nep-mon New Economics Papers
on Monetary Economics
Issue of 2018‒05‒14
28 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Central banks going long By Reis, Ricardo
  2. Money Velocity and the Natural Rate of Interest By Luca Benati
  3. Devaluation with Exchange rate Floor in a Small Open Economy By David Svacina
  4. Helicopter Ben, monetarism, the New Keynesian credit view and loanable funds By Brett Fiebinger; Marc Lavoie
  5. The Effect of News Shocks and Monetary Policy By Luca Gambetti; Dimitris Korobilis; John D. Tsoukalas; Francesco Zanetti
  6. International money supply and real estate risk premium: The case of the London office market By Alain Coen; Benoît Lefebvre; Arnaud Simon
  7. Monetary policy spillovers, global commodity prices and cooperation By Filardo, Andrew; Lombardi, Marco; Montoro, Carlos; Ferrari, Massimo
  8. Convenience yield on government bonds and unconventional monetary policy in Japanese corporate bond spreads By Takaoka, Sumiko
  9. The Politics of Disinflation By Robert Hancké; Tim Vlandas
  10. Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan By Angrick, Stefan; Nemoto, Naoko
  11. Optimal inflation target: insights from an agent-based model By Jean-Philippe Bouchaud; Stanislao Gualdi; Marco Tarzia; Francesco Zamponi
  12. The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration By Martijn Boermans; Viacheslav Keshkov
  13. The Intersection of U.S. Money Market Mutual Fund Reforms, Bank Liquidity Requirements, and the Federal Home Loan Bank System By Kenechukwu Anadu; Viktoria Baklanova
  14. Does Monetary Policy Influence Banks' Perception of Risks? By Simona Malovana; Dominika Kolcunova; Vaclav Broz
  15. Legal tender in the euro area By Siekmann, Helmut
  16. Long-Run Money Demand Redux By Luca Benati
  17. Sovereign Money Reforms and Welfare By Philippe Bacchetta; Elena Perazzi
  18. Multihorizon Currency Returns and Purchasing Power Parity By Chernov, Mikhail; Creal, Drew
  19. Daily Exchange Rate Pass-through into Micro Prices By Renzo Alvarez; Amin Shoja; Syed Uddin; Hakan Yilmazkuday
  20. The role of local currency pricing in international transmission effects of monetary and productivity shocks in an economy with vertical production linkage and firm entry By Dohwa, Kohjiro
  21. The Determinants of Price Frequency in Turkey By Yılmaz, Engin; Süslü, Bora
  22. Benefits and Risks of Central Clearing in the Repo Market By Viktoria Baklanova; Ocean Dalton; Stathis Tompaidis
  23. What Drives Money Velocity? By Luca Benati
  24. Eurozone: original flaws, present problems and challenges for the future By Marcello Minenna
  25. Interbank Contagion: An Agent-based Model Approach to Endogenously Formed Networks By Anqi Liu; Mark Paddrik; Steve Yang; Xingjia Zhang
  26. Exchange rates expectations and chaotic dynamics: A replication study By Belaire-Franch, Jorge
  27. What should the ECB "New Normal" look like ? By Christophe Blot; Jérôme Creel; Paul Hubert
  28. Reference Guide to the OFR's U.S. Money Market Fund Monitor By Viktoria Baklanova; Daniel Stemp

  1. By: Reis, Ricardo
    Abstract: Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened—the US in 1942-51 and the UK in the 1960s—and uses a model of inflation dynamics to evaluate monetary policies that rely on going long. It concludes that these policies for the most part fail to keep inflation under control. A complementary methodological contribution is to re-state the classic problem of monetary policy through interest-rate rules in a continuous-time setting where shocks follow diffusions in order to integrate the endogenous determination of inflation and the term structure of interest rates.
