely, house prices are estimated to be almost flexible. Such results survive several robustness checks and a three-sector extension of the NK model. These findings have implications for building two-sector NK models with durable and nondurable goods, and for the conduct of monetary policy.
    Keywords: Monetary policy;durables, nondurables, price stickiness, relative price, Monetary Policy (Targets, Instruments, and Effects)
    Date: 2017–12–22
  7. By: António Afonso; Luís Gonçalves
    Abstract: We use a SVAR approach to the effects of fiscal and monetary policies, as well as their interactions (policy mix) for the US and the Euro Area (EMU). Overall, our results show that these two cases are different from each other. First, while in the case of the US there is evidence of Keynesian monetary policy, the same is not true in the case of the EMU. Second, considering the effects of the global economic and financial crisis, there is evidence of non-Keynesian fiscal policy in the case of the EMU (expansionary fiscal consolidation), while it does not hold in the case of the US. Third, there is evidence supporting the traditional inverse relationship between monetary policy interest rates and inflation in the case of the US, whereas in the case of the EMU there is a price puzzle (frequent in SVAR studies). Fourth, the baseline model seems to be robust in the case of the US, when considering the effects of the economic and financial crisis 2007-2009, while the opposite holds in the case of the EMU. However, in both cases, the policies seem to act as complements. Another similarity appears when analysing the relationship between public spending and taxation, where there is evidence supporting a fiscal retrenchment.
    Keywords: Fiscal Policy, Monetary Policy, Crisis, Unconventional Monetary Policy, US, EMU
    JEL: E52 E61 E62 E63 H50 H60
    Date: 2018–02
  8. By: Bundick, Brent (Federal Reserve Bank of Kansas City); Smith, Andrew Lee (Federal Reserve Bank of Kansas City)
    Abstract: High-frequency empirical evidence suggests that inflation expectations in the United States became better anchored after the Federal Reserve began communicating a numerical inflation target. Using an event-study approach, we find that forward measures of inflation compensation became unresponsive to news about current inflation after the adoption of an explicit inflation target. In contrast, we find that forward measures of nominal compensation in Japan continued to drift with news about current inflation, even after the Bank of Japan adopted a numerical inflation target. These empirical findings have implications for the term structure of interest rates in the United States. In a calibrated macro-finance model, we show that the apparent anchoring of inflation expectations implies lower term premiums in longer-term bond yields and decreases the slope of the yield curve.
    Keywords: Monetary Policy; Inflation; Structural Breaks; Term Structure of Interest Rates
    JEL: E31 E52 E58
    Date: 2018–01–01
  9. By: Forbes, Kristin; Kirkham, Lewis; Theodoridis, Konstantinos
    Abstract: This paper uses a "trendy" approach to understand UK inflation dynamics. It focuses on the time series to isolate a low-frequency and slow moving component of inflation (the trend) from deviations around this trend. We find that this slow-moving trend explains a substantial share of UK inflation dynamics. International prices are significantly correlated with the short-term cyclical movements in inflation around its trend, and the exchange rate is significantly correlated with movements in the slow-moving, persistent trend. Other variables emphasized in standard inflation models-such as slack and inflation expectations-may also play some role, but their significance varies and the magnitude of their effects is substantially smaller than for commodity prices and the exchange rate. These results highlight the sensitivity of UK inflation dynamics to events in the rest of the world. They also provide guidance on when deviations of inflation from target are more likely to be temporary, and when (and how quickly) a monetary policy response is appropriate.
    Keywords: Exchange rate; inflation; Inflation expectations; monetary policy; Phillips curve; slack; UCSV; UK
    JEL: E31 E5
    Date: 2018–01
  10. By: Costas Karfakis (Department of Economics, University of Macedonia); Eftychia Karfaki (Department of Economics, University of Macedonia)
    Abstract: This paper examines the relationship between the financial cycle and real output in Greece. The quantile analysis indicates that the financial cycle is a leading indicator of real output in the upper and lower tails of its conditional distribution, given the presence of other explanatory variables. In addition, in the lower quantile, the real output is driven by changes in perceptions about the performance of the Greek economy. Thus, a rise in the financial cycle along with positive expectations of the private sector about the future prospects of the real economy seems to represent the main driving forces of the Greek economy out of the current depression.
    Keywords: Financial cycle, real output, quantile analysis, Granger causality test.