    Keywords: Taylor rule; yield curve; pegs; ceilings; affine models
    JEL: E31 E52 E58
    Date: 2018–03
  2. By: Luca Benati
    Abstract: Since World War I, M1 velocity has been, to a close approximation, the permanent component of the short-term nominal rate. This logically implies that, under monetary regimes which cause inflation to be I(0), permanent fluctuations in M1 velocity uniquely reflect, to a close approximation, permanent shifts in the natural rate of interest. Evidence from the Euro area and several inflation-targeting countries is compatible with this notion, with velocity fluctuations being systematically strongly correlated with a Stock and Watson (1996, 1998) estimate of trend real GDP growth. I exploit this insight to estimate the natural rate of interest for the United Kingdom and Canada under inflation targeting: In either country, the natural rate has been consistently declining since the early 1990s.
    Keywords: Money demand; Lucas critique; structural VARs; unit roots; cointegration; long-run restrictions: natural rate of interest.
    Date: 2017–06
  3. By: David Svacina (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: In recent years, central banks in the Czech Republic and Switzerland used exchange rate floor commitment to use unlimited FX interventions to keep the exchange rate above the declared floor rate to persistently devalue their currency and stimulate inflation. Central banks in other small open economies, such as Sweden and Israel, faced similar challenges and could have chosen this instrument as well. In this paper, I develop an extension to dynamic stochastic general equilibrium (DSGE) models that could be used to esimate impact of such devaluations with exchange rate floor. As an illustration, I apply the extension to models estimated for Sweden and the Czech Republic. In particular, I simulate impact of a 5 percent devaluation with the exchange rate floor used as an unconventional monetary policy instrument with interest rates at the zero lower bound. In the first year after the devaluation, the annual consumer price in inflation increases by 0.8 percent in Sweden and 1.8 percent in the Czech Republic. The long-term exchange rate pass-through to consumer prices is 40 percent and 65 percent, respectively. The increase in inflation is highly dependent on the persistent nature of the devaluation.
    Keywords: Exchange Rate Floor, Devaluation of Currency, Unconventional Monetary Policy Instrument, Dynamic Stochastic General Equilibrium Models, Exchange Rate Pass-Through
    JEL: E31 E37 E58 F41
    Date: 2018–02
  4. By: Brett Fiebinger; Marc Lavoie
    Abstract: The purpose of this paper is to examine the intellectual roots of monetary dominance; specifically, the view that fiscal policy is largely irrelevant to counter-cyclical macro stabilisation and long-run output growth. A first step towards monetary dominance was the monetarist reinterpretation of the Great Depression. In the 1990s orthodoxy replaced money supply targeting with inflation targeting while preserving monetarist results. In this monetarism without money, fiscal policy was not needed in the short-run for macro stabilisation, and in the long-run could only lead to higher inflation rates and to higher real interest rates that lowered potential output by crowding-out private investment. Expansionary fiscal policy was mostly overlooked in the early 2000s New Keynesian literature on the zero lower bound; instead, the optimism on unconventional monetary policies failed to prepare policymakers for the Global Financial Crisis. The crisis demands far-reaching changes to macro theory not least of which is a recognition that the theory of loanable funds is incapable of providing any insight into how the financial system works in practice or the long-term effects of fiscal policy.
    Keywords: quantitative easing, monetarism, bank lending channel, loanable funds
    JEL: B31 E51 E52 E58
    Date: 2018
  5. By: Luca Gambetti (Departament d’Economia i d’Historia Economica, UAB and Barcelona GSE, Spain); Dimitris Korobilis (Essex Business School, University of Essex, UK; Rimini Centre for Economic Analysis); John D. Tsoukalas (Adam Smith Business School, University of Glasgow, UK); Francesco Zanetti (Department of Economics, University of Oxford, UK)
    Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
    Keywords: News shocks, Business cycles, VAR models, DSGE models
    JEL: E20 E32 E43 E52
    Date: 2018–05
  6. By: Alain Coen (University of Quebec at Montreal, Montreal, Quebec, Canada - UQAM - Université du Québec à Montréal); Benoît Lefebvre (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique); Arnaud Simon (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The main purpose of this study is to deeply investigate the determinants of the risk premium for the Central London market between Q2-2002 and Q3-2015 using a vector autoregression (VAR) model. We shed new light on the role of central banks in the historical level of the commercial real estate risk premium. Indeed, since the global financial crisis (GFC), central banks have used unconventional monetary policies, increasing the quantity of money available in the economy and creating structural changes. Therefore, we have described the link between monetary policies and real estate using a theoretical IS/LM Mundell-Fleming framework for a small open economy with a flexible exchange rate. To empirically explore this phenomenon, we have constructed a monetary index adapted to the office market. We find that throughout the whole period (2002–2015), the vacancy rate, the employment in services, the FTSE 100, the new monetary index and the autoregressive parameter are the main determinants of the historical risk premium. However, this result hides the complex realities of different sub-periods. Finally, we study the structural changes introduced by the monetary policy using a structural VAR model and impulse-response function.
    Keywords: Real estate,Direct office market,Risk premium,Monetary policies,Structural VAR
    Date: 2018
  7. By: Filardo, Andrew (Bank for International Settlements); Lombardi, Marco (Bank for International Settlements); Montoro, Carlos (Banco Central de Reserva del Perú; Ministerio de Economia y Finanzas); Ferrari, Massimo (Università Cattolica del Sacro Cuore)
    Abstract: How do monetary policy spillovers complicate the trade-offs faced by central banks face when responding to commodity prices? This question takes on particular relevance when monetary authorities find it difficult to accurately diagnose the drivers of commodity prices. If monetary authorities misdiagnose commodity price swings as being driven primarily by external supply shocks when they are in fact driven by global demand shocks, this conventional wisdom – to look through the first-round effects of commodity price fluctuations – may no longer be sound policy advice.
    Keywords: commodity prices, monetary policy, spillovers, global economy
    JEL: E52 E61
    Date: 2018–02
  8. By: Takaoka, Sumiko
    Abstract: This paper examines the factors that contribute to credit spreads in the primary market for Japanese corporate bonds, especially when the Bank of Japan implemented unconventional monetary policy measures. The models of credit spreads based on the Treasury convenience yield hypothesis are estimated using an issue-level dataset. The results indicate that the factors to explain credit spreads changed under the unconventional monetary policy regime. Investors became less sensitive to the risk of default for issuers with different credit quality due to the unprecedented degree of monetary easing. The Japanese government’s debt-to-GDP ratio, which is a measure of the convenience yield on government bonds, is an important driver of credit spreads throughout the sample period.
    Keywords: Convenience yield, Corporate bonds, Credit spreads, Japanese government bonds, Unconventional monetary policy.
    JEL: E50 G12 G30
    Date: 2018–03–09
  9. By: Robert Hancké; Tim Vlandas
    Abstract: What explains the shift from the moderate to high inflation rates of the Golden Age of post-war capitalism to the low inflation regime of monetarism in the 1970s and 1980s? Conventional views emphasise the rise of monetarism as a new economic paradigm that convinced policy makers to delegate monetary policy to conservative and independent central banks – a view that comes in many variants, from constructivist to orthodox economics. In contrast to these arguments, we introduce electoral and party politics into the debate. This paper models and examines the shifts in the inflationary preferences of the median voter and their translation into party politics and economic policies. As the median voter accumulates nominal assets against a background of de facto and de jure increasing job security and rising wages, her preferences on macro-economic policies shift from concerns about employment-friendly to inflation-averse policies. Social democratic parties, who are pivotal players in this regard because of their ‘natural’ preference for high employment over low inflation, are thus forced to adopt antiinflation policies as well to remain electorally viable. We show that the employment situation of the average worker improved in every respect during the 1960s and 1970s, that most of the population became inflation averse during the 1970s and 1980s, and that social democratic parties were forced to adopt more economically orthodox party manifestos. We then analyse the shift to a low inflation regime in a series of country case studies.