    JEL: C22 E32 E51 E52 F41
    Date: 2018–02
  11. By: Kumar, Shekhar Hari (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy)
    Abstract: The Indian Rupee currently accounts for approximately 1% of global foreign exchange turnover. It has a smaller market size across most trading instruments when compared to the top 8 emerging market currencies. In this paper, we evaluate the current status of the Indian Rupee as an international currency using the Chinn and Frankel (2008) framework, and explore the possibility of future Indian Rupee internationalisation. We find that the Indian Rupee has a negligible role as an official sector currency. It has some use as a reserve currency in its economic sphere of influence, but no role as an anchor or intervention currency. Private actor adoption of the Indian Rupee is much larger and more diverse than the official sector. However, this role is mostly restricted to financial flows and portfolio investment. In terms of trade invoicing and settlements in the private sector, the Indian Rupee plays a limited role due to concerns of convertibility and risk management. Given the current path of exchange control and capital account liberalisation, we anticipate gradual internationalisation of the Indian Rupee due to regional competition from the Renminbi.
    Date: 2018–02
  12. By: Christophe Blot; Paul Hubert; Fabien Labondance
    Abstract: This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the “leaning against the wind†policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.
    Keywords: Booms and busts, Mispricing, Price deviations, Interest rate policy, Unconventional monetary policy, Quantitative Easing, Federal Reserve
    JEL: E44 G12 E52
    Date: 2018
  13. By: Nikolaos Antonakakis (Department of Business and Management, Webster Vienna Private University, Praterstrasse Vienna, Austria and Economics and Finance Subject Group, University of Portsmouth, Portsmouth Business School, Portsmouth, UK); David Gabauer (Department of Business and Management, Webster Vienna Private University, Praterstrasse Vienna, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: In this study, we examine the transmission of international monetary policy shocks across developed economies based on a time-varying parameter vector autoregressive (TVP-VAR) methodology. Using daily data on shadow short rates over the period of January 2, 1995 to September 22, 2017, we find the following empirical regularities. International monetary policy shocks are an important source of domestic monetary policy fluctuations. Moreover, the magnitude of international monetary policy spillovers behaves heterogeneously overtime, with peaks reached during the “Great Recession”. In addition, the dominant transmitters of international monetary policy shocks are the Euro Area and the US, while Japan and the UK are the dominant receivers of international monetary policy shocks. Interestingly enough, international monetary policy shocks originating from the US are the largest during the zero lower bound and the related unconventional monetary policy actions era, indicating potential gains from monetary policy coordination.
    Keywords: Monetary policy spillovers, Dynamic connectedness, TVP-VAR
    JEL: C32 C50 E52
    Date: 2018–01
  14. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: This paper analyzes the effects of the lower bound for interest rates on the distributions of expectations for future inflation and interest rates. We use a stylized model economy where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the “target equilibrium,” policy is unconstrained most or all of the time, whereas in the “liquidity trap equilibrium,” policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural rate of interest leads to forecast densities consistent with the theoretical model. We develop a lower bound indicator that captures the effects of the lower bound on the distribution of interest rates. Qualitatively, we find that evidence is largely consistent with the theoretical predictions in the target equilibrium and find no evidence in favor of the liquidity trap equilibrium. Quantitatively, while the lower bound has a sizable effect on the distribution of future interest rates, its impact on forecast densities for inflation is relatively modest.
    JEL: E52
    Date: 2018–01–18
  15. By: Garcés Díaz Daniel
    Abstract: This paper applies a novel approach to study the impact of different shocks on the price level. It uses a classical dichotomy model with monetary policy regime shifts at known dates. First, there was a regime dominated by money, afterwards a regime driven by the exchange rate and a third one with inflation targeting. The result is a CVAR with constant long-run parameters but regime-dependent adjustment coefficients. This overcomes the challenge of explaining, within a single theoretical framework, inflation dynamics in Mexico since the country abandoned the gold standard. The model encompasses known results, offers new insights and clarifies decades-old debates on key aspects of the inflationary process such as inertia, the role of money, the exchange rate pass-through and the impact profile of other variables. The model proposed here is very parsimonious, it does not require inflation lags nor dummy variables. It also displays a very good pseudo out-of-sample forecasting performance.
    Keywords: Money Velocity;Exchange Rate;Inflation;PPP;Fiscal Deficit;Cointegration;Monetary Regimes;Unbalanced Regressions
    JEL: C32 E41 E42 E52
    Date: 2017–12
  16. By: Thomas Lustenberger; Enzo Rossi (University of Basel)
    Abstract: In a large sample of countries across different geographic regions andover a long period of time, we find limited country- and variable-specific effectsof central bank transparency on forecast accuracy and their dispersionamong a large set of professional forecasts of financial and macroeconomicvariables. More communication even increases forecast errors and dispersion.