    Keywords: inflation, Western Europe, Monetarism, Keynesianism, electoral politics
    Date: 2017–12
  10. By: Angrick, Stefan (Asian Development Bank Institute); Nemoto, Naoko (Asian Development Bank Institute)
    Abstract: We provide an overview of the operational implementation of negative interest rates in Europe and Japan, drawing attention to the fact that there is precedent for negative policy rates and negative money market rates. We then address conceptual issues and summarize measures which define negative interest rate policies. Based on detailed institutional analyses and an examination of the interaction of negative interest rate policies with balance sheet policies, we argue that there is substantial heterogeneity in the purpose, design, and operational specificities of negative interest rate policies across economies, with significant consequences for effective money market rates, private sector funding conditions, and expectations. Finally, summarizing transmission channels of negative rates to the real economy and their potential benefits and risks, we call attention to potential adverse effects resulting from the interaction of negative interest rate policies with tighter liquidity and capital standards adopted since the Global Financial Crisis.
    Keywords: central banking; negative interest rate policies; negative policy rates; monetary policy transmission; monetary policy effectiveness; regulation
    JEL: E50 E52 E58
    Date: 2017–05–23
  11. By: Jean-Philippe Bouchaud (CFM - Capital Fund Management - Capital Fund Management); Stanislao Gualdi (CFM - Capital Fund Management - Capital Fund Management); Marco Tarzia (LPTMC - Laboratoire de Physique Théorique de la Matière Condensée - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique); Francesco Zamponi (LPTENS - Laboratoire de Physique Théorique de l'ENS - ENS Paris - École normale supérieure - Paris - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Which level of inflation should Central Banks be targeting? The authors investigate this issue in the context of a simplified Agent Based Model of the economy. Depending on the value of the parameters that describe the behaviour of agents (in particular inflation anticipations), they find a rich variety of behaviour at the macro-level. Without any active monetary policy, our ABM economy can be in a high inflation/high output state, or in a low inflation/low output state. Hyper-inflation, deflation and " business cycles " between coexisting states are also found. The authors then introduce a Central Bank with a Taylor rule-based inflation target, and study the resulting aggregate variables. The main result is that too-low inflation targets are in general detrimental to a CB-monitored economy. One symptom is a persistent under-realization of inflation, perhaps similar to the current macroeconomic situation. Higher inflation targets are found to improve both unemployment and negative interest rate episodes. The results are compared with the predictions of the standard DSGE model.
    Keywords: Taylor rule,Agent based models,monetary policy,inflation target
    Date: 2018
  12. By: Martijn Boermans; Viacheslav Keshkov
    Abstract: This study investigates the impact of the Eurosystem's Public Sector Purchase Programme (PSPP) on the micro market structure of sovereign bonds. In particular, we analyze how the PSPP affected the ownership concentration of PSPP-eligible bonds. In line with portfolio rebalancing models we hypothesize that the entry of relatively new and dominant investor will unevenly displace certain investors who are willing to rebalance their portfolios, thus reducing the dispersion of holdings in the market. Using detailed security-by-security holdings data, we estimate a difference-in-differences model with a matched control group. We find that the announcement of the PSPP did not affect the ownership concentration of sovereign bonds. However, during the implementation phase the asset purchases increased the ownership concentration of the eligible sovereign bonds relative to the control group, potentially due to asymmetric portfolio rebalancing. We argue that quantitative easing had market distortionary effects and our results may explain the growing concerns for bond scarcity, market liquidity dry-ups and price spikes in the European sovereign bond market.
    Keywords: quantitative easing; portfolio rebalancing; market concentration; ECB; PSPP; securities holdings statistics; unconventional monetary policy
    JEL: G11 E52 E58
    Date: 2018–04
  13. By: Kenechukwu Anadu (Federal Reserve Bank of Boston); Viktoria Baklanova (Office of Financial Research)
    Abstract: The most recent changes to money market fund regulations have had a strong impact on the money fund industry. In the months leading up to the compliance date of the core provisions of the amended regulations, assets in prime money market funds declined significantly, while those in government funds increased contemporaneously. This reallocation from prime to government funds has contributed to the latter's increased demand for debt issued by the U.S. government and government-sponsored enterprises. The Federal Home Loan Bank (FHLBank) System played a key role in meeting this heightened demand for U.S. government-related assets with increased issuance of short-term debt. The FHLBank System uses the funding obtained from money market funds to provide general liquidity to its members, including the largest U.S. banks. Large U.S. banks' increased borrowings from the FHLBank System are motivated, in large part, by other post-crisis regulations, specifically the liquidity coverage ratio (LCR). The intersection of money market mutual fund reforms and the LCR have contributed to the FHLBanks' increased reliance on short-term funding to finance relatively longer-term assets, primarily collateralized loans to its largest members. This funding model could be vulnerable to "runs" and impact financial markets and financial institutions in ways that are difficult to predict. While a funding run seems unlikely, it is often the violation of commonly held conventions that tend to pose financial stability risks. Indeed, runs on leveraged financial intermediaries engaged in maturity transformation have produced systemic risks issues in the past and are worthy of investigation and continuous monitoring.
    Keywords: Federal Home Loan Banks, liquidity coverage ratio, money market mutual funds, short-term funding markets, systemic risk
    Date: 2017–10–31
  14. By: Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Dominika Kolcunova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Vaclav Broz (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)
    Abstract: This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.
    Keywords: Banks, financial stability, internal ratings-based approach, risk-taking channel
    JEL: E52 E58 G21 G28
    Date: 2018–01
  15. By: Siekmann, Helmut
    Abstract: With the increasing pressure to abolish cash and the moves to restrict its use, the regulation of legal tender in the primary law of the EU has gained enhanced attention. The core provision is Article 128 TFEU which contains the rules on the issue of banknotes and coins. The author analyzes the terms currency, money, cash, and legal tender in a legal context.
    Date: 2018
  16. By: Luca Benati
    Abstract: We explore the long-run demand for M1 based on a dataset comprising 32 countries since 1851. We report six main findings: (1) Evidence of cointegration between velocity and the short rate is widespread. (2) Evidence of breaks or time-variation in cointegration relationships is weak to nonexistent. (3) For several low-inflation countries the data prefer the specification in the levels of velocity and the short rate originally estimated by Selden (1956) and Latané (1960). This is especially clear for the United States. (4) There is no evidence of nonlinearities at low interest rates. (5) If the data are generated by either a Selden-Latané or a semi-log specification, estimation of a log-log specification spuriously causes estimated elasticities to appear smaller at low interest rates. (6) Using the correct money demand specification has important implications for the ability to correctly estimate the welfare costs of inflation.
    Date: 2018–04
  17. By: Philippe Bacchetta; Elena Perazzi
    Abstract: A monetary reform is submitted for vote to the Swiss people in 2018. The Sovereign Money Initiative proposes that all sight deposits should be controlled by the Swiss National Bank (SNB) and that the SNB could distribute its additional resources. While a sovereign money reform would clearly a ect the structure of the banking sector, it would also have macroeconomic implications, in particular because it transfers resources from banks to the central bank. The objective of this paper is to analyze these macroeconomic implications using a simple infinite-horizon open-economy model calibrated to the Swiss economy. While we consider several policy experiments, we find that there is a key trade-o between a reduction in distortionary labor taxes and an increase in the opportunity cost of holding money. However, in the proposed Swiss reform it is this latter cost that dominates and we find that the reform unambiguously lowers welfare.
    Date: 2018–04
  18. By: Chernov, Mikhail; Creal, Drew
    Abstract: Exposures of expected future depreciation rates to the current interest rate differential violate the UIP hypothesis in a distinctive pattern that is a non-monotonic function of horizon. Conversely, forward, risk-adjusted expected depreciation rates are monotonic. We explain the two patterns by incorporating the weak form of PPP into a no-arbitrage joint model of the depreciation rate, inflation differential, domestic and foreign yield curves. Short-term departures from PPP generate the first pattern. The risk premiums for these departures generate the second pattern.