    Keywords: Central bank transparency, central bank communication, central bank independence, inflation targeting, forward guidance, macroeconomic forecasts, financial forecasts, panel data models with truncated data
    JEL: C23 C53 E37 E58 D8
    Date: 2018
  17. By: Hommes, Cars H.; Lustenhouwer, Joep
    Abstract: We study the possibility of (almost) self-fulfilling waves of pessimism and selfreinforcing liquidity traps in a New Keynesian model with heterogeneous expectations. We explicitly focus on the "anchoring" of expectations that is modeled as the range of deviations from the central bank targets (and from the rational expectation equilibrium) that agents are willing to consider. We find that when the zero lower bound on the nominal interest rate is not binding, aggressive monetary policy can prevent waves of pessimism and exclude near unit root dynamics, even when expectations are unanchored. However, as shocks bring the economy to a situation with a binding zero lower bound, there is a danger of a long lasting self-reinforcing liquidity trap that arises because of the existence of multiple steady states. It turns out that in a model where the anchoring of expectations evolves endogenously, the anchoring of expectations at the time the bad shocks hit is crucial in determining whether the economy can recover from the liquidity trap. Furthermore, a higher inflation target reduces the probability that self-reinforcing liquidity traps arise.
    Keywords: Interest Rate Rules,Liquidity Traps,Heterogeneous Expectations,Bounded Rationality,Multiple Steady States
    JEL: E52 E32 C62
    Date: 2017
  18. By: Cesa Bianchi, Ambrogio (Bank of England); Sokol, Andrej (Bank of England)
    Abstract: Recent empirical evidence on the cross-country synchronization of credit spreads in response to US monetary policy shocks has led to the notion of an ‘international credit channel’ of US monetary policy. This paper provides novel evidence on the existence of an international credit channel for the transmission of US financial shocks across borders, and compares their impact to US monetary policy shocks. We identify monetary policy and financial shocks by combining the external instruments approach with sign restrictions in a two-country SVAR for the United States and the United Kingdom. Adverse US financial shocks trigger a sharp and persistent contraction in the US economy, and an increase in US credit spreads. Crucially, this tightening in US credit conditions is quickly transmitted internationally, leading to an increase in credit spreads and a slowdown in economic activity in the United Kingdom. Unlike financial shocks, monetary policy shocks do not seem to induce as much international co-movement. Our results are in line with general equilibrium open economy models with credit market imperfections and a high degree of financial integration.
    Keywords: SVAR; credit channel; international transmission; external instruments; sign restrictions; financial shocks; monetary policy
    JEL: C32 E44 F44
    Date: 2017–11–15
  19. By: Keddad, Benjamin
    Abstract: This paper investigates the degree and the nature of exchange rate co-movements between the Renminbi and a set of seven East Asian currencies by estimating Markov switching models with regime-dependent correlations and time-varying transition probabilities. These models have several advantages. First, exchange rate co-movements can vary across different depreciation and appreciation regimes. Second, the Renminbi can act as a transition variable that provides information regarding how the exchange rates evolve over time. After controlling for global effects and exchange market pressures, the results yield robust evidence of the Renminbi's rising role in East Asia as a significant factor in currency fluctuations. A key result is that regional currencies tend to overreact when the Renminbi depreciates and underreact when it appreciates, suggesting that East Asian economies are not willing to allow their currencies to substantially appreciate against the Chinese currency. Finally, trade transactions and competition as well as financial flows demonstrate significant explanatory power regarding currency movements against the Renminbi -- particularly during episodes of smaller exchange rate fluctuations.
    Keywords: Exchange Rates ; East Asia ; Renminbi Impact ; Markov Switching Models ; Asymmetric Co-movements ; Time-Varying Transition Probabilities
    JEL: F31 F41 F42
    Date: 2016–12
  20. By: Edouard Challe (CREST; CNRS; Ecole Polytechnique)
    Abstract: I study optimal monetary policy in a New Keynesian economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feedback to greater unemployment risk. I show this de?flationary feedback loop to be constrained-inefficient and to call for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept signifi?cantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. If implemented, the optimal policy effectively breaks the defl?ationary feedback loop and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark.
    Keywords: Unemployment risk; imperfect insurance; optimal monetary policy
    JEL: E21 E32 E52
    Date: 2017–11–01
  21. By: HILL Robert J.; STEURER Miriam; WALTL Sofie R.
    Abstract: The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. The European Union has been grappling with this problem for over a decade. We argue for measuring OOH costs using a particular version of the user cost method. We then compare the impact of eight different treatments of OOH on the consumer price index (CPI), using quantile hedonic regression. The impact on the CPI is large, and the treatment of OOH emerges as an essential prerequisite to discussions over how an inflation targeting central bank should respond to housing booms and busts.