    Keywords: affine term structure model; cointegration; multiple horizons; purchasing power parity; uncovered interest parity
    JEL: F31 F47 G12 G15
    Date: 2018–04
  19. By: Renzo Alvarez (Department of Economics, Florida International University); Amin Shoja (Department of Economics, Florida International University); Syed Uddin (Department of Economics, Florida International University); Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper estimates the exchange rate pass-through (ERPT) by using good-level daily data on wholesale prices of imported agricultural products, where the identification is achieved by using daily data on the domestic inflation rate. The results of standard empirical analyses are in line with existing studies that employ lower frequencies of data by showing evidence for incomplete daily ERPT of about 5 percent. The key innovation is achieved when nonlinearities in ERPT are considered, where ERPT is doubled to about 10 percent when daily nominal exchange rate changes are above 0.55 percent, daily frequencies of price change are above 3.12 percent, and storage life of a product is above 10 weeks. Important policy implications follow.
    Keywords: Daily Agricultural Prices, Exchange Rate Pass-Through, Good-Level Analysis
    JEL: E31 F14 F31
    Date: 2018–05
  20. By: Dohwa, Kohjiro
    Abstract: In this paper, we construct a two-country model with the three factors of asymmetry in price-setting behavior between home and foreign intermediate goods firms, vertical production and trade, and endogenous entry of home and foreign final goods firms. We mainly examine the effect of asymmetric price-setting behavior on the welfare effects of monetary and productivity shocks, taking into account firm entry and exit. We show that when the ratio of home and/or foreign intermediate goods firms that set their export prices in the local currency rises, a home monetary shock has a beggar-thy-neighbor effect. In scenarios other than one where the ratios of both countries' intermediate goods firms that set their export prices in the local currency are unity, we show that the two types of home productivity shocks cause foreign welfare to deteriorate. When the ratios of both countries' intermediate goods firms that set their export prices in the local currency are unity, we show that the two types of home productivity shocks have a different effect on foreign welfare.
    Keywords: Local currency pricing, Vertical production and trade, Firm entry, Monetary shock, Productivity shocks
    JEL: F41 F42
    Date: 2018–04–24
  21. By: Yılmaz, Engin; Süslü, Bora
    Abstract: The effect of monetary and fiscal policy on the output depends on the frequency of price changes. When the prices change infrequently or prices change slowly, monetary and fiscal policy have a real effects on the output. Developed countries generally have a rigid prices but developing countries have a relatively flexible prices. This difference is originated from the reality that the developing countries have higher average inflation than the developed countries. Economic literature focuses on the micro reasons of the frequency of price changes, on the other hand, the inflation is seen the main factor which affects the frequency of price changes in the macro perspective. This study holds down the assumption that the frequency of price changes is a function of the inflation rate in the macro perspective. In addition to this, it is also focused on the direct relationships between the frequency of price changes and the macro variables which affect the inflation rate. It is revealed the effect of macro factors on the frequency of price changes in this work. It is concluded that the determinants of the frequency of price changes in the macro perspective in Turkey are the expected inflation and the exchange rate rather than output gap. It can be said that firms’ price frequency behavior directly depends on cost push factors in Turkey.
    Keywords: Price Frequency, Price Frequency Calculation, Price Rigidity
    JEL: E30 E31
    Date: 2018–04–20
  22. By: Viktoria Baklanova (Office of Financial Research); Ocean Dalton (Office of Financial Research); Stathis Tompaidis (Office of Financial Research)
    Abstract: The repurchase agreement (repo) market is a major source of short-term funding in the financial system. Many repo transactions between dealers are centrally cleared. This brief, using data from the OFR's interagency bilateral repo data collection pilot, finds economic benefits for dealers in expanding central clearing to transactions between dealers and nondealer clients, but increased risks to the central counterparty.
    Keywords: central clearing, repurchase markets, data collection pilot, central counterparties
    Date: 2017–03–09
  23. By: Luca Benati
    Abstract: Since WorldWar II, permanent interest rate shocks have driven nearly all of the fluctuations of U.S. M1 velocity, which is cointegrated with the short rate, and most of the long-horizon variation in the velocity of M2-M1. Permanent velocity shocks specific to M2-M1, on the other hand, have played a minor role. Further, counterfactual simulations show that, absent permanent interest rate shocks, M1 velocity would have been broadly flat, and fluctuations in the velocity of M2-M1 would have been more subdued than they have historically been. We show that failure to distinguish between M1 and M2-M1 causes a significant distortion of the inference, erroneously pointing towards a dominant role for M2 velocity shocks.
    Keywords: Money demand; structural VARs; unit roots; cointegration; longrun restrictions.
    Date: 2017–07
  24. By: Marcello Minenna
    Abstract: The European monetary union was born as a result of a negotiation process among the founding countries profoundly influenced by the economic and political dynamics of the '90s: the experience of the EMS, the German unification process, the desire of France to prevent the reaffirmation of German supremacy in the European continent, the need for countries like Italy to reduce the cost of servicing public debt. Despite the strong differences between the countries involved, the conviction prevailed that the German fiscal recipe could be successfully exported to neighboring States and that the centralization of monetary policy at the European Central Bank while keeping fiscal sovereignty at a national level could be achieved without trauma. The experience of the last decade shows, however, that the a monetary union with a derisory federal budget and whose central bank has exclusively an inflation target and cannot act as a lender of last resort in the Member States is endogenously predisposed to the formation of large economic-financial imbalances between the various countries and is particularly vulnerable to exogenous shocks. The reversal of the diverging dynamics still in progress -- captured by the unprecedented size of the Target 2 balances of countries such as Germany and Italy-- requires a profound rethinking of the European project in accordance with the principles of subsidiarity and of sustainable and shared development enshrined in the Treaties.
    Date: 2018–05–11
  25. By: Anqi Liu (Stevens Institute of Technology); Mark Paddrik (Office of Financial Research); Steve Yang (Stevens Institute of Technology); Xingjia Zhang (Stevens Institute of Technology)
    Abstract: The potential impact of interconnected financial institutions on interbank financial systems is a financial stability concern for central banks and regulators. A number of algorithms/methods have been developed to extrapolate latent interbank risk exposures. However, most use highly stylized network models and reconstruction methods with global optimality lending allocation approaches such as maximizing entropy or minimizing costs. This paper argues that U.S. bank lending and borrowing decisions are largely suboptimal and performance-driven. We present an agent-based model to endogenously reconstruct interbank networks based on 6,600 banks' decision rules and behaviors reflected in quarterly balance sheets. The model formulation reproduces dynamics similar to those of the 2007-09 financial crisis and shows how bank losses and failures arise from network contagion and lending market illiquidity. When calibrated to post-crisis data from 2011-14, the model shows the banking system has reduced its likelihood of bank failures through network contagion and illiquidity, given a similar stress scenario.
    Keywords: Interbank lending market, agent-based simulation, contagion risk, network topology, financial crisis
    Date: 2016–12–20
  26. By: Belaire-Franch, Jorge
    Abstract: In this paper the author analyzes the behavior of exchange rates expectations for four currencies, by considering a re-calculation and an extension of Resende and Zeidan (Expectations and chaotic dynamics: empirical evidence on exchange rates, Economics Letters, 2008). Considering Lyapunov exponent-based tests results, they are not supportive of chaos in exchange rates expectations, although the so-called 0-1 test strongly supports the chaos hypothesis.
    Keywords: deterministic chaos,exchange rates,expectations,Lyapunov exponents,0-1 test
    JEL: C12 C15
    Date: 2018
  27. By: Christophe Blot (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques)
    Date: 2017–12
  28. By: Viktoria Baklanova (Office of Financial Research); Daniel Stemp (Office of Financial Research)
    Abstract: This brief describes the U.S. Money Market Fund Monitor, an online charting tool the OFR launched today to help users take a closer look at the portfolios of U.S. money market funds. To develop the tool, the OFR analyzed more than 4 million records of data about the holdings of about 500 funds.
    Keywords: Money Market Funds, Investment Portfolio, Counterparties, Countries, Assets
    Date: 2016–07–20

This nep-mon issue is ©2018 by Bernd Hayo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.