    Keywords: Measurement of inflation; Owner occupied housing; User cost; Quantile regression; Hedonic imputation; Housing booms and busts; Inflation targeting
    JEL: C31 C43 E01 E31 E52 R31
    Date: 2018–02
  22. By: Foresti, Pasquale
    Abstract: In this paper, the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed. By adopting the concept of symbiosis as a starting point, the paper highlights the importance of uncertainty, policy makers' preferences and targets. Then, the role of commitment to policy rules and coordination is addressed. The analysis also focuses on the importance of the data considered for the generation of the policy mix. As a final step, the paper discusses the main results in the literature on public debt management in a monetary union. All the reported theoretical results are then adopted to retrieve policy and institutional implications for the European Monetary Union.
    Keywords: economic shocks; EMU; monetary and fiscal policies interaction; monetary union; policy mix
    JEL: F3 G3
    Date: 2017–02–01
  23. By: Abuselidze, George
    Abstract: This works covers peculiarities of formation of Georgian monetary system in XI-XII centuries and their effect on the international financial and economic relations. In this works we have researched the matters of formation of monetary policy of feudal age and their effect on development of foreign trade, methods of money formation important for the present world, which correct choice may provide increase of production volume and economic activity. Currency policy, geopolitical and geostrategic localization proved the country to turn into one of the economically strong economic states with high standard of life, developed system of socioeconomic relations approached to the international standards and democratic institutions.
    Keywords: History of Economy,Economic Development,Monetary Policy,Monetary System,Monetary History,Economic Activity,Europe: Pre-1913,Asia including Middle East
    JEL: E42 E52 N13 N15 O1
    Date: 2018
  24. By: Holtemöller, Oliver; Scherer, Jan-Christopher
    Abstract: In this paper, we investigate to what extend sovereign stress and banking stress have contributed to this increase in the level and in the heterogeneity of nonfinancial firms' refinancing costs in the Euro area during the European debt crisis and how they did affect the monetary transmission mechanism. Employing a large firm-level data set containing two million observations, we are able to identify the increasing effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms' financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. Moreover, we estimate both sources of stress to have significantly impaired the monetary transmission mechanism between 2005 and 2013. This finding suggests that the ECB's asset purchase programmes during that period have helped to improve firms' financing conditions in stressed countries but that monetary policy transmission was still impaired due to the elevated level of banking stress in these countries.
    Keywords: banking stress,firms' financing conditions,government bond yields,interest rate channel,monetary policy transmission,sovereign stress
    JEL: E43 E44 E52
    Date: 2018
  25. By: Anson, Mike (Bank of England); Bholat, David (Bank of England); Kang, Miao (Bank of England); Thomas, Ryland (Bank of England)
    Abstract: We use daily transactional ledger data from the Bank of England’s Archive to test whether and to what extent the Bank of England during the mid-nineteenth century adhered to Walter Bagehot’s rule that a central bank in a financial crisis should lend cash freely at a penalty rate in exchange for ‘good’ securities. The archival data we use provides granular, loan-level insight on the price and quantity of credit, and information on its distribution to particular counterparties. We find that the Bank’s behaviour during this period broadly conforms to Bagehot’s rule, though with variation across the crises of 1847, 1857 and 1866. Using a new, higher frequency series on the Bank’s balance sheet, we find that the Bank did lend freely, with the number of discounts and advances increasing during crises. These loans were typically granted at a rate above pre-crisis levels and, in 1857 and 1866, typically at a spread above Bank Rate, though we also find some instances in the daily discount ledgers where individual loans were made below Bank rate in 1847. Another set of customer ledgers shows that the securities the Bank purchased were debts owed by a geographically and industrially diverse set of debtors. And using new data on the Bank’s income and dividends, we find the Bank and its shareholders profited from lender of last resort operations. We conclude our paper by relating our findings to contemporary debates including those regarding the provision of emergency liquidity to shadow banks.
    Keywords: Bank of England; lender of last resort; financial crises; financial history; central banking
    JEL: E58 G01 G18 G20 H12
    Date: 2017–11–10
  26. By: Gregor, Jiri; Melecky, Martin
    Abstract: This paper assesses how changes in the monetary policy rate transmit to the lending rates for the consumer, mortgage, SME, and corporate loans in the Czech Republic. It further examines whether this interest rate pass-through is stable or could vary at different levels of bank competition, leverage, non-performing loans, and foreign exchange (FX) interventions. Using the ARDL modelling approach, we find a significant and complete pass-through for SME lending rates. Significant structural shifts are estimated in the pass-through for mortgage and corporate rates. These shifts can be entirely or largely explained by bank deleveraging. We do not find any stable pass through for consumer lending rates. A greater spread between government bond and monetary policy rates increases the markup for all lending rates but corporate rates. FX interventions affected most the markups for corporate and SME rates; however, in a puzzling direction.
    Keywords: Monetary Policy Rate, Bank Lending Rates, Interest Rate Pass-Through, Foreign Exchange Interventions, Time Series Analysis, Czech Republic.
    JEL: E4 E43 E44 E5
    Date: 2018–01

